In re Escalera Resources Co.
OPINION AND ORDER ON APPLICATION FOR ALLOWANCE OF ADMINISTRATIVE EXPENSE CLAIM (ELECTRICAL ENERGY) UNDER 11 U.S.C. § 503(b)(9)
I. Introduction.
Electrical energy. Since Thales of Mile-tus (circa 585 B.C.) made his initial observations on the generation of static electricity by rubbing a piece of ilektron against fur, intellectuals have puzzled over the physics of the phenomenon. Great scientists like Alessandro Volta, André-Marie Ampere, James Prescott Joule, Michael Faraday, George Ohm, James Watt, Thomas Edison, and Nikola Tesla provided the foundation for development of the modern electric industry including the manufacture, transmission, distribution, and measurement of electrical energy. And, now, electrical energy is virtually indispensable for modern living and work.
This case presents an interesting question touching on the nature of electrical energy and connecting it with bankruptcy. Chapter 11 debtor, Escalera Resources Co. (the “Debtor”), produces coal bed methane gas from its wells in Wyoming. Its operations rely on substantial quantities of electrical energy. PacifiCorp d/b/a Rocky Mountain Power (“PacifiCorp”) is a public utility. It supplied the Debtor with metered electrical energy both before and after the Debtor sought protection under the Bankruptcy Code.
In 2005, as part of comprehensive changes to the Bankruptcy Code, Congress enhanced certain creditors’ rights by enacting Section 503(b)(9). That new provision created an administrative expense priority for “the value of any goods received by the debtor within 20 days before the date of commencement of a case.” So, creditors that supplied goods right before a bankruptcy jump to the front of the line for distributions. Right or wrong from a policy perspective, that is what Congress decided. Now, the Court must decide whether the electrical energy supplied by PacifiCorp in the days leading up to the Debtor’s bankruptcy constitutes “goods” entitled to priority status under the Bankruptcy Code. The exercise requires some basic understanding of the nature of electrical energy; but this is not a science test. The main focus of the inquiry is on the plain meaning of the term “goods.”
II. Procedural Background.
The Debtor filed for protection under Chapter 11 of the Bankruptcy Code on November 5, 2015 (the “Petition Date”). (Docket No. 1.) The Debtor operates as a “debtor in pоssession” under Section 1107. The Court has not confirmed a plan of reorganization. PacifiCorp filed Proof of Claim No. 46-1 (the “Claim”) for $240,479.43 on the basis of “electricity sold by electric utility.” PacifiCorp asserted that an $87,853.94 portion of the Claim was entitled to administrative expense priority under Section 503(b)(9) as “[t]he value of the electricity sold to the Debtor and received by the Debtor in its ordinary course
Subsequently, PacifiCorp filed a “Motion for Order Allowing Administrative Expense Pursuant to 11 U.S.C. § 503(b)(9).” (Docket No. 206, the “Application.”) Consistent with its Claim, PacifiCorp requested that the Court enter an Order allowing an $87,853,94 portion of. the Claim as an administrative expense priority under Section 503(b)(9). The Debtor opposed the Application by filing its “Response to Paci-fiCorp’s Motion for Order Allowing Administrative-Expense Pursuant to 11 U.S.C. § 503(b)(9).” (Docket No. 232, the “Response.”) The Debtor did not challenge the amount of the Claim but contended that none of the Claim should receive administrative expense priority treatment. The Debtor argued that electricity is not a “good” under the Uniform Commercial Code (the “UCC”) and Section 503(b)(9). Creditor, Société Générale, joined in the Response and adopted the Debtor’s arguments.
Prior to trial,, the parties submitted a “Stipulation of Agreed Facts for Eviden-tiary Hearing.” (Docket No. 309, the “Stipulated Facts.”) The Court conducted a one-day evidentiary hearing on the Application and Response. (Docket Nos. 313 and 335.) Prior, to the presentation of evidence, Paci-fiCorp reduced the amount asserted as an administrative expense priority from $87,853.94 to $84,253.95 (as adjusted, the “Administrative Expense Claim”). (Docket No. 335, “Transcript of Evidentiary Hearing on PacifiCorp’s Motion for Order Allowing Administrative Expenses, Debtor’s Response Thereto and Joinder,” May 10, 2016, at 6-7 [hereinafter, “Tr. at-”].) At trial, the Court heard testimony from three witnesses: Dr. Shawn Kolitch, Stacy Splittstoesser, and Ben Geertsen. Further, the Court admitted Exhibits 1-8 proffered by PacifiCorp and Exhibits A-C presented by the Debtor. The Court acknowledges the professional and skilled legal work by counsel for both parties in presenting them evidence and arguments. The Application and Responsе are ripe for final decision.
III. Jurisdiction and Venue.
The Court has jurisdiction over this matter under 28 U.S.C. § 1334. The issues raised in the Application and Response are core proceedings under 28 U.S.C. §§ 157(b)(2)(A) (matters concerning administration of the estate), (B) (allowance or disallowance of claims against the estate), and (O) (other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor relationship). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. The Court has jurisdiction to enter final judgment with respect to the Application and Response.
IV. Findings of Fact.
A. The Parties.
The Debtor is a publicly-traded, independent energy company engaged in the exploration, development, production, and sale of natural gas and crude oil in the Rocky Mountain basins of the western United States. In re Escalera Resources Co.,
B. The Administrative Expense Claim.
At trial, PacifiCorp presented (and the Court admitted into evidence):
(1) a prepetition billing summary for each of the Debtor’s three accounts with PaciflCorp (the “Billing Summary”);
(2) a list of service locations and meter numbers (the “Meter List”);
(3) invoices for the 20-day period prior to the Petition Date (the “Invoices”);
(4) excerpts of Wyoming tariff rules and regulations (the “Wyoming Tariff Information”); and
(5) a Section 503(b)(9) Claim Summary (the “Administrative Expense Summary”).
(Ex. 4-8.) Witnesses Stacy Splittstoesser (the Wyoming Regulatory Affairs Manager of PaciflCorp) and Ben Geertsen (a Senior Credit Analyst of PaciflCorp) authenticated the exhibits and provided details concerning the nature and amount of the Administrative Expense Claim. The Court finds both Stacy Splittstoesser and Ben Geerten to be credible and competent.
1.The Accounts.
The Debtor had three accounts with Pa-cifiCorp. (Stipulated Fact No. 3.) However, PaciflCorp supplied the bulk of electrical energy to the Debtor under a single account: XXX9206-001-5 (the “Principal Account”). For example, the Principal Account is the basis of $240,125.27 (or more than 99%) of the total $240,479.93 amount of the Claim. (Ex. 4; Stipulated Fact No. 6.) Similarly, during the 20-day period pri- or to the Petition Date, the Principal Account constituted $83,946.96 (or more than 99%) of the total $84,253.95 amount of the Administrative Expense Claim. (Ex. 8.)
2. The Meters.
PaciflCorp supplied electrical energy to the Debtor measured by five meters. (Ex. 5 and 7; Tr. at 87.) More than 99% of the electrical energy flowed through Meter Nos. 35739021 and 35739016, both of which were associated with the Principal Account. PaciflCorp supplied the remaining amount of electrical energy through three other meters. All of the electrical energy was metered and delivered to the Debtor in Wyoming in connection with the Debt- or’s coal bed methane natural gas operations. (Tr. at 72.)
3. The Invoices, Amount of Electrical Energy Supplied, and Amount of Administrative Expense Claim.
PaciflCorp issued Invoices for each of the three accounts covering each of the five meters for the 20-day period prior to the Petition Date. The Invoices identify the main charges as for “ELECTRIC SERVICE.” (Ex. 6 at 2-3, 5-6 and 9.) The “Electric Service” sections of the Invoices are followed by a table and further explanation of the charges. Id'. For example, the first Invoice (which contains the same format as the other Invoices and covers the Primary Account as well as the highest-use meter) states the following:
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(Id.) Thus, meter readings form the basis for the charges detailed in the Invoices,
“The purpose of the meter is to identify and measure the usage of electricity .... ”
After quantifying the amount of electrical energy supplied, the balance of each of the Invoices details the associated financial charges. Again, the first Invoice is typical:
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(Id.) Thus, the Invoices establish that the great majority of the charges levied against the Debtor were for actual electrical energy supplied on a “kw” or kilowatt basis. However, there were some minor amounts included on the Invoices for “Customer Efficiency Services” and taxes.
