NextEra fires ‘warning shot’ at PG&E over power contracts

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, or FERC, 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, Fla., company said in a filing dated Jan. 18.

“This is a warning shot by NextEra,” Katie Bays, an analyst at Height Securities, said 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 — especially in the form of solar farms — was costly to develop. The question is whether a bankruptcy judge could reset those deals with prices that are more in line with current numbers.

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 Chapter 11 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, an 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. A 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 FERC’s turf.

“The legal history is mixed on FERC’s priority over bankruptcy courts,” Munro said by email.

PG&E, in a separate filing Tuesday, said FERC should reject NextEra’s request because doing as NextEra asked 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 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. They company’s debt rating has been cut to junk status. Several companies 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, an analyst at CreditSights. “I think that’s what’s going to happen behind the scenes,” he said Wednesday. “It’s a staggering amount of money.”

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