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FERC Declares Concurrent Jurisdiction with Bankruptcy Courts Over Rejections of Natural Gas Transportation Agreements

On June 22, 2020, the Federal Energy Regulatory Commission (“FERC”) issued an order in response to a Petition for Declaratory Order (“Petition”) filed by ETC Tiger Pipeline, LLC (“ETC Tiger”), finding that FERC has concurrent jurisdiction with United States Bankruptcy Courts to review and dispose of natural gas transportation agreements sought to be rejected through bankruptcy.[1]

The Petition, filed on May 19, 2020, requested that FERC find that it has concurrent jurisdiction with Bankruptcy Courts under sections 4 and 5 of the Natural Gas Act (“NGA”) with respect to natural gas transportation agreements between ETC Tiger and Chesapeake Energy Marketing, L.L.C. (“Chesapeake”) and that FERC approval of any abrogation or modification of the agreements is statutorily required.  Specifically, ETC Tiger requested three Commission declarations:

  1. The natural gas transportation agreements between ETC Tiger and Chesapeake are FERC-jurisdictional agreements reflecting filed rates approved by FERC pursuant to its exclusive jurisdiction under the NGA;

  2. If Chesapeake seeks rejection of the agreements in bankruptcy court, Chesapeake must seek FERC approval to abrogate, modify, or amend the filed rate pursuant to section 5 of the NGA and must demonstrate that abrogation, modification, or amendment of the filed rate is in the public interest;

  3. If a party to a FERC-jurisdictional contract under the NGA seeks rejection of such an agreement in bankruptcy court, FERC approval pursuant to NGA section 5 is required before a bankruptcy court can determine whether to reject the agreement.[2]

Chesapeake protested the Petition arguing, among other things, that ETC Tiger’s Petition sought to elevate FERC’s jurisdiction over the filed rate above the bankruptcy court’s jurisdiction to determine whether a contract should be rejected.

FERC agreed with ETC Tiger’s first and second requested declarations and granted the Petition in part. FERC confirmed that the filed rate doctrine and the Mobile-Sierra presumption apply equally to contracts regulated under sections 4 and 5 of the NGA and contracts regulated under sections 205 and 206 of the Federal Power Act (“FPA”). Accordingly, FERC concluded that the natural gas transportation agreements between ETC Tiger and Chesapeake constituted filed rates and that Chesapeake cannot modify the rates, terms, or conditions of the agreements by rejecting the contracts in bankruptcy without FERC approval.

With respect to ETC Tiger’s third requested declaration, FERC clarified that a party to a FERC-jurisdictional contract under the NGA does not need to receive FERC approval before a bankruptcy court can determine whether to reject the agreement. However, a bankruptcy court’s decision to approve rejection of a FERC-jurisdictional contract cannot modify the filed rate. Similarly, a reorganization plan that involves modification or abrogation of FERC-jurisdictional agreements cannot be confirmed unless FERC agrees or confirmation of the plan is made subject to FERC’s approval (FERC’s agreement can only occur through a FERC order).

In response to Chesapeake’s argument that ETC Tiger sought to create exclusive FERC jurisdiction over a determination involving such contracts, FERC reiterated that its jurisdiction is “concurrent with, not superior to, that of the bankruptcy courts.”[3] FERC distinguished the role of the bankruptcy court, explaining that “the Commission neither presumes to sit in judgment of rejection motions nor seeks to arrogate the role of adjudicating bankruptcy proceedings,” and that “[t]he Commission recognizes that rendering a determination on rejection motions is solely within the province of the bankruptcy court.”[4] However, the “Bankruptcy Code does not displace the Commission’s jurisdiction over filed rate contracts under the NGA.”[5] Because rejection of a FERC-jurisdictional contract in bankruptcy “alters the essential terms and conditions of a contract,”[6] and the contract is a filed rate, FERC approval is required to modify or abrograte a contract. A party to a FERC-jurisdictional contract must obtain approval from the bankruptcy court to reject the contract in bankruptcy and must also obtain approval from FERC to modify or abrogate the filed rate.

FERC’s Order will be a crucial consideration for shippers at risk of filing for bankruptcy and shippers considering seeking rejection of FERC-jurisdictional natural gas transportation agreements in bankruptcy. Shippers seeking rejection of FERC-jurisdictional natural gas transportation agreements should take into account the ETC Tiger decision in assessing the likelihood of success at both the Bankruptcy Court and FERC level, as well as the time and resource expenditure in seeking approval at both levels. Further developments in the ETC Tiger proceeding are possible, as the period for filing requests for rehearing of the Order is pending.  Also, on June 28, Chesapeake filed for bankruptcy protection and has requested bankruptcy court approval to cancel several pipeline contracts. If you have questions about the ETC Tiger decision and how it impacts you, contact Pierce Atwood’s energy infrastructure attorneys Randy Rich, Valerie Green, Keith Cunningham, Ryan Kelley, and Kayla Grant.