In the Administrative Expense Summary/ PacifiCorp provided further detail for its Administrative Expense Claim. (Ex. 8.) Notably, the Administrative Expense Summary confirms that PacifiCorp limited the Administrative Expense Claim only to the supplied electrical energy. (Id. at 2.) Put another way, PacifiCorp is not claiming a Section 503(b)(9) administrative expense priority for “Customer Efficiency Services,” taxes, or city franchise fees listed on the Invoices. (Id.) Instead, only the value of electrical energy actually supplied to the Debtor during the 20-day period before the Petition Date is included. (Id. and Tr; at 79 and 90.) Ben Geersten testified that the amount of the Administrative Expense Claim fairly and accurately represents the value of the electrical energy provided to the Debtor during the 20 days prior to the Petition Date. (Tr. at 91.) The Court concurs and finds that the value of the electrical energy provided to the Debt- or during the relevant time is $84,253.95.
C. Wyoming Tariff Information.
Since PacifiCorp is a public utility, its rates are regulated by the Wyoming Public Service Commission. (Tr. at 70; Stipulated Fact No. 2.) The Wyoming Tariff Information identifies the “Applicable Wyoming Rate Schedules.” (Ex. 7.) Schedule 46 is titled “Large General Service Time of Use:—1,000 KW and Over” and states that it applies to:
... non-residential Customers for all electric service required on the Customer’s premises. Service under this Schedule is limited to electric service loads which have exceeded 999 kw in more than one month of a consecutive 18-month period.
(Id. at 2.) Consistent with the Invoices, Schedule 46 permits “Monthly Billing” for “Basic Charge,” “Demand Charge,” Ener
D. The Nature of Electrical Energy.
PacifiCorp presented Dr. Shawn Kolitch as an expert witness “in the field of physics.” (Tr. at 14.) His testimony focused on the characteristics of electrical energy. Dr. Kolitch is well qualified. (Ex. 1 and Tr. 14.) He received a Bachelor of Sciences in applied mathematics and a Master of Sciences in applied physics from Columbia University. Thereafter, he earned a Doctorate in physics from the University of California, Santa Barbara. Dr. Kolitch taught physics, including the principles of electricity and magnetism, as a physics lecturer and assistant professor of physics at three universities. He published several articles and made numerous presentations on physics topics. After a career focused on the sciences, Dr. Kolitch elected to pursue a new field: law. He earned a Juris Doctorate and is in private practice in Oregon. In his current work, Dr. Kolitch marries his science and legal training by focusing on intellectual property in the emerging technology and high-technology industries. The Court approved Dr. Kol-itch’s designation under F.R.E. 702 as an expert witness in the field of physics. Dr. Kolitch testified on complex issues in a straightforward and-understandable manner. The Court finds that Dr. Kolitch’s testimony was highly credible and very helpful to the Court in assessing the nature of electrical energy.
Dr. Kolitch, testified that “the electricity provided by a utility company to a customer ... is more properly described as ‘electrical energy’ ” rather than just “electricity.” (Ex. 2 at 1 and 3.) That is because:
Electricity is a sort of catchall term that’s used to describe the constellation of physical properties and effects whereas electrical energy has a more specific meaning. It means the energy carried by charged particles as they move and ... what we’re talking about [in this case] is the transfer of electrical energy from the source [PacifiCorp] to the customer [the Debtor] ....
(Tr. at 16.) Put another way, “electrical energy is the energy per electron multiplied by the total number of electrons carrying the charge.” (Tr. at 16.) And, “[a]n electron is a fundamental particle of nаture.” (Tr. at 15.)
The production of utility-scale electrical energy relies on a discovery made by the English scientist Michael Faraday in 1831, commonly known as “Faraday’s Principle.” (Ex. 2 at 4.) Faraday discovered that “rotating a loop of wire between the poles of a magnet causes charged particles within the wire to move around the loop, a phenomenon now commonly known as the flow of ‘electric current.’ ” (Id.) Even now, almost two hundred years after Faraday’s original discovery, electric utility companies generate electrical current and electrical energy primarily by causing large coils of wire to rotate between the poles of a magnet, (Tr. at 17-18.) Rotation is accomplished most commonly by using coal, natural gas, diesel fuel, or nuclear energy to heat water and transform it into steam. (Ex. 2 at 7.) The resulting steam is used to spin a turbine that then produces electrical energy. (Id.)
At trial, Dr. Kolitch demonstrated Faraday’s Principle by using a hand-crank electric generator to generate electrical energy that was transmitted by copper wire and consumed by a series of light bulbs. (Tr. at 18-22.) The demonstration showed that:
Electrical energy produced by a generator can travel through conductive wires and be put to a useful purpose at its destination. To accomplish this, i.e., to be transferred from the generator to the energy-consuming device, the electrical energy evidentially must move—and therefore be movable—from the generator to the energy-consuming device.
(Ex. 2 at 9.)
Power plants produce alternating electric current that is supplied to customers. (Ex. 2 at 6-7.) “The most basic characteristic of AC power is that it represents submicroscopic charged particles (electrons) moving back-and-forth in a wire, many times per second. This back-and-forth movement is what ‘alternating’ in ‘alternating current’ means.” (Ex. 2 at 13. See also Tr. at 17.) According to Dr. Kolitch:
The fundamental nature of AC power is that it represents a current of electrically charged particles (electrons) moving back and forth in a conductor. If the current stops, there is no electrical energy that can be identified or transferred to the customer. It is the very currentitself, which by definition consists of moving electrical charges, which carries the electrical energy and which allows both the identification and transfer of the energy. Therefore, in my opinion it is a matter of logical necessity, based upon the fundamental nature of AC power, that the electrical energy identified at the customer’s meter is moving— and therefore movable—when it is identified.
(Ex. 2 at 10.)
Public utilities 'typically supply electrical energy to their customers through the electric grid and highly conductive copper transmission wires. An electromechanical meter measures the electric energy sold to an end-user. Put another way, a meter “identifies and measures the electrical energy passing through it.” (Ex. 2 at 10.) How does the standard meter work?
Essentially what happens is the energy passes through the meter and generates what are called eddy currents in an aluminum disk which is caused to rotate at a rate which is proportional to the amount of energy passing through the disk and so the number of rotations of that disk is used as a measurement of the amount of electrical energy passing through the disk.
(Tr. at 22.) The electrical energy transferred to a customer “typically [is] measured in kilowatts (kW). Over a set period, such as a monthly billing cycle, the total electrical energy transferred to the customer is the average power multiplied by the time, usually expressed in kilo-watt-hours (kWh).” (Ex. 2 at 19; see also Tr. at 23.)
Dr. Kolitch was quite emphatic that the ’ supply of electrical energy to a customer, and its measurement, is based on movement:
The fundamental nature of that measurement (kilowatt hours) requires that electrons in thе wires be moving as they pass through the meter to cause these rotations of the disk. Without the motions of the electrons back and forth in the wires, the disk would not move and there would be no energy transferred and no measurement made, so it absolutely requires .the motion of electrical ■ current to measure anything.
(Tr. at 23-24; see also Ex. 2 at 30.)
Ultimately, Dr. Kolitch opined that: (1) “electrical energy passing from a utility company to a customer is identifiable”; and (2) “electrical enérgy transferred to the customer is by its fundamental nature moving—and therefore movable—at all times, including when it passes through the customer’s electricity meter.” (Ex. 2 at 30.) The Court finds Dr. Kolitch’s foregoing opinions compelling, well-supported, and valid. Accordingly, the Court accepts Dr. Kolitch’s conclusions concerning the characteristics of electrical energy (which stem from his expertise in the field of physics); however, the Court (not Dr. Kol-itch) must decide whether electrical energy constitutes “goods” within the meaning of Section 503(b)(9).
