FERC recently rejected a complaint filed by Vermont Public Power Supply Authority (VPPSA) asking the Commission to order PG&E Energy Trading-Power LP. to resume supplying power to it after PG&E Energy Trading last month filed for Chapter 11 protection and suspended delivery of electricity to VPPSA.

More broadly, the order sheds additional light on how the Federal Energy Regulatory Commission will respond to efforts on the part of bankrupt power suppliers to cancel power supply deals with existing customers.

“We will deny the complaint, because the parties’ contract provides that it shall automatically terminate if either party is the subject of a bankruptcy proceeding,” the Commission said.

Bankrupt PG&E National Energy Group (NEG), a PG&E Corp. subsidiary, guarantees the performance of PG&E Energy Trading under a broad agreement between PG&E Energy Trading and VPPSA related to power supply transactions. PG&E Energy Trading is the power marketer affiliate of NEG.

In a July 3 complaint, VPPSA balked at efforts by PG&E Energy Trading to cease supplying power to the municipal power entity. Among other things, VPPSA said that PG&E Energy Trading “has no right to unilaterally terminate its obligation under this agreement and no right to suspend performance other than in circumstances of force majeure not present here.” VPPSA said that FERC should therefore direct PG&E Energy Trading to resume providing service to it.

In response, NEG said that FERC should dismiss the authority’s complaint on the grounds that it is contrary to the express terms of the contract that VPPSA is seeking to enforce. NEG said that VPPSA’s power sales contract explicitly provides that it automatically terminated when PG&E Energy Trading filed for bankruptcy.

In its order, FERC said that when PG&E Energy Trading filed for bankruptcy protection, the contract between the power marketer and VPPSA automatically terminated, “without notice, and without either party needing to make a filing with the Commission to effectuate it.”

FERC therefore found without merit VPPSA’s contention that the federal agency should direct PG&E Energy Trading to resume power deliveries under the contract.

In addition, the Commission rejected VPPSA’s contention that PG&E Energy Trading may only avoid making deliveries of power under the contract when a force majeure event arises. FERC said that force majeure is not the only authority for non-delivery. The contract in question “explicitly states that bankruptcy automatically terminates the contract and thus voids any requirement for deliveries to be made under the contract, irrespective of force majeure.”

Moreover, FERC wasn’t swayed by VPPSA’s argument that requiring PG&E Energy Trading to resume making power deliveries is required by Commission precedent in a case involving bankrupt NRG Power Marketing Inc.

In the NRG proceeding, FERC held that a bankruptcy court’s approval of a power marketer’s request to reject an agreement between it and a traditional utility did not preclude FERC from making an independent determination as to whether the power marketer must continue to provide service to the utility.

FERC in June ordered NRG Power Marketing to continue providing power to Connecticut Light & Power (CL&P) until the Commission decides whether NRG Power Marketing’s efforts to cancel the power contract with CL&P meet the Mobile-Sierra “public interest” standard.

“In contrast to the contract before us here, the contract in NRG did not provide that it would automatically terminate upon one of the parties to the contract becoming the subject of a bankruptcy proceeding,” FERC pointed out at the end of last week. “Thus, we see no inconsistency between our action here and our decision in NRG.”

FERC said that to the extent that PG&E Energy Trading failed to make any required power deliveries to VPPSA prior to the automatic termination of the contract, upon PG&E Energy Trading’s filing for bankruptcy, VPPSA may pursue its contractual entitlement to compensation in an appropriate court.

Meanwhile, Brian Evans-Mongeon, VPPSA’s manager of power supply and marketing services, told NGI that VPPSA is moving to fill the power supply gap left by PG&E Energy Trading.

Evans-Mongeon said that there are no plans at this point to issue a formal request for proposals related to VPPSA’s power supply needs. “Basically, right now what we’re doing is we’re monitoring market conditions and we are talking with entities to whom we have trading arrangements with, to deal with the near-term,” the VPPSA official noted.

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