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

The commission's power grab over bankruptcy courts condemns merchants to a corporate netherworld.
Fortnightly Magazine - May 2004

25 and appears to have overstepped some bounds. Nevertheless, the reasoning of the bankruptcy court regarding why it can authorize rejection of wholesale power contracts rings true: (1) The Bankruptcy Code contains no exception for forward energy contracts to the debtor's general power under section 365 to reject contracts, unlike several expressly stated exceptions covering other types of contracts; and (2) the Supreme Court has ruled that when Congress intended to exempt certain types of executory contracts from section 365, Congress did so explicitly. 26

At the other extreme, the district court's decision in goes too far in the opposite direction (along with the district court in ). Those decisions deprive merchant energy companies, and all but a select few of the creditors with whom they deal, of the full panoply of rights under the Bankruptcy Code enjoyed by most other companies (including others regulated under the FPA).

How FERC and Bankruptcy Courts Can Work Together

We see no logical reason why the interests protected by the Bankruptcy Code and those protected by the FPA cannot be served in harmony. When two statutes are capable of co-existence, the Supreme Court instructs that courts must, absent a clearly expressed congressional intention to the contrary, regard each as effective.27 Accordingly, FERC and the courts should read the Bankruptcy Code and the FPA "to give effect to each if [they] can do so while preserving their sense and purpose." 28

In this jurisdictional conflict, FERC clearly has a legitimate role in determining whether performance of a supply agreement can and should be discontinued. FERC bears significant responsibilities to ensure a safe and stable power supply, and the bankruptcy court has no right to impede fulfillment of those responsibilities. FERC's powers are at their zenith when it acts within its police and regulatory powers.

However, when one of the parties is bankrupt, a whole new set of interests arises under the Bankruptcy Code. In that case, the authority of FERC must yield to some degree in determining what to do about unprofitable power supply agreements because Congress vested courts with exclusive jurisdiction over a debtor's property and set forth in the Bankruptcy Code the federally prescribed process for dealing with creditors and interest holders. Indeed, exclusive FERC jurisdiction in this arena would repose in FERC responsibility for considering rights of those completely foreign to its mandate. Ordinary general unsecured creditors (e.g., the coffee vendor, the office supply store, and others) will be left holding the proverbial bag if FERC follows its thinking in and compels continued performance of wholesale power supply contracts because the load-serving entity would otherwise "be treated as any other unsecured creditor" in a debtor's bankruptcy. 29

The courts' exclusive jurisdiction over property of the debtors and their estates should be respected. At the same time, courts should refrain from over-reaching, such as by enjoining a regulatory agency like FERC from fulfilling its own mandate to protect the public interest.

We hope the Fifth Circuit sees fit to provide a reasoned means for affording comity to the respective authority of FERC and the