Originally published March 23, 2006
District Court Without Jurisdiction Over Calpine Efforts to Reject Power Contracts
A January 27, 2006 opinion by the U.S. District Court for the Southern District of New York in the bankruptcy case of Calpine Corporation raises potential difficulties for future bankrupt energy companies’ efforts at restructuring. Moreover, if not overturned on appeal, the ruling establishes a conflict with the U.S. Court of Appeals for the Fifth Circuit that could affect where energy companies choose to file their bankruptcies. In Calpine, the district court held that it could not allow the debtor to reject its out-of-the-money power contracts, and that only FERC could rule on the fate of Calpine’s executory wholesale power contracts. The opinion is contrary to existing case law in at least one other jurisdiction, which allowed the bankrupt energy company Mirant to reject its contracts. The story line is not yet complete, however; Calpine has appealed the
