In re Mirant Corp.

• Decision Date: 23 September 2003
• Docket Number: Bankruptcy No. 03-46590-DML-11.,Adversary No. 03-4342.
• Parties: In re MIRANT CORPORATION, et al., Debtors. Mirant Corporation, et al., Plaintiffs, v. Potomac Electric Power Company and The Federal Energy Regulatory Commission, Defendants.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas

299 B.R. 152

In re MIRANT CORPORATION, et al., Debtors.

Mirant Corporation, et al., Plaintiffs, v. Potomac Electric Power Company and The Federal Energy Regulatory Commission, Defendants.

Bankruptcy No. 03-46590-DML-11.

Adversary No. 03-4342.

United States Bankruptcy Court, N.D. Texas, Fort Worth Division.

September 23, 2003.

Monica Susan Blacker, Andrews & Kurth LLP, Dallas, TX, for Intervenor-Plaintiff.

Judith Elkin, Robin Eric Phelan, Haynes and Boone, Dallas, TX, Ian T. Peck, Haynes and Boone, Ft. Worth, TX, for Plaintiff.

Andrea L. Niedermeyer, Stutzman, Bromberg, Esserman & Plifka, Dallas, TX Beth Guralnick Pacella, Fedreal Energy Regulatory Commission, Washington, DC, for Defendant.

CORRECTED Memorandum Opinion^*

DENNIS MICHAEL LYNN, Bankruptcy Judge.

Before the court is the question of whether, and to what extent, the court should continue by preliminary injunction relief granted temporarily by its Ex Parte Temporary Restraining Order Against Potomac Electric Power Company and the Federal Energy Regulatory Commission (the "TRO")¹ entered by the court on August 28, 2003. Besides the ex parte hearing held by the court on the morning of August 28, the court held a hearing the afternoon of August 28 in which the Commission participated by telephone and Potomac Electric Power Company ("Pepco") participated by telephone and through counsel in the courtroom. The court held a telephone status conference with the parties on September 9,² and on September 10 received argument, the testimony of Lisa Johnson ("Johnson"), an officer of Plaintiffs, and numerous exhibits. On September 12, Pepco supplemented the record with a transcript of the deposition of Johnson, the Back-to-Back Agreement (as hereafter defined), the Affidavit of John W. Ragan, a transcript of a hearing held in these cases on July 30, 2003, and Notices of Deposition and its Requests for Production of Documents for Mirant Americas Energy, L.P., Mirant Mid-Atlantic, LLC, and Mirant Corporation. Pepco or the Commission also asked that the court take notice of certain prior proceedings in Plaintiffs' chapter 11 cases.

The TRO was entered on the Motion of Plaintiff for Ex Parte Temporary Restraining Order (the "TRO Motion"). The TRO Motion was filed in furtherance of Plaintiffs' Complaint for Declaratory Judgment, Temporary Restraining Order and Preliminary Injunction (the "Complaint"), by which Plaintiffs seek various forms of relief, including that addressed in this Memorandum Opinion. The TRO Motion was supported by declarations of Johnson and Wayne A. Cross. Plaintiffs have filed in support of their request for injunctive relief both an initial memorandum ("Plaintiffs' Memorandum") and a reply (the "Reply") to memoranda filed with the court in opposition by the Commission and Pepco (respectively the "Commission Response" and the "Pepco Response" and collectively the "Responses").

This matter is subject to the court's jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and (b) and 157(b)(1) and (2).³ This Memorandum of Law constitutes the court's findings of fact and conclusions of law. Fed. R. Bankr.P. 7052.

I. Background

Plaintiffs are Debtors in cases commenced in this court under chapter 11 of title 11 of the Bankruptcy Code (the "Code") on July 14, 2003, and thereafter. They presently act as debtors in possession of their estates and operate their business (sections 1107 and 1108 of the Code). Two creditors' committees have been appointed in these cases, but no examiner or trustee has been appointed for any of the Debtors.

Debtors are engaged in the business of producing and selling energy products and in the trade of energy products. Much of Debtors' business falls within the jurisdiction of the Commission.

Through an Asset Purchase and Sale Agreement (the "APSA") entered into between Debtors⁴ and Pepco, Debtors acquired Pepco's energy generation facilities.⁵ In connection with this acquisition, Debtors became obligated under agreements made by Pepco to purchase or sell power on certain terms and conditions. By the Complaint and a companion motion to reject under Code section 365(a) (the "Rejection Motion"), Debtors seek to be relieved of their obligation to perform under one of these agreements (the "Back-to-Back Agreement," which incorporates various letter agreements and has been the subject of prior litigation⁶). In the Complaint Debtors also seek to prevent any action by Pepco or the Commission to limit the relief Debtors might obtain pursuant to section 365 of the Code with respect to two Transition Power Agreements (the "TPAs"). The Back-to-Back Agreement essentially requires that Debtors purchase from Pepco power which Pepco is obligated to purchase from certain third parties. The terms of Pepco's obligations run as long as 18 more years. The TPAs require Debtors to provide power to Pepco at fixed prices.⁷ One of the TPAs expires in June 2004 and the other in January 2005.

