The marriage between Exelon and PSEG would create the largest electric utility in the United States. The policy implications could loom even larger, however. Standing at risk is nothing less than...
insisted that it may take regulatory action that it deems "appropriate" under the Federal Power Act, and so long as that action serves a regulatory purpose, "even if that action conflicts with a course taken by the bankruptcy court." 10
In other words, FERC conscripted NRG-PMI's performance despite finding no issue of health, safety, or reliability, and despite the Congress having vested exclusive jurisdiction in the bankruptcy courts-and not the FERC-to oversee the property of a bankruptcy estate (such as in this case, the cash expended to perform the CL&P contract). Thus, the commission's action disregards the court's recent reminder to all that "where Congress has intended to provide regulatory exceptions to provisions of the Bankruptcy Code, it has done so clearly and expressly." 11
As a consequence of FERC's decision, NRG-PMI risks running out of cash and potentially faces liquidation. FERC's articulation for why it has done this does not square with its obligation to give effect to the Bankruptcy Code and bankruptcy court decisions. 12
Whither Rights of Creditors?
Apart from stripping NRG-PMI of its right to reject burdensome contracts and jeopardizing its reorganization efforts, FERC's action prefers CL&P over other creditors in violation of the non-discrimination provisions of the Bankruptcy Code. Though CL&P is deemed under the Bankruptcy Code to have a prepetition general unsecured claim for damages from NRG-PMI's rejection of the contract, FERC's order prefers CL&P's claim over those of all other unsecured creditors by granting specific performance as a remedy, thus forcing NRG-PMI's creditors and bankruptcy estate to subsidize CL&P's below market rate to the tune (according to NRG-PMI) of $500,000 per day. Indeed, FERC expressly acknowledged its motivation is to prefer CL&P over other creditors-despite bankruptcy's requirement for equal treatment for all creditors in the same class.
The commission explained that it required NRG-PMI to continue because otherwise, CL&P would "be treated as any other unsecured creditor in NRG's Energy's bankruptcy," and would "be unlikely ever to recover the full difference between the rate at which NRG-PMI agreed to supply them with energy and the amount NRG-PMI's cessation will force them to pay." Yet that is exactly what every other creditor of NRG-PMI faces. In short, FERC gave higher priority to CL&P for no reason other than to give CL&P customers a windfall.
FERC's immediate objective might be laudable, but it is not consistent with the law or sound public policy. Yet FERC need not resort to protectionism for parochial interests because the wholesale power sector has the depth and maturity to survive any wave of bankruptcies that might befall it.
As Commodities Futures Trading Commission Chairman James Newsome recently stated, "Deep, liquid markets coped well" following Enron's bankruptcy and "prices did not spike and liquidity did not dry up. … [The] system of financial controls in place was successful. There were no disruptions to the system of clearance and settlement, and each trader met its obligations." 17 By mandating specific performance and potentially preventing NRG-PMI from reorganizing, FERC risks frustrating the efficient reorganization of debts and assets the Bankruptcy Code permits. Perhaps