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IN RE MEGAN-RACINE ASSOCS.

February 2, 1996

IN RE: MEGAN-RACINE ASSOCIATES, INC., Debtor


The opinion of the court was delivered by: GERLING

MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER

 The within contested matters are before the Court by way of two motions filed by Niagara Mohawk Power Corporation ("NIMO"). NIMO's first motion seeks to terminate ("termination motion") payments it makes to Megan-Racine Associates, Inc. ("Debtor") pursuant to New York Public Service Law § 66-c(2) ("6 [cents] payments" or "PSL § 66-c(2)") for electrical power purchased from Debtor. NIMO filed its termination motion pursuant to this Court's December 19, 1995 Order shortening notice under Federal Rules of Bankruptcy Procedure ("Fed.R.Bankr.P.") 9006(c). NIMO seeks relief pursuant to § 362(d) of the Bankruptcy Code (11 U.S.C. §§ 101-1330) ("Code"), or alternatively, pursuant to Fed.R.Bankr.P. 9024 which incorporates by reference Federal Rules of Civil Procedure ("Fed.R.Civ.P.") 60(b)(2), (5), and (6).

 NIMO's second motion, brought before the Court pursuant to a December 28, 1995 Order shortening notice and Code §§ 363(e) and 105(a), seeks to pay into the registry of the Court, pending the Court's decision on the termination motion, the difference between the 6 [cents] payments and the payments due to Debtor under NIMO's Service Classification No. 6 ("SC-6 tariff") ("surplus amount"). NIMO's motions are opposed by Debtor, Federal Deposit Insurance Corporation ("FDIC"), as receiver for New Bank of New England, Hudson Engineering Corporation ("Hudson"), Kraft General Foods, Inc. ("Kraft") and TransCanada Gas Marketing Limited ("TransCanada").

  Following two consensual adjournments, the Court heard oral argument on January 17, 1996 at a motion term held in Utica, New York. *fn1" The parties were thereafter afforded an opportunity to submit additional memoranda of law and the matter was submitted for decision on January 19, 1996.

 JURISDICTIONAL STATEMENT

 The Court has core jurisdiction over the parties and the subject matter of these contested matters pursuant to 28 U.S.C. §§ 1334(b), 157(a), (b)(1), (b)(2)(A), (G), (K), and (O).

 FACTS

 Debtor was formed on March 31, 1987, for the purpose of developing and owning a cogeneration facility ("Facility"). *fn2" The Facility, located at Canton, New York, is a gas fired, topping cycle cogeneration facility which purchases *fn3" and then burns natural gas in a gas generator. The energy given off as a result of the burning of the natural gas is used to create steam which is then converted to mechanical energy. The mechanical energy, in turn, is used to generate electrical power. *fn4" The Facility was designed with an initial annual capacity of approximately 48.3 megawatts, and an expected annual production of approximately 400, 000 megawatt-hours.

 On or about November 21, 1987, Debtor and NIMO entered into an agreement ("PPA") for the sale and purchase of electrical power produced at the Facility. On November 22, 1988, Debtor filed with the Federal Energy Regulatory Commission ("FERC") an Application for Commission Certification of Qualifying Status of a Cogeneration Facility pursuant to 18 C.F.R. § 292.207. On January 27, 1989, FERC issued an Order granting Debtor's application and thereby certified it as a federal qualifying facility ("QF"). *fn5"

 The PPA provides at Paragraph NINTH that "on or before the twenty-fifth (25th) day of each month... NIAGARA will pay SELLER [Debtor] monthly for ELECTRICITY received from SELLER at the applicable rates contained in NIAGARA's Service Classification No. 6 of PSC No. 207 [SC-6 tariff] ..." *fn6" NIMO, however, does not pay Debtor at its tariff rate which is approximately $ .02 per kilowatt hour ("kWh"). NIMO, instead, pays Debtor 6 [cents]/kWh pursuant to PSL § 66-c(2). *fn7" The payments received from NIMO represent Debtor's primary source of revenue.

 On March 17, 1992, Debtor filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. It has since operated as a debtor-in-possession pursuant to Code §§ 1107 and 1108.

 On or about February 24, 1995, NIMO filed a motion seeking to escrow ("escrow motion") the difference between the 6 [cents] payments and the payments due to Debtor under NIMO's SC-6 tariff rate. NIMO's escrow motion, which was brought in Debtor's bankruptcy case and not in the pending adversary proceeding, sought relief pursuant to Code §§ 363(e) and 105(a). Following NIMO's escrow motion, Debtor and FDIC filed summary judgment motions in the adversary proceeding on February 28, 1995, and March 15, 1995, respectively.

 On March 24, 1995, the Court rendered a decision on the summary judgment motions. The Court stayed the adversary proceeding pending the resolution of certain discrete QF regulatory matters which were referred to FERC. See generally id. Thereafter, the Court by Memorandum-Decision, Findings of Fact, Conclusions of Law and Order dated April 19, 1995 ("Escrow Decision"), denied NIMO's escrow motion. See In re Megan-Racine Associates, Inc., 192 Bankr. 321 (Bankr. N.D.N.Y. 1995), appeal pending, Case No. 95-CV-702 (N.D.N.Y.).

 On or about April 21, 1995, NIMO filed an expedited motion and petition ("Decertification petition") with FERC seeking, inter alia, a "declaration that the Plant [Facility] failed to meet applicable qualifying facility [QF] standards... and... the Plant's certification should be revoked for calendar years 1991, 1992, 1993, and 1994..." Decertification petition at 1-2. Shortly thereafter, on April 28, 1995, NIMO filed a notice of appeal from the Court's Escrow Decision pursuant to Fed.R.Bankr.P. 8001(a) and 8002.

 On May 22, 1995, Debtor filed at FERC a timely motion to intervene and answer NIMO's Decertification petition. As alternate relief, Debtor requested FERC to grant it a temporary waiver from QF standards for calendar years 1991-1994. Thereafter, on or about October 27, 1995, Debtor also filed a motion at FERC for recertification as a QF ("Recertification motion").

 During the pendency of the FERC proceedings, NIMO filed a motion in this Court on April 19, 1995 seeking relief from the Escrow Decision pursuant to Fed.R.Civ.P. 60(b)(2) and (6) ("Rule 60(b) motion"). The Court, by Memorandum-Decision, Findings of Fact, Conclusions of Law and Order dated August 31, 1995 ("Rule 60(b) Decision"), denied the motion. See In re Megan-Racine Associates, Inc., Case No. 92-00860, slip op., (Bankr. N.D.N.Y. August 31, 1995), appeal pending, Case No. 95-CV-1415 (N.D.N.Y.). NIMO subsequently filed a notice of appeal from the Court's Rule 60(b) Decision pursuant to Fed.R.Bankr.P. 8001(a) and 8002. NIMO's appeals from the Escrow Decision and the Rule ...


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