PG&E Corporation v. Federal Energy Regulatory Commission

• Court: United States Bankruptcy Court, N.D. California
• Decided: June 12, 2019
• Docket: 19-03003
• Status: Unknown

Opinion

EDWARD J. EMMONS, CLERK of □□ NO U.S. BANKRUPTCY COURT Ei □□□□ NORTHERN DISTRICT OF CALIFORNIA □□□ a □□ □□ □□ 1 □□□□ Signed and Filed: June 12, 2019 □□□□□□□ 2 run, J Mnf DENNIS MONTALI 5 U.S. Bankruptcy Judge 6 7 UNITED STATES BANKRUPTCY COURT 8 FOR THE NORTHERN DISTRICT OF CALIFORNIA 9]/In re ) Bankruptcy Case ) No. 19-30088-DM (Lead Case) 10 PG&E CORPORATION; PACIFIC GAS ) AND ELECTRIC COMPANY, ) Chapter 11 11 ) Debtors. ) (Jointly Administered) 12 ) PG&E CORPORATION; PACIFIC GAS ) Adv. Proc. No. 19-03003 13 AND ELECTRIC COMPANY, ) ) 14 Plaintiffs, ) ) 15|v. ) ) 16 || FEDERAL ENERGY REGULATORY ) COMMISSION, ) 17 ) Defendant. ) 18 ) 19 MEMORANDUM REGARDING CERTIFICATION FOR DIRECT APPEAL TO COURT OF APPEALS 20 21]1. INTRODUCTION 22 This Memorandum Regarding Certification For Direct Appeal To 23||Court Of Appeals is issued concurrently with the court’s 24||Certification For Direct Appeal To Court Of Appeals and is the ||}document required by Fed. R. Bankr. P. 8006(b) and (e)(1). 26 The Amended Declaratory Judgment that is the subject of this Certification was entered on June 12, 2019 (Dkt. #155). No notice 28 ]/of appeal has been filed yet. This court is the court to make and

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1 file the Certification For Direct Appeal. Fed. R. Bankr. P. 2 8006(d). 3 Fed. R. Bankr. P. 8006(e)(1) requires that the court making a 4 certification on its own shall provide in a memorandum accompanying 5 that certification the information required by Fed. R. Bankr. P. 6 8006(f)(2)(A)-(D). That subdivision provides that a request for 7 certification shall include the following: 8 (A) the facts necessary to understand the question presented; 9 (B) the question itself; 10 (C) the relief sought; 11 (D) the reasons why the direct appeal should be allowed, 12 including why a circumstance specified in 28 U.S.C. § 13 158(d)(2)(A)(i)-(iii) applies; and 14 (E) a copy of the judgment, order or decree and any related 15 opinion or memorandum. 16 Attached are copies of the court’s Memorandum Decision On 17 Action For Declaratory And Injunctive Relief (Dkt. #153) filed and 18 entered on June 7, 2019, and the Amended Declaratory Judgment (Dkt. 19 #155), filed and entered on June 12, 2019. The facts necessary to 20 understand the question presented, the question itself, the relief 21 sought, and the reasons why the appeal should be allowed follow. 22 II. FACTS NECESSARY TO UNDERSTAND THE QUESTION PRESENTED 23 On January 29, 2019, PG&E Corporation and its wholly owned 24 subsidiary, Pacific Gas and Electric Company (collectively, 25 “Debtors”) filed voluntary petitions under Chapter 11 of the 26 Bankruptcy Code in this court. They continue as debtors in 27 possession, as no trustees have been appointed. At the time of 28 their filing, their joint cases represented one of the largest 1 bankruptcies in United States history and possibly the largest of a 2 public utility. Their filings appear to have been a result of 3 devastating wildfires in Northern California in 2017 and 2018 that 4 resulted in billions of dollars of claims filed or threatened 5 against them for wrongful death, personal and property damages and 6 numerous other theories of liability. While apparently not a 7 precipitating cause of their bankruptcies, the Debtors have 8 reported in excess of forty-two billion dollars in contractual 9 obligations arising from hundreds of executory contracts to 10 purchase electric power at wholesale from others. These contracts 11 are commonly called Power Purchase Agreements (“PPAs”). 12 California law changed in the fall of 2018 to require 13 companies such as Debtors to give a fifteen-day notice to their 14 creditors prior to filing for bankruptcy relief. They gave that 15 notice on January 14, 2019. 16 On January 18 and 22, 2019, certain counterparties to PPAs 17 commenced two different but similar administrative proceedings 18 before the Federal Energy Regulatory Commission (“FERC”) to deal 19 with the imminent bankruptcy filings by Debtors. In granting their 20 two requests only days later, FERC described their requests as 21 rulings by it that if Debtors file bankruptcy, they “may not 22 abrogate, amend or reject in a bankruptcy proceeding any rates, 23 terms and conditions of its [PPAs]...without first obtaining 24 approval from {FERC}....” NextEra Energy, Inc. v. Pac. Gas and 25 Elec. Co., 166 FERC ¶ 61,049 (2019); Exelon Corp. v. Pac. Gas and 26 Elec. Co., 166 FERC ¶ 61,053 (2019). 27 28 1 On the day they filed bankruptcy, Debtors commenced this 2 adversary proceeding in this court, seeking preliminary injunctive 3 relief. They also sought a declaratory judgment as to their right 4 to reject executory PPA contracts subject to this court’s 5 authority, but not FERC’s. They petitioned FERC on February 25, 6 2019, for rehearing of its two January decisions. On May 1, 2019, 7 FERC denied rehearing. NextEra Energy, Inc. v. Pac. Gas and Elec. 8 Co., 167 FERC ¶ 61,096 (2019). 9 In denying rehearing, FERC ruled that it had “concurrent 10 jurisdiction” with this court and that its approval would be 11 required before either Debtor could reject a PPA as an executory 12 contract. 13 III. QUESTION PRESENTED 14 Does 11 U.S.C. § 365(a) (“Section 365") give the bankruptcy 15 court sole and exclusive authority to grant or deny motions to 16 reject (or assume) executory contracts involving wholesale power 17 contracts such as PPAs, or does FERC have concurrent jurisdiction 18 over such motions such that its approval is also required. 19 IV. RELIEF SOUGHT 20 Debtors sought and received, and FERC and certain PPAs 21 opposed, a declaration by this court that it had sole and exclusive 22 jurisdiction under 28 U.S.C. § 1334(a) and its authority under 23 Section 365 to grant or deny any motions described above. The 24 court assumes that on appeal Debtors will ask for that decision to 25 be affirmed; FERC and the PPAs will be expected to seek reversal. 26 V. REASONS WHY DIRECT APPEAL SHOULD BE ALLOWED 27 In certifying a direct appeal on its own motion, this court is 28 directed to state whether any of the circumstances set forth in 1 subsections (i), (ii), or (iii) of 28 U.S.C. § 158(d)(2)(A) exist. 2 See 28 U.S.C. § 158(d)(2)(B). This court believes all three exist. 3 (i) The judgment involves a question of law as to which there is no controlling decision of this 4 circuit or of the Supreme Court of the United States, or involves a matter of public importance. 5 6 The central issue of whether a bankruptcy court alone may 7 grant or deny a motion to reject a PPA as an executory contract, or 8 whether FERC has a say in the question by virtue of its claimed 9 “exclusive jurisdiction,” has not been addressed by any reported 10 Ninth Circuit decision or by the United States Supreme Court. It 11 is very much a matter of public importance. Also of great 12 importance, though not directly related to the rejection issue, are 13 billions of dollars in claims arising from the tragic wildfires 14 that occurred principally in 2017 and 2018 in Northern California 15 for which Debtors bear substantial liability. In some cases that 16 liability is a result of their direct actions and in others because 17 of their strict liability under California’s inverse condemnation 18 laws. These wildfires are the principal publically stated reasons 19 why the Debtors filed bankruptcy. 20 Debtors report that over forty-two billion dollars of 21 wholesale power contracts, via approximately four hundred separate 22 contracts, exist. It is likely that in apparently the largest 23 public utility bankruptcy ever, rejection of contracts of this 24 nature are expected. Rejection will give rise to substantial 25 damage claims because rejection constitutes a breach under current 26 bankruptcy law. How those damage claims will be treated under any 27 Chapter 11 reorganization plan will inevitably be interrelated with 28 how the wildfire related claims will be treated. On top of that 1 are the complications brought by the presence of billions of 2 dollars more of contractual liabilities that Debtors must deal with 3 in their bankruptcies. 4 If FERC has a say in the rejection decision because its 5 authority is upheld as “concurrent” with this court’s, an extremely 6 complicated situation will be rendered all the more complicated and 7 time-consuming, possibly delaying further the ultimate resolution, 8 settlement and payment of those wildfire and contractual claims. 9 (ii) The judgment involves a question of law requiring a resolution of conflicting decisions. 