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In re Boston Generating

November 12, 2010

IN RE: BOSTON GENERATING, LLC, ET AL.


The opinion of the court was delivered by: Denise Cote, District Judge

MEMORANDUM

OPINION AND ORDER

The debtors in a bankruptcy action currently proceeding in bankruptcy court in this jurisdiction*fn1 have moved to reject a contract for the transportation of natural gas to one of their power plants, the Fore River Plant. Algonquin Gas Transmission, LLC ("Algonquin"), the counterparty to the transportation contract, opposes the motion. For the following reasons, the motion is referred to the bankruptcy court for decision pursuant to the Bankruptcy Code. In order to reject the contract, the Debtors must also obtain a ruling from FERC that abrogation of the contract does not contravene the public interest.

I. The HubLine Service Agreement

Fore River, one of the Debtors, owns the Fore River Plant, a power plant in Massachusetts that burns natural gas to generate electric power.*fn2 The Fore River Plant is served by a natural gas pipeline built by Algonquin. Fore River and Algonquin are parties to a service contract, called the HubLine Service Agreement ("HSA") that they entered on January 31, 2001. Pursuant to the terms of the HSA, Algonquin guarantees Fore River the highest priority use of the transportation capacity of the pipeline from two points of origin to the Fore River Plant and sets the rates for using that capacity to transport gas through the pipeline. The HSA also makes assurances regarding the pressure of the natural gas that is delivered to the Fore River Plant. The term of the HSA is twenty years.

The rates that Fore River pays Algonquin for the services described in the HSA are contained in a rate schedule that is subject to the regulatory authority of the Federal Energy Regulatory Commission ("FERC" or "the Commission") by reason of its authority to implement the Natural Gas Act, 15 U.S.C. § 717 et seq. ("NGA"). The rate schedule was filed with FERC and approved most recently in February 2008. Under the current terms of the contract, Fore River pays Algonquin a fixed monthly fee of approximately $719,000 to reserve capacity in the pipeline and a variable monthly fee based on its use of that capacity.

II. Transporting Natural Gas to the Fore River Plant

The Fore River Plant uses only natural gas to generate power, and the only natural gas pipeline that serves the plant is the Algonquin pipeline. Based on FERC rules requiring open access to natural gas pipelines, other companies, called "shippers," are also entitled to ship gas over the Algonquin pipeline. Transportation capacity is made available to them on a non-discriminatory basis. Although Fore River is guaranteed highest priority access to the transportation capacity of the Algonquin pipeline by the HSA, it can choose to make use of that capacity, or it can choose to use the transportation capacity available from any other shipper.

Fore River prefers not to use the transportation capacity it is guaranteed under the HSA. It describes the availability of gas at the two specified points of origin as "unreliable." Additionally, Fore River has been able to procure natural gas for the Fore River Plant more cheaply using the services of other shippers. From January 2008 through August 2010, Fore River purchased 76% of its natural gas without using the capacity it is guaranteed by the HSA. Fore River represents that it can readily procure 100% of the natural gas it needs without relying on the HSA. It has also explained that it does not require the pressure assurances made in the HSA because of equipment upgrades that have been made at the Fore River Plant.

III. Procedural History

A. Bankruptcy Court Proceedings

The Debtors, including Fore River, filed for Chapter 11 bankruptcy on August 18, 2010. On August 19, they filed a motion in that court seeking approval of several procedures, the result of which would be allow them to sell substantially all of their assets free and clear of all claims, liens, or encumbrances pursuant to 11 U.S.C. § 363 (the "Sale Motion"). One of the assets the Debtors are seeking to sell is the Fore River Plant. On August 27, the Debtors filed a motion in the bankruptcy court seeking approval to reject the HSA pursuant to 11 U.S.C. § 365(a) (the "Rejection Motion").

B. FERC Sale Application

On the same day that the Debtors filed for bankruptcy, they initiated a proceeding before FERC (the "FERC Sale Application"). In that proceeding, the Debtors seek FERC's approval to sell the Fore River Plant pursuant to the Federal Power Act ("FPA"), 16 U.S.C. § 824(b). Regulatory approval of the sale is required. 16 U.S.C. §§ 824(b), 824b(a). The Debtors have sought an expedited resolution of the FERC Sale Application by December 1, 2010. Algonquin moved to intervene and oppose the FERC Sale Application by filing a protest on September 8 (the "Protest"). In the Protest, Algonquin argues, inter alia, that FERC should not approve the FERC Sale Application without requiring ...


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