V. Legal Analysis.
A. The Legal Question.
The Application requests the allowance of the Administrative Expense Claim as a priority in the amount of $84,253.95. Section 503(b)(9) provides priority treatment for:
... the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.
As set forth in the Court’s Findings of Fact, PacifiCorp established that it supplied $84,253.95 worth of electrical energy
B. General Guidelines for Statutory Interpretation.
The Court employs a fair reading method that dictates the primacy of the statutory text. Stated differently, the inquiry must center on the “language of the statute itself.” Ransom v. FIA Card Servs., N.A.,
The starting place is the “plain” or “ordinary” meaning of the text. Clark v. Rameker, — U.S. -,
While the Court looks to the modern “ordinary meaning” of the term “goods,” context also is important. The term “goods” appears as part of a single sentence subsection in a statute governing the “allowance' of administrative expenses” as part of the bankruptcy process. 11 U.S.C. § 503 identifies those categories of claims or expenses that are afforded more favorable treatment than other unsecured claims. See 11 U.S.C. §§ 507 (listing priorities), 726 (detailing the distribution of property of the estate); and 1129 (requiring payment of priority administrative expenses as part of Chapter 11 plan confirmation). In 2005, Congress expanded the category of administrative expense claims to include the value of “goods” received by the Debtor shortly before the bankruptcy filing. So, the measure obviously was designed to provide additional redress for creditors—not debtors.
Beyond this expansion of creditors’ rights, what did Congress intend in enacting Section 503(b)(9)? The Court believes that is the wrong question. The Court should not decide “what the legislature meant ... [but] only what the statute means.” Oliver Wendell Holmes, The Theory of Legal Interpretation, 12 Harv. L.
For these reasons, the Court is quite reticent to engage in an analysis and discussion of legislative history as part of its statutory interpretation work. In fact, the exercise of trying to divine intent from legislative statements (whether from floor speeches, debates, or committee reports) is a sort of fiction. See Antonin Scalia and Bryan A. Garner, Reading Law: the Interpretation of Legal Texts 394 (Thompson/West 2012) [hereinafter, “Reading Law”] (“The use of the term legislative intent encourages this search for the nonexistent.”) But, in this case, even if the Court wanted to seek fiction, it would be even more impossible because there is no legislative history explaining Section 503(b)(9) and Congress’ intention in using the expansive word “goods.” See H.R. Rep. 109-31(1) (2005), as reprinted in 2005 U.S.C.C.A.N. 88 (House Report notes only that “Section 1227(b) amends Bankruptcy Code section 503(b) to provide that the value of any goods received by a debtor not later than within 20 days prior to the commencement of a bankruptcy case in which the goods have been sold to the debtor in the ordinary course of the debt- or’s business is an allowed administrative expense”). The Debtor acknowledges the lack of legislative history. See Response at 2 (“BAPCPA’s sparse legislative history is of little help ... there is no legislative history as to why § 503(b)(9) was needed
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So, we turn back to the meaning of the language Congress actually used: “goods.”
C. In the Absence of a Statutory Definition of “Goods” in the Bankruptcy Code, Other Sources Provide Guidance.
Interpretation of the word “goods” used in Section 503(b)(9) of the Bankruptcy Code, which after all is1 a federal statute, is a matter of federal law—not state law. Kamen v. Kemper Fin. Serv., Inc.,
Thus, the Court must look elsewhere for plain meaning. Dictionaries can help determine the ordinary meaning of words. Baker Botts,
The Court concludes that there are many useful guideposts for ascertaining “plain meaning” in this case including dictionaries, the UCC, federal antitrust law, federal labor law, federal energy regulatory law, state tort law, tax law, and international treaties—in addition to persuasive but non-binding precedent from other federal and state courts. Virtually all of such sources point in the same direction.
D. Electric Energy Is a “Good” Under Dictionary Definitions.
Plain meaning may be ascertained by examining typical usage of words. Although not dispositive, reference to dictionaries published near the time of statutory enactment often is helpful, at least as a starting place. Clark,
None of the many dictionaries consulted by the Court contains detailed lists of “goods.” Thus, and perhaps not surprisingly, such dictionaries make no specific references to electricity or electrical energy as being either included in, or excluded from, the definition of “goods.” Instead, the main etymological lesson from examination of dictionary definitions is that the term “goods” is very broad. Indeed, the “[t]hings that have value, whether tangible or not” definition of “goods” seems to be about the.most encompassing definition of an object in the English language. And, “personal property” is not far off.
That Congress chose to use an extremely broad word, “goods,” does not suggest that-the judiciary should somehow impose its own limits or exclusions where Congress did not do so. Instead, under the “general-terms canon” of statutory interpretation, “the presumed point of using general words is to produce general coverage—not to leave room for courts to recognize ad hoc exceptions .... [I]n the end, general words are general words, and they must ,be given general effect.” Reading Law at 101. Utilization of general words “demonstrates breadth.” Pa. Dep’t of Corr. v. Yeskey,
The Debtor invites the Court to consider “common parlance” and proposes as a “goods” definition: “tangible items that can ‘be packaged and handled.’ ” Response at 2. But, the Debtor provides no authoritative linguistic source for the definition. Instead, the “packaged and handled” phrase appears to have come from Pilgrim’s Pride, where a bankruptcy court seemingly created the phrase out of whole cloth.
The Court concludes that the broad dictionary definitions of “goods” seem far more representative of the typical usage of “goods” than the Pilgrim’s Pride formulation. Under such definitions, “goods” means “things that have value, whether tangible or not,” “things that are produced for sale,” “commodities,” and “personal property.”
Electrical energy most definitely is a “thing.” Dr. Kolitch explained that “electrical energy is the energy per electron multiplied by the total number of electrons carrying the charge.” (Tr. at 16.) Furthermore, electrical energy obviously has value. In this case, the value of the electrical energy supplied during the relevant time period was $84,253.95. PacifiCorp produced the electrical energy for sale and did sell it to the Debtor (albeit the Debtor failed to pay for the electrical energy). Further, the electrical energy had value in that it was critical to operate the Debtor’s coal bed methane wells and other infrastructure. And, electrical energy is a “commodity.” See Williams v. Duke Energy Int’l, Inc.,
To the extent that tangibility is a requisite for “goods” under some (but not all) dictionary definitions, electrical energy is tangible. It exists. It can be seen under certain conditions (i.e., an arc of electric current). It can be heard humming through, overhead transmission wires. Moreover, as even a small child knows, electrical energy can be touched or felt, albeit with risk of electrical shock and serious personal injury. In short, electrical energy is perceptible to the senses. And, it can be quantified. So, it is tangible. As set forth in more detail below, the tangibility of electrical energy is confirmed by numerous legal sources. In addition to the sensory perception aspect, the evidence from Dr. Kolitch and Ben Geersten confirms that electrical energy can be measured by use of an electromechanical power meter. (Ex. 2 at 10.) The meter “identifies and measures the electrical energy passing through it.” Id. The unit of measurement is a kilowatt. (Ex. 2 at 19; see also Tr. at 23.)
Therefore, putting it all together on a common sense basis, there really can be no doubt electrical energy falls within the ambit of “goods” under typical usage definitions. In fact, the question is not even close. Nevertheless, a more comprehensive and discerning approach (including an analysis of legal usage) seems warranted as a check on the common meaning because the term “goods” appears in many legal texts and may constitute a “legal term of art.” So, the Court turns to legal definitions and usage.
E. Electrical Energy Constitutes “Goods” under the UCC.
1. The UCC Definition of “Goods” Provides Guidance But Is Not Disposi-tive. - •
In the absence of a definition of “goods” in the Bankruptcy Code, all bankruptcy
However, since interpretation of the word “goods” used in Section 503(b)(9) is a matter of federal law—not state law— the UCC does not automatically determine the rule of decision. See Am. Sur. Co. of N.Y. v. Sampsell,
2. The UCC Definition of “Goods.”
The UCC defines “goods” as:
(1) “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (article 8 of this title), and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (section 4-2-107).
