A bankruptcy court judge last week approved a motion filed by bankrupt NRG Power Marketing allowing it to reject a power contract previously entered into with Edison Mission Marketing & Trading Inc., an indirect subsidiary of Edison International.

“We are glad the U.S. Bankruptcy Court granted NRG-PMI’s [NRG Power Marketing] motion to reject the contract, thereby recognizing and reaffirming our right to reject contracts that inhibit our ability to reorganize,” said Scott Davido, NRG Energy’s chairman. NRG Energy filed for bankruptcy protection in May, along with NRG Power Marketing.

At issue is a power supply agreement that NRG Power Marketing entered into with Edison Mission Marketing in March 1999. Under the deal, NRG Power Marketing agreed to sell and deliver electric power to Edison Mission Marketing through Jan. 17, 2007. Edison Mission Marketing in turn resells the power purchased from NRG Power Marketing under the contract to CL Power Sales Eight LLC.

In an Aug. 4 filing, NRG noted that although NRG Power Marketing has “continued to faithfully perform” its obligations under the contract, several developments have made continued performance commercially burdensome. Due to increases in fuel prices, NRG Power Marketing’s costs now exceed its revenues under the contract, which establishes a fixed price per MWh supplied that is “significantly below” the current market price, NRG said.

NRG said that because the current market price exceeds NRG Power Marketing’s costs, the contract “makes it impossible to operate the originating NRG generating facility profitably.” The contract will become “even more burdensome” in a few years’ time, when NRG’s New England Power Pool generating assets servicing the contract reach the end of their expected lives and must be re-tooled and re-powered by NRG “at significant cost.”

The Wednesday ruling by Bankruptcy Judge Prudence Beatty marks the latest chapter in NRG Power Marketing’s efforts to get out from under certain power deals.

FERC in June ordered NRG Power Marketing to continue providing power to Connecticut Light & Power (CL&P) until the Commission decides whether NRG Power Marketing’s efforts to cancel the power contract with CL&P meet the Mobile-Sierra “public interest” standard.

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