10 11 There are only three other decisions this court believes have 12 dealt directly with the clash between FERC and the bankruptcy court 13 over this jurisdiction struggle. This court’s recent decision is 14 the only one where the court was presented with pre-bankruptcy FERC 15 decisions that purported to apply to bankruptcies even before they 16 were filed. Once filed, of course, the FERC decisions described 17 above become concrete and actual realities confronting Debtors as 18 they attempt to reorganize. 19 The three reported cases that are similar, and in one case 20 directly in conflict are: 21 In the matter of Mirant Corp., 378 F.3d 511 (5th Cir. 2004); 22 In re Calpine Corp., 337 B.R. 27 (S.D.N.Y. 2006); and In re 23 FirstEnergy Solutions Corp. v. FERC, 2018 WL 2315916 (Bankr. N.D. 24 Ohio May 18, 2018), which is scheduled for oral argument in the 25 Sixth Circuit on June 26, 2019 (Case. No. 18-3788). 26 (iii) Immediate appeal of the judgment may advance the progress of these cases or proceedings in which the 27 appeal is taken. 28 1 The complexity of these reorganization cases and the vast 2 number of victims of massive torts and the vast number of 3 involuntary and voluntary creditors of other types, including 4 potential claims arising from PPA rejections, and the intense 5 public pressure for a speedy end to these costly bankruptcies, cry 6 out for expeditious resolution of different and substantial legal 7 claims such as these. There are so many “moving parts” in these 8 cases involving political, financial, social and legal problems, 9 that every one of them that can be addressed promptly should be 10 addressed. Debtors and their advisors need to know whether they 11 can utilize the tool of rejection that Congress gave them, subject 12 only to this court’s approval. If FERC’s approval will also be 13 necessary to facilitate their reorganization efforts, they need to 14 know sooner rather than later. The court is encouraged to help 15 with these complex challenges by expediting the appeal of this very 16 critical question. 17 ***END OF MEMORANDUM REGARDING CERTIFICATION FOR DIRECT APPEAL TO COURT OF APPEALS*** 18 19 20 21 22 23 24 25 26 27 28 EDWARD J. EMMONS, CLERK of □□ NO U.S. BANKRUPTCY COURT Sf □□□□ NORTHERN DISTRICT OF CALIFORNIA 5 te □□□ a ye 75 1 Qs Signed and Filed: June 7, 2019 □□□□□□□ 2 Mw, Lp Mnfteke DENNIS MONTALI 5 U.S. Bankruptcy Judge 6 UNITED STATES BANKRUPTCY COURT 7 NORTHERN DISTRICT OF CALIFORNIA 8 SAN FRANCISCO DIVISION 9 In re ) Bankruptcy Case 10 ) No. 19-30088-DM (Lead Case) PG&E CORPORATION; PACIFIC GAS ) 11] AND ELECTRIC COMPANY, ) Chapter 11 ) 12 Debtors. ) (Jointly Administered) a) 13 || PG&E CORPORATION; PACIFIC GAS ) Adv. Proc. No. 19-03003 AND ELECTRIC COMPANY, ) 14 ) Plaintiffs, ) 15 ) Vv. ) 16 ) FEDERAL ENERGY REGULATORY ) 17 || COMMISSION, ) ) 18 Defendant. ) a) 19 20 || MEMORANDUM DECISION ON ACTION FOR DECLARATORY AND INJUNCTIVE RELIEI 21]1. INTRODUCTION 22 In its May 1, 2019, Order Denying Rehearing (“the FERC 23 ||/Denial”, the Federal Energy Regulatory Commission (“FERC”) made twe 24|/remarkable statements. First, it said: 25 ‘Wholesale power contracts are not simple run-of-the-mill contracts between two private parties, rather, these 26 contracts, while privately negotiated, implicate the public’s interest in the orderly production of plentiful 27 supplies of electricity at just and reasonable rates 28

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1 NextEra Energy, Inc. V. Pac. Gas and Elec. Co., 167 FERC ¶ 61,096 2 (2019) at Para 13. 3 Second, it stated: 4 “To be clear, the [FERC] neither presumes to sit in judgment of rejection motions nor seeks to arrogate the 5 role of adjudicating bankruptcy proceedings”.

6 Id. at Para. 16. 7 The problem is that the first statement, while true, is 8 completely contrary to the congressionally created authority of the 9 bankruptcy court to approve rejection of nearly every kind of 10 executory contract. This includes “run-of-the-mill” types, 11 whatever that means, or the other kind, including power purchase 12 agreements and others that implicate the public’s interest, but 13 excluding certain types not relevant here. 14 The second problem is that FERC, despite its denial, has 15 chosen to interfere with bankruptcy courts’ decisions. Without 16 statutory or supreme court authority to support its position, it in 17 fact “presumes to sit in judgment” and second-guess - no overrule - 18 decisions of the bankruptcy court. 19 To deal with what it correctly identifies as unsettled law 20 with different court interpretations (one circuit court, one 21 district court and one bankruptcy court now on direct appeal to 22 another circuit court)1 FERC purports to settle the law by 23 announcing its own interpretation of bankruptcy law and decree 24 something found nowhere in the statute it interprets. This is not 25 the way that unsettled law is to be developed. That is the role of 26 27 1 See In the matter of Mirant Corp., 378 F.3d 511 (5th Cir. 2004) (“Mirant”); In re Calpine Corp., 337 B.R. 27 (S.D.N.Y. 2006) 28 (“Calpine”); In re FirstEnergy Solutions Corp. v. FERC, 2018 WL 2315916 (Bankr. N.D. Ohio May 18, 2018) (“FirstEnergy”). 1 the courts. 2 To this court, FERC’s decision was not only unauthorized, but 3 has and continues to have the effect of undermining the function of 4 the bankruptcy court in its role of ensuring that the goals and 5 purposes of bankruptcy law and policy are properly served and 6 properly executed. Despite FERC’s lip service to what it describes 7 as “concurrent jurisdiction” to carry out differing and perhaps 8 competing policies, the effect of its decision guts and renders 9 meaningless the bankruptcy court’s responsibilities in this area of 10 the law. 11 For this reason, FERC must be stopped and the division and 12 balance of power and authority of the two branches of government 13 restored. Accordingly, and for the reasons that follow, the court 14 declares FERC’s decision announcing its concurrent jurisdiction 15 unenforceable in bankruptcy and of no force and effect on the 16 parties before it. If necessary in the future it will enjoin FERC 17 from perpetuating its attempt to exercise power it wholly lacks. 18 19 II. PROCEDURAL BACKGROUND 20 On April 10, 2019, the court held a hearing on Pacific Gas and 21 Electric Company and PG&E Corporation’s (collectively, “Debtors”) 22 Motion For Preliminary Injunction (the “Motion”).2 Debtors were 23 initially seeking a preliminary injunction to prevent FERC from 24 issuing any rulings that would impact rejection of a power purchase 25 26 27 28 2 See, Debtors’ Complaint For Declaratory Judgment And Preliminary And Permanent Injunctive Relief (“Complaint”), Dkt. #1. 1 agreement (“PPA”) under Section 365 of the Bankruptcy Code3 2 (“Section 365") and to establish that the bankruptcy court has sole 3 authority over Debtors’ rights to reject any of its PPAs. 4 5 III. PREPETITION EVENTS 6 Debtors announced their intent to file for bankruptcy 7 protection on January 14, 2019. California law mandated a 15-day 8 notice period before filing.4 Various PPA Counterparties5 initiated 9 two administrative actions before FERC against Debtors. They were 10 concerned that Debtors would try to reject PPAs in their 11 forthcoming bankruptcy. As a result, they asked FERC to rule that 12 the bankruptcy court and FERC both must approve rejection of a PPA 13 for rejection to have effect. Promptly thereafter, on January 25 14 and 28, 2019, FERC ruled “that this Commission and the bankruptcy 15 courts have concurrent jurisdiction to review and address the 16 disposition of wholesale power contracts sought to be rejected 17 through bankruptcy.” NextEra Energy, Inc. V. Pac. Gas and Elec. 18 Co., 166 FERC ¶ 61,049 (2019); Exelon Corp. V. Pac. Gas and Elec. 19 Co., 166 FERC ¶ 61,053 (2019) (emphasis added). 20 Debtors had unsuccessfully opposed those attempts and promptly 21 sought relief in this adversary proceeding on the first day they 22 filed for bankruptcy, January 29, 2019. 23 Debtors listed three causes of action in the Complaint: (1) 24 3 Unless otherwise indicated, all chapter, section and rule 25 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. 26 4 Cal. Pub. Util. Code § 854.2. 27 5 For simplicity the court uses this term to describe those 28 entities who proceeded before FERC in January 2019, and those who later intervened in this adversary proceeding. 1 declaratory relief confirming the bankruptcy court’s exclusive 2 jurisdiction under Section 365; (2) enforcement of the automatic 3 stay under section 362; and (3) a preliminary and permanent 4 injunction under section 105. The second cause of action sought an 5 order stating that FERC could not proceed with any action against 6 Debtors because the automatic stay was in place. The third cause 7 of action, in case the court found the automatic stay did not 8 apply, was for injunctive relief to ensure that FERC would not take 9 any action that would harm Debtors’ rights to reject any of the 10 PPAs. 11 12 IV. POST-PETITION EVENTS 13 On February 25, 2019, Debtors sought rehearing of the two FERC 14 orders. FERC consolidated the requests for rehearing into one final 15 decision and denied the rehearings on May 1, 2019 in the FERC 16 Denial. 