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Commission Watch

The developing jurisdictional battle over authorizing rejection of wholesale power supply agreements is getting white-hot, pitting creditors against ratepayers.
Fortnightly Magazine - September 1 2003

CL&P to supply standard offer service to its Connecticut ratepayers. The SOSA provides for a fixed price through Dec. 31, 2003. Rejection of the contract by NRG-PMI would make it necessary for CL&P to obtain alternative, higher-cost power to serve its more than 1 million customers.

Following the bankruptcy court contract rejection order and a subsequent temporary injunction order from the United States District Court for the Southern District of New York, NRG-PMI discontinued providing service under the SOSA. No doubt recognizing an uphill fight in the bankruptcy court, the Connecticut attorney general and the Connecticut Department of Public Utility Control immediately initiated proceedings at the commission. They asserted that FERC jurisdiction superseded bankruptcy court jurisdiction concerning the matter of whether NRG-PMI could discontinue performance of the SOSA. On June 25, 2003, FERC issued its order directing NRG-PMI to recommence supply under the SOSA, holding that any discontinuance of supply under the SOSA would be governed by the Mobile-Sierra public interest standard and establishing procedural protocols and a schedule by which FERC would determine whether termination of service would be permitted. FERC's order explicitly provided that NRG-PMI would be required to continue performing the contract while FERC proceedings remained pending prior to a final decision.

On June 30, 2003, the United States District Court for the Southern District of New York vacated its previous injunction and deferred to FERC jurisdiction, triggering NRG-PMI's emergency appeals for relief from the FERC order with the United States Court of Appeals for the District of Columbia Circuit and the United States Circuit Court of Appeals for the Second Circuit. Given the stakes involved, it is likely that the parties will seek to exhaust all available appellate remedies to obtain final resolution of this matter. It is notable, as well, that NRG-PMI is not alone in confronting these issues. Similar substantial contractual issues exist in the Mirant and PG&E National Energy Group bankruptcy cases that are already pending, and comparable issues are likely to arise in future cases given the current economic climate in the merchant power sector.-H.L.S.

Setting Precedent

How prior clashes between bankruptcy law and federal law have been resolved.

The current jurisdictional battle between FERC and the bankruptcy courts is not the first clash between bankruptcy law and nonbankruptcy federal law or policy. Courts, administrative agencies, and legislators have grappled with such clashes in the past in the areas of federal labor law and federal environmental law. These previous clashes may be instructive as to how the present battle may be resolved.

Federal Labor Law

Significant legal debate existed in the past concerning the ability of a bankruptcy court to authorize rejection of a collective bargaining agreement under the generally applicable business judgment test. The opponents of such rejection argued that the National Labor Relations Act trumped bankruptcy laws in this regard. After a period of court skirmishes over this issue and a significant U.S. Supreme Court decision, Congress passed legislation seeking to rationalize and accommodate the competing standards. Specifically, a separate section of the Bankruptcy Code was enacted to govern rejection of collective