Recent Development by Alex Williamson
New deregulatory energy laws enabled Mirant Corporation to purchase from the Potomac Electric Power Company (PEPCO) much of PEPCO's commercial and residential electricity business in June 2000. The approximately $2.65 billion sale included PEPCO's power plants and most of its executory energy contracts. However, two of PEPCO's suppliers refused to allow the assignment of their contracts to Mirant. In response, PEPCO and Mirant created a “Back-to-Back” Agreement requiring Mirant to purchase power from PEPCO at rates and in quantities equal to PEPCO's existing contractual obligations.
Mirant filed for Chapter 11 bankruptcy in July 2003. Pursuant to § 365 of the Bankruptcy Code, Mirant sought the court's authorization to reject the executory portion of the Back-to-Back Agreement. Mirant claimed it was entitled to reject the agreement because it was financially burdensome, forcing the company to purchase power it no longer needed at above-market rates. Mirant also sought an order enjoining PEPCO, the Federal Energy Regulatory Commission (FERC), and any other entity from seeking specific performance of the Back-to-Back Agreement. The United States Court of Appeals for the Fifth Circuit held that (1) federal courts have the power to authorize rejection of an executory energy contract and can enjoin federal agencies from requiring performance of a rejected contract and (2) federal courts should apply a stricter standard than the business judgment rule when deciding whether to authorize the rejection of an executory energy contract. Mirant Corp. v. Potomac Electric Power Co. (In re Mirant Corp.), 378 F.3d 511 (5th Cir. 2004).
About the Author
Alex Williamson. J.D. candidate 2006, Tulane University School of Law; B.A. 2003, Whitman College.
Citation
79 Tul. L. Rev. 1585 (2005)