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

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.

1. Overview
2. Recent developments
3. Comparison of the conflicting federal laws
   1. The Federal Energy Regulatory Commission
   2. Section 365 of the Bankruptcy Code and the jurisdiction of federal bankruptcy courts
4. Prior precedents
5. Practical considerations and best practices

The panel will review these and other key issues:

• What can happen to a PPA in bankruptcy?
• How long does a debtor have to decide whether to reject or assume its PPAs?
• What considerations are likely to factor into a debtor's decision whether to assume or reject its PPAs?
• What happens to a PPA during the period when the debtor is deciding whether to assume or reject?
• To the extent power is provided to a debtor during the pendency of its bankruptcy, is the PPA counterparty's claim for payment afforded priority status?
• What must a debtor show to convince the bankruptcy court to grant a motion to reject a PPA?
• If a debtor moves to reject a PPA, what grounds would a counterparty have for opposing that motion?
• If a debtor prevails in its motion to reject, either by overcoming an opposition or because the counterparty does not object, what happens then?
• What concerns relate to any debt financing or other investments in projects where the offtaker under a PPA became a debtor in bankruptcy?