17 FERC and several PPA Counterparties moved to withdraw the 18 reference from this court to the district court under 28 U.S.C. § 19 157(d); Debtors opposed the motions. On March 11, 2019, the 20 district court denied the motions to withdraw the reference, 21 ruling this was a core proceeding.6 No party appealed. 22 During the April 10 hearing, the court asked why it could not 23 decide all of the issues presented by the adversary proceeding, 24 particularly because there did not appear to be any material facts 25 in dispute. Promptly after the FERC Denial, the parties filed a 26 stipulation regarding the disposition of this adversary proceeding 27 28 6 See Order Denying the Motions to Withdraw the Reference. Dkt. #135 at 4. 1 (“the May 3 Stipulation”) (Dkt. No. 149). The May 3 Stipulation 2 stated that the parties were unable to reach agreement on terms of 3 a final judgment and that the court could enter final judgment 4 based upon the current record without any further briefing, oral 5 argument, or other evidence, except for the FERC Denial. This 6 allows this court to enter final judgment at this point. 7 On May 20, 2019, the United States Supreme Court decided 8 Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. ___ 9 (2019) (“Tempnology”). The court preserved the right of a 10 trademark licensee to retain the use of the trademark following the 11 licensor’s rejection of the trademark license as an executory 12 contract. The court repeatedly stated basic principles relevant to 13 this case: 14 “Section 365 provides that ‘a debtor’s rejection of a contract “constitutes a breach of such contract.’” 15 Slip opn,. P.1. 16 “Rejection of a contract--any contract--in bankruptcy 17 operates not as a rescission but as a breach.”

18 Id., at 8. 19 “Rejection ‘constitutes a breach of [an executory] contract,’ deemed to occur ‘immediately before the date of 20 the filing of the petition’ ... Or said more pithily for current purposes, a rejection is a breach.’” 21 Id. 22 “Sections 365(a) and (g) speak broadly, to ‘any 23 executory contract[s].’” 24 Id., at 10. 25 The Bankruptcy Code includes several specific provisions 26 important in Chapter 11 reorganization cases where Congress altered 27 those principles in some way. Relevant to Tempnology are 28 intellectual property rights under Section 365(n). Other such 1 provisions are found in Section 365(h)and (i)(purchasers and lessees 2 of real property and timeshare interests). And the trustee is 3 deemed to have assumed (not rejected) obligations for maintenance of 4 capital requirements of a Federal insured depository. Section 5 365(o). 6 Outside of Section 365, rejection of collective bargaining 7 agreements are dealt with great particularity in Section 1113.7 8 From this it is clear that Congress know how to craft special 9 rules for special circumstances.8 Similarly, debtors such as 10 Debtors who are regulated by commissions or other authorities such 11 as FERC must comply with rate change approvals in order to achieve 12 confirmation of Chapter 11 plans. 11. U.S.C. § 1129(a)(6). 13 Tempnology, at a granular level, is about the rights of parties 14 to a trademark license rejected in bankruptcy.9 But on a macro 15 level, it says much about policy decisions that influence the 16 outcome here. Consider the following messages from the opinion: 17 “Today we hold that both Section 365's text and fundamental principles of bankruptcy law command the 18 ...rejection as breach approach.” 19 Slip opn, p. 8 (emphasis added). 20 21 22 7 There is also specific attention to the duties of a trustee 23 in Chapter 7 found in Sections 765 and 766 not relevant here. 24 8 See Tempnology, at Slip opn. P. 12; and Mirant at 521: “Section 365, along with other Bankruptcy Code sections, details a 25 number of specific limitations on and exception to the § 365(a) general rejection authority . . . .” 26 9 The decision aligns the rights of a counterparty to a 27 rejected trademark license to the rights of similarly situtated parties to copyright and patent licenses, etc. Upon rejection - 28 breach - they retain the option of keeping the entitlements that they bargained for, viz., the continued use of the intellectual property licensed to them. 1 And referring in contrast to a trustee’s avoidance powers that 2 can be invoked in only narrow circumstances, the court added: 3 “...unlike the power of rejection, which may be exercised for any plausible reason.” 4 Id. (emphasis added). 5 The opinion describes in detail the exceptions (referred to in 6 Mirant) added to Section 365 over several decades to address what 7 and how Congress dealt with specific problems that arose for various 8 reasons, including judicial interpretations. That includes the 1988 9 amendments to deal with Lubrizol Enterprises v. Richmond Metal 10 Finishers, 756 F.2d 1043 (4th Cir. 1985)) and protect the rights of 11 some, but not all counterparties to rejected intellectual property 12 licenses. All of them deal with various remedies to protect 13 counterparties’ rights. Nothing in the opinion has any bearing on 14 what FERC seeks in these bankruptcy cases, with one exception. That 15 is, as the supreme court pointed out: 16 “...Section 365 does not grant the debtor an exception 17 from all of the burdens that generally applicable law – whether involving contracts of trademarks – impose on property owners. 18 See 28 U.S.C. § 959(b)(requiring a trustee to manage the estate in accordance with applicable law).” 19 Slip opn, at 16. 20 21 V. DISCUSSION 22 What remains following the May 3, 2019 Stipulation is Debtors’ 23 request for a declaratory judgment pursuant to 28 U.S.C. § 2201 24 confirming the court’s exclusive jurisdiction over their right to 25 reject any PPA under Section 365, and further declaring that FERC 26 does not have “concurrent jurisdiction” to grant or deny Debtors’ 27 rejection of any of their PPAs. 28 The enforcement of the automatic stay (Complaint, Court Two) is 1 not an issue because there has been no violation of the stay. The 2 two FERC orders that prompted this adversary proceeding were in 3 response to proceedings brought against Debtors prior to 4 bankruptcy.10 Debtors have not filed a single motion to reject, so 5 there is no reason to imagine why FERC would take any action. 6 This is a matter of first impression: Is an order issued by a 7 Federal agency purporting to affect (arrogate) a decision by a 8 bankruptcy court in a future bankruptcy case binding on that 9 bankruptcy court or the parties before it? 10 Here are the different ways courts have dealt with this issue 11 in the only reported decisions. None began with FERC issuing orders 12 before the bankruptcy cases were filed as it did here. In Mirant, 13 the court of appeals adhered to the theory the court applies here. 14 Instead of applying the “business judgment” test, the court 15 remanded, stating: 16 “Therefore, upon remand, the district court should consider applying a more rigorous standard to the 17 rejection of the [subject contract]. If the district court decides that a more rigorous standard is 18 required, then it might adopt a standard by which it would authorize rejection of an executory power 19 contract only if the debtor can show that it "burdens the estate, [] that, after careful scrutiny, the 20 equities balance in favor of rejecting" that power 21 22 10 The Debtors sought rehearing by FERC after bankruptcy but without seeking relief from the automatic stay in this court. FERC 23 did not mention that in the FERC Denial nor have the parties done so here. The court expresses no opinion whether such relief should 24 have been requested. See Parker v. Bain, 68 F.3d 1131, 1135-36 (9th Cir. 1995) (“[t]his Court, as well as seven other courts of 25 appeals, has concluded that the automatic stay can operate to prevent an appeal by a debtor when the action or proceeding below 26 was against the debtor”); Ingersoll-Rand Fin. Corp. v. Miller Mining Co., Inc. 817 F.2d 1424, 1426 (9th Cir. 1987)(“section 362 27 should be read to stay all appeals in proceedings that were originally brought against the debtor, regardless of whether the 28 debtor is the appellant or appellee”). 1 contract, and that rejection of the contract would further the Chapter 11 goal of permitting the 2 successful rehabilitation of debtors.” 