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Fifth Circuit Says FERC Can’t Stop Rejection of Filed-Rate Contracts in Bankruptcy

On July 19, 2022, the U.S. Court of Appeals for the Fifth Circuit held that debtors in bankruptcy may reject regulated energy contracts, vacating two Federal Energy Regulatory Commission (FERC) orders to the contrary, in Gulfport Energy Corp. v. FERC. The question turned on how a party’s ability to reject executory contracts in bankruptcy interacts with FERC’s ability to determine whether a party can abrogate or modify contracts that constitute filed rates under a doctrine referred to as Mobile-Sierra. The court found that FERC cannot use its Natural Gas Act authority over contract abrogation and modification to countermand a debtor’s bankruptcy-law rights or the bankruptcy court’s powers.

The question came before the court on a petition for review of FERC orders and denials for rehearing in a proceeding where FERC asserted exclusive jurisdiction over the rejection of transportation service agreements (TSAs) between an interstate natural gas pipeline and its shipper on grounds that the contract constituted a “filed rate.” Anticipating the shipper would declare bankruptcy, the regulated natural gas pipeline had sought a declaratory order from FERC announcing and asserting exclusive jurisdiction over the TSAs and asking for a paper hearing to determine whether continued performance of the TSAs would harm the public interest — the standard for abrogating or modifying a filed-rate contract under the Mobile-Sierra doctrine.

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Sidley Austin LLP by Keturah A. Brown and Emily P. Mallen. Published July 27, 2022.

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