B. The Debtors’ FERC-Regulated PPAs
Recent changes in the energy landscape have significantly altered the Debtors’ procurement needs going forward. See Wan Decl. ¶ 9. Specifically, the Debtors’ current electricity supply portfolio, decreasing bundled electric load, i.e., customer demand, and continuing state regulatory oversight now require that the Debtors comprehensively assess how each PPA fits within the Debtors’ energy portfolio. Id. ¶ 9.
As of December 2017, the Debtors’ PPAs represent contractual commitments aggregating approximately $42 billion. Id. ¶ 10. As of January 2019, the Utility is a counterparty as buyer under at least (387) PPAs, which involve approximately three hundred fifty (350) counterparties, for a total of approximately 13,668 Megawatts of contracted capacity. Id. Many of the Utility’s PPAs are long-term contracts to procure renewable energy resources, which the Utility entered into to satisfy renewable energy requirements set by the State of California. Id. ¶¶ 11-12. These contracts obligate the Debtors to purchase energy at rates that are significantly higher rates than are currently available to their competitors. Id. ¶ 13. Moreover, in recent years, the number of customers receiving electric supply service from the Debtors, and the amount of electricity that the Utility is providing to those customers, has decreased significantly due to multiple factors, including the expansion of Direct Access (“DA”) and Community Choice Aggregation (“CCA”) providers in California. Id. ¶¶ 18–23.
Given the fact that many of the Debtors’ power supply contracts are at above-market rates, and in light of the decrease in the Debtors’ bundled electric load, the Debtors have undertaken significant efforts to reduce their supply portfolio in recent years. Id. ¶¶ 15–17. These efforts include the retirement of the Utility’s 2,200 Megawatt Diablo Canyon facility at the end of its current operating license, efforts to divest certain hydroelectric facilities in the Utility’ s portfolio, and entering into contracts to re-sell electricity and other excess capacity products. Id. All of the Debtors’ major supply portfolio decisions are subject to review by the California Public Utilities Commission (“CPUC”), including through the CPUC’s biennial review of the Debtors’ and other investor-owned utilities’ (“IOUs”) procurement plans, as well as via other regular proceedings. Id. ¶¶ 24–26. Notably to the Debtors’ assessment of their PPAs, the CPUC recently indicated that it will consider the portfolio optimization activities of California’s IOUs, all of which are losing substantial electric customer load in 2019, including allocation of third-party contracts to DA and CCA providers and auctioning off excess resources. Id. ¶ 25.
Simply put, if the Debtors do not need the power or other capacity products provided under the PPAs to meet customer demand, satisfy, applicable laws, or advance important policy objectives, they may decide that the most prudent avenue is to reject certain PPAs in the exercise of their business judgment. While it is entirely possible that the Debtors ultimately decide to reject none, or a very limited number, of their PPAs, the Debtors will sustain irreparable harm if FERC were to compel a different outcome that which the Debtors, in their business judgment and subject to this Court’s approval, determine is most likely to result in their successful reorganization. Id. ¶ 27.