563 B.R. 336
Bankr. D. Colo.2017Background
- Debtor Escalera Resources (Chapter 11) used substantial electrical energy for coal-bed methane operations; PacifiCorp supplied metered electricity pre- and post-petition.
- PacifiCorp filed a proof of claim for $240,479.43, asserting $84,253.95 (reduced from $87,853.94) as an administrative expense under 11 U.S.C. § 503(b)(9) for goods delivered within 20 days before the petition.
- The Debtor conceded timing and amount but argued electricity is not a “good” under § 503(b)(9) (invoking UCC definitions and policy reasons); Société Générale joined the objection.
- The utility presented metered usage records, tariff schedules, Wyoming regulation excerpts, and expert physics testimony showing electrical energy is measurable, identifiable, moving, and sold in kWh/kW units.
- The court conducted an evidentiary hearing, credited PacifiCorp’s witnesses (including expert Dr. Kolitch on the physics), and framed the sole legal question as whether metered electrical energy is a “good” under § 503(b)(9).
Issues
| Issue | Plaintiff's Argument (PacifiCorp) | Defendant's Argument (Escalera) | Held |
|---|---|---|---|
| Whether electrical energy delivered and metered within 20 days before petition qualifies as “goods” under 11 U.S.C. § 503(b)(9) | Electricity (electrical energy) is a transferable, measurable commodity sold in identifiable kilowatt-hours and therefore is a “good.” | Electricity is not moveable at time of identification (consumed upon metering); the UCC drafters did not intend electricity to be a “good.” | Held: Metered electrical energy is a “good” under § 503(b)(9); administrative priority allowed ($84,253.95). |
| Whether the UCC (Article 2) definition of “goods” controls interpretation of § 503(b)(9) | UCC § 2-105 is a persuasive, uniform commercial analogue to define “goods” for bankruptcy purposes. | § 503(b)(9) is federal; bankruptcy law governs and UCC should not be determinative. | Held: Court adopts UCC § 2-105 as the principal legal definition (federal question but UCC is persuasive and widely accepted). |
| Relevance of invoice/regulatory language calling the supply a “service” and of utility statutes/regulation | Labels ("service") are not dispositive; substance/economic reality controls—metred electricity is a sold commodity. | The use of the word “service” in tariffs and utility regulation suggests electricity is a service, not a good. | Held: Regulatory labels irrelevant; courts look to substance and commercial reality, so tariff language does not preclude classification as goods. |
| Whether other Code provisions (e.g., §§ 366, 546(c)) or policy require narrowing § 503(b)(9) coverage (e.g., reclamation or utility protections) | § 503(b)(9) is independent; § 366 governs postpetition utility service and does not negate prepetition goods priority; § 546(c) reclamation availability is not a limit on § 503(b)(9). | Policy favors narrow construction of priorities; protections for utilities and reclamation regime counsel limiting § 503(b)(9). | Held: Sections 366 and 546(c) do not limit § 503(b)(9); no need for narrow construction—statutory text controls and is unambiguous. |
Key Cases Cited
- U.S. v. Eurodif, S.A., 555 U.S. 305 (2009) (substance over contract label: a transaction labeled a service may be treated as a sale of goods)
- Howard Delivery Serv., Inc. v. Zurich Am. Ins. Co., 547 U.S. 651 (2006) (bankruptcy priority statutes construed tightly when ambiguous)
- In re Erving Indus., Inc., 432 B.R. 354 (Bankr. D. Mass. 2010) (electricity treated as goods under UCC § 2-105; persuasive bankruptcy precedent)
- In re Grede Foundries, Inc., 435 B.R. 593 (Bankr. W.D. Wis. 2010) (following Erving; electrical energy qualifies as goods)
- GFI Wisconsin, Inc. v. Reedsburg Util. Comm'n, 440 B.R. 791 (W.D. Wis. 2010) (affirming utility claim as § 503(b)(9) priority under UCC analysis)
- In re NE Opco, Inc., 501 B.R. 233 (Bankr. D. Del. 2013) (contrary bankruptcy authority holding electricity not a good; court here distinguished and rejected its reasoning)
- Pilgrim’s Pride Corp. v. [sic/In re Pilgrim’s Pride], 421 B.R. 231 (Bankr. N.D. Tex. 2009) (early decision denying § 503(b)(9) priority for electricity; court here finds it unpersuasive)
- City of Kirkwood v. Union Elec. Co., 671 F.2d 1173 (8th Cir. 1982) (electricity is a commodity for Robinson-Patman Act purposes)
- Williams v. Duke Energy Int’l, Inc., 681 F.3d 788 (6th Cir. 2012) (reaffirming electricity as a commodity under antitrust law)