3 Mirant, 378 F.3d at 525 (emphasis added).11 4 The district court in Calpine accepted the argument advanced by 5 FERC here. One day before Calpine’s bankruptcy, PPA counterparties 6 (including Pacific Gas and Electric Company) commenced a proceeding 7 before FERC to obtain an order requiring Calpine to continue to 8 perform under PPAs. The district court, after several interim 9 steps, concluded that it lacked subject matter jurisdiction over the 10 motions to reject the energy contracts before it. Calpine at 39. 11 Finally, the FirstEnergy court ruled as follows: 12 “This Court holds that rejection, including the 13 attendant cessation of performance, does not intrude on FERC's jurisdiction over filed rates. If 14 Plaintiffs were solvent and simply stopped making payments ... the counterparties could not reasonably 15 argue that [the debtors] had somehow modified or abrogated those agreements; they would seek damages 16 for the breaches of those contracts .... Those breaches would lead to claims. If the Plaintiffs then 17 filed bankruptcy, the claims would become claims against the estate. Treatment of those claims are 18 governed by the Bankruptcy Code, including the confirmation of a reorganization plan in ....” 19 In re FirstEnergy Solutions Corp. (Bankr. N.D. Ohio, May 18, 2018, 20 No. 18-50757) 2018 WL 2315916, at *17.12 21 FirstEnergy discusses at length the applicability, vel non, of 22 the police power exception of Section 362(b)(4) and the merits of a 23 request for injunctive relief. While this court agrees generally 24 25 11 This court believes that this test is subsumed within the 26 good faith and business judgment tests that are implicit in rejection decisions, as in Part G, 3. 27 12 Before long the Sixth Circuit is expected to weigh in, as 28 the appeal is scheduled for oral argument there on June 26, 2019 (Case. No. 18-3788). 1 with its analysis of the court’s exclusive jurisdiction to apply 2 Section 365 without any concurrent involvement by FERC, the decision 3 here in Count One is dispositive, an option not presented to that 4 court. 5 This “unsettled” law should develop this way, through judicial 6 analysis and decision, and not by fiat or decree as FERC has 7 attempted in this case.13 8 A. Case and Controversy; Standing 9 FERC and the PPA Counterparties question whether there is a 10 pending case or controversy and question Debtors’ standing. They 11 ask that this adversary proceeding be dismissed. 12 To establish standing, a plaintiff must establish injury, 13 causation and redressability. Injury requires a plaintiff to show 14 that it 15 “Has sustained or is immediately in danger of sustaining some direct injury as the result of the 16 challenged official conduct and the injury or threat of injury must be both real and immediate, not 17 conjectural or hypothetical.” 18 City of Los Angeles v. Lyons, 461 U.S. 95, 101-02 (1983).

19 The United States Supreme Court has ruled that “where 20 threatened action by government is concerned, we do not require a 21 plaintiff to expose himself to liability before bringing suit to 22 challenge the basis for the threat.” MedImmune, Inc. v. Genentech, 23 Inc., 549 U.S. 118, 128-29 (2007) (emphasis in original). 24 The PPA Counterparties rushed to FERC and instituted an 25 26 13 In re Boston Generating, LLC 2010 WL 4616243 (S.D.N.Y. 2010) is not on this short list because it was disposed of by consent of 27 the parties. Nor is NRG Power Marketing v. Blumenthal (In re NRG Energy, Inc.), WL 21507685, (S.D.N.Y., 2003) that involved a race- 28 for-jurisdiction dispute where FERC obtained an order for performance of a contract while a motion to reject was pending. 1 expedited proceeding before Debtors were able to file bankruptcy. 2 It was they, not Debtors, who initiated the controversy, and FERC’s 3 disposition, that has caused Debtors to need this declaratory 4 relief. 5 Here, there is a threatened injury that is certainly impending. 6 While it is true that Debtors have not yet moved to reject any PPAs, 7 they have been under pressure from various sources to move these 8 complex cases along and deal with billions of dollars of wildfire 9 claims and billions of dollars of contractual liabilities. Already 10 the court has granted in part but denied in part their request to 11 extend plan exclusivity under Section 1121(d). This has been with 12 opposition from the two official creditors’ committees and the 13 Governor of California pressing for a prompt and viable 14 reorganization. If and when either Debtor moves to reject any PPAs 15 they need to know promptly whether this court will grant or deny 16 such requests. If they are forced to seek a second and possibly 17 dispositive decision from FERC based on FERC’s stated policy goals, 18 and not just those found in the Bankruptcy Code, there could be a 19 real and significant impact on the reorganization effort and the 20 millions of Northen Californians adversely affected by it. Under 21 these circumstances there can be no doubt that Debtors have standing 22 right now to invoke this court’s authority and jurisdiction to 23 facilitate these reorganization efforts. 24 If FERC’s view prevails, it could effectively veto the court’s 25 decision to permit rejection under the business judgment test. 26 Instead, it would permit rejection only if the affected rate is no 27 longer just and reasonable and as long as the abrogation or 28 modification is necessary to protect the public 1 interest.14 This means a PPA Counterparty who is unable to persuade 2 the bankruptcy court to deny rejection, but able to persuade FERC to 3 do so, will be left with its “bankruptcy-rejected” contact (treated 4 as breached, resulting in a pre-petition claim) in place, fully 5 enforceable, the same as an assumed executory contract. In other 6 words, the reorganization goals will be replaced by FERC’s public 7 policy goals, giving the PPA Counterparty the same treatment as 8 post-petition administrative claim to be paid in full. This is a 9 quintessential controversy - the clash of two competing policies and 10 goals. 11 Ripeness is determined at the time the complaint is filed. 12 Sierra Club v. Dombeck, 161 F. Supp. 2d 1052, 1061 (D. Ariz. (2001), 13 dismissed, 55 F. App’x 411 (9th Cir. 2002). Ripeness has a 14 constitutional and prudential component. “The constitutional 15 ripeness of a declaratory judgment action depends upon whether the 16 facts alleged . . . show that there is a substantial controversy, 17 between parties having adverse legal interest, of sufficient 18 immediacy . . . warrant the issuance of a declaratory judgment.” 19 United States v. Braren, 338 F.3d 971, 975 (9th Cir. 2003). 20 Prudential ripeness requires the fitness of issues for judicial 21 decision and the hardship to the parties if the court withholds 22 consideration. Braren, 338 F.3d at 975. 23 Here, constitutional ripeness is met because there is a 24 substantial controversy between FERC and Debtors. The parties have 25 adverse legal interests that are immediate because Debtors cannot 26 proceed with rejecting contracts subject to this court’s 27 28 14 FERC Denial, Para. 13. 1 authorization under the cloud of FERC’s adverse position. 2 Accordingly, constitutional ripeness is met. 3 The first element of prudential ripeness requires the claim to 4 be primarily legal and does not require any further factual 5 development. Braren, 338 F.3d at 975. Here, the concurrent 6 jurisdiction issue with FERC needs no factual determination or 7 development. The second element of prudential ripeness focuses on 8 the hardship to the parties. Debtors face an immediate hardship 9 for the reasons stated above. 10 The requirements for prudential ripeness are met. As a result, 11 FERC’s and the PPA Counterparties’ arguments involving ripeness lack 12 merit and must fail. 13 B. Sovereign Immunity 14 FERC contends that the United States has not waived sovereign 15 immunity so the adversary proceeding should be dismissed. However, 16 Section 106(a) abrogates sovereign immunity for governmental 17 entities under several sections of the Bankruptcy Code. In re DBSI, 18 Inc., 869 F.3d 1004, 1013 (9th Cir. 2017). Section 365 is one of 19 the enumerated sections. FERC’s sovereign immunity argument lacks 20 merit. 21 C. Non-Consent to Final Judgment 22 FERC and the PPA Counterparties both declined to consent to 23 final judgment in this adversary proceeding in their respective 24 oppositions to the motion for preliminary injunction. Bankruptcy 25 courts may enter appropriate orders and judgments in core 26 proceedings. In non-core proceedings, a bankruptcy court must only 27 submit proposed findings of fact and conclusions of law to the 28 district court for de novo review. Fed. R. Bankr. P. 9033. 1 Here, the focus of the adversary proceeding is on Section 365. 