When Pacific Gas & Electric Company (PG&E) announced last Monday that it would file for bankruptcy, one of the first questions for many in the energy industries was what would happen to the multiple gigawatts of wind and solar projects that the California utility holds.
And while ratings agencies quickly downgraded the credit ratings for many of these projects, it turns out that some developers are not waiting for the bankruptcy court to act – or even for PG&E to officially file for bankruptcy.
Last Friday, NextEra Energy asked the Federal Energy Regulatory Commission (FERC) (filing, .pdf) to order that PG&E many not “abrogate, amend or reject in bankruptcy any of the rates, terms or conditions” of its wholesale power contracts without getting FERC’s permission.
NextEra holds long-term power purchase agreements with PG&E for four wind and four solar projects. The first of these solar contracts was signed in 2009, for the 250 MW Genesis Solar concentrating solar power plant, and the company signed a contract for the 300 MW Desert Sunlight PV project in 2010. Desert Sunlight came online in 2015.
The other two solar contracts are for 20 MW projects awarded under the Renewable Auction Mechanism (RAM) program.
The filing comes amid speculation by some in the solar industry that PG&E may try to get away with paying less for its legacy contracts for wind and solar, some of which were signed when the cost of these resources were much higher. Fitch ratings alluded to this in a recent note explaining its credit downgrade, stating that “any attempt by PG&E to reject PPA commitments would be considered significant credit deterioration as prevailing power prices, either merchant or newly contracted solar PPAs, are lower than the current legacy prices and would lead to deterioration of project’s coverage metrics.”
And while NextEra is asking FERC to use its jurisdiction under the Federal Power Act, it is not clear how this will play out. Last September a bankruptcy court in Ohio asserted its primacy over FERC in deciding the fate of contracts signed by bankrupt utility FirstEnergy.
The filing comes as PG&E reports that it has received a commitment for $5.5 billion in debtor-in-possession financing from a syndicate of banks, in advance of its filing. PG&E expects that the Chapter 11 bankruptcy process will last two years.