A fierce debate has erupted in the utility policy community, with battle lines drawn within FERC itself. In the effort to improve system efficiency, two competing alternatives stand out: to build...
bankruptcy court. Such an approach would promote stability and becalm (to some degree) the tumultuous seas on which many energy merchants find themselves. Either way, both the present and future will be affected. Looming uncertainty regarding who is the final arbiter (FERC or the bankruptcy court) of whether a debtor can reject unprofitable power contracts means energy merchants have more aspects to consider before filing for bankruptcy. For some, bankruptcy may no longer be meaningful. For the future, a complex and uncertain allocation between FERC and the courts could stunt budding efforts to supply standard-offer-service and provider-of-last-resort services by competitive procurement, as well as other competitive initiatives.
Oral argument in the appeal to the Fifth Circuit is scheduled for May 5, 2004.
- See Kenneth Irvin and Robert Loeffler, "Restructure or Bust?: Why FERC Must Yield to Bankruptcy Law," , Oct. 1, 2003, at 17.
- Section 365 gives a debtor the right, upon bankruptcy approval, to breach the contract in question, and makes the debtor liable only for damages (albeit generally as a general unsecured pre-petition claim). Despite a rejection, the debtor is also liable for any and all amounts owed from the creditor's performance after the bankruptcy filing, which is referred to as an administrative expense. See 11 U.S.C. §§ 365, 503.
- Matt Daily, "Utilities Shunning Power Markets With New Plants," Reuters, March 2, 2004, available at
also reported in Energy Central, available at
- , No. 03-3754, 2003 WL 21507685 (S.D.N.Y. June 30, 2003) (District Court's NRG Decision); ), Order Upholding Contract, 104 FERC 61,210 (2003); , 104 FERC 61,211 (2003) (). In its Rehearing Decision issued Aug. 15, 2003, FERC ruled that it could force a merchant generator to continue to perform under a forward power contract even though the bankruptcy judge had already allowed the merchant generator to reject the contract.
- In , 303 B.R. 304 (N.D. Tex. 2003) (District Court's Mirant Decision); see also (In ), 299 B.R. 152 (Bankr. N.D. Tex. 2003) (Bankruptcy Court's ).
- District Court's at 307.
- Bankruptcy Court's , 299 B.R. at 158-63, 169-70 (exercising its authority to enter "necessary or appropriate" orders by entering preliminary injunction preventing FERC from requiring debtors to perform under PEPCO agreements and thereby impairing debtors' ability to reject those contracts).
- at 170.
- at 161-62 (noting that there are other particular exceptions to the general authority to reject contracts in section 365, such as those for commodities or collective bargaining agreements).
- See at 163 (citing decisions "consistently" holding debtors may not be required to perform rejected contracts) (citations omitted).
- District Court's , 303 B.R. at 310-11.
- , 824 F.2d 1465 (5th Cir.), amended, 831 F.2d 557 (5th Cir. 1987).
- District Court's , 2003 WL 21507685, at *3 (finding that wholesale power contract between NRG and Connecticut Light and Power fell within FPA's purview and FERC's exclusive jurisdiction); see also District Court's , 303 B.R. at 313-18 (agreeing with District Court's and holding that FERC has exclusive jurisdiction over wholesale sales of electric energy in interstate commerce).
- District Court's at 317 ("In effect, Debtors are asking