The Fifth Circuit recently issued an opinion, Federal Energy Regulatory Commission v. Ultra Resources, Inc., in which it relied on and affirmed its prior 2004 decision — In re Mirant — and held that bankruptcy courts have the authority — at least in many common contexts — to reject filed-rate contracts without the approval of the Federal Energy Regulatory Commission (FERC), and a bankruptcy plan that rejects such contracts is not in violation of 11 U.S.C. § 1129(a)(6) because rejection does not effectuate a modification of the filed-rate. This opinion further empowers debtors to reject filed-rate contracts in bankruptcy cases, so long as rejection does not amount to a rate change.

However, the Fifth Circuit also pronounced that where the purpose of rejection is to avoid paying an above market rate pursuant to a contract in circumstances where the capacity provided by the contract is actually needed, such rejection would constitute a prohibited collateral attack on a filed-rate. 1 The Fifth Circuit suggested, in reference to the Mirant decision, that where the purpose for rejection is both to avoid a high contract rate and to shed unneeded capacity, such rejection could be permissible.2 What may remain to be determined in the future is where the line that separates permissible capacity reduction from impermissible rate reduction will fall.