2 Motions to reject are core proceedings under 28 U.S.C. § 3 157(b)(2)(A). In re Turbowind, Inc., 42 B.R. 579, 583 (Bankr. S.D. 4 Cal. 1984). The district court has ruled so here. See, also, the 5 May 1 Stipulation. This court can and will issue a final judgment 6 regardless of FERC’s and the PPA Counterparties’ non-consent. 7 For the same reason, the court will deny the PPA 8 Counterparties’ request for abstention under In re Tucson Estates, 9 912 F. 2d 1162 (9th Cir. 1990). 10 D. Judicial Estoppel 11 FERC asserts that judicial estoppel prevents the Debtors from 12 arguing that this court has exclusive jurisdiction over motions to 13 reject due to a prior case where they made arguments to the 14 contrary. The purpose of the doctrine is to protect the integrity 15 of the judicial process. The doctrine is invoked when a party makes 16 a representation to a court, that court accepts it, rules in the 17 party’s favor, and then the party makes a contrary argument on that 18 same position to the same court or a different court. 19 First, a party’s later position must be clearly inconsistent with its earlier position. Second, courts 20 regularly inquire whether the party has succeeded in persuading a court to accept that party’s earlier 21 position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception 22 that either the first or the second court was misled. A third consideration is whether the part seeking to assert 23 an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not 24 estopped. 25 Ah Quin v. Cty. of Kauai Dep’t of Transp. 733 F.3d 267, 270 (9th 26 Cir. 2013) (supporting citations omitted). 27 FERC argues this occurred in In re Calpine Corp. Case N. 05- 28 10861, Dkt. #15 (S.D.N.Y. Jan. 19, 2006). While this may be so, 1 judicial estoppel may not be invoked where jurisdiction is at issue. 2 Many courts have found that where a party is arguing contrary 3 positions on subject matter jurisdiction, judicial estoppel will not 4 be applicable. Bonzel v. Pfizer, Inc., 439 F.3d 1358, 1363 5 (Fed.Cir.2006); E-Pass Techs. v. Moses & Singer, LLP, 2011 WL 6 5357912, at *7 (N.D. Cal. Nov. 4, 2011). In Bonzel, the plaintiff 7 had previously successfully argued for remand before the Federal 8 Circuit because there was no substantial patent law question. Then, 9 after that action was dismissed, the plaintiff brought another 10 lawsuit claiming federal patent jurisdiction. The court declined to 11 apply judicial estoppel and noted “it was questionable whether 12 estoppel could even apply to jurisdictional question.” E-Pass 13 Techs, 2011 WL 5357912 at *7-8 (citing Bonzel, 439 F.3d at 1363). 14 Here, Debtors’ assertion of different positions does not 15 warrant the application of judicial estoppel. The primary focus of 16 this lawsuit is this court’s exclusive jurisdiction under 28 U.S.C. 17 § 1334(a) and whether it alone or FERC concurrently has authority 18 under Section 365. This is the first and only time the Debtors have 19 been forced to defend the authority of their “home” court. No such 20 issue has confronted them before. 21 More importantly, Debtors are now debtors-in-possession under 22 the Bankruptcy Code. Accordingly, they are given substantial 23 rights, duties and powers under numerous sections, including 24 Sections 1107 that import the duties of a trustee in Section 1106. 25 It is a fundamental principle of bankruptcy law that a Chapter 11 26 trustee or debtor-n-possession is considered a new legal entity and 27 as such, has the power to assume or reject most executory contracts 28 under Section 365. It would be inconsistent to this grant of power 1 to inhibit the authority and powers of Debtors because of conduct 2 they took in their individual capacities in which they acted as 3 counterparties to a bankruptcy debtor who was acting adverse to them 4 prior to their bankruptcy cases. 5 In addition, while FERC is not bound by the principle of 6 judicial estoppel, it has reversed its own position on the issue of 7 concurrent jurisdiction. In 2006, FERC announced it would follow 8 the Fifth Circuit in Mirant, which stated that a debtor can reject a 9 PPA that is filed with FERC, without concurrent approval of the 10 rejection by FERC. However, the FERC Denial states that after the 11 Calpine court ruled contrary to Mirant, FERC was no longer obligated 12 to follow the prior reasoning.15 13 Accordingly, it is only fair to let Debtors, as Debtors-in- 14 Possession, use all the tools Congress has provided which they did 15 not have prior to their bankruptcy. Judicial estoppel does not 16 prevent the court from deciding the merits of the case. 17 E. Automatic Stay 18 In the Complaint, Debtors are seeking an order “pursuant to 19 section 362 of the Bankruptcy Code . . . enforcing the automatic 20 stay as to any FERC Action.” 21 The automatic stay went into effect on the day of the 22 bankruptcy. Debtors petitioned for rehearing after bankruptcy and 23 FERC responded with the FERC Denial. The central issue addressed by 24 FERC in denying rehearing is the same that was decided in the two 25 January, 2019, rulings. No party raised the issue of the automatic 26 stay (see footnote 10) so the court does not infer that the stay was 27 28 15 California Electricity Oversight Board v. Calpine Energy Services, L.P. (CEOB), 114 FERC ¶ 61,003 at ¶ 11. 1 violated or the FERC Denial is void. Nothing else has been brought 2 to the court’s attention to show the stay has been violated by any 3 party. If a violation of the stay does occur in the future, either 4 Debtor may move for contempt under Rule 9020. As the automatic stay 5 is already in place, no further order is necessary. Because the 6 court is granting Debtors’ request for a Declaratory Judgment 7 (discussed, infra) there is no need to debate and decide whether or 8 nor FERC could act within any Section 362(b)(4) exception. Count 9 Two of the Complaint will be DISMISSED. 10 F. There Is No Need for an Injunction under Section 105(a) 11 A party seeking a preliminary injunction under § 105(a) must 12 show: 13 (1) a strong likelihood of success on the merits, (2) the possibility of irreparable injury to plaintiff if 14 preliminary relief is not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of 15 the public interest (in certain cases). Alternatively, a court may grant the injunction if the plaintiff 16 demonstrates either a combination of probable success on the merits and the possibility of irreparable injury or 17 that serious question are raised and the balance of hardships tips sharply in his favor. 18 19 In re Excel Innovations, Inc., 502 F.3d 1086, 1093 (9th Cir. 2007). 20 In addition, likelihood of success in reorganization must also 21 be proven. Excel, 502 F.3d at 1095. 22 Given the parties’ consent in the May 3 Stipulation, to either 23 grant or denial of the Debtors’ request for declaratory relief as to 24 the effect of FERC’s ruling, there is no need for a separate 25 injunction. Declaratory relief on the First Claim will provide the 26 basis for FERC not having the authority to pursue any type of action 27 that supports concurrent jurisdiction over a motion to reject any 28 PPA. There is no need to enjoin anyone or any action now. Count 1 Three of the Complaint will be DISMISSED. 2 G. Basis for Declaratory Judgment 3 Countless courts have noted and accepted the broad scope of 4 FERC’s statutory jurisdiction over rates, terms and conditions of 5 wholesale electricity sales and power contracts, including changes 6 to those contracts. That authority has led to the evolution and 7 development of the filed-rate doctrine that provides that a party 8 may claim no rate as a legal right other than the filed rate, 9 whether fixed or accepted by FERC. Not even a court may authorize 10 other terms. All of this is black-letter law that is not in doubt 11 here. The briefs before the court are replete with citations that 12 do not need to be repeated. 13 Thus, because all the parties agree that the Federal Power Act 14 (“FPA”) means what it says, and FERC can do what it usually does, no 15 purpose would be served by discussing further the filed-rate 16 doctrine or FERC’s exclusive jurisdiction over rates and related 17 matters. 18 1. This is not an improper attack on FERC’s January 25 and 28, 2019, rulings nor on the FERC Denial. 19 Imagine the absurdity of the exclusive appeal route espoused by 20 FERC and the PPA Counterparties. Kafka might have designed it: 21 Parties not in bankruptcy are subjected to an involuntary 22 process by their opponents before a non-judicial, administrative body. 23 Just a few days later they are told by that body that if 24 they file bankruptcy, one of the basic and critically important tools placed there by Congress and available 25 only in bankruptcy will be unavailable. 26 And if they don’t like it, they’ll have to appeal via a procedure outside of the bankruptcy system with its 27 exclusive subject-matter jurisdiction.