(2) Goods must be both existing and identified before any interest in them can pass. Goods which are-not both existing and identified are “future” goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.
Colo. Rev. Stat. § 4-2-105. The definition of “goods” contained in the Wyoming version of the UCC is substantively identical to the Colorado version. Wyo. Stat. Ann. § 34.1-2-105(a) and (b). The Court refers to these similar definitions more generically as “UCC Section 2-105.” Further simplified, under the UCC Section 2-105 definition, “goods” must be: (1) things existing and identifiable; (2) movable at the time of identification; and (3) capable of being sold.
Many state courts and federal courts (sitting in diversity) have applied UCC Section 2-105 to determine whether electrical energy is “goods.” Such determinations are important for purposes of choice of substantive law because the UCC only applies to a “transaction in goods.” If the sale of electrical energy is a “transaction in goods,” then the provisions of the UCC apply; if not, the transaction is governed by state common law rather than the UCC.
Notwithstanding the statutory uniformity of UCC Section 2-105, at first blush, the non-bankruptcy case law construing the term “goods” in the context of electrical energy does not seem particularly uniform. The majority view is that electrical energy is “goods” for purposes of UCC Section 2-105. Case law from California, Indiana,
The court here finds that the U.C.C. does apply. Many of the cases tackling this question stem from the products liability realm, but California courts have consistently found that electricity is a product or good. Courts in other states have similarly found that electricity is a good for purposes of the U.C.C. Simply put, electricity in this instance is a thing movable at the time of identification to the contract for sale. That is clearly demonstrated by the fact that the Agreement calls for the shipment of specific quantities of electricity. The electricity is moved through the power lines and the amounts are metered and therefore identifiable. The court will apply the U.C.C.
More recently, in a different Pacific Gas case, the U.S. Court of Appeals for the Federal Circuit stated: “The parties appear tо agree that the provision of electricity involves the sale of goods which would invoke the UCC .... Indeed, we would lack jurisdiction ... if the contracts [for sale of electricity] were interpreted as involving the provision of services rather than goods.” Pac. Gas & Elec. Co. v. U.S.,
Despite the apparent logic of the majority approach, some courts have disagreed and determined that electrical energy is not “goods” under the UCC. In the Court’s view, the suggested disarray in the UCC Section 2-105 ease law (outside of bankruptcy) is overstated and can be explained by a careful and more nuanced analysis. Virtually all of the cases characterized as .supporting the minority UCC approach can be distinguished because they involved personal injury caused by contact with high voltage wires prior to metering and delivery of electrical energy.
After carefully parsing the state personal injury cases involving high voltage wire contact (not metered and delivered electrical energy), there seems to be only one real outlier: New York. New York courts first addressed whether electrical energy constitutes “goods” under the UCC in Farina v. Niagara Mohawk Power Corp.,
The Farina dicta jumped to federal court in U.S. v. Consol. Edison Co. of N.Y.,
The bottom line is that the great majority of state courts consider electrical energy to be “goods” under the UCC. In the special context of personal injury cases involving overhead power wires (before metering and delivery of electrical energy), some States exclude application of the UCC holding that stray electrical current in overhead power lines is not “goods.” However, such state courts frequently have distinguished such results and clarified that electrical energy metered and delivered to a customer constitutes “goods” under the UCC.
4. Bankruptcy Courts Are Divided on Whether Electrical Energy Constitutes “Goods” under UCC Section 2-105.
All bankruptcy courts construing Section 503(b)(9) in the context of electrical energy have adopted the UCC Section 2-105 definition of “goods.” But, despite this uniformity in initial analytic approach, such bankruptcy courts have reached starkly contradictory results concerning whether electrical energy is “goods.”
a. Bankruptcy Decisions Holding that Electrical Energy is “Goods” under UCC Section 2-105 Are Most Persuasive.
Erving Industries is the key early decision determining that electricity is “goods” under UCC Section 2-105 and Section 503(b)(9). In that case, a power company presented a large priority claim for electrical energy supplied to the debtor during the 20 days before bankruptcy. The debtor conceded the value and timing elements. Thus, as in this case, in Erving Industries the main issue was whether electrical energy qualified as “goods.” Noting the absence of a Bankruptcy Code definition of “goods,” the Erving Industries bankruptcy court adopted the UCC Section 2-105 definition. The court reasoned that electricity is tangible since “[electricity ... is the thing the customer seeks to purchase” and “customers rely on the specific physical properties of electricity to fulfill their needs —” Erving Indus.,
Electricity easily meets the movability requirement .... After it is generated, the electric current moves through a huge network of transmission and distribution systems before ultimately reaching the customer’s location. Like mova-bility, the identifiability of electricity is subject to little debate .... Courts have generally held that electricity is identifiable because it can be measured at the point it passes through the meter.
Erving Indus.,
Relying heavily on Erving Industries, a different bankruptcy court reached the same conclusion in In re Grede Foundries, Inc.,
. The district court, acting as an appellate court, decided that “it is reasonable” to use UCC Section 2-105 to define “goods” in Section 503(b)(9). Id. at 798. GFI Wisconsin also referenced many non-bankruptcy UCC decisions. The court promoted a common sense approach:
[Djetermining whether a particular thing qualifies as a good and deserves administrative priority should be a straightforward assessment, taking into consideration the nature and common understanding of the thing, but also considering its similarities to goods that fall indisputedly under the UCC and would receive administrative priority under § 503(b)(9) .... I agree with thosecourts concluding that electricity is movable, tangible and consumable, that it has physical properties, that it is bought and sold in the marketplace and thus, that it qualifies as a good for purposes of the UCC and the Bankruptcy Code.
Id. at 800.
More recently, several other bankruptcy courts adopted the reasoning and rationale of Erving Industries, Grede Foundries, and GFI Wisconsin. See In re Wometco de P.R. Inc.,
b. Bankruptcy Decisions Holding that Electrical Energy is Not “Goods” under. UCC Section 2-105 Are Not Persuasive.
A roughly equal number of other bankruptcy cases reach the opposite electrical energy result under UCC Section 2-105 and Section 503(b)(9): Pilgrim’s Pride,
[T]he UCC requires that goods be movable at the time of identification. This is simply not true of electricity. Once electricity has been “identified” by measurement at the meter, it has already been consumed by the end user ..., The mere fact that electricity is sold in metered quantities does not bring it within UCC § 2-105 or Code § 503(b)(9).
Id. at 239. After reaching this conclusion, the bankruptcy court attempted to bolster its decision by looking at the “plain meaning” of the UCC and the Bankruptcy Code. To do so, the bankruptcy cоurt attempted to divine the intent of the drafters of the UCC—not Congress. Thus, with no actual support, the Pilgrim’s Pride decision hypothesizes that: “UCC § 2-105
Some years after Pilgrim’s Pride, a different bankruptcy court reached the same result: NE Opeo,
[I]n order for electricity to be a good, there must be a period between when electricity is identifiable and consumed. But, in order to do justice to the term as it has developed over 1,000 years, the period between identification and consumption must be meaningful. This is not the case with electricity.
NE Opco,
The unpublished Samaritan Alliance decision,
The final case in the electricity-is-not-goods line is Great Atlantic,
Respectfully, the Court determines that the Pilgrim’s Pride, NE Opeo, Samaritan Alliance, and Great Atlantic decisions are not persuasive under UCC Section 2-105 and Section 503(b)(9). Why?
First, three of the four decisions (Pilgrim’s Pride, NE Opeo, and Samaritan Alliance) are bereft of any evidentiary foundation concerning the characteristics of electrical energy. Instead, the bankruptcy courts proceeded on their own devices. The lack of competent evidence renders ■the resulting judicial conclusions suspect. Contrawise, in this case, the Court received and credited expert physics testimony that is contrary to conclusions reached without the benefit of any evidence.
