Power Purchase Agreements in Bankruptcy: Competing Interests Under the Bankruptcy Code and Federal Power Act

Recording of a 90-minute premium CLE webinar with Q&A

Conducted on Tuesday, June 25, 2019

Recorded event now available

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Course Materials

This CLE course will discuss the divergent law on whether an energy industry debtor can reject its power purchase agreements (PPAs) and provide bankruptcy counsel with an understanding of how this issue might be resolved in bankruptcy proceedings.


The recent Chapter 11 filing by Pacific Gas and Electric Co. in California has brought the treatment of PPAs in bankruptcy back into the spotlight. Bankruptcy Code Section 365 gives a debtor the power to "reject," or to cease performing under, an ongoing contract. The rejection of a contract is treated as a court-authorized breach of contract as of the date the bankruptcy is filed and limits the non-debtor counterparty to asserting a claim for the breach against the debtor.

For most contracts, a debtor only needs to show that the rejection is an appropriate exercise of its business judgment because the contract is financially burdensome. The treatment of PPAs, however, is more complicated because the Federal Energy Regulatory Commission (FERC) has jurisdiction over the sale of wholesale electric energy. And given conflicting precedent from prior bankruptcy cases in a variety of jurisdictions, there is considerable uncertainty and debate on the role and jurisdiction of FERC in the context of any proposed rejection of PPAs in the PG&E bankruptcy.

In the Calpine proceedings, a district court in the Southern District of New York held that FERC has exclusive jurisdiction over a debtor’s exercise of its statutory rejection powers to disaffirm certain PPA obligations. In the Mirant proceedings, the Fifth Circuit suggested that bankruptcy courts can approve a rejection of a PPA by a debtor in bankruptcy without FERC approval, but that a bankruptcy court should nonetheless apply a heightened standard that takes the public interest into account.

And most recently in the First Energy Solutions proceedings, the bankruptcy and U.S. District Court for the Northern District of Ohio held that a bankruptcy court need only consider whether rejection of a PPA is consistent with the debtor’s business judgment, just like any other contract. As there is no controlling precedent on this specific issue in the Ninth Circuit, it is not clear how the PG&E bankruptcy court or any appellate court will rule as to applicable jurisdictional rules and legal standards if the debtor there seeks to reject any PPAs.

Listen as our authoritative panel of bankruptcy practitioners discusses the divergent law on these challenging issues if an energy industry debtor attempts to reject its PPAs and provides bankruptcy counsel with an understanding of how it might affect the treatment of PPAs in the PG&E bankruptcy proceedings.



  1. Overview
  2. Recent developments
  3. Comparison of the conflicting federal laws
    1. The Federal Energy Regulatory Commission
    2. Section 365 of the Bankruptcy Code and the jurisdiction of federal bankruptcy courts
  4. Prior precedents
  5. Practical considerations and best practices


The panel will review these and other key issues:

  • What can happen to a PPA in bankruptcy?
  • How long does a debtor have to decide whether to reject or assume its PPAs?
  • What considerations are likely to factor into a debtor’s decision whether to assume or reject its PPAs?
  • What happens to a PPA during the period when the debtor is deciding whether to assume or reject?
  • To the extent power is provided to a debtor during the pendency of its bankruptcy, is the PPA counterparty’s claim for payment afforded priority status?
  • What must a debtor show to convince the bankruptcy court to grant a motion to reject a PPA?
  • If a debtor moves to reject a PPA, what grounds would a counterparty have for opposing that motion?
  • If a debtor prevails in its motion to reject, either by overcoming an opposition or because the counterparty does not object, what happens then?
  • What will the counterparty receive for its rejection damages as an unsecured claim?
  • What concerns relate to any debt financing or other investments in projects where the offtaker under a PPA became a debtor in bankruptcy?


Haker, Oren
Oren B. Haker

Stoel Rives

Mr. Haker focuses on the representation of a wide range of parties in workouts, debt restructurings, receiverships and...  |  Read More

Mills, Alan
Alan K. Mills

Barnes & Thornburg

A trusted adviser, dexterous counselor, skilled advocate, accomplished litigator and effective relationship manager,...  |  Read More

Scott, Sean
Sean T. Scott

Mayer Brown

Mr. Scott represents institutional lenders, bank groups, hedge funds and other creditors in out-of-court workouts and...  |  Read More

Wilamowsky, Steven
Steven Wilamowsky

Chapman and Cutler

Mr. Wilamowsky regularly represents investors, creditors, and lenders in complex restructurings, in and out of...  |  Read More

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