28 One day later they file bankruptcy, where myriad rights and duties (and obligations) come in to play and a 1 bankruptcy court, experienced in bankruptcy matters, is there to preside. 2 Now that bankruptcy is a reality and not an intention, the 3 agency repeats its prior ruling, that it has concurrent jurisdiction with the bankruptcy court, but that court 4 will not be available to vindicate one of their fundamental and critical bankruptcy rights. 5 Their first recourse to an Article III court after all that 6 is via appeal. 7 This process is unfair and should not be tolerated. 8 The FPA contains a provision dealing with the appeal of a 9 decision from FERC. First, the losing party must request a 10 rehearing before FERC. Second, a further appeal can be pursued in a 11 circuit court of appeals. 16 U.S.C. § 825l. The FPA provides the 12 only method for judicial review of rulings regarding the broad reach 13 of FERC’s exclusive jurisdiction over matters dealing with rates, 14 terms and conditions of wholesale power contracts and the panoply of 15 matters falling within the filed rated doctrine. 16 After the January 25 and 28, 2019 FERC orders, Debtors sought 17 rehearing. But in between they filed bankruptcy and immediately 18 filed this adversary proceeding challenging the fundamental assault 19 on the bankruptcy court’s exclusive jurisdiction.16 FERC and the 20 PPA Counterparties argue Debtors are trying an improper collateral 21 attack on FERC’s orders. 22 Although departure from that procedure just summarized is 23 normally unassailable, “judicial intervention is authorized when an 24 agency acts in ‘brazen defiance’ of its statutory authorization.” 25 Philip Morris, Inc. v. Block, 755 F.2d 368, 369 (4th Cir. 1985) 26 27 16 Had they not initiated this adversary proceeding, Debtors’ only recourse would have been to prosecute their attempt at a 28 successful rehearing; had FERC changed its position, this proceeding might have been rendered moot. 1 (citation omitted). “An ultra vires act of an administrative agency 2 is either void or voidable.” Sierra Club v. Watt, 608 F. Supp. 305, 3 341 (E.D. Cal. 1985). Ultra vires acts occur when an agency acts 4 outside of “its statutory authorization.” Phillip Morris, 755 F.2d 5 at 370. 6 “FERC is a creature of statute, having no constitutional or 7 common law existence or authority, but only those authorities 8 conferred upon it by Congress.” Atl. City Elec. Co. v. F.E.R.C., 295 9 F.3d 1, 8 (D.C. Cir. 2002). See, also, Civil Aeronautics Bd. v. 10 Delta Air Lines, Inc., 367 U.S. 316, 322 (1961) (finding that an 11 agency “is entirely a creature of Congress” and “the determinative 12 question” is not what “[it] thinks it should do but what Congress 13 has said it can do.”). 14 FERC has acted outside of its statutory authority. Its 15 decisions before bankruptcy were advisory in nature, have no impact 16 on anyone; once the bankruptcy cases were filed they presented an 17 immediate conflict with the Bankruptcy Code and can be challenged 18 and dealt with in this court. 19 In addition, the United States Supreme Court has stated that 20 courts have the ultimate decision-making authority when analyzing 21 provisions governing a federal agency. While the courts can defer 22 to the regulatory agency involved, the final decision is for the 23 court alone to make. See Gordon v. New York Stock Exch., Inc., 422 24 U.S. 659, 686 (1975)(dealing with the court ruling on matters 25 involving the Securities Exchange Act and the Securities Exchange 26 Commission). 27 Nothing in the FPA or the Bankruptcy Code grants FERC 28 concurrent jurisdiction with this court over Section 365 motions to 1 reject executory contracts covering federal power matters.17 The 2 issue here is Section 365 and not any of the permutations and 3 applications of the filed rate doctrine. This is the only issue 4 before this court, and there is nothing collateral or indirect about 5 the attack. It is direct because it goes to the precise bankruptcy 6 issue of exclusive authority under 28 U.S.C. § 1334(a). This court 7 is not considering the FPA or reviewing any FERC decisions regarding 8 any matter within its exclusive jurisdiction. The rejection of an 9 executory contract is solely within the power of the bankruptcy 10 court, a core matter exclusively this court’s responsibility. 28 11 U.S.C. § 157(b)(2). 12 The Bankruptcy Code is the proper and only authority to apply 13 and not any aspect of the FPA. FERC did not draw on any specific 14 provision of that law to reach its ultimate conclusion, nor does 15 this court. The beginning and end of the analysis is in the 16 Bankruptcy Code. 17 2. FERC Acted in Excess of its Statutory Authority. 18 The court disagrees with FERC’s view that were it to authorize 19 rejection of a PPA, that authorization would not be “a license to 20 cease or modify performance in whatever manner [Debtors] wish[es].” 21 FERC Denial, Para. 16 (emphasis added). 22 To the contrary, authorization of rejection under Section 365 23 is authorization to breach - to cease...performance leaving the 24 affected PPA Counterparty with a claim for damages as of the 25 petition date. Tempnology, supra. 26 FERC makes the bold and unfounded statement that: 27 28 17 Mirant, 378 F. 3rd at 521. 1 “Performance under [the rejected PPA] remains subject to [FERC’s] review to determine whether any cessation or 2 modification of performance is just and reasonable and not unduly discriminatory or preferential under the FPA.” 3 FERC Denial, Para. 16. 4 The statement is wrong as a matter of law and is unenforceable 5 in these cases. A court “owe[s] an agency’s interpretation of the 6 law no deference” where, as here, the “statutory provisions before 7 [it] deliver unmistakable commands. SAS Inst, Inc. Iancu, 138 S. 8 Ct. 1348, 1358 (2018). It would render meaningless the bankruptcy 9 court’s authority and responsibility to authorize rejection under 10 the business judgment test. 11 Section 365’s lack of an exception for FERC simply means that 12 FERC has no jurisdiction over the rejection of contracts. See FCC 13 v. NextWave Pers. Commc’ns, Inc., 537 U.S. 293, 302 (2003) (“[W]here 14 Congress has intended to provide regulatory exceptions to the 15 Bankruptcy Code, it has done so clearly and expressly.” 16 In re Gruntz, 202 F.3d 1074, 1082 (9th Cir. 2000), is a seminal 17 Ninth Circuit decision that a state court’s determination as to 18 applicability of the automatic stay or actions that are done in 19 violation of the automatic stay are void. 20 In sum, bankruptcy courts have the ultimate authority 21 to determine the scope of the automatic stay imposed by 11 U.S.C. § 362(a), subject to federal appellate 22 review. A state court does not have the power to modify or dissolve the automatic stay. Accordingly, 23 the Rooker-Feldman doctrine does not render a state court judgment modifying the automatic stay binding 24 on a bankruptcy court. Thus, if it proceeds without obtaining bankruptcy court permission, a state court 25 risks having its final judgment declared void. 26 Id., at 1037. 27 The Ninth Circuit upheld a state court’s determination that a 28 criminal prosecution did not violate the automatic stay. Considered 1 narrowly, the decision has little bearing on this case because FERC 2 is not a state court, it did not involve a criminal matter, it did 3 not interpret the automatic stay, and at present there is no 4 automatic stay issue pending. But considered broadly, and 5 considering that the FERC Denial came after bankruptcy when the 6 automatic stay went into effect, Gruntz very much applies. It 7 warns that an interpretation of the Bankruptcy Code and the court’s 8 exclusive jurisdiction over core matters by another body that is in 9 excess of its own jurisdiction, to be binding on the bankruptcy 10 court, must be correct. 