FERC seeking vehicle to gain national ruling on role in bankruptcy cases

Washington — Amid disputes over the role of bankruptcy courts and the Federal Energy Regulatory Commission in natural gas transportation contracts between distressed producers and pipelines, the commission is eager for a nationwide ruling to put to rest the uncertainty, a FERC official said Oct. 14.

"The commission has been trying for some time to get a case before the Supreme Court," said John Shepherd, FERC director of legal policy, referencing cases that posed similar issues that settled before a case could reach the high court.

Shepherd spoke during a panel discussion at the Energy Bar Association Fall Forum on uncertainties for pipelines related to recent financial distress of oil and gas producers.

"We're looking for a vehicle to move forward to get a national rule to create certainty in this regard," he said, after panelists detailed the divergent court findings on the matter of FERC and US Bankruptcy Court jurisdiction over contracts that involve rates at FERC, including those under the Federal Power Act.

Amid emerging bankruptcy filings by natural gas shippers, the commission has recently affirmed its view that it has concurrent jurisdiction with bankruptcy courts over gas transportation contracts. It has agreed in several cases to pipeline companies' requests that it conduct quick paper hearings to determine whether abrogating gas transportation contracts between the pipelines and a financially distressed producer is in the public interest.

'Endless loop'

John Paul Floom, a managing member of Floom Energy Law who has represented shippers, articulated fears that FERC's approach could undermine the intent of bankruptcy law to allow parties to start afresh after emerging from bankruptcy protection.

"A debtor will not know when the bankruptcy process will end and when the shippers' debts will be fully discharged so they can have this new opportunity," Floom said. "The fear is that this can create an endless loop of shipper bankruptcies where you have a shipper entering bankruptcy, getting its debts discharged except for the pipeline transportation contracts, then having to go pay for these transportation contracts with a limited cash flow, which may lead to further bankruptcies by the shipper."

Shepherd, by contrast, said there were parties "going straight to bankruptcy courts as a way of trying to resolve these problems is what's inflicting uncertainty in this regime."

Debate over the proper forums comes as 2020 has already seen 32 exploration and production companies file for Chapter 11 bankruptcy protection with a cumulative debt of about $40 billion, said Anne Lynch, a partner at Van Ness Feldman, who moderated the discussion.

Laying out the tension in jurisdiction, she said that FERC has exclusive authority to modify a filed rate to protect consumers and the public, but once a company files for bankruptcy, the US Bankruptcy Code gives the bankruptcy court exclusive jurisdiction over the entire estate, allowing the debtor to reject contracts under a business judgment rule.

'Perfect storm of weirdness'

Even given the jurisdictional disputes, Shepherd suggested FERC is open to helping alleviate financial pressures on the parties, amid what he dubbed "this perfect storm of weirdness" in the energy markets. "People at FERC are not crazy. If you come to us and say, 'We have a really significant problem, can you please help us get to a place where everyone survives,' we're going to listen. But beginning conversations with [temporary restraining orders] is not a very productive way to engage with the regulator," he said.

Among the shipper bankruptcy court filings recently a focus of FERC jurisdictional debates are those by Ultra Resources and Chesapeake Energy. In addition, several pipelines secured FERC declaratory orders in the event of a bankruptcy filing by Gulfport Energy.