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Smackdown! Round Three - The Bankruptcy Court vs. FERC

The jurisdictional battle over authorizing rejection of wholesale power contracts continues.

Fortnightly Magazine - April 2006

rejection. Otherwise, a number of future smackdown rounds are likely in a continuing see-saw battle.



1. Dow Jones Newswires, Feb. 2, 2006.

2. Blumenthal v. NRG Power Marketing Inc., 105 FERC ¶ 61,292. While no appellate court guidance resulted from round one, the following excerpts from the concurring opinion of Commissioners Brownell and Kelliher to the December 2003 FERC order approving the settlement are noteworthy:

We support the proposed settlement of the contract dispute relating to NRG-PMI’s provision of wholesale service to CL&P. We are writing separately to express our view that the commission should not have involved itself in this dispute in the first place…. It is unusual for the commission to involve itself in contract disputes when the parties can avail themselves of any breach of contract claims they might have in court.

The original FERC order that took jurisdiction over the NRG matter away from the bankruptcy court and mandated continued NRG-PMI contract performance was issued over the dissent of Commissioner Brownell and prior to the time of Commissioner Kelliher’s and Commissioner Kelly’s appointments to the FERC.

3. Mirant v. Potomac Electric Power Co., 378 F.3d 511.

4. The back-to-back contracts at issue in Mirant were entered into as part of a larger asset purchase agreement. PEPCO asserted, and the district court agreed, as the primary basis for its decision on remand, that the back-to-back contracts were not severable from the overall purchase transaction and thus could not be rejected separately when the remainder of the transaction had been performed. While the district court decision following remand was the subject of another appeal, Mirant emerged from Chapter 11 in January 2006. Interestingly, Mirant’s Chapter 11 plan provided securities to Mirant creditors equivalent to the full value of their claims. Thus, even if rejection of the PEPCO back-to-back power contracts had been authorized, it is likely that any PEPCO damage claim would have been fully compensated.

5. When FERC considered the application for approval of the indirect transfer of jurisdictional facilities in Mirant Corp., 111 FERC ¶ 61,425 (June 17, 2005), several protests were raised concerning the potential impact on Pepco ratepayers arising from the then pending back-to-back contract rejection. FERC responded to those protests as follows:

  38. The decision of Pepco to enter into the back-to-back agreement is best viewed as a matter of business judgment where the risk of non-performance was a factor to be considered, among many other factors, in deciding whether to sell facilities at certain prices. Pepco could have negotiated for greater security of its revenues, but did not, and now finds itself an unsecured creditor under an executory contract with a bankrupt estate. The protestors are, in essence, asking us to do indirectly what we could not do directly, namely, to assure that Pepco obtains full recovery of its contract revenues at the expense of other creditors and, perhaps, the successful emergence of a reorganized company from bankruptcy. In these circumstances, the commission is not convinced that such action is consistent with the public interest.

  39. We are not persuaded