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In the recent PG&E and FirstEnergy bankruptcies, the Ninth and Sixth Circuits were faced with a difficult issue that has created confusion and uncertainty for electric utility debtors: does the Federal Energy Regulatory Commission (FERC) have jurisdiction concurrent with the bankruptcy courts to decide whether an electric utility debtor can reject power purchase agreements (PPAs) under § 365 of the Bankruptcy Code? The answer has billion-dollar implications for renewable generation companies that depend on the stability of long-term PPAs and for electric utilities, which increasingly are filing for Chapter 11 bankruptcy due to competition from alternative energy sources and natural disasters.
This Note explores this issue in four parts. First, it provides an overview of the debtor’s rejection power, the applicable energy law, and the factual and procedural contexts in which this issue recently arose. In the next two parts, it resolves doctrinal confusion by analyzing the relevant cases and identifying the heightened standard for rejection of PPAs that the circuit courts have universally endorsed. Finally, it argues that—absent FERC’s approval—rejection should not relieve electric utility debtors of their public rate obligations.
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