"We view the [Entergy-ITC] transaction [as] an attempt to extract excess value."-Mississippi PSC
The Road Ahead
The failure of the Court of Appeals in to adopt a complete standard, especially after having found the business judgment standard to be inappropriate, is somewhat puzzling. The Fifth Circuit, in its opinion, did not explain why it delegated that task to the lower court. The issue of what standard should be applied would seem, on its face, to be a pure issue of law, the kind routinely addressed by appellate courts. The parties' briefs to the Fifth Circuit discussed at length how to read together the code and the FPA. While the opinion remanded the matter for further proceedings consistent therewith, it did not indicate what further steps would be needed or appropriate to establish the standard. 27
The scope of the "no disruption" criterion imposed by the Fifth Circuit potentially is a critical issue. The argument has been made, quite persuasively in prior articles, 28 that bankruptcy courts should defer to the primary role of FERC when a contract rejection dispute involving a FERC-jurisdictional rate raises issues of health, safety, or reliability. That is consistent with the recognition of regulatory agency police and enforcement powers in Section 362(b)(4) of the code, in the context of exceptions to "automatic stay" provisions, as well as with basic notions of the public interest and the role of FERC. Whether the boundary of the "no disruption" criterion is coextensive with concerns of health, safety, and reliability remains to be seen.
The approach otherwise taken by the Court of Appeals-suggesting, but not mandating a hybrid standard-would appear to heighten, at least in the short term, the uncertainties that face financially troubled energy companies and their actual and potential counter-parties.
This "win" for the side that favors bankruptcy court jurisdiction, even if sustained and adopted by other courts, might be of limited value to that side, moreover, depending on what standard ultimately is adopted and how it is applied. If the "balance of the equities" standard is adopted, and the combination of that approach and the "no disruption" criterion leads to results that are the same as or similar to those that FERC would reach under the FPA, then financially troubled companies might gain relatively little by the change in venue. Also, the transfer of the determination of traditional "FERC issues" from the expert agency to bankruptcy courts acting with the assistance of FERC might be of limited value or inefficient.
Finally, as acknowledged in the more recent article in the , 29 for a financially troubled company to have a readily available exit strategy from a contract can be a mixed blessing. Potential counterparties that are considering doing business with financially troubled companies, when assessing performance and credit risks, presumably will analyze the risks that the company may go into bankruptcy and seek to reject a contract. Whether or to what extent energy markets already have or have not internalized those risks is very difficult to ascertain at this point. That risk analysis, in some cases, might result in a decision not to do business, more stringent terms and conditions,