Louisiana Pub. Serv. Comm'n v. Mabey

• Decision Date: 16 August 1999
• Docket Number: No. 98-31258,98-31258
• Citation: Louisiana Pub. Serv. Comm'n v. Mabey, 185 F.3d 446 (5th Cir. 1999)
• Parties: (5th Cir. 1999) In the Matter of CAJUN ELECTRIC POWER COOPERATIVE, INCORPORATED, Debtor. LOUISIANA PUBLIC SERVICE COMMISSION, and Unofficial Members Committee, Appellant, v. RALPH R. MABEY, Chapter 11 Trustee for Cajun Electric Power Cooperative, Inc; RURAL UTILITIES SERVICES; UNSECURED CREDITORS COMMITTEE, Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

Page 446

185 F.3d 446 (5th Cir. 1999)

In the Matter of CAJUN ELECTRIC POWER COOPERATIVE, INCORPORATED, Debtor.

LOUISIANA PUBLIC SERVICE COMMISSION, and Unofficial Members Committee, Appellant, v. RALPH R. MABEY, Chapter 11 Trustee for Cajun Electric Power Cooperative, Inc; RURAL UTILITIES SERVICES; UNSECURED CREDITORS COMMITTEE, Appellee.

No. 98-31258

IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

August 16, 1999

[Copyrighted Material Omitted]

Appeal from the United States District Court for the Middle District of Louisiana

Before KING, Chief Judge, and REAVLEY and BENAVIDES, Circuit Judges.

KING, Chief Judge:

The Louisiana Public Service Commission appeals an order of the bankruptcy court enjoining it from reducing, or considering any argument in support of reducing, the wholesale rates charged by the debtor, Cajun Electric Power Cooperative, Inc., as a result of the suspension of debt service occasioned by its filing under Chapter 11 of the Bankruptcy Code. Because we determine that the bankruptcy court abused its discretion by issuing such an injunction, we reverse the district court's order affirming the bankruptcy court's injunction and grant of summary judgment in favor of appellees and we remand for further proceedings.

I. FACTUAL & PROCEDURAL BACKGROUND

This case involves the latest chapter in a long-running proceeding arising from Cajun Electric Power Cooperative, Inc.'s (Cajun) filing of a petition seeking reorganization under Chapter 11 of the Bankruptcy Code on December 21, 1994.¹ Cajun has twelve members, all of whom are electric distribution cooperatives serving retail customers in Louisiana. Cajun generates and sells electricity to each member and to non-members, and each member has contracted to purchase at wholesale rates all of the member's electric power requirements from Cajun. Cajun's bankruptcy proceeding is a "mega-case," involving more than five billion dollars in debt and over seven hundred creditors. Mabey v Southwestern Elec. Power Co. (In re Cajun Elec. Power Coop., Inc.), 150 F.3d 503, 506 (5th Cir. 1998), cert. denied, 119 S. Ct. 2019 (1999). Most of Cajun's debt is owed to the Rural Utilities Service of the United States Department of Agriculture (the RUS), which has filed a claim in excess of four billion dollars.

On January 23, 1996, the Louisiana Public Service Commission (the LPSC or Commission), acting pursuant to authority granted by Louisiana law, reopened a rate investigation of Cajun. See LA. CONST. art. IV, 21 (stating that the LPSC "shall regulate . . . public utilities and have such other regulatory authority as provided by law"); LA. REV. STAT. ANN. 45:1163 (stating that the LPSC "shall exercise all necessary power and authority over any . . . public utility for the purpose of fixing and regulating the rates charged or to be charged by and service furnished by such public utilities"). The LPSC sets the wholesale rates that Cajun may charge customers (Cajun's members and others) based on its current costs, including (as relevant here) the interest expense that Cajun must pay to service its debt. The LPSC staff urged the Commission to reduce Cajun's rates by 8.15 mills per kilowatt hour (from 45.2 mills to approximately 37 mills per kilowatt hour), or $48,437,462 per year, "because Cajun is not paying or accruing interest on its underlying debt during the pendency of its bankruptcy proceeding." Ex Parte Louisiana Pub. Serv. Comm'n, No. U-17735-F, 1996 La. PUC LEXIS 70, at *2, *9-*10 (La.P.S.C. Oct. 16, 1996).

An administrative law judge held a hearing regarding the proposed rate decrease on September 17 and 18, 1996. The LPSC staff asserted that neither Cajun nor the RUS has accrued interest in its accounting records with respect to Cajun's debt, and that generally applicable accounting principles do not permit such an accrual. The LPSC staff introduced Cajun's financial statements which state in a footnote that "Cajun will recognize interest expense in the financial statements while in Chapter 11 only to the extent it is ordered to pay interest by the Bankruptcy Court," and a consultant hired by Cajun to develop its revenue requirements testified that "since the appointment of the trustee, Cajun has not paid or accrued any interest expense on the underlying debt." The LPSC staff therefore urged the administrative law judge that "the amount of the interest expense should be collected in escrow, subject to refund to the members upon a determination by the bankruptcy court and/or the Commission that Cajun has no interest obligation." Id. at *9-*10.

