On June 22, 2020, FERC issued a declaratory order confirming its view that it shares jurisdiction with the United States Bankruptcy Court (“Bankruptcy Court”) over transportation agreements between ETC Tiger Pipeline, LLC (“ETC Tiger”) and Chesapeake Energy Marketing L.L.C. (“Chesapeake”). As a result, aside from obtaining approval from the Bankruptcy Court to reject its contracts with ETC Tiger, Chesapeake must seek a determination from FERC as to whether a filed rate may be modified or abrogated under the Natural Gas Act (“NGA”).
Chesapeake notified the Securities and Exchange Commission on May 11, 2020 that it was considering filing for Chapter 11 bankruptcy. In response, ETC Tiger asked FERC to confirm its exclusive jurisdiction over Chesapeake’s transportation agreements, and that FERC must approve any amendment or abrogation of the agreements before the Bankruptcy Court can reject them. ETC Tiger argued that FERC’s rationale for asserting jurisdiction over wholesale power contracts facing bankruptcy should equally apply to agreements under the NGA. ETC Tiger also noted that most courts that have addressed the issue have found at least concurrent jurisdiction and allowed FERC to opine as to whether rejection of the contracts was in the public interest (see April 8, 2020 edition of the WER).
FERC confirmed that the filed rate doctrine and Mobile-Sierra presumption apply equally to contracts under sections 205 and 206 of the Federal Power Act and sections 4 and 5 of the NGA. Accordingly, FERC concluded that any party seeking to reject a FERC-jurisdictional agreement under the NGA in bankruptcy must obtain approval from both FERC and the Bankruptcy Court to modify the filed rate and reject the contract. With respect to timing, however, FERC did not agree with ETC Tiger that its approval must occur before the Bankruptcy Court could determine whether to reject the contracts. According to FERC, its jurisdiction is concurrent with, not superior to, the Bankruptcy Court’s. While FERC acknowledged the law in this area is unsettled, it noted the Supreme Court’s recent decision in Mission Product supports its position that although a shipper could move to reject a contract in Bankruptcy Court without FERC’s approval, both FERC and the court must ultimately address the disposition of natural gas transportation agreements sought to be rejected through bankruptcy.
A copy of the order is available here.