Legal Brief - Week 07: PG&E Corp. vs Federal Power Commission

PG&E Corp. vs Federal Power Commission

Bankruptcy Case No. 19-30088-DM

 

Case Facts

           Pacific Gas & Electric Corporate (PG&E) was incorporated on October 10, 1905, to provide the transmission and delivery of energy (natural gas and electricity) to millions of customers in San Francisco, California.

On January 29, 2019, the organization filed voluntary bankruptcy petitions under Chapter 11 of the U.S. Bankruptcy Code; this came after a series of wildfire’s incidents leading the California Department of Forestry and Fire Protection to assign the blame on PG&E. These findings led the company to a potential liabilities of $30 billion. Victims’ claims consist of injuries, death, property and business losses, and other legal damages worth $13.5 billion.

Petitioners (PG&E customers) sought the court to review an order issued by the Federal Power Commission (FPC) issued a statement of policy instructing Californian pipeline companies that expected shortage in their stock to file tariff sheets in order to prevent them from liability. The order wants petitioners to have a low priority to electric generating companies. Petitioners argued that the policy was procedurally defective for failure to comply with the rulemaking requirements of the Administrative Procedure Act, 5 U.S.C.S. § 551 et seq. which requires a 30-day delayed effective date to allow comments.

In order to exit bankruptcy and participate in the California state wildfire insurance fund, PG&E was required to provide compensation to the Californian wildfire victims before June 30, 2020. On the 20th of June 2020, U.S. Bankruptcy Judge Dennis Montali issued the final approval of the plan for reorganized PG&E to exit bankruptcy.

The Issue

Is the Federal Power Commission’s order exempted from the Administrative Procedure Act (APA), 5 U.S.C.S. § 551 et seq. in this situation?

Rule

The United States Environmental Protection Agency summaries the Administrative Procedure Act as follows: “… governs the process by which federal agencies develop and issue regulations. It includes requirements for publishing notices of proposed and final rulemaking in the Federal Register and provides opportunities for the public to comment on notices of proposed rulemaking. The APA requires most rules to have a 30-day delayed effective date.

In addition to setting forth rulemaking procedures, the APA addresses other agency actions such as the issuance of policy statements, licenses, and permits. It also provides standards for judicial review if a person has been adversely affected or aggrieved by agency action.

The Administrative Conference of the United States explains that “policy statements include all substantive non-legislative rules to the extent that they are not limited to interpreting existing law. They come with a variety of labels and include guidance, guidelines, manuals, staff instructions, opinion letters, press releases or other informal captions.” And the Legal Information Institute defines substantive law as a “law which governs the original rights and obligations of individuals. Substantive law may derive from the common law, statutes, or a constitution.” Thus a statement of policy is not a legal rule or law but usually leads to the identification of new laws needed to achieve its goals.

Application

           After a series of major wildfires, including fires for which PG&E expected to be held liable, filing a voluntary bankruptcy petition on January 29, 2019, under Chapter 11 of the U.S. Bankruptcy Code was the last solution for PG&E to reorganize the company. The company provided compensation to wildfire victims as part of the plan for reorganization in the Chapter 11 case to exit bankruptcy.

 The bankruptcy court instructed PG&E to meet certain criteria such as its insolvency proceeding must be resolved by no later than June 30, 2020, as per the drafted plan in order to benefit from the wildfire Fund established by the California Assembly Bill (AB) 1054.

The AB 1054 assigned a Commission to assist with the bankruptcy process and has documented the following:

·         The commission has approved the reorganization plan and other documents resolving the insolvency proceeding, including the electrical corporation’s resulting governance structure as being acceptable in light of the electrical corporation’s safety history, criminal probation, recent financial condition, and other factors deemed relevant by the commission.

 

·         The commission has determined that the reorganization plan and other documents resolving the insolvency proceeding are

 

o   (i) consistent with the state’s climate goals as required pursuant to the California Renewables Portfolio Standard Program and related procurement requirements of the state and

o   (ii) neutral, on average, to the ratepayers of the electrical corporation.

 

·         The commission has determined that the reorganization plan and other documents resolving the insolvency proceeding recognize the contributions of ratepayers if any, and compensate them accordingly through

The wildfires caused PG&E to file for bankruptcy and created a shortage in the supply of natural energy and electricity which led to the FPC to enter into conflict with PG&E’s customers. While battling to find relief funds for the pipeline companies, FPC needs to face unhappy petitioners. The case showed the FPC motive behind the policy statement to prevent a shortage supply of energy. Furthermore, the court did not find the commission guilty because this was rather a policy statement and not substantive law.

 

Ruling

The court ruled that the policy statement issued by the Federal Power Commission was not defective since there was no direct impact upon the petitioners; thus lacking jurisdiction.

  

Reference

Michael H (2021). “Business Law.”

Brigham Young University - Idaho, Chapter 13 - 14

Legal Information Institute. “5 U.S. Code § 551 - Definitions”. 1992

https://www.epa.gov/laws-regulations/summary-administrative-procedure-act  (Accessed 30 October 2021)

Legal Information Institute. “Substantive law”. 1992

https://www.law.cornell.edu/wex/substantive_law

(Accessed 30 October 2021)

Administrative Conference of the United States. “Policy statement”. 1992

https://www.acus.gov/recommendation/agency-policy-statements.

(Accessed 30 October 2021)

Energy Central. “PUC decision approving reorganization plan”. June 2020

https://energycentral.com/news/california-puc-decision-approving-reorganization-plan-0. (Accessed 30 October 2021)

 

 

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