The Unofficial Members Committee (the Members Committee), then consisting of ten of the twelve members but now including only seven members, agreed with the LPSC staff and took the position that Cajun's interest expense should be excluded from its revenue requirement. See id. at *10. The Members Committee argued to the administrative law judge that "because Cajun is not paying interest expense and not accruing interest expense during the pendency of its bankruptcy, it is not appropriate for the Commission to include interest expense in Cajun's revenue requirement for rate making purposes at this time." Id. Following the hearing, the administrative law judge recommended to the Commission that the interest expense component of Cajun's rates be collected subject to refund, pending a determination by the bankruptcy court concerning Cajun's interest expense liability during bankruptcy. See id. at *13.

Ralph Mabey, as the Chapter 11 trustee for Cajun, filed this suit seeking injunctive and declaratory relief in the United States Bankruptcy Court for the Middle District of Louisiana on September 11, 1996. Specifically, Mabey sought an injunction pursuant to 11 U.S.C. 105(a)² that would prohibit the Members Committee "from presenting, and the LPSC from considering, any arguments that Cajun's rate should be lowered based solely on the suspension of debt service occasioned by the filing of its petition for reorganization in the Rate Docket pending before the LPSC," and a judgment declaring that "Cajun's rates may not be reduced based solely on the suspension of its debt service obligations occasioned by the filing of its petition for reorganization." Mabey simultaneously filed a motion seeking a preliminary injunction enjoining the same conduct.

The bankruptcy court denied Mabey's motion for a preliminary injunction, stating that it had earlier determined that the LPSC could pursue the rate docket and that "the laws of the state of Louisiana with respect to the conduct of the rate docket during the chapter 11 proceeding are neither expressly nor implicitly preempted by the Bankruptcy Code." The bankruptcy court noted that although it would be "sensitive to particular problems that may result from the conduct of the rate docket," Mabey had failed to demonstrate that the estate would suffer irreparable injury without a preliminary injunction because the administrative law judge recommended only that the interest portion of the rate be collected "subject to refund."

Following the denial of Mabey's motion for a preliminary injunction, the LPSC ordered that Cajun may continue to collect rates which include the interest expense component, subject to refund of that component, "for up to sixty (60) days--or longer if an Order is obtained from the bankruptcy court requiring the payment of interest or other legitimate bankruptcy-related expenses not reflected in rates." Ex Parte Louisiana Pub. Serv. Comm'n, 1996 La. PUC LEXIS 70, at *31. The LPSC subsequently amended its order by eliminating the sixty-day requirement, requiring Cajun to place the interest-expense portion of revenues in escrow, and stating that "all amounts refunded to the distribution cooperatives from the escrow account must be in turn refunded to consumers." Ex Parte Louisiana Pub. Serv. Comm'n, No. U-17735-H, 1996 La. PUC LEXIS 69, at *4 (La.P.S.C. Nov. 13, 1996). Mabey has appealed the amended rate order in the Louisiana courts.

The LPSC and the Members Committee filed separate answers to Mabey's complaint on November 15, 1996. The Members Committee counterclaimed, seeking a declaratory judgment that "Cajun does not, in fact, have an obligation to make or accrue interest expense payments during the pendency of its bankruptcy proceeding," and that therefore Cajun's rates should be reduced immediately under the LPSC's rate order. The Official Committee of Unsecured Creditors of Cajun and the RUS, each of whom had intervened in this suit, filed a motion for summary judgment in January 1998 requesting that the court terminate the escrow and declare that Cajun's rates may not be reduced based on the suspended interest obligation. Both Mabey and the LPSC (joined by the Members Committee) also sought summary judgment in their favor.

The bankruptcy court granted Mabey, the Official Committee of Unsecured Creditors of Cajun, and the RUS (collectively, appellees) summary judgment on all claims, including the counterclaim, on April 2, 1998. The court ordered that the Members Committee and its individual members "are enjoined from presenting, and the LPSC is enjoined from considering, any argument that [Cajun's] wholesale rate to its members should be lowered during this proceeding based solely upon the suspension of debt service occasioned by the filing of this proceeding," and that Cajun's "wholesale rates to its [m]embers may not be reduced during this proceeding where such reduction is based solely upon the filing of this case." The bankruptcy court denied the LPSC's motion to stay and the escrow terminated in April 1998.

The bankruptcy court based its decision on its determination that postpetition interest "continues to accrue, but generally is not allowable under applicable provisions of the Bankruptcy Code." As support for this proposition, the court cited 11 U.S.C. 502(b)(2)³ and ruled that the debtor's ultimate liability for payment of...