In re: FirstEnergy Solutions Corp

Over a dissent, the Sixth Circuit holds that FERC may offer its opinion but may not bar a bankruptcy court from rejecting a power purchase agreement after considering the public interest.

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Case Status:
Affirmed in part and Reversed in part
Nos. 18-3787/3788/4095/4097/4107/4110; File No. 19a0294p.06 (6th Circuit, Dec 12,2019) Published
The Sixth Circuit determined that the necessity of available and functional bankruptcy relief is generally superior to the necessity of Federal Energy Regulatory Commission's having complete or exclusive authority to regulate energy contracts and markets.. While the bankruptcy court's jurisdiction is not exclusive, its position in the concurrent jurisdiction with FERC is primary or superior to FERC's position. The bankruptcy court may enjoin FERC from issuing orders which conflict with the bankruptcy court's orders. Power contract rejection involves considering the public interest.
Procedural context:
Debtor, which distributes electricity, filed a Chapter 11. It filed an adversary proceeding to enjoin FERC from interfering with its plan to reject certain electric-purchase contracts that FERC had previously approved. The babnkruptcy court determined it had exclusive jurisdiction and enjoined FERC from taking any action. The Court then applied the ordinary business judgment rule and authorized the debtor to reject the electric-purchase agreements, which the debtor did. Each of the opposing parties appealed and sought leave for a direct appeal to the Sixth Circuit -which was grannted, The Sixth Circuit consolidated the appeals from both the injunction and contract rejection orders.
There was no question that the contracts for the purchase of electricity were burdensome to the debtor. The debtor would lose millions of dollars if it was forced to continue them. FERC argued that it, and not the bankruptcy court, had jurisdiction, The Sixth Circuit tired to harmonize the jurisdiction between the bankruptcy court and FERC. The Sixth Circuit found that Section 105 allows a bankruptcy court to enjoin actions of FERC which would affect the bankruptcy court's ability to determine whether the electric-power purchasing contracts could be rejected. But FERC could determine the public impact caused by any rejection and should be offered the opportunity to participate in the bankruptcy. The dissent accepted the argument that the filed contracts are more than just contracts- they become filed rates- and they cannot be rejected as the majority claimed. The majority (2-1 decision) concluded that when a Chapter debtor moves the court for permission to reject a filed energy contract, otherwise governed by FERC, it must consider the public interest and the equities, and invite FERC to participate and provide an opinion in accordance with ordinary FERC approach, within a reasonable time.
Batchelder, Griffin and Donald

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