Second, the court in the lead case, Pilgrim’s Pride, based its result (at least in part) on supposedly discovering the intent of the UCC’s “authors” and “drafters.” Pilgrim’s Pride,
Third, in the two key cases, Pilgrim’s Pride and NE Opeo (which are the main basis of Great Atlantic), the courts do not adequately acknowledge that the great majority of UCC decisions (over decades) have determined that metered and delivered electrical energy is “goods.” Instead, they seem to mix-and-match products liability overhead transmission cases plus minority law from New York. But, the problem is even worse than that. The Pilgrim’s Pride and NE Opeo courts mistakenly cite some decisions for holdings that are the opposite of the decisions’ actual rulings. For example, both the Pilgrim’s Pride and NE Opeo decisions cite the Ohio case of Cincinnati Gas & Elec.,
We distinguish ele’ctricity in its raw state from metered amounts passing through utility-owned conduits and into the homes of consumers. The latter-described form of electricity is “goods” as defined in the Uniform Commercial Code.
Id. at 715. So, as applied to the context of this case—where PacifíCorp provided electrical energy to the Debtor which was metered, delivered and used—Cincinnati Gas & Elec, strongly supports a determi-' nation that such electrical energy is “goods” under the UCC Section 2-105 definition. Similarly, the courts in Pilgrim’s Pride and NE Opeo both cite Michigan case law, Williams,
Fourth, the NE Opco court announced a new rule for “goods” that the period between identification and consumption must be “meaningful.” NE Opco,
5. Electrical Energy Constitutes “Goods” Under UCC Section 2-105.
Having carefully reviewed the text of UCC Section 2-105 and UCC case law (both in and outside of bankruptcy), the Court reaches its own conclusion about whether electrical energy satisfies the UCC definition of “goods.” Under UCC Section 2-105, “goods” are: (1) things existing and identifiable; (2) movable at the time of identification; and (3) capable of being sold. There are no other requirements.
As the name suggests, the UCC is designed to promote uniformity in state law in the area of commercial matters (including sales). So, it is quite salient to reiterate again at the outset that the majority of state and federal courts (sitting in diversity) have determined that electrical energy constitutes “goods” under UCC Section 2-105, especially when the electrical energy is metered and delivered to a customer. In fact, outside of the bankruptcy context, the Court has not been able to locate any decisions (except in New York) that conclude that metered and delivered electrical energy is anything other than “goods” under UCC Section 2-105. So, the Debtor’s argument (ie., that metered electrical en
Turning to the UCC Section 2-105 definition of goods, the Debtor concedes that electrical energy is a thing that exists, can be identified, and is capable of being sold. However, the Debtor denies that electrical energy is “moveable at the time of identification.” Response at 3-4. Citing Pilgrim’s Pride and NE Opeo, the Debtor contends that “electricity is only identifiable once it is measured at the meter, after which ‘it has already been consumed by the end user.’ ” Id.
On a factual basis, the expert testimony of Dr. Kolitch strongly rebuts the Debtor’s argument. A trained physicist, he explained and opined:
• “[I]t is a matter of logical necessity, based upon the fundamental nature of AC power, that the electrical energy identified at the customer’s meter is moving—and therefore movable— when it is identified.” (Ex. 2 at 10.)
• The electromechanical power meter “identifies and measures the electrical energy passing through it.” (Ex. 2 at 10.)
• “The fundamental nature of that measurement (kilowatt hours) requires that electrons in the wires be moving as they pass through the meter to cause these rotations of the disk. Without the motions of the electrons back and forth in the wires, the disk would not move and there would be no energy transferred and no measurement made, so it absolutely requires the motion of electrical current to measure anything.” (Tr. at 23-24)
• Electrical energy “must be moving at the time of its identification.” (Tr. at 25.)
• “The simplified version is that [electrical energy] is carried by transmission lines from the power plant to the customer, passes through an electric meter where it’s quantified and then flows through conductors to the customer’s electrical energy consuming devices.” (Tr. at 20.)
• “[T]he measure [of electrical energy in a meter] is occurring as the energy is passing through the meter.” (Tr. at 57.)
• “[Electrical energy transferred to the customer is by its fundamental nature moving—and therefore movable—at all times, including when it passes through the customer’s electricity meter.” (Ex. 2 at 30.)
The Debtor’s counsel conducted a highly skilled (and even entertaining) cross-examination of Dr. Kolitch; but, Dr. Kolitch did not retreat from his credible testimony and opinions. The Debtor’s best evidence was that electrical energy is fast. On cross-examination, Dr. Kolitch acknowledged that electrical energy moves “very quickly,” almost at the “speed of light” and transits 200 feet of copper wire in “around 226 nanoseconds.” (Tr. at 36-38.) There is no doubt that the electrical energy supplied by PaeifiCorp passed the 5 electromechanical meters and was consumed or used by the Debtor in its natural gas operations very quickly—in hundreds or possibly thousands of nanoseconds. Citing NE Opeo, the Debtor argues “[t]here is no meaningful delay between identification and consumption of electricity, and the ‘infinitesimal gap’ between the two ‘is too short to establish that electricity is moveable at the time of identification’ so as to be a good within the meaning of the UCC.” Response at 3; NE Opco,
The Debtor’s argument is not without some allure, but the Court rejects it on a variety of grounds. First, the testimony from Dr. Kolitch was that “the electrical
Thus, electrical energy is “goods” under UCC Section 2-105 which the Court has adopted as the applicable legal definition of the term. But, as we shall see in a moment, the UCC is not the only legal source that helps clarify the plain meaning of the term “goods” and whether electrical energy constitutes “goods.” Federal antitrust law, federal labor law, federal energy regulatory law, state tort law, tax law, and international treaties (including the international equivalent of the UCC) all confirm that electrical energy is “goods.”
F. Electrical Energy Constitutes “Goods” under Federal Antitrust Law.
Sections 2 and 3 of the Robinson-Pat-man Antidiscrimination Act (the “Robinson-Patman Act”), 15 U.S.C. §§ 13 and 14, use the terms “commodities” and “goods.” Since numerous federal courts have construed such terms in the context of electricity-oriented claims, Robinson-Patman Act cases also provide insightful guidance (albeit not binding precedent) concerning the commonly accepted legal meaning of the term “goods.”
Section 2(a) of the Robinson-Patman Act prohibits “any person engaged in commerce” from discriminating “in price between different purchasers of commodities of like grade and quality ... where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly_”15 U.S.C. § 13(a) (emphasis added). Although Section 2(a) of the Robinson-Patman act uses the term “commodities” rather than “goods,” the words are synonymous. Toivn of Concord, Mass, v. Boston Edison Co.,
Section 3 of the Robinson-Patman Act, 15 U.S.C. § 14, makes it unlawful for any “person engaged in commerce ... to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies, or other commodities” on an agreement that “the lessee or purchaser thereof shall not use or deal in the goods, wares, merchandise, machinery, supplies, or other commodities of a competitor .... ” Id. Thus, the statute makes plain that “goods” means a type of “commodity.” In addition, the word “commodities” generally is construed similarly in both Sections 2 and 3 of the Robinson-Patman Act. City of Gainesville v. Fla. Power & Light Co.,
At least two federal appellate courts have examined whether the sale of electrical energy is considered a “commodity” under Section 2 of the Robinson-Patman Act. The leading appellate case is City of Kirkwood,
Though the Robinson-Patman Act does not cover sales of real property, intangibles, or services, electricity does not fall into any of these categories. Electric power can be felt, if not touched. It is produced, sold, stored in small quantities, transmitted, and distributed in discrete quantities. We hold that electricity is a commodity for purposes of the Robinson-Patman Act.
Id. at 1181-82 (emphasis added). Much more recently, the U.S. Court of Appeals for the Sixth Circuit came to the same conclusion. In Williams,
Consistent with appellate precedent, the clear majority
[Electricity is not significantly diffеrent from other items deemed commodities subject to the price discrimination prohibitions of the antitrust laws. Like the more traditional commodities, electrical energy is a thing bought and sold in the market place. It may be measured, stored and even stolen. More importantly, electricity is manufactured from other forms of energy and then distributed from the manufacturer to intermediaries ... or to the ultimate consumers at retail. Like other commodities, electricity is useful to purchasers solely because of its physical properties and not because it represents any underlying contractual right or other intangible.
