On March 30, 2020, FERC issued an order establishing a paper hearing to evaluate Energy Harbor LLC’s (formerly known as FirstEnergy Solutions Corp.) proposed rejection in bankruptcy of a variety of FERC-jurisdictional contracts (“Jurisdictional Contracts”). FERC’s order follows a recent decision of the United States Court of Appeals for the Sixth Circuit ordering the bankruptcy court to take public interest factors into account when reviewing the proposed rejection of the Jurisdictional Contracts, and to invite FERC to provide its opinion on the issue (see December 19, 2019 edition of the WER). FERC initiated the paper hearing to consider these public interest factors.
As background, in March 2018, FirstEnergy filed for Chapter 11 bankruptcy protection and sought to reject the Jurisdictional Contracts. A day later, FirstEnergy filed an adversary complaint against FERC seeking both a declaratory judgment that the bankruptcy court’s jurisdiction is superior to FERC’s and an injunction to prevent FERC from interfering with the bankruptcy court’s rejection of certain power purchase agreements under FERC’s jurisdiction. The bankruptcy court subsequently ruled that it has exclusive and unlimited jurisdiction to decide whether FirstEnergy could reject the contracts at issue, enjoined FERC from taking any further action on the matter, and held that FirstEnergy could reject the Jurisdictional Contracts under the business judgment rule.
On December 12, 2019, the Sixth Circuit held that the bankruptcy court had superior concurrent, as opposed to exclusive and unlimited, jurisdiction over whether FirstEnergy may reject its power purchase agreements in bankruptcy but reversed the bankruptcy court’s injunction and holding regarding the rejection of the Jurisdictional Contracts. The Sixth Circuit rejected the bankruptcy court’s application of the business judgment rule and held that, in the bankruptcy court’s reconsideration of the proposed rejection of the Jurisdictional Contracts, it must instead use a higher “public interest” standard. The Sixth Circuit also held that, on remand, the bankruptcy court must allow FERC to participate and provide its opinion regarding the public interest standard. Additionally, FERC petitioned the Sixth Circuit for rehearing en banc of the court’s decision (see February 6, 2020 edition of the WER), but, after review, the Sixth Circuit denied this petition.
FERC established the paper hearing to consider the public interest factors relevant to the proposed rejection of the Jurisdictional Contracts. Specifically, FERC’s order directs Energy Harbor to submit a filing within 30 days of the order identifying each Jurisdictional Contract that Energy Harbor proposes to reject in bankruptcy and providing the following information on each contract:
- The status of any negotiations regarding rejection with the counterparty to the contract;
- An explanation as to why the rejection of the contract satisfies the public interest standard, and how this has been impacted by Energy Harbor’s bankruptcy proceedings;
- All data and other evidence supporting the conclusion that rejection of the contracts is in the public interest; and
- Any other arguments or evidence that Energy Harbor believes would be applicable.
FERC provided that each counterparty to a Jurisdictional Contract may submit a response within 30 days of Energy Harbor’s filing arguing why rejection of their contract is not permitted under the public interest standard. Energy Harbor may respond to such counterparty responses within 15 days of their submissions. FERC also noted that, due to the Sixth Circuit’s rejection of the bankruptcy court’s rejection of the Jurisdictional Contracts, FERC still considers all of the Jurisdictional Contracts to be in effect unless otherwise terminated.
A copy of FERC’s order is available here.