Commission Watch

FERC Versus Bankruptcy Jurisdiction:

Two recent articles in the ¹ discussed conflicts that have emerged in the last 18 months over the respective jurisdictions of bankruptcy courts under the Bankruptcy Code² and the Federal Energy Regulatory Commission (FERC) under the Federal Power Act.³ This occurs when a debtor seeks the bankruptcy court's approval under Section 365(a) of the code⁴ to reject a wholesale electricity sales contract that is a FERC-jurisdictional rate. Another pending high-profile dispute involves the respective jurisdictions of FERC and the bankruptcy courts when a debtor seeks to enforce, rather than reject, such a contract.⁵

The jurisdictional conflict may have even broader impacts on the electricity and the natural gas industries. While the context of the disputes has been wholesale electricity sales contracts, similar disputes could arise if a debtor were to seek to reject electricity transmission or inter-state natural-gas transportation contracts that are FERC- jurisdictional rates.

The United States Court of Appeals for the Fifth Circuit, in its opinion issued on Aug. 4, 2004,,⁶ ruled in favor of bankruptcy court jurisdiction over requests to reject FERC-jurisdictional wholesale electricity sales contracts. Yet, as discussed below, the court did not resolve- and arguably magnified-uncertainties about the standard that should be employed by a bankruptcy court in considering such a request, essentially leaving the task of establishing the standard to the lower court, while suggesting but not mandating a hybrid standard.⁷