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In the November issue of the Wiley journal Climate and Energy, NERA Managing Director Dr. Jeff D. Makholm examines the role of regulators as bankruptcy agencies in the US and UK. In the corporate world, bankruptcy courts exist to deal with firms that have lost their private credit in an orderly and informed fashion—either dissolving and “wrapping up” the enterprises or overseeing the orderly restructuring of debt obligations to get otherwise productive firms back on their feet quickly.

In 2020, Saudi Arabia’s crude oil war with Russia, along with COVID-19 pandemic shutdowns that caused a drop in oil and gas demand, pushed several US oil- and natural gas-producing firms into bankruptcy. Producers with FERC-approved pipeline contracts sought to stay debt collection efforts and reject those pipeline agreements as unsecured executory contracts in the normal fashion. The pipeline companies appealed to the FERC to fight the stay and rejection of those pipeline contracts in an effort to retain their regulated revenue streams. In his article, Dr. Makholm explores the four cases that came in rapid succession in which he presented evidence for the bankrupt shippers. He described how the bankruptcy courts strongly rejected FERC’s claim of “concurrent jurisdiction” in such matters. That is, in each case, the bankruptcy court effectively prevented the FERC from exercising jurisdiction over bankruptcy matters and proceeded to deal with the public interest questions that arose in those cases itself.

Dr. Makholm also examines examples in the UK in which the UK energy regulatory Ofgem—not the UK bankruptcy courts—has charged into the breach with an “Action Plan” for regulating such ostensibly competitive retailers to try to restore their credit, as a group. Ofgem’s actions represent further evidence of a different standard for regulating energy utilities with much less control on such regulators’ powers.

In response to the recent contests between the FERC and the US bankruptcy courts, Dr. Makholm offers suggestions for managing such issues and the public interest. Ultimately, the orderly administration of US bankruptcy laws plays a highly useful public service role in its support of going concerns—firms existing in a suspended state of credit failure do not help anyone.

Makholm, Jeff D. (November, 2022). “Regulators as Bankruptcy Agencies in Restructured Energy Markets (US vs. UK),” Climate and Energy39/4, ©2022 Wiley Periodicals, Inc., a Wiley Company.

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