Why FERC must yield to bankruptcy law.
Mr. Irvin and Mr. Loeffler are partners in the Washington, D.C., office of Morrison & Foerster LLP, with expertise in bankruptcy and energy law. The authors wish to express appreciation for the assistance of Edward Twomey, of counsel with the firm’s energy group, and William McCarron, an associate in the firm’s bankruptcy and restructuring group.
How will regulators react if the current trickle of bankruptcies within the debt-laden merchant power sector should suddenly become a torrent? Will they encourage the necessary restrcturing of debt, or will they stand in the way?
PG&E National Energy Group and Mirant recently filed bankruptcy. Exelon just walked away from seven plants near Boston. Speculation abounds that Edison Mission may be a candidate for bankruptcy protection.1 All this suggests that a new set of owners, whether they be creditors or new investors, could well take over the merchant sector, with a likely and perhaps dramatic scaling back of operations.
There is nothing inherently wrong with this looming financial restructuring. The Bankruptcy Code offers a ready road map for the working out of debt. Many insolvent businesses have emerged successfully, including some utilities. The trick lies in balancing the concerns of creditors with ratepayer rights and the public interest, as protected under the Federal Power Act.
Lately, however, the road to solvency has taken a wrong turn. In a recent ruling, the Federal Energy Regulatory Commission (FERC) has upset the delicate balance between creditor and ratepayer. This ruling, known as Blumenthal v. NRG Power Marketing Inc. (NRG Marketing),2 does not bode well for maintaining a consistent approach to balancing the competing interests.