In In re FirstEnergy Solutions Corp., 2019 WL 6767004 (6th Cir. Ct. App.), the United States Court of Appeals affirmed in part, reversed in part, and remanded to the bankruptcy court for further consideration, the determination that the bankruptcy court held exclusive and unlimited jurisdiction and therefore could enjoin FERC from taking action regarding energy contracts because under the BJR they were financially burdensome on FES and as such could be rejected.

Facts

Introduction

Developers and other sellers of electricity have traditionally viewed utilities as creditworthy counterparties. Utilities are longstanding institutions that provide a public service and receive a regulated rate of return.

Climate change, and the resulting legal and regulatory responses, however, are beginning to change the core business model of utilities. These changes have the potential to affect the structure of the wholesale electricity market and drastically impact sellers, particularly renewable generation developers.

On December 12, 2019, the Sixth Circuit issued an opinion^[1] in the ongoing bankruptcy proceedings of FirstEnergy Solutions Corp. The decision upheld the ability of a bankruptcy court to decide whether a power purchaser in bankruptcy proceedings can reject FERC-approved power purchase agreements (PPAs).

On December 12, 2019, the United States Court of Appeals for the Sixth Circuit (the “Sixth Circuit”) issued a long awaited decision in the dispute between FirstEnergy Solutions Corp. (“FirstEnergy”), the Federal Energy Regulatory Commission (“FERC”) and certain power purchase contract counterparties, including the Ohio Valley Electric Corporation (“OVEC”).¹ The decision helps clarify a murky area of jurisprudence and has significant implications for restructurings in the electric power sector.

On December 12, 2019, the United States Court of Appeals for the Sixth Circuit (“Sixth Circuit”) issued an opinion affirming in part and reversing in part a bankruptcy court’s assertion of exclusive and unlimited jurisdiction over certain of FirstEnergy Solutions’ (“FES”) power purchase agreements that FERC had previously approved under the Federal Power Act (“FPA”) and that FES sought to reject in bankruptcy.

A new wave of bankruptcy filings for leveraged oil and gas companies has begun and this time it may involve more prepacks and less optimism. Beginning in late 2015 and continuing through 2017, downtown Houston was filled with bankruptcy lawyers. Highly leveraged exploration and production (or E&P) companies had become crippled by falling oil prices and the resulting impact on the value of their producing and non-producing reserves in their borrowing bases.

A number of recent structurings of investment-grade rated securitizations of oil and gas wells are sparking conversations in the U.S. upstream oil and gas industry about this relatively new, structured finance product. Although structured finance products are not new to the industry, interest in these products has been rekindled as exploration and production (“E&P”) companies seek alternatives to the more traditional reserve-based loans, equity financing, and bond issuances.

THE DISPUTE

The oil and gas industry in the United States is highly dependent upon an intricate set of agreements that allow oil and gas to be gathered from privately owned land. Historically, the dedication language in oil and gas gathering agreements — through which the rights to the oil or gas in specified land are dedicated — was viewed as being a covenant that ran with the land. That view was put to the test during the wave of oil and gas exploration company bankruptcies that began in 2014.