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...
regardless of whether the agreement is unprofitable. 14 The court concluded Mirant's rejection motion was essentially a challenge to the rates of the Back-to-Back Agreement and rejected it on the basis of the "filed-rate doctrine." 15 The district court ruled "the right to a reasonable rate is the right to the rate" FERC approves, and neither the district court, nor the bankruptcy court could set a different rate "on the ground that it is the only or the more reasonable one." 16
The district court dismissed Mirant's arguments that it could reject the contract under the Bankruptcy Code based on its anticipated losses of $300 million through 2005 and its business judgment that the contract was bad for Mirant's creditors and hopes for reorganizing. The court counseled the debtors to plead their cause to FERC based on the Mobile-Sierra doctrine, which allows modification or abrogation of a wholesale power contract in those limited circumstances where it imposes a crushing economic burden on the obligor, among other grounds. 17 The court quoted FERC precedent that "the fact that a contract has become uneconomic … does not necessarily render the contract contrary to the public interest" 18 but did not explain what that means in light of the court's exclusive jurisdiction over the debtors' property. 19 The court demurred, stating only that because of its specialized knowledge, FERC alone is entitled to consider "whether the rate is so low as to adversely affect the public interest-as, where it might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory." 20
The district court also overlooked the fact that the Bankruptcy Code provides an exception from the automatic stay for most energy companies with forward contracts, which (under customary contract terms) allows the non-debtor party to terminate the agreement when its counterparty files bankruptcy. 21 The court's decision alters the lay of the land in that an energy merchant debtor, which is out-of-the-money in a forward supply agreement, cannot escape that contract through bankruptcy unless FERC consents, but a load-serving entity out-of-the-money in contract with a debtor can terminate without FERC's or the bankruptcy court's involvement.
In all, the district court's decision does not really address the other side of the story, and swings too far in the opposite direction from the bankruptcy court's overly aggressive injunction. The district court barely acknowledged its exclusive jurisdiction over Mirant's bankruptcy estate, and it did not explain how compelling a debtor to supply power under a money-losing contract squares with the rights of other creditors, whose claims are necessarily diminished by continued performance of the energy contract at pre-bankruptcy prices. Nor did the court reconcile with its conclusion the "vital" importance to a debtor of rejecting burdensome contracts under section 365. 22
The district court did limit its ruling to some extent. It suggested a different outcome was possible where a party challenges FERC jurisdictional contracts for reasons other than "rates" (for example, where there is alleged fraud and deceptive trade practices). Citing the Fifth