By Ronald Silverman, John Beck and Katherine Lynn (Hogan Lovells)
The Fifth Circuit recently issued an opinion, Federal Energy Regulatory Commission v. Ultra Resources, Inc., in which it relied on and affirmed its prior 2004 decision — In re Mirant — and held that bankruptcy courts have the authority — at least in many common contexts — to reject filed-rate contracts without the approval of the Federal Energy Regulatory Commission (FERC). The court reasoned that rejection of such contracts only has an indirect effect on the filed-rate and is not a collateral attack, and therefore can be done without FERC’s approval.
Further, the Fifth Circuit held that rejection of a filed-rate contract does not violate 11 U.S.C. § 1129(a)(6) of the Bankruptcy Code because rejection does not change the rate itself, it merely ceases payment of the rate. Thus, the decision further empowers debtors to reject filed-rate contracts in bankruptcy cases, so long as rejection does not amount to a rate change.
However, the court did identify an exception to the general rule. The opinion states that if a debtor seeks to reject a filed-rate contract, but still needs the capacity and seeks to secure a lower rate through rejection, such rejection would be impermissible without FERC’s approval, although that was not the situation in Ultra. Left for future cases will be the determination of what particular circumstances will require FERC’s permission to reject a filed-rate contract.
Read the full article here.