United States District Court, D. Delaware
IN RE VERSO CORPORATION, et al., Debtors.
VERSO CORPORATION, et al., Appellees. UPPER PENINSULA POWER COMPANY, Appellant,
NOREIKA, U.S. DISTRICT JUDGE
dispute arose in the Chapter 11 cases of debtor Verso
Corporation (“Verso”) and certain affiliates
(together, “Debtors”). Before the Court is an
appeal by Upper Peninsula Power Company (“UPPCO”)
from the Bankruptcy Court's May 3, 2017 order (B.D.I.
1690) (“Order”) denying UPPCO's
motion for allowance and payment of an administrative expense
claim (B.D.I. 1660) (“Motion”). For the reasons
set forth herein, the Order is affirmed.
UPPCO Agreements and SSR Claims
is a Michigan corporation that operates as an electric
utility provider in upper Michigan. (APP19). On February 28,
2013, prior to the bankruptcy proceedings, UPPCO entered into
a Power Purchase Agreement with debtor Escanaba, an indirect
subsidiary of Verso, whereby UPPCO agreed to supply Escanaba
with electric power generated from a hydroelectric generation
project on the Escanaba River in exchange for an annual fixed
price per MWh, subject to a true up. (APP48). Midcontinent
Independent System Operator (“MISO”) runs a large
wholesale electric market and requires certain generating
facilities (including UPPCO) that have been designated as
system support resources (“SSR”) to continue
operations to maintain the reliability of the electric grid.
(APP21). The cost of the continued operation of the SSR
facilities is shared among the other electric generating
facilities on the grid, including UPPCO, according to an
allocation formula set by MISO and approved by the Federal
Energy Regulatory Commission (“FERC”).
(Id.). UPPCO passes those charges through to its
customers, including the Debtors, as transmission charges as
part of UPPCO's overall charges (“tariffs”).
February 19, 2015, FERC issued an order that required MISO to
submit a revised SSR allocation method. (APP67-74). On May
20, 2015, MISO proposed an allocation method that reallocated
and imposed higher charges for SSR on certain electric
companies, including UPPCO, for their share of the 2014 and
2015 SSR charges (“SSR Cost Reallocation”).
(APP75-84). On September 17, 2015, FERC entered an order
approving the basic elements of the SSR Cost Reallocation
(“September 2015 Order”), and directed MISO to
make an additional compliance filing, which was accepted by
FERC on May 3, 2016. (APP111-122, 152 FERC ¶ 61, 216 at
33-41; APP123-129, 155 FERC ¶ 61, 134 at 6-10). As a
result of the September 2015 Order, MISO allocated to UPPCO a
greater share of the SSR charges.
appeal concerns UPPCO's Motion seeking payment of the
reallocated SSR charges for 2014 and 2015 that arose out of
the SSR Cost Reallocation that UPPCO would have passed
through to the Debtors as part of UPPCO's tariffs
Chapter 11 Cases and Stipulation
January 26, 2016 (the “Petition Date”), each of
the Debtors filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code. In the Chapter 11 cases,
UPPCO timely filed proofs of claim asserting claims against
Debtors NewPage Wisconsin System Inc. (“NWSI”)
and Escanaba for the prepetition delivery of energy to the
Debtors (“UPPCO Claims”). The UPPCO Claims did
not mention, or preserve, UPPCO's rights with respect to
any other claims that UPPCO held against the Debtors.
(SA259-294). On June 13, 2016, the Debtors filed a Notice
of (A) Cure Amounts, If Any, Related to Executory Contracts
and Unexpired Leases to be Assumed by the Debtors Pursuant to
the Plan; and (B) Related Procedures in Connection
Therewith (B.D.I.1099) (“Cure Notice”),
which, among other things, identified the Debtors'
executory contracts with UPPCO (“UPPCO
Agreements”) to be assumed under the Plan with a cure
amount of $486, 254.86. (SA75, SA97). On June 22, 2016, UPPCO
filed its objection to the Debtors' Cure Notice, alleging
that the cure amount in connection with the assumption of the
UPPCO Agreements should be $547, 279.18. (SA100).
23, 2016, the Bankruptcy Court entered an order (B.D.I. 1223)
(“Confirmation Order”) confirming the
Debtors' plan of reorganization (B.D.I. 1177)
(“Plan”). (SA2). The Plan became effective and
the Debtors emerged from bankruptcy on July 15, 2016 (the
“Effective Date”) (B.D.I. 1322). (SA71). Among
other things, the Plan established August 15, 2016 as the
deadline for claimants to assert an administrative expense
claim against the Debtors. (B.D.I. 1322).
August 2, 2016, the Reorganized Debtors and UPPCO entered
into the Stipulation, which (i) provided for the assumption
of the UPPCO Agreements subject to payment of the agreed cure
amount in satisfaction of any prepetition defaults under the
UPPCO Agreement, and (ii) disallowed and expunged all of
UPPCO's claims against the Debtors that arose before the
Effective Date, whether or not reflected in a proofs of
claim. (APP16-17). Specifically, paragraph 4 of the
Stipulation provides that:
Any and all claims held by UPPCO arising on or before the
Effective Date, including, without limitation, the UPPCO
Claims, whether or not evidenced by one or more filed proofs
of claim, against any of the Debtors are hereby disallowed
and expunged in their entirety without need for further
action by UPPCO or the Reorganized Debtors or further
Bankruptcy Court approval.
(APP16). On August 3, 2016, the Bankruptcy Court approved the
UPPCO's Motion and Order
April 7, 2017, UPPCO filed its Motion seeking allowance and
payment of the SSR Claims as an administrative
expense in the amount of $629, 248. (See
APP19-33). UPPCO asserted that, due to the SRR Cost
Reallocation, UPPCO was unable to calculate the Debtors'
share of SSR until it received information from MISO in
September 2016. (APP22). UPPCO further asserted that,
“because of the uncertainty and actual inability to
calculate, the Debtors and UPPCO agreed that the Debtors'
payment for the SSR Cost Reallocations would not be due until
UPPCO was billed by MISO.” (Id.). “UPPCO
received information from MISO in September 2016” and
“calculated the Debtors' share of SSR charges and
included such charges in monthly invoices to the Debtors as
the Debtors requested. Since September 2016 however, the
Debtors have refused to pay their allocated SSR charges to
UPPCO, asserting that portion of the obligation was
discharged in the bankruptcy.” (Id.). Although
the parties' Stipulation clearly “disallowed and
expunged” “any and all claims held by UPPCO
arising on or before the Effective Date” of the Plan
(which occurred on July 15, 2016), UPPCO appeared to argue
that the Debtors' obligation to pay the SSR Claims arose
post-Effective Date, in September 2016, and only “once
MISO provided information to enable calculation of the SSR
[C]harges allocated to the Debtors.” (APP23). UPPCO
argued that the Debtors' failure to pay the SSR charges
was a post-assumption breach giving rise to an administrative
claim. UPPCO further argued that that the doctrine of laches
barred Debtors from asserting that the SSR Claims were
discharged because, according to UPPCO, the Debtors ...