Feds seek plug-and-play for distributed generation, but utilities want the power to stay local.
Pity the poor Federal Energy...
honor that contract until it should prove to FERC that terminating performance of the contract would satisfy the public interest. 3 So let's examine how the commmission chose to define that term.
In the case in question, FERC ruled that NRG-PMI would meet this requirement-to prove that terminating performance would serve the public interest-only by showing that the contract might "impair the financial ability of the [debtor] to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory."sup>4 Until then, NRG-PMI would be required to continue supplying wholesale power to its contractual counterparty, Connecticut Light & Power (CL&P).
In its followup order issued Aug. 15, FERC again reviewed NRG-PMI's arguments for why it should be allowed to terminate the CL&P contract. It ruled that terminating the contract did not satisfy the public interest because CL&P would not realize 100 cents on the dollar for each dollar of damages terminating the contract would cause CL&P.
In essence, FERC put itself in the role of a guarantor of CL&P's economic position. In essence, FERC ordered specific performance for a forward contract that expressly provided damages as the sole remedy available for a breach.
FERC's analysis in the NRG Marketing case seems clearly to have applied the wrong metric for the task the commission had to accomplish.
At the heart of it, FERC focused on whether NRG-PMI had met the legal standard for abrogating or modifying a power contract. In applying that standard, known as the doctrine, FERC likened NRG-PMI's right under the Bankruptcy Code to reject a contract to a contractual right-to modify or abrogate the contract. 5 Thus, FERC overlooked the distinction long-established that a debtor exercising its right of rejection under the Bankruptcy Code effects not a modification but a breach of contract-a result for which the Bankruptcy Code (never mind the contract) prescribes money damages alone (not specific performance) as the redress of the counterparty. 6
To compound the error, FERC chose not to focus on questions most clearly linked to its lawful jurisdiction: namely, whether issues concerned with health, safety, or reliability warranted some kind of action to deny immediate effect to the bankruptcy court's determination that creditors were best served by excusing performance of the contract. Instead, consider where FERC hung its hat. The commission instead chose to preserve the favorable price that CL&P, the retail utility, had and would enjoy under its power purchase contract with NRG-PMI, the merchant generator. For the commission to conscript performance on these terms must contravene the core elements of the Bankruptcy Code. Yet FERC articulated no basis for its decision, other than its desire that CL&P would receive preferential treatment-better treatment than that afforded to all other creditors of NRG-PMI.
What the Law Requires
FERC showed some slight glimmer of hope for not confusing the separate but equally important roles of FERC and the bankruptcy courts when, in a separate and more recent case, it denied a complaint filed by Vermont Public Power Supply Authority (VPPSA) against PG&E Energy Trading (ET) that sought a FERC order directing ET's