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The Calpine Case
When is an executory contract not just an executory contract? When it's also a regulation, of course. So ruled Judge Richard Casey of the District Court for the Southern District of New York in In re Calpine, 337 B.R. 27 (S.D.N.Y. Jan. 27, 2006), dismissing Calpine's request for authority to reject under 11 U.S.C.
' 365 certain regulated wholesale power supply contracts that fall within the exclusive jurisdiction of a federal administrative agency. Casey's decision and the subsequent appeal to the Second Circuit Court of Appeals, where the case is currently pending, culminate a 3-month legal sprint through the executive and judicial branches of government in a case that pits the authority of the judiciary against the jurisdiction of the Federal Energy Regulatory Commission (FERC) ' the administrative agency tasked with regulating the wholesale sale and transmission of electric power.
The Case
On Dec. 20, 2005, Calpine Corporation, a large power producer based in California that produces 3.5% of the power in the United States, filed for Chapter 11 relief in the Southern District of New York. The next day, Calpine sought bankruptcy court authority to reject eight fixed-rate wholesale power supply contracts on the sole basis that the contracts included uneconomic rate terms. That same day, Calpine obtained an ex-parte temporary restraining order against FERC that prevented FERC from taking any action to interfere with Calpine's rejection motion. According to Calpine, the company faced losses of over $1 billion under the eight power contracts during the life of those contracts, which losses allegedly threatened Calpine's ability to successfully reorganize. A significant drop in natural gas prices after the petition date has now cast Calpine's estimate into serious doubt.
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