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Although the average consumer of electricity might believe she is paying for a service rather than purchasing a product from [the electric utility], this fact is not controlling in the determination of whether electricity is a commodity within the Act. [The electric utility] manufactures electricity and sells it to consumers at retail and at wholesale. The primary purpose of a consumer who deals with [the electric utility] is to obtain this product, electricity .... The manufacture and sale of electricity is no more a service than the manufacture and sale of widgets.
Town of Concord,
G. Electrical Energy Constitutes “Goods” under Federal Labor Law.
The Fair Labor Standards Act of 1938 (“FLSA”) establishes national fair labor standards, including minimum wage, overtime pay, and child labor protections. 29 U.S.C. § 201 et seq. Many of the substantive FLSA provisions reference work performed in the production of “goods.” See 29 U.S.C. § 206 (minimum wage for employees “engaged in commerce or in the production of goods”); § 207 (maximum hours for employees “engaged in commerce or in the production of goods”); § 212 (prohibiting shipment of “any goods produced” by oppressive child labor). Given the repeated reference to “goods,” Congress defined the term:
“Goods” means goods (including ships and marine equipment), wares, products, commodities, merchandise, or articles or subjects of commerce of any character....
29 U.S.C. § 203(i). The FLSA definition is very similar to the phraseology of Section 3 of the Robinson-Patman Act. 15 U.S.C. § 14 (“goods, wares, merchandise, machinery, supplies, or other commodities”). It also, is very close to many dictionary definitions.
The federal agency administering the FLSA, the Department of Labor, has determined that “[g]oods includes.. .electri
H. Electrical Energy Constitutes “Goods” under the Federal Power Act.
The Federal Power Act governs the transmission and sale of electrical energy in interstate commerce. 16 U.S.C. § 824 et seq. Congress vested the Federal Power Commission (“FPC”), later replaced by the Federal Energy Regulatory Commission (“FERC”), as the federal agency charged with regulation and enforcement of federal law governing the interstate transmission and sale of electrical energy, including establishment of “just and reasonable” wholesale electrical energy rates. 16 U.S.C. § 824d(a); see also In re Enron,
The FPC and the FERC repeatedly and consistently have determined that Article 2 (Sales) of the UCC governs contracts for the interstate sale of electrical energy. But, as discussed previously, Article 2 of file UCC is only applicable to “transactions in goods.” Colo. Rev. Stat. § 4-2-102(1); Wyo. Stat. Ann. § 34.1-2-102(1). Thus, in ruling that Article 2 of the UCC governs transactions for the interstate sale of electrical energy, the FRC and FERC both effectively have determined that electrical energy is a “good.”
Minnesota Power & Light Co., 52 F.P.C. 617 (FPC 1974), illustrates the point. In that case, the dispute “centered solely upon the language set forth in [interstate electrical energy] contracts” between a public electric utility and its customers (various Minnesota municiрalities). Id. at 618. In interpreting the language of the contracts, the FPC stated:
We note that the Uniform Commercial Code... has substantially altered the parol evidence rule relied upon by the Cities. A contract for the sale of electric power has been held to be a contract for the sale of ‘goods’ within the scope of Article 2 of the Uniform Commercial Code. Further, the Uniform Commercial Code represents the modern rules applicable to the interpretation and construction of commercial contracts. We believe that that fact warrants the application of relevant Uniform Commercial Code standards by analogy to the interpretation of contracts for the sale of electric power.
Id. at 619 (emphasis added; citations omitted). Some years later, the U.S. Court of Appeals for the Fifth Circuit confirmed that state contract law. governs FERC-regulated contracts (at least to the extent that “there is no significant conflict between any federal interest and the use of state law”). Pennzoil Co. v. F.E.R.C.,
Relying on Pennzoil and FERC precedent, many FERC decisions have applied UCC sale of goods law to electrical energy sale contracts. Golden Spread Elec. Coop., Inc.,
I. Electrical Energy That Has Been Delivered to a Customer is a “Product” in State-Law Tort Cases.
Electrical energy is a virtual necessity for modern living. However, inadvertent contact with electric current can result in grave personal injury and substantial property loss. Given its pervasive use through the United States, electrical energy has been the subject of much tort litigation. A critical legal issue in tort cases is whether electrical energy is a “product” or a “service.” The distinction is important for determining the applicable substantive few. And, the term “product” is virtually synonymous with “goods.” See 29 U.S.C. § 203(i) (defining “goods” as including “products”); Brian Garner, Blaok’s Law DictionaRy 331 (Thompson Reuters 10th ed. 2014) (defining “commodity” as “An article of trade or commerce. The term embraces only tangible goods, such as products or merchandise, as distinguished from services.”) (emphasis added); Ameri-Can Heritage Dictionary op the English Language at 757 (Houghton Mifflin Harc-ourt 5th ed. 2011) (“goods” means “a product-”).
The focus on the term “product” in tort litigation is driven by the Restatement of Torts (Second) (the “Restatement”) which has béen adopted in most States in the United States. Under the title “Special Liability of Seller of Product for Physical Harm to User or Consumer,” Section 402A of the Restatement provides:
(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if
(a) the seller is engaged in the business of selling such a product, and
(b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.
(Emphasis added.)
Some of the bankruptcy court cases considering Section 503(b)(9) also have considered state tort law as analogous. So, is electric energy a “product” under Restatement Section 402A and applicable state tort law? The clear majority of States considers electrical energy to be a “product,” not a “service” and, therefore, subject to the framework of Restatement Section 402A for most purposes. In fact, “the majority of the state courts considering this issue have encountered little difficulty deciding that electricity is a product_[be-cause] electricity is ‘a form of energy that can be made or produced by men, confined, controlled, transmitted and distrib
Precedent in the following jurisdictions confirms that electrical energy that has passed the customer’s meter is a “product” for strict liability purposes under Section 402(A) of the Restatement: California;
J. Electrical Energy Frequently Is Defined as “Tangible Personal Property” Under Tax Law.
At least 22 States expressly define “electricity” as “tangible personal property” in connection with state taxation.
“Tangible personal property”'means all personal property that can be seen, weighed, measured, felt or touched, or that is in any other manner perceptible to the senses. “Tangible 'personal property” includes electricity, water, gas, steam and prewritten computer software.
(Emphasis added.) The definition means that Wyoming has determined that electrical energy can be “seen, weighed, measured, felt or touched” or is otherwise perceptible to the senses. Furthermore, many States that have not expressly defined the phrase “tangible personal property” in their tax statutes nevertheless have determined that electrical energy falls within the meaning of the phrase. See Powerex Corp. v. Dep’t of Revenue,
At the federal level, the IRS agrees. In a pair of almost identical Private Letter Rulings, the IRS determined that “Producers of electric energy are subject to IRC § 263A. Generation of electric energy constitutes production of tangible personal property.” IRS Priv. Ltr. Rul. 200152012,
K. Electrical Energy Constitutes “Goods” under Multilateral Treaties between the United States and Other . Nations.
1. Electrical Energy is “Goods” under the North American Free Trade Agreement.
The United States, Mexico, and Canada entered into a multilateral treaty, the North American Free Trade Agreement (“NAFTA”), to facilitate the movement of goods in international commerce. NAFTA, Can.-Mex.-U.S., Dec. 17, 1992, 32 I.L.M. 289 (1993). Treaties form part of the “supreme law of the land.” U.S. Const, Art. VI. Chapter Six of the NAFTA is titled “Energy and Basic Petrochemicals” and its purpose is to “strengthen the important role that trade in energy and basic petrochemical goods plays in the free trade area and to enhance this role....” NAFTA Article 601(2) (emphasis added). NAFTA Article 602(1) confirms that Chapter Six “applies to measures related to energy and basic petrochemical goods originating in the territories of the Parties.... ” (emphasis added).