11 Before Debtors filed bankruptcy FERC made its January 25 and 12 28, 2019 rulings against them. Those rulings were at best toothless 13 advisory opinions that had no effect on anyone, especially debtors 14 contemplating but not then having filed bankruptcy. Obviously there 15 was no automatic stay in effect or even in existence. Equally 16 obviously, Gruntz was if no concern. All that changed on January 17 29, 2019. The Debtors’ reorganizations were immediately impacted by 18 the cloud of FERC’s assertion of concurrent jurisdiction and its 19 presumption that it could override a bankruptcy court’s PPA 20 executory contract rejection decision based upon policies embodied 21 in the FPA, principally protection of the public interest. 22 Now that FERC has issued its FERC Denial, the full impact of 23 Gruntz’s reasoning applies. Section 365(a) and 28 U.S.C. § 1334, 24 taken together, clearly lead to the inescapable conclusion that only 25 the bankruptcy court can decide whether a motion to reject should be 26 granted or denied, and under what standards. 27 The United States Supreme Court stated that Congress knew how 28 to grant exceptions to the power to reject executory contracts and 1 PPAs governed by the FPA were not included. N.L.R.B. v. Bildisco & 2 Bildisco, 465 U.S. 513, 523 (1984). Tempnology, supra, footnote 8 3 and accompanying text. The right to reject is qualified for many 4 exceptions under §§ 365(h), (i), (n), and (o). FERC and the FPA are 5 not mentioned in any exceptions. Section 365’s lack of an exception 6 for FERC simply means that FERC has no jurisdiction over the 7 rejection of contracts. See FCC v. NextWave Pers. Commc’ns, Inc., 8 537 U.S. 293, 302 (2003) (“[W]here Congress has intended to provide 9 regulatory exceptions to the Bankruptcy Code, it has done so clearly 10 and expressly.” 11 As a result, if an executory contract does not fall into the 12 exceptions set forth by Congress in the Bankruptcy Code, only the 13 Bankruptcy Court can issue a ruling on rejection. The reasoning of 14 Gruntz is directly applicable, just as the Bankruptcy Court was 15 permitted to void a state court order that was issued in violation 16 of the Bankruptcy Code. This court can declare FERC’s attempt to 17 interpret and apply the Bankruptcy void. 18 In addition and apart from Gruntz and the automatic stay, case 19 law rejects any attempt by FERC to expand its jurisdiction to those 20 matters not governed by the FPA. Hunter v. FERC, 711 F.3d 155, 159 21 (D.C. Cir. 2013); Atl. City Elec. Co. v. F.E.R.C., 295 F.3d 1, 8 22 (D.C. Cir. 2002) (stating FERC is a creature of statute and only has 23 authority specifically conferred by Congress with no constitutional 24 or common law existence or authority). The court in Hunter found 25 that FERC failed to meet its burden to show a repeal by implication. 26 FERC argued that the FPA superseded a particular section of the 27 Commodity Exchange Act, which is implemented by the Commodity 28 Futures Trading Commission. Hunter, 711 F.3d at 160. Any order 1 issued by FERC stating concurrent jurisdiction is therefore void, as 2 it attempts to divest jurisdiction from the bankruptcy court that 3 was set forth by Congress. 4 The court’s “virtually unflagging obligation . . . to exercise 5 the jurisdiction given [it],” Colorado River Water Conservation 6 Dist. v. United States, 424 U.S. 800, 817 (1976), compels the 7 conclusion that it should hold that FERC’s orders are prospectively 8 void because they conflict with a core proceeding solely delegated 9 to this court. The United States Supreme Court referred to its 10 “original and exclusive” jurisdiction over disputes between the 11 States, 28 U.S.C. § 1251(a), adding “the description of our 12 jurisdiction as ‘exclusive’ necessarily denies jurisdiction of such 13 cases to any other federal court.” Mississippi v. Louisiana, 506 14 U.S. 73, 77–78 (1992). In 28 U.S.C. § 1344(a) Congress gave 15 exclusive jurisdiction over bankruptcy cases to this court (via a 16 referral from the district court). There is no reason why this 17 bankruptcy court should not apply exclusive jurisdiction in the same 18 way. 19 In sum, the three FERC decisions discussed here were not the 20 actions of a power regulator carrying out its statutory duties to 21 police rates, terms and conditions of power contracts, and enforcing 22 the filed-rate doctrine. To be blunt, they were unauthorized acts 23 of the power regulator executing a power play (to use a hockey term) 24 to curtail the role of the court acting within its authorized and 25 exclusive role in these bankruptcy cases. Those decisions can not 26 be applied or honored here. 27 3. Proper standard for rejection of executory contracts 28 To determine whether the Bankruptcy Court should approve the 1 rejection of an executory contract under Section 365, the business 2 judgment rule must be applied. In re Pomona Valley Med. Grp., Inc., 3 476 F.3d 665, 670 (9th Cir. 2007). “[I]n evaluating the rejection 4 decision, the bankruptcy court should presume that the debtor-in- 5 possession acted prudently, on an informed basis, in good faith, and 6 in the honest belief that the action taken was in the best interests 7 of the bankruptcy estate.” Pomona Valley, 476 F.3d at 670; In re At 8 Home Corp., 292 B.R. 195, 199 (N.D. Cal. 2003), aff'd, 392 F.3d 1064 9 (9th Cir. 2004) (stating the debtor must demonstrate that rejection 10 will benefit the estate). This can include eliminating an executory 11 contract that has become burdensome or where prompt elimination will 12 positively impact the debtor’s ability to improve its financial 13 condition. 9C Am. Jur. 2d Bankruptcy § 2311. Further, the debtor’s 14 decision to reject cannot be based on “a gross abuse of debtor’s 15 business discretion.” Id. 16 A primary issue in this determination is whether the rejection 17 would benefit general unsecured creditors, which requires a 18 balancing of interests. In re Chi-Feng Huang, 23 B.R. 798, 801 19 (B.A.P. 9th Cir. 1982); In re Turbowind, Inc., 42 B.R. 579, 584 20 (Bankr. S.D. Cal. 1984). If rejection would lead to a third party 21 benefitting substantially at the expense of unsecured creditors, the 22 rejection cannot be approved. Chi-Feng Huang, 23 B.R. at 801. 23 A district court denied a debtor’s motion to reject where it 24 found that debtor was trying to “create” a business rather than 25 preserve one, and that debtor had filed bankruptcy solely to reject 26 that contract. The court found that these facts meant the debtor 27 was not exercising business judgment or operating in good faith. In 28 re S. California Sound Sys., Inc., 69 B.R. 893, 898 (Bankr. S.D. 1 Cal. 1987). Rejection is precluded where bankruptcy is filed with 2 the sole purpose of trying to reject. In re Safakish, No. 18-50769 3 MEH, 2018 WL 5621783, at *6 (Bankr. N.D. Cal. Oct. 29, 2018). 4 Disproportionate damage to the aggrieved party is a ground to 5 disapprove rejection. In re Monarch Tool & Mfg. Co., 114 B.R. 134, 6 137 (Bankr. S.D. Ohio 1990). Unfairness to the aggrieved party is 7 not enough, however. See In re Chi-Feng Huang, 23 B.R. 798, 801 8 (B.A.P. 9th Cir. 1982) (stating that the primary issue is whether 9 rejection would benefit the general unsecured creditors). 10 The parties that are impacted will receive an unsecured claim 11 for damages in the full amount of the rate listed in the PPAs. 12 Creation an administrative priority claim, which means placement 13 ahead of all unsecured creditors, will happen if FERC successfully 14 orders performance under a rejected PPA. That would be inconsistent 15 with the Bankruptcy Code’s treatment of such a rejected claim. As 16 noted, “a priority scheme dictating the order in which various 17 creditors’ claims will be satisfied in the course of bankruptcy 18 proceedings.” In re Holly Marine Towing, Inc., 669 F.3d 796, 800 19 (7th Cir. 2012). 