February 2006 Market Clearing in the Energy Industry 5-35 © Copyright 2006, CCRO. All rights reserved. excessive risk taking, whether it is by companies, hedge funds, or other market participants.” The CFTC recognizes that the basic intellectual and financial resources required by the clearing industry are substantial. Ms. Brown-Hruska noted that a core principle is that the clearinghouse requires “adequate financial, operational, and managerial resources to discharge its [the] responsibilities.” She also noted that the level of managerial sophistication and resources differs depending on the markets being cleared. That said, the incentive of the CFTC is to formulate regulation as a means to offset enforcement. The CFTC sees its self not only as watchdog, but also as a developer/enhancer of market processes. As markets develop, new tools are implemented by the CFTC to fulfill its role and bring credibility to the marketplace. Recent examples include the establishment of the Derivatives Clearing Organization and Derivatives Transaction Execution Facility designations. The growth in clearing markets has been due, in no small way, to the market friendly posture of the CFTC. Working with its complimentary agency focused on industry participants, the FERC, the CFTC remains an enthusiastic supporter of the markets and clearing as a function thereof. 5.5.3. FERC and the Bankruptcy Court In order for clearing opportunities to develop, and market participants to have navigable avenues to transact in the energy markets a clearer understanding of the roles of regulators needs to be apparent. “Before restructuring of the energy industry, energy law and bankruptcy law generally occupied separate spheres. But the new instability in the industry caused by unbundling [TransCo, GenCo, MarkCo] set the two bodies of law on a collision course that came to a head when energy providers… filed for Chapter 11…”22 Increase adoption of clearing by the energy industry, naturally, is not immune to jurisdictional disputes among agencies. There is a significant issue between the FERC and Bankruptcy Court as to which underlying legal foundation provides the controlling authority regarding the rejection of energy contracts - the Bankruptcy Code, administered by the bankruptcy courts, or the Federal Power Act (FPA), administered by the Federal Energy Regulatory Commission (FERC).23 The conflict between the FPA and the Bankruptcy Code arises where a company in Chapter 11 attempts to reject a power contract regulated by the FPA. The heart of the conflict lies in the very different perspectives that each tribunal takes when implementing its goal of serving the public interest. A primary goal of the FPA is to regulate energy in a manner consistent with the public interest. The FPA generally allows FERC to approve modifications or an abrogation of FERC jurisdictional contracts under one of two standards: first, under the Mobile-Sierra 22 Moore, Kari & Perich, Thomas J. “Rejection of Power Purchase Agreements in Bankruptcy,” Andrews Kurth LLP 23 Ibid