But, what “goods” are “energy and basic petrochemical goods” within the ambit of NAFTA? The treaty identifies the “energy and basic petrochemical goods” by cross reference. NAFTA Article 602(2)(h) states that “energy and basic petrochemical goods refer to those goods classified under the Harmonized System as...heading[ ]... 27.16_” (emphasis added). NAFTA Article 201 defines “Harmonized System” as “the Harmonized Commodity Description and Coding System, and its legal notes, and rules as adopted and implemented by the parties in their respective tariff laws.” In turn, Heading 2716.00 of the Harmonized Tariff Schedule of the United States (Supp. 2016)
2. Electrical Energy Constitutes “Goods” (Albeit Excluded) under the United Nations Convention on the International Sale of Goods.
The United Nations Convention on the International Sale of Goods (“UNCISG”) is the international functional equivalent of Article 2 of the UCC. The United States ratified the UNCISG and the treaty entered into force between the United States and ten other nations as of January 1, 1988. S. Treaty Doc. No. 98-9, 98th Cong. 1st Sess, 22 (1983), reprinted at 15 U.S.C. App. 52 (2002), 19 I.L.M. 668. Subsequently, many other nations joined. Currently, 85 countries are parties to the UNCISG. See Status of Conventions and Model Laws, United Nations General Assembly Note by Secretariat UN Doc A/CN.9/876 (May 17,2016).
As the title of the treaty suggests, the UNCISG generally applies to “contracts of sale of goods between parties whose places of business are in different States.” UN-CISG Art. 1(1) (emphasis added). The UN-CISG does not specifically define the term “goods”; however, the treaty lists certain categories of goods that are exempted from coverage by the UNCISG. In addition to excluding consumer goods, the UN-CISG excludes “sales... of electricity.” UNCISG Art. 2(f). The express exclusion of electricity in the UNCISG suggests that electrical energy is a “good.” The Secretariat of the United Nations Commission on International Trade Law confirmed as much in the Explanatory Note accompanying the UNCISG:
The Convention contains a list of types of sales that are excluded from the Convention, either because of the purpose of the sale (goods bought for personal, family or household use), the nature of the sale (sale by auction, on execution or otherwise by law) or the nature of the goods (,.. electricity).
Explanatory Note by the UNCITRAL Secretariat on the United Nations Convention on Contracts for the International Sale of Goods at ¶ 10.
3. Electrical Energy is “Goods” in Other International Trade Arrangements.
The World Trade Organization (“WTO”) is an intergovernmental organization that regulates international trade. The United Stаtes and 163 other nations are members of the WTO. Run by member governments, the WTO develops international trade rules and agreements designed to lower customs tariffs trade barriers covering. both goods and services. The WTO Secretariat characterizes electrical energy as “goods.” For example, in the 2Ó10 World Trade Report, the WTO Secretariat
L. Electrical Energy Constitutes “Goods” Under Section 503(b)(9).
1. General Conclusion.
As we have seen, the word “goods” is an especially broad and encompassing term in common usage. The same is true in legal texts and cases outside of bankruptcy, including under the UCC, federal antitrust law, federal labor law, federal energy regulatory law, state tort law, state tax law, and international treaties. The Court adopts the UCC Section 2-105 legal definition of “goods” for purposes of Section 503(b)(9). However case law, regulations, administrative rulings, and secondary sources construing the words “goods,” “commodities,” and “products” as used in the Robinson-Patman Act, the FLSA, the Federal Power Act, state tort laws, state tax laws, NAFTA, and UNCISG also clearly are analogous and further confirm, in a remarkably consistent fashion, both the common meaning and more specialized legal meaning of the term “goods” under UCC Section 2-105. See Darden,
The Debtor has offered no compelling argument why “goods” should have a different meaning under the Bankruptcy Code than under the consistent usage in dictionaries, UCC Section 2-105, federal antitrust laws, federal labor laws, federal energy regulatory law, state tort law, state tax law, and international treaties. Under Section 503(b)(9), Congress expanded creditors’ rights substantially by establishing an administrative priority for the very
2. The Debtor’s Other Arguments Are Not Compelling.
a. References to “Services” in the Contract and the Regulations of the Wyoming Public Service Commission Do Not Transform Electrical Energy into “Services.”
The Debtor highlighted evidence showing that PacifiCorp used the word “services” when referring to the supply of electrical energy. For example, the Invoices identify the main charges as for “Electric Service” and some of the tables on the Invoices contain the heading: “Service Period.” (Ex. 6 at 2-3, 5-6 and 9). Neither the Debtor nor PacifiCorp introduced any supply contracts. But, the Court construes the Invoices as part of the contractual arrangement between the Debtor and PacifiCorp. Furthermore, Pa-cifiCorp is a public utility and its rates are regulated by the “Wyoming Public Service Commission.” (Stipulated Fact No. 2.) The Wyoming Tariff Information identifies “Applicable Wyoming Rate Schedules.” (Ex. 7.) All of the Applicable Wyoming Rate Schedules (including Rate Schedules 25, 26 and 46) refer to “service.” The Debtor suggests that the numerous references to “services” may show the parties’ intent and should be used as a basis to reject electrical energy being classified as “goods.”
Regarding the “services” language in the Invoices, the Court determines that the use of the word “services” is not determinative. Instead of looking at the labels used on the Invoices, the Court must look at the substance of the transactions and the economic reality. A recent U.S. Supreme Court case is instructive: U.S. v. Eurodif, S.A.,
In terms of the Wyoming Public Service Commission, that entity was established to regulate “every public utility” in the State of Wyoming. Wyo. Stat. Awn. § 37-2-112. Wyoming law defines the phrase “public utility” as including all companies that own, operate or control “any plant, property or facility”: (1) “for the generation, transmission, distribution, sale or furnishing to or for the public of electricity”; (2) “for the manufacture, distribution, sale or furnishing to or for the public of natural or manufactured gas”; (3) “for the supply, storage, distribution or furnishing to or for the public of water”; and (4) “for the transportation or conveyance to or for the public of oil or gas.” Wyo. Stat. Ann. § 37-1-101. The Wyoming Public Service Commission, has passed regulations governing
There is no doubt that natural gas and water are “goods” within the meaning of the UCC. Colo. Rev. Stat. § 4-2-107 (“A contract for the sale of minerals or the like (including oil and gas) ... is a contract for the sale of goods ... if they are to be severed by the seller _”); Wyo. Stat. Ann. § 34.1-2-107 (same); see also Pilgrim’s Pride,
b. Sections 366 and 546(c) Do Not Defeat the Administrative Expense Claim.
Although the Debtor did not directly raise the argument in the Response, some of the bankruptcy cases cited by the Debt- or discuss the application of Sections 366 and 546(c). Section 366 is titled: “Utility Service” and governs certain aspects of “utility service” for “electricity, water and gas” after the commeneement-of bankruptcy proceedings. Alan N. Resnick and Henry J. Somer, 3 CollieR on' Bankruptcy ¶ 366.01 (Lexis Nexis 16th ed. 2016). Does use of the phrase “utility service” in Section 366 mean that electrical energy is not a “good” under Section 503(b)(9)? The Court thinks not. The issue is similar to the Debtor’s argument raised under the Wyoming public utilities statutes and regulations. Section 366 simply does not purport to change categories of “goods” (such as natural gas, water, and electrical energy) into “services.”