20 That said, the court will not ignore what others have said 21 about public interest and the need to take it into account while at 22 the same time paying careful attention on the reorganization goals: 23 “If the district court decides that a more rigorous standard is required, then it might adopt a standard 24 by which it would authorize rejection of an executory power contract only if the debtor can show that it 25 “burdens the estate, [ ] that, after careful scrutiny, the equities balance in favor of rejecting” 26 that power contract, and that rejection of the contract would further the Chapter 11 goal of 27 permitting the successful rehabilitation of debtors. See Bildisco, 465 U.S. at 526–27, 104 S.Ct. 1188. 28 When considering these issues, the courts should carefully scrutinize the impact of rejection upon the 1 public interest and should, inter alia, ensure that rejection does not cause any disruption in the supply 2 of electricity to other public utilities or to consumers. Cf. id. at 527, 104 S.Ct. 1188. (requiring 3 the bankruptcy court to balance the interests of the debtor, the creditors and the employees when 4 determining what constitutes a successful rehabilitation).” 5 Mirant, at 525.18 6 Public policy does not need to be considered when applying the 7 business judgment rule every time a federal statute is implicated. 8 “Congress did not intend the Code to be a shield 9 behind which a debtor in possession might engage in conduct that would be improper in a non-bankruptcy 10 context. Indeed, as a fiduciary holding its estate in trust and responsible to the court, a debtor in 11 possession must administer its case and conduct its business in a fashion amendable to the scrutiny to be 12 expected from creditor and court oversight.” 13 In re Pilgrim's Pride Corp., 403 B.R. 413, 424 (Bankr. N.D. Tex. 14 2009). 15 The business judgment standard in regular rejection is more 16 deferential than that given to contracts that are in the “public 17 interest.”19 But public interest may need to be considered in the 18 context of a specific rejection of a specific PPA. That outcome 19 will be fact-driven based on the particular motion to reject and the 20 responses of the opposing party. That is for another day. 21 22 23 18 In re Caribbean Petroleum Corp., 444 B.R. 263, 269 (Bankr. Del 2010)(heightened scrutiny for rejection motions involving the 24 protection of national public interest such as public safety, health or welfare (citing In re Old Carco, LLC, 406 B.R. 180, 189 25 (Bankr. S.D.N.Y. 2009). 26 19 Cf., In re Old Carco LLC, supra stating that the statutes there were enacted by state legislatures, not Congress, so they 27 were protecting the public interest of the states rather than the national public interest and did not deny the rejection motion in 28 the name of public interest. 1 2 VI. DISPOSITION 3 Debtors are entitled to this court’s declaratory judgment that 4 (1) FERC does not have concurrent jurisdiction over its decision to 5 permit Debtors to reject (or assume) executory contracts under 6 Section 365; and (2) that the FERC Denial and its two prior rulings 7 described above are of no force and effect and are not binding on 8 Debtors in these cases.20 9 Nothing will happen here until either of the Debtors moves to 10 reject an executory PPA and the affected counterparty opposes that 11 motion. At that time the court will consider the merits of any such 12 motion and if consideration implicates public policy interests as 13 well as reorganization goals, those interests can be considered as 14 part of the higher standard for the rejection decision. It may well 15 be that a particular motion seeks rejection of a contractual 16 obligation of the debtor to purchase energy in the future. That 17 likely will involve little if any public interests; on the other 18 hand rejection of a PPA based on some other rights and obligations 19 may trigger a more concrete and demonstrable consequence that may 20 tip the balance the other way. Either way, or whatever set of facts 21 apply, this court can make the assessment consistent with the 22 principles expressed here. There is no need or right for a second 23 inquiry by a separate non-judicial body to be involved. This court 24 will exercise its exclusive jurisdiction as Congress directed. 25 The automatic stay still applies the same way it did on January 26 29, 2019, when these cases were commenced. If more relief is 27 28 20 The court takes no position as to what happens if Debtors appeal the FERC Denial to a court of appeal. 1 needed, the court’s specific and inherent injunctive powers are 2 available. 3 The motion of the Official Committee of Unsecured Creditors is 4 GRANTED. If there is no appeal that grant is of no consequence; if 5 there is an appeal, the committee’s views should be considered. 6 Concurrent with this Memorandum Decision the court is issuing 7 its Declaratory Judgment. In a few days it will issue a 8 Certification for Direct Appeal. 9 10 * * * END OF MEMORANDUM DECISION * * * 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 EDWARD J. EMMONS, CLERK 13 □□ \o. U.S. BANKRUPTCY COURT Sf SSF & NORTHERN DISTRICT OF CALIFORNIA 5 ay a □□ 75 1 □ US □□ Signed and Filed: June 12, 2019 □□□□□□□ 2

Lp Mnfteke DENNIS MONTALI 5 U.S. Bankruptcy Judge 6 7 UNITED STATES BANKRUPTCY COURT 8 FOR THE NORTHERN DISTRICT OF CALIFORNIA 9]/In re ) Bankruptcy Case ) No. 19-30088-DM (Lead Case) 10 PG&E CORPORATION; PACIFIC GAS ) AND ELECTRIC COMPANY, ) Chapter 11 11 ) Debtors. ) (Jointly Administered) 12 ) PG&E CORPORATION; PACIFIC GAS ) Adv. Proc. No. 19-03003 13 AND ELECTRIC COMPANY, ) ) 14 Plaintiffs, ) ) 15|v. ) ) 16 || FEDERAL ENERGY REGULATORY ) COMMISSION, ) 17 ) Defendant. ) 18 ) 19 AMENDED DECLARATORY JUDGMENT 20 For the reasons set forth in the Memorandum Decision on Actior 21]||/For Declaratory and Injunctive Relief filed and entered on June 7, 2019, 23 IT IS HEREBY ORDERED, ADJUDGED AND DECREED AS FOLLOWS: 24 1. This court confirms its original and exclusive 25 jurisdiction over Debtors’ cases under 11 U.S.C. § 1334(a) and ||/Debtors’ rights to assume or reject executory contracts under 11 27/U.S.C. 8§ 365, as core proceedings under 28 U.S.C. 157(b)(2). 28

1 2. Included in the foregoing paragraph are power purchase 2 contracts between and among either or both Debtors and 3 counterparties to any such contracts.1 4 3. The Federal Energy Regulatory Commission does not have 5 concurrent jurisdiction, or any jurisdiction, over the 6 determination of whether any rejections of power purchase contracts 7 by either Debtor should be authorized. 8 4. Debtors do not need approval from the Federal Energy 9 Regulatory Commission to reject any of their power purchase 10 contracts. 11 5. Any determinations of the Federal Energy Regulatory 12 Commission contrary to the provisions of Paragraph 3 and 4 above 13 are void, of no force and effect and not binding on this court or 14 either Debtor. Such determinations include, but are not limited 15 to, NextEra Energy, Inc. v. Pac. Gas and Elec. Co., 167 FERC ¶ 16 61,096 (2019) at para. 13, NextEra Energy, Inc. v. Pac. Gas and 17 Elec. Co., 166 FERC ¶ 61,049 (2019); Exelon Corp. v. Pac. Gas and 18 Elec. Co., 166 FERC ¶ 61,053. 19 6. This Amended Declaratory Judgment is the court’s Final 20 Judgment concluding this adversary proceeding. 21 ***END OF AMENDED DECLARATORY JUDGMENT*** 22 23 24

25 26 27 1 Many of these counterparties have intervened as defendants 28 in this adversary proceeding and have stipulated to entry of a final judgment by this court. See Stipulation re Procedure for Disposition of Adversary Proceeding at Docket. No. 149, ¶¶ 2-3.