Power Purchase Agreements in Bankruptcy: Concurrent Interests Under the Bankruptcy Code and Federal Power Act

Description

Bankruptcy Code Section 365 gives a debtor the power to "reject," or to cease performing under, an ongoing contract. For most contracts, a debtor only needs to show that the rejection is an appropriate exercise of its business judgment because the contract is financially burdensome. The treatment of PPAs, however, is more complicated because the Federal Energy Regulatory Commission (FERC) has jurisdiction over the sale of wholesale electric energy.

In energy industry bankruptcies, the issue becomes whether a U.S. bankruptcy court has sole and exclusive jurisdiction to determine a debtor's motion to reject an executory contract, or whether FERC has a role. On June 22, 2020, FERC issued an order concluding that FERC and the U.S. bankruptcy courts have concurrent jurisdiction to review and address the disposition of natural gas transportation agreements that a debtor seeks to reject under Section 365(a) of the Bankruptcy Code (11 U.S.C. §§ 101 et seq.).

But this order has not resolved the issue and what little judicial guidance exists is often inconsistent. Counterparties to PPAs remain uncertain as to what to expect and what positions to take. Thus, there remains considerable uncertainty and debate on the role and jurisdiction of FERC in the context of any proposed rejection of PPAs in a bankruptcy.

Listen as our authoritative panel of bankruptcy practitioners discusses the divergent law on the challenging issues that may arise if an energy industry debtor attempts to reject its PPAs and provides bankruptcy counsel with an understanding of how it might affect the treatment of PPAs in bankruptcy proceedings.