By Rich Heidorn Jr.
FERC on Monday ordered a paper hearing to consider FirstEnergy Solutions’ bid to void power purchase agreements with wind generators and others as part of its bankruptcy proceeding. (EL20-35).
The commission acted days after the Sixth Circuit Court of Appeals issued a mandate on its December 2019 order overruling a U.S. bankruptcy court’s May 2018 injunction that prevented FERC from issuing any order requiring FES to continue complying with its obligations under the contracts. The appellate court also reversed the bankruptcy court’s ruling allowing FES to reject the contracts.
FES changed its name to Energy Harbor upon emerging from Chapter 11 bankruptcy on Feb. 27 with former bondholders owning 50% of the equity. (See FERC OKs FES Sale to Bondholders.)
The Sixth Circuit ruled “that the public necessity of available and functional bankruptcy relief is generally superior to the necessity of FERC’s having complete or exclusive authority to regulate energy contracts and markets.”
But it said that, although the bankruptcy court’s jurisdiction is “superior to FERC’s position,” it is not exclusive and that the court had exceeded its authority.
“Through this rash and unnecessary overreach, the bankruptcy court has prevented FERC from timely completing an investigation into or holding a hearing about the public interest in the proposed rejection of these contracts, which … would have been appropriate and might have been valuable or beneficial to the ultimate determination,” the Sixth Circuit said.
The appeals court said the bankruptcy court must consider the impact of rejecting the contracts on the “public interest,” rather than using the “business judgment” standard that normally applies in bankruptcy cases.
The Sixth Circuit required that the bankruptcy court give the commission “a reasonable accommodation” in providing the commission’s views to the bankruptcy court with respect to whether the rejection is consistent with the public interest.
The appeals court said that when a Chapter 11 debtor asks the bankruptcy court for permission to renege on energy contracts that are FERC jurisdictional, the bankruptcy court “must consider the public interest and ensure that the equities balance in favor of rejecting the contract, and it must invite FERC to participate and provide an opinion in accordance with the ordinary FPA approach (e.g., under the Mobile–Sierra doctrine).”
Mobile-Sierra requires FERC to presume that the rate set out in a freely negotiated wholesale energy contract meets the FPA’s “just and reasonable” requirement unless the commission determines that the contract seriously harms the public interest.
The Supreme Court has ruled that the public interest can require canceling contracts that impair the financial ability of a public utility to continue its service, imposes excessive burdens on consumers or is “unduly discriminatory.”
FERC said Monday that it was initiating a hearing and investigation under Section 206 of the Federal Power Act in order to develop a record that would inform the commission’s views on the contracts’ cancellations.
The commission ordered Energy Harbor to submit a filing within 30 days, identifying each contract the company seeks to reject, the status of any negotiations with the contract counterparties and an explanation of why the rejection meets the public interest standard.
“To the extent that such explanation relies on the standard that the contract might impair Energy Harbor’s financial integrity, include a discussion of the effect of the completed bankruptcy reorganization and Energy Harbor’s emergence from Chapter 11 bankruptcy protection on the application of this standard,” FERC said.
Counterparties and intervenors will have 30 days to respond to Energy Harbor’s filing.
“Any counterparty that does not submit such a response shall be deemed to acquiesce in the rejection of its contract for the purpose of the commission’s public interest determination,” FERC said.
The commission said it plans to issue an order within 180 days. The refund effective date will be the date of the publication of Monday’s order in the Federal Register.
The contracts FES sought to renege were with Allegheny Ridge Wind Farm (Phase 1 and Phase 2), Blue Creek Wind Farm, Casselman Windpower, High Trail Wind Farm, Krayn Wind, Meyersdale Windpower, North Allegheny Wind (Phase 3 and Phase 4), Maryland Solar and Forked River Power.
FES also sought to escape and the multi-party intercompany power agreement with Ohio Valley Electric Corp., which runs through June 30, 2040. OVEC provides power from its two coal-fired generating plants — the 1.1-GW Kyger Creek in Cheshire, Ohio, and 1.3-GW Clifty Creek in Madison, Ind. — to Energy Harbor and seven other corporate “sponsors.”