[1] ETC Tiger Pipeline, LLC, 171 FERC ¶ 61,248 (2020) (“Order”).

[2] Order at P 3.

[3] Order at P 29.

[4] Order at P 25 (quoting NextEra, Inc. v. Pac. Gas & Elec. Co., 167 FERC ¶ 61,096, at P 16 (2019)).

[5] Order at P 22.

[6] Order at P 23.

©2020 Pierce Atwood LLP. All rights reserved.National Law Review, Volume X, Number 183

TRENDING LEGAL ANALYSIS


About this Author

Kayla Grant  energy regulatory attorney Portland ME
Associate

Kayla Grant is an experienced energy regulatory attorney with a strong interest in energy policy and regulation. Kayla capitalizes on her prior experience as an attorney advisor to Federal Energy Regulatory Commission (FERC) administrative law judges to advocate for clients in utility ratemaking and electric transmission matters. This includes advising clients on issues related to FERC jurisdiction, cost-of-service and formula transmission rates, electric utility tariffs, and RTO/ISO markets. Kayla also assists clients with North American Electric Reliability Corporation (NERC) Reliability...

207-791-1228
 Keith J. Cunningham Pierce Atwood Bankruptcy & Creditors' Rights Business Energy
Partner

Keith Cunningham is Business Practice Group Chair, as well as Chair of Pierce Atwood's Bankruptcy & Creditors' Rights team. Keith has provided business and legal counsel to clients in bankruptcy and creditors' rights matters, debt financings and commercial transactions since 1988. "Praised by clients for his ‘very practical and strategic advice,'" (Chambers USA 2012), Keith's representation encompasses a wide range of interests, including secured creditors, trade creditors, public utilities, government agencies, forward contract merchants, lessors, licensors, licensees, and purchasers. Keith is particularly noted for his expertise in energy industry matters.  Keith has substantial experience in matters involving adequate protection, forward contracts and master netting agreements, setoff and recoupment, cash collateral, claims allowance and litigation, preference and fraudulent transfer risk management and defense, and Chapter 11 plan issues.

In addition to his bankruptcy and creditors' rights practice, Keith is also regularly called upon by clients to help structure, negotiate and document complex secured and unsecured credit facilities and commercial agreements.

207-791-1187
Randall S. Rich Pierce Atwood Partner DC Energy Energy Infrastructure Project Development & Finance
Partner

Randall Rich is the Leader of our Energy Practice Group and the partner-in-charge of the Washington, DC office. Throughout his over 38 years of experience, beginning in the Office of General Counsel of the Federal Energy Regulatory Commission (FERC) and continuing for more than 23 years at Bracewell, LLP, Randy always strives to form close personal bonds with clients as well as trusting relationships with both regulators and his colleagues in the energy bar. He gains an intimate understanding of the business and legal needs of clients by working for extended periods in their offices, hand-...

202- 530-6424
 Ryan F. Kelley Pierce Atwood Banking & Financial Services Bankruptcy & Creditors' Rights Business
Associate

Ryan Kelley provides legal counsel to public and private companies regarding debt and equity financings, commercial transactions and bankruptcy and creditors’ rights matters. 

Ryan represents both lenders and borrowers in construction, acquisition, new markets tax credits, term and working capital financing transactions.  His transactional experience also includes commercial matters such as the representation of franchisors and franchisees with respect to franchise matters, of manufacturers with respect to dealer and distributorship arrangements and of buyers and sellers with...

207-791-1336
Valerie L. Green Pierce Atwood Partner DC  Energy Energy Infrastructure Project Development  Finance Litigation
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Valerie Green focuses her practice on natural gas, electricity, renewable energy, and regulatory and compliance issues involving the Federal Energy Regulatory Commission (FERC) and other administrative agencies. Clients rely on Valerie’s responsiveness, attention to detail, and deep knowledge of regulatory process and precedent in proceedings involving administrative litigation, compliance audits and investigations, and in appellate litigation before the U.S. Court of Appeals for the District of Columbia Circuit. Valerie’s focus on coalition and consensus building in situations involving...

202-530-6415