At this time the court need not address the merits of the Rejection Motion or deal directly with the TPAs. Rather, the court must address Debtors' request that the Commission be prohibited from ordering that Debtors perform the Back-to-Back Agreement and the TPAs.

Debtors assert that they require such relief because of the conduct of the Commission in the Chapter 11 case of NRG Energy, Inc., Case No. 03-13024(PCB), pending in the bankruptcy court for the Southern District of New York. In that case the debtor filed a motion to reject a power supply contract contemporaneously with the filing of its chapter 11 petition. Certain state regulatory authorities then sought and obtained an order from the Commission directing that the debtor perform the supply contract pending the Commission's determination whether termination of the contract was in the public interest.⁸ Following entry by the bankruptcy court of an order authorizing rejection of the supply contract, the Commission ruled that, notwithstanding its rejection, the Commission could require the debtor to continue performing the agreement.⁹ The Commission also determined that, if the petitioning parties were prohibited by the automatic stay applicable in bankruptcy cases (section 362 of the Code) from commencing proceedings before it, the Commission itself could and would initiate such a proceeding.¹⁰

Debtors claim that they have reason to fear the same sort of action in their cases by the Commission or Pepco (or parties incited by Pepco). Thus, Debtors filed the Complaint and the TRO Motion to protect their "right" to reject the Back-to-Back Agreement and the TPAs.¹¹ The court will address Debtors' concerns below, in part IV.C.1.b of this Memorandum Opinion.

The court was persuaded by the Complaint and the TRO Motion to enter the TRO. Following entry of the TRO and the August 28 afternoon hearing, the Commission and Pepco filed the Responses and the Withdrawal Motion. Between then and the September 10 hearing, the Public Service Commission of Maryland, the Maryland Office of People's Counsel, and the Office of the People's Counsel of the District of Columbia filed actions with the Commission asking for relief that would preempt this court's consideration of the Rejection Motion (the "FERC Actions"). At the hearing on September 10, counsel for the Commission advised the court that counsel believed the Commission, despite the TRO, might have sent out notices to begin processing the FERC Actions.¹²

II. Issues

To begin with, it is necessary for the court to specify what it is not deciding in this Memorandum Opinion. Obviously, the court is not reaching the merits of the Rejection Motion, nor will the court address the TPAs in any other than the injunctive context. Plaintiffs, in their Memorandum and in the Complaint, have suggested that the court determine that the automatic stay would prohibit any order of the Commission directing that Debtors perform the Back-to-Back Agreement or the TPAs. The court does conclude that Pepco is barred from seeking such relief by section 362(a) of the Code, which provides that the commencement of a case halts the commencement or continuation of a judicial or administrative proceeding against a debtor. There is therefore no need for injunctive relief directed against Pepco: the court is confident Pepco and its counsel understand and will obey the automatic stay. However, the court also concludes that section 362(b)(4)¹³ provides an exception from the automatic stay that permits the Commission to act with respect to Debtors in furtherance of its regulatory powers.¹⁴ Having so held, the court must determine whether the extraordinary restraint embodied in the TRO should be continued against the Commission. In doing this, the court is faced with two issues:

1. May a bankruptcy court enjoin the Commission?

2. In this case, should the court enjoin the Commission from ordering Debtors to perform the Back-to-Back Agreement and the TPAs?

III. Positions of the Parties

A. Plaintiffs

Plaintiffs argue that the Commission should be enjoined from initiating or considering any action before the Commission with regard to the Back-to-Back Agreement or the TPAs pursuant to section 105 of the Code. Plaintiffs argue that section 105 authorizes the court to enjoin conduct otherwise excepted from the automatic stay and that in this case the requirements for a section 105 injunction are met: Plaintiffs have a strong likelihood of succeeding on the merits, Debtors will be irreparably harmed if injunctive relief is not granted, Defendants will suffer no irreparable harm if injunctive relief is granted, and the public interest is served by such relief.

Plaintiffs further argue that, because there is no exception to section 365 of the Code for contracts subject to the Commission's jurisdiction, this court has ample power to enjoin the Commission where necessary to carry out such a core bankruptcy function as contract rejection. Debtors urge that the injunction would not usurp the Commission's...