FERC aims for 5th Circuit review of pipeline shipper bankruptcy questions

Washington — The Federal Energy Regulatory Commission has sought to elevate a legal dispute over the line between its authorities and those of bankruptcy courts to the 5th US Circuit Court of Appeals as part of an effort to resolve conflicting decisions about jurisdiction.

FERC, alongside producer shipper Ultra Resources, filed a joint petition Nov. 20 for authorization of direct appeal of the US Bankruptcy Court for the Southern District of Texas' Aug. 21 order approving rejection of Ultra's gas transportation agreements with Rockies Express Pipeline.

The effort comes as a FERC official previously indicated the commission was seeking a national vehicle to get a case before the US Supreme Court to put to rest uncertainty.

FERC's effort to change venue from an existing federal district court appeal was opposed Nov. 23, however, by REX, the pipeline company whose transportation contract is central to the case. At issue is Ultra's $169 million transportation service agreement with REX spanning from 2019 to 2026.

FERC and Ultra argued the bankruptcy court rejection order involved a matter of public importance and that immediate appeal may materially advance progress in the underlying bankruptcy case. FERC also argued, although Ultra disagreed, that the order involved a question of law requiring the resolution of conflicting opinions.

Reconsidering precedent

The filing noted FERC has already signaled its desire to ask the 5th Circuit to reconsider its holding in Mirant v. Potomac Electric Power, a 2004 ruling involving the intersection between the Federal Power Act and Chapter 11, or ask the US Supreme Court to hold differently.

"The Natural Gas Act gives FERC exclusive jurisdiction to set and modify rates in interstate gas pipeline contracts, dependent on the public interest. The Bankruptcy Code authorizes bankruptcy courts to approve the rejection of executory contracts," the petition from FERC and Ultra said. "The question presented is whether the bankruptcy court erred in granting Ultra's motion to reject a pipeline contract notwithstanding FERC's exclusive jurisdiction to set and modify rates in interstate gas pipeline contracts."

According to FERC, a clear decision by the circuit court will provide significant guidance to FERC and many other courts facing the same issues. In addition, FERC and Ultra said prompt resolution of FERC's appeals would bring Ultra closer to bringing its bankruptcy case to completion.

REX's preferred path

But REX sought to intervene and ask the circuit court to deny the petition so that FERC's appeal can stay in district court where it can proceed alongside REX's appeals. It argued that REX, not FERC, is the real party in interest for an appeal related to the rejection of the gas transportation contracts with Ultra.

REX argued that its challenge to the bankruptcy court orders calls on the reviewing courts to resolve the dispute simply by applying the circuit court's precedent.

"Instead of applying the NGA's 'public interest standard' as part of its rejection analysis as Mirant requires, or securing or applying FERC's construction of that standard as applied to Ultra's motion, the bankruptcy court instead developed and applied its own, erroneous legal standard," REX argued.

The circumstances "strongly disfavor allowing FERC's appeal to sidestep the normal procedure for bankruptcy appeals and jump immediately to this court," according to REX.

FERC did not oppose REX's motion, although Ultra did (FERC v. Ultra Resources, 20-90045).

Already pending before the 5th Circuit is a separate case involving FERC orders describing the commission's position on the rejection of contracts (Chesapeake Energy Marketing v. FERC, 20-60970).