Pacific Gas & Electric (PG&E) hasn't even filed for bankruptcy protection yet, and already the Chapter 11 proceeding is shaping up to be a long and complicated endeavor. The utility has warned regulators it could take years to complete, and in the meantime a fight is shaping up between PG&E and wholesale energy suppliers worried about getting paid.

The utility on Monday informed federal regulators it had inked a deal with four banks to secure $5.5 billion in debtor-in-possession (DIP) financing, to keep operations running while the bankruptcy proceeds. That's fairly standard, but the utility also revealed it expects the bankruptcy process to stretch years — and the DIP funding includes extension options, in case it goes longer than anticipated.

The utility said in an 8-K filing with the Securities and Exchange Commission that the DIP financing will provide "sufficient liquidity to fund its ongoing operations," adding it expects the Chapter 11 cases to take "approximately two years." A one year extension is "exercisable by the utility at its option."

The banks providing DIP financing include JPMorgan Chase, Bank of America, Barclays and Citigroup Global Markets. While broader markets were down yesterday, PG&E's stock rose 6.5% on news of the financing. But the stock is well below it's 52-week high of almost $50/share.

PG&E's uncertain future

The utility announced a week ago it would file for bankruptcy protection near the end of the month, as it faces up to $30 billion in liabilities associated with the 2017 and 2018 wildfire seasons. PG&E officials had warned its wildfire liabilities outweighed its insurance coverage, and California utility regulators previously indicated they didn't want to see PG&E file for bankruptcy, but any bailout was politically untenable.

The utility's future is uncertain, and regulators have said they would consider a range of options going forward — from new management, to breaking up the company. The DIP financing will insulate customers from any impacts, while changes are made.  

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"PG&E may seek to reject or renegotiate some of its more expensive PPAs."

Sarah Foss

Legal analyst, Debtwire

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"It's not unusual that a company would require DIP financing, but a couple of things jump out," Sarah Foss, a legal analyst for Debtwire, told Utility Dive. "They know there are a lot of complex issues in this bankruptcy, and there's going to be a lot of different parties. There is a lot to be worked out and it's going to take some time."

PG&E's notice to the Securities and Exchange Commission is not the only sign that things may get complicated.

NextEra Energy, which has several subsidiaries selling renewable power to PG&E, on Jan. 18 asked the Federal Energy Regulatory Commission (FERC) to block the utility from amending or rejecting power purchase agreements (PPAs) with several  providers — a move NextEra said the utility will "undoubtedly" ask the bankruptcy court to take in order to reduce its costs.

NextEra told FERC that if PG&E files for bankruptcy, the utility "undoubtedly will ... ask the bankruptcy court to enjoin a proceeding by this Commission from exercising its FPA jurisdiction over such contracts or from issuing an order to stay PG&E or the bankruptcy court."

Other companies have since asked to intervene. Consolidated Edison Development told FERC it "is in a similar position as NextEra" and has approximately 665 MW of renewable energy projects in California, Nevada and Arizona "that provide electricity to California and are the subject of Wholesale Contracts with PG&E and which would be at risk should PG&E file for bankruptcy."

This potentially sets up a fight over jurisdiction between FERC and the bankruptcy court, Foss told Utility Dive.

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"[Bankruptcy judges] are like gods when it comes to the power they have over a company's assets and contract liabilities."

Jon Wellinghoff

Former FERC Chairman

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"This is a pretty interesting issue. PG&E is involved in a number of contracts with power purchase agreement suppliers," said Foss. "Some of these agreements have above market terms and are pretty expensive for the company. ...PG&E may seek to reject or renegotiate some of its more expensive PPAs.

"The rub there is, who has jurisdiction? Can the court allow PG&E to cancel these, or do they have to go to FERC?" said Foss, noting there is case law supporting both sides.

The bankruptcy court would use a "business judgemental" standard that Foss said "is a pretty low standard, and is almost always approved by the court. ... FERC has a more stringent standard, and looks at whether [a decision] is in the public good."

Jon Wellinghoff, former FERC chairman and founder of Grid Policy Consulting, said it is not clear FERC has the authority to block PG&E from requesting a bankruptcy court allow it to make PPA changes.

"I do not ever remember a request like NextEra's ever coming to FERC when I was there," Wellinghoff told Utility Dive in an email.

Despite that, he said that NextEra may have reason for its concern. Bankruptcy judges "are like gods when it comes to the power they have over a company's assets and contract liabilities," he told Utility Dive.

Utility responds to pressure as buyer

PG&E responded to FERC on Tuesday, arguing that a FERC order blocking the utility from seeking PPA changes in bankruptcy court would violate both the Federal Power Act and the Bankruptcy Code, as well as contravene the terms of its agreements with NextEra.

"The FPA and Commission rules bar this complaint," PG&E told FERC, noting that NextEra's complaint alleges "only hypothetical harm. ... No bankruptcy has occurred; no action has been taken to reject these contracts."

"The Commission routinely denies complaints based solely on the risk for future harm and should do so here," the utility said.

PG&E also argued that the Federal Power Act gives FERC jurisdiction over the sellers of wholesale power — not the buyer. "Neither the FPA nor Commission precedent authorizes the Commission to order a buyer to continue to purchase power — the relief sought here," the utility said.

NextEra has asked FERC to issue a ruling on the PPA issue by Jan. 25, in an effort to get ahead of the utility.  PG&E has said it expects to file for bankruptcy "on or about Jan. 29."

In a statement to Utility Dive, PG&E said it can "appreciate the concerns from stakeholders across the state of the impact that our intention to file for Chapter 11 protections could have on the state’s clean energy progress," adding that, "we expect this process will assure access to the financial resources necessary to support the safe and reliable gas and electric services our customers need."

And as all this goes on, PG&E faces potential jeopardy in a proceeding related to a 2010 pipeline explosion on PG&E's gas system in San Bruno, Calif. The utility is effectively on probation and California Attorney General Xavier Becerra has said PG&E could face murder or manslaughter charges related to the state's deadly wildfires last fall.