February 2006 Market Clearing in the Energy Industry 7-42 7. CCRO RECOMMENDATIONS The research, discussion and analysis supporting the preparation of this paper have led to a number of findings in a variety of areas, all of which have been discussed herein. However, the CCRO believes that there are a number of key recommendations in particular areas that deserve attention if clearing is to become an integral part of enhancing and increasing transparency, liquidity and credit in the energy industry. Those recommendations are as follows: 7.1. Bankruptcy considerations30 A much clearer understanding of the legal landscape is required especially with respect to safe harbor status of netting, cross commodity netting, master netting agreements and interpretation of Bankruptcy Code sections 11 USC §362 and §365. This is particularly the case with respect to conflicting interpretations of executory contracts, and safe harbor qualifications contained in 11USC § 101 for forward contracts, forward contract merchants, swap participants and swap agreements. More precise application of definitional requirements to qualify for safe harbor protection for each step of the netting process forms the basis for legal argument regarding the extent to which cross-product and cross-affiliate netting may be enforceable and in what circumstance are necessary Cases often cited as having ongoing impacts on legal and credit structures of industry standard contracts and developing clearing mechanisms include the following31: • Olympic Natural Gas Co. v. Androscoggin Energy LLC: creating definitional conflicts for Commodity contact, forward contact, forward contact merchant, and settlement payment • Mirant Corporation Kern v. Oil & Refining Company: creating uncertainty as to who is a ‘forward contract merchant” • Mirant Corporation v. Bonneville Power Administration (BPA): confirming that a government agency (BPA) is not a “person” and thus cannot be a “forward contract merchant” and cannot enjoy exception to 362 stay for rights • NRG Energy v. Connecticut Light & Power: creating uncertainty of interpretation among Sections §362 and §365 and §1129 between bankruptcy court and FERC jurisdiction • Mirant v. PEPCO (5th Cir): creating uncertainty of contract law between bankruptcy court and FERC jurisdiction 30 See Appendix D for more detail regarding bankruptcy considerations 31 William R. Greendyke “Implications of Recent Bankruptcy Rulings, Fulbright & Jaworski LLP Houston, TX presentation at IECA Spring Conference March 13, 2005 Dana Point, CA