NextEra Fires a ‘Warning Shot’ at PG&E Over Power Contracts

(Bloomberg) -- NextEra Energy Inc., the world’s biggest wind and solar company, is moving to protect its contracts to sell power to PG&E Corp. before California’s largest utility owner files for bankruptcy protection.

NextEra is asking the Federal Energy Regulatory Commission to step in and rule by Friday that PG&E can’t “abrogate, amend or reject” any of the terms of its wholesale power-purchase agreements, the Juno Beach, Florida-based company said in an agency filing dated Jan. 18.

“This is a warning shot by NextEra,” Katie Bays, a Washington-based analyst at Height Securities LLC, said in an interview Wednesday. “This is two of the biggest utilities in the country going head to head.”

NextEra is seeking to “use FERC as essentially a brick wall to prevent any negotiation” around the power-purchase agreements, Bays said.

As PG&E lurches toward bankruptcy, its power contracts are emerging as a contentious issue. Many of the utility’s deals were signed years ago, when clean energy was costly to develop, especially solar farms. The question is whether a bankruptcy judge could reset those deals with prices more in line with current numbers.

NextEra Fires a ‘Warning Shot’ at PG&E Over Power Contracts

NextEra’s filing is an attempt to head off that possibility days ahead of the Jan. 29 date that PG&E has said it may formally file for bankruptcy. It’s a preemptive move that has been noted across the U.S. power industry. A who’s who of energy companies have filed comments about the issue with FERC, including BP Plc, Consolidated Edison Inc., Dominion Energy Inc., Exelon Corp. and NRG Energy Inc.

It may prove to be a thorny legal question, said Stephen Munro, a Washington-based analyst at BloombergNEF. In one case, a bankruptcy court deferred to FERC on a question about whether a power-supply contract had to be respected. Another case the following year went the other way when a bankruptcy court rejected a wholesale power contract and a federal appeals court said the decision didn’t invade the FERC’s turf.

“FERC has usually moved to protect its jurisdiction,’’ William Scherman, a partner at Gibson, Dunn & Crutcher LLP in Washington, and former general counsel at FERC, said by phone.

PG&E Rejection

PG&E, in a separate filing Tuesday, said that FERC should reject NextEra’s request because doing so would “violate both the Federal Power Act and the Bankruptcy Code and also would contravene the terms of the agreements.”

FERC spokesman Craig Cano said by email that the agency doesn’t comment on pending matters.

PG&E is facing $30 billion or more in potential liabilities for deadly wildfires that ravaged California in 2017 and 2018 and its debt rating has been cut to junk status. Several entities that sell power to PG&E have also been downgraded, including a massive solar farm owned by Warren Buffett’s energy company and NextEra’s 250-megawatt Genesis solar plant in California.

NextEra and its affiliate, NextEra Energy Partners LP, sell solar and wind power to PG&E via eight subsidiaries, according to the filing.

PG&E has agreements to buy more than $36 billion in renewable energy from various providers, according to CreditSights.

It’s possible that PG&E will ask owners of these plants to renegotiate the deals, said Andy Devries, a New York-based analyst at CreditSights. “I think that’s what’s going to happen behind the scenes,” he said in an interview Wednesday. “It’s a staggering amount of money.”

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