Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Commission Watch

Why FERC must yield to bankruptcy law.
Fortnightly Magazine - October 1 2003

more importantly, FERC's decision could have a graver impact by stifling new investment and the deployment of newer, more efficient technologies.

Stated differently, FERC is needlessly injecting increased risk and uncertainty about a debtor's ability to shed burdensome contracts through bankruptcy. This increased uncertainty is unwelcome, and it ultimately sabotages efforts to attain the very stability FERC seeks for the wholesale energy sector.

A Better Role for FERC

To be sure, the Bankruptcy Code recognizes a continuing role for state and federal regulatory agencies with respect to entities in reorganization or liquidation. In the past, FERC has moved cautiously with respect to regulatory actions that might conflict with the jurisdiction of the bankruptcy court. In NRG Marketing, the commission took an aggressive view of its powers and precipitated unnecessarily, in our view, a jurisdictional battle with the bankruptcy court. The commission was quite conscious of the effects of its action; its own chair remarked that the limits of its power were uncertain, but nevertheless the commission "ought to take it on and let the court tell us if we have a right to do it or not." 18

FERC's collision course with the Bankruptcy Code can readily be avoided by an equitable approach that affords comity for bankruptcy court decisions and balances the public interest under the Federal Power Act with that under the Bankruptcy Code. In the absence of contractual rights to terminate because of a bankruptcy, the FCC's discontinuance requirements for bankrupt providers offers a useful paradigm which has already worked in the context of telecom bankruptcies. Federal Communications Commission (FCC) regulations ensure customers are given adequate notice of an impending termination of service by mandating notice and an orderly transition commencing with an application to the FCC for permission to discontinue service. 19 In its application, the carrier must state that it has given notice to customers of its intent to discontinue service and invite comments by any who think they would be adversely affected by the discontinuance. Applications are granted automatically 31 days after the FCC issues public notice of the application unless the FCC notifies the carrier otherwise. Thereafter, the counter party to the rejected contract can prosecute its claim for damages in the bankruptcy proceeding. The proper inquiry for considering the application is on health, safety, and reliability-not debtor/creditor issues. 20

Applied in NRG-PMI and other cases involving FERC jurisdictional contracts where the contract does not terminate because of the bankruptcy, NRG-PMI could have applied for discontinuance to FERC on May 14, 2003, the day it filed its bankruptcy petition and motion to reject its contract with CL&P. Thirty-one days after FERC's issuance of a public notice of the application, NRG-PMI then could have terminated service absent any indication that CL&P could not readily procure substitute power at just and reasonable rates. To the extent a bankruptcy court determined rejection and ceasing performance of a power supply agreement served the best interests of creditors, FERC should not trample on that determination by substituting its own judgment for that of the bankruptcy court. FERC should confine its