Every court that has considered the issue has determined that Section 366 is irrelevant for purposes of interpreting the word “goods” in Section 503(b)(9). See NE Opco,
Just because a seller of goods may also be a utility that is entitled to the protection of § 366 for the sale of utility services postpetition tо a debtor does not mean it is prohibited from allowance of a § 503(b)(9) administrative expense claim to the extent that it has sold goods to the debtor that qualify under § 503(b)(9). Section 503(b)(9) addresses the sale of goods pre-petition and § 366addresses the provision of utility services postpetition. The sections are not mutually exclusive. A utility provider may provide both goods and services within the meaning of each section. In sum, the rights afforded by § 503(b)(9) to a seller of goods are not dependent either explicitly or implicitly upon the availability of other remedies under the Code for the seller,
GFI Wis.,
The Section 546(c) argument is similar. Section 546(c) governs reclamation rights in “goods” sold to a bankruptcy debtor “if the debtor has received such goods while insolvent, within 45 days before [the bankruptcy]” and provides that the creditor makes a reclamation demand within the statutory time frame. The Debt- or hints, indirectly through citations, that Section 503(b)(9) administrative priority should be limited only to “goods” that are reclaimable under Section 546(c). The suggestion is that electrical energy is not reclaimable because it is consumed almost immediately. The short reason why this contention does not carry the day for the Debtor is because Sections 503(b)(9) and 546(c) are not linked. In other words, the statutory text of Section 503(b)(9) does not indicate that administrative priority is limited only to those goods for which reclamation is available under Section 546(c). Again, every court presented with the argument has rejected it. NE Opeo,
c. Statutory Interpretation Rules and General Bankruptcy Policy Do Not Require a “Narrow Interpretation” of the Word “Goods.”
For its final argument, the Debtor contends that “a narrow construction of § 503(b)(9) is warranted.” Response at 4. The “narrow construction” advocated by the Debtor supposedly would exclude electricаl energy from being included as “goods” subject to administrative priority under Section 503(b)(9).
The Debtor is correct that the U.S. Supreme Court ruled that bankruptcy priority claims should be “tightly construed.” Howard Delivery Serv., Inc. v. Zurich Am. Ins. Co.,
The Court simply does not find any ambiguity in the term “goods.” The word “goods” is an extremely broad and encompassing term. Its common meaning and well-established legal meaning include electrical energy. And, as noted earlier, “the presumed point of using general words is to produce general coverage—not to leave room for courts to recognize ad hoc exceptions .... [I]n the end, general words are general words, and they must be given general effect.” Reading Law at
Furthermore, “if Congress enacted into law something different from what it intended, then it should amend the statute to conform it to its intent.” Lamie v. U.S. Trustee,
V. Conclusion.
So, that brings us to the nut of the matter. In the absence of a Congressional exclusion of electrical energy in Section 503(b)(9), the Debtor is seeking to have the Court impose a policy preference in favor of debtors and against electric utilities in bankruptcy cases. The Debtor suggests that such a policy is consistent with principles of equitable distribution amongst creditors in bankruptcies and may promote reorganization. Perhaps.
GRANTS the Application. PacifiCorp shall have an allowed administrative priority claim under Section 503(b)(9) in the amount of $84,253.95 for electrical energy delivered to the Debtor in the 20 days prior to the Petition Date.
Notes
. All references to the "Bankruptcy Code” are to the United States Bankruptcy Code, 11 U.S.C. § 101 et seq. Unless otherwise indicated, all references to "Section” are to Sections of the Bankruptcy Code.
. As Société Générale did not materially participate in the dispute after filing the Joinder, this Opinion and Order makes no further reference to Société Générale.
. However, Dr. Kolitch’s testimony went further than just explaining the nature of electrical energy from the perspective of physics. He testified regarding the ultimate issue in this controversy and opined that "electrical energy should be considered a 'good' under U.C.C. § 2-105(a).” (Ex. 2 at 30; see also Tr. at 25 (opining that electrical energy ”fit[s] within the definition of goods.”)) Because the Court accepted Dr. Kolitch as an expert witness only in the "field of physics," such testimony was not proper and invaded the province of the Court. Thus, while the Court appreciates his testimony about the nature of electrical energy, the Court gives no weight to Dr. Kol-itch’s legal conclusions regarding bankruptcy and commercial law.
. Using the phrase "electrical energy” instead of the word "electricity” also is consistent with federal statutes governing the regulation of electric utility companies. For example, the Federal Power Act, 16 U.S.C. § 824d(a), states: “All rates and charges made, demanded, or received by any public utility for or in . connection with the transmission or sale of electric energy ... shall be just and reasonable ....” See also 16 U.S.C. § 824(a) ("the business of transmitting and selling electric energy ... to the public is affected with a public interest-”); 16 U.S.C. § 796 (Federal Power Act defines "electric utility” as "a person or Federal or State agency ... that sells electric energy.”); 16 U.S.C, § 2602(4) (references "electric energy”); 42 U.S.C. § 16451(5) (references "electric energy”); and 42 U.S.C. § 16211(b) (authorizing appropriations for programs to improve "electric energy" systems). The Bankruptcy Code follows the same pattern and also utilizes the term "electric energy.” 11 U.S.C. § 363(h)(4) (authorizing sale of certain interests in property “only if such property is not used in the production, transmission, or distribution for sale, of electric energy_”).
. For that matter, neither the United States Bankruptcy Appellate Panel for the Tenth Circuit, the United States District Court for the District of Colorado, nor any other divisions of this Court has adjudicated the issue.
. Neither the state law of Colorado (where the Debtor filed for bankruptcy protection) nor Wyoming (where the electrical energy was delivered by PaeifiCorp), both of which have adopted their own versions of the UCC, applies directly. There is no need for the Court to engage in a choice of law analysis as between Colorado and Wyoming law since the Court is only required to construe federal law.
. Helvey v. Wabash Cty. REMC,
. Detroit Edison Co. v. Dep't of Treasury,
. Cincinnati Gas & Elec. Co. v. Goebel,
. Bellotti v. Duquesne Light Co.,
. Grant v. Sw. Elec. Power Co.,
. Enron Power Mktg., Inc. v. Nevada Power Co. (In re Enron Corp.),
. See Singer Co. v. Baltimore Gas & Elec. Co.,
. The Farina court did note in discussing a tort claim that “until actually delivered, the electricity has not been placed in the stream of commerce” and "electricity [in overhead power wires] is not in a marketable state.” Farina,
. Although this Court acknowledges that many state courts have distinguished between electrical energy in transmission lines and electrical energy that has passed through a meter for purposes of characterizing such electrical energy as "goods,” this Court finds the distinction without much logical merit. In this Court’s view, the fundamental nature and characteristics of electrical energy do not necessarily change by location in the transmission system. But, this Court need not decide whether such distinctions are proper for state law because this case presents only the situation of electrical energy actually delivered, metered and used by the Debtor. Again, the state courts (other than New York) rather uniformly conclude that electrical energy that has passed through a meter constitutes "goods” under the UCC.
. A fifth decision, In re PMC Mktg. Corp.,
. The NE Opeo court also discussed the PMC Marketing case at some length. NE Opeo,
. The minority position is represented by City of Newark v. Dehnarva Power & Light Co.,
. The Walling court also determined that the powerhouse employees were engaged in interstate commerce.
. Pierce v. Pac. Gas & Elec, Co.,
. Smith v. Home Light & Power Co.,
. Travelers Indem. Co. of Am. v. Conn. Light & Power Co.,
. Monroe v. Savannah Elec. & Power Co.,
. Elgin Airport Inn, Inc. v. Commonwealth Edison Co.,
. Hedges,
. Cincinnati Ins. Co. v. PPL Corp.,
. Houston Lighting & Power Co. v. Reynolds,
. Ransome,
. DeJesus v. V.I. Water and Power Auth.,
. Two state court decisions frequently are characterized as suggesting that electrical energy is never a "product” under Restatement Section 402A: Otte v. Dayton Power & Light Co.,
. (Arkansas) Ark. Code Ann. § 26-52-103(21)(B); (Georgia) GA. Code Ann. § 48-8-2(37); (Iowa) Iowa Code Ann. § 423.1(59); (Kansas) Kan. Stat. Ann. § 79-3602(pp); (Maine) 36 Me. Rev. Stat. Ann. § 1752(17); (Massachusetts) Mass. Gen. Laws Ann. Chap. 64H § 1; (Minnesota) Minn. Stat. Ann. § 297A.61(10); (Nebraska) Neb. Rev. Stat. § 77-2701.39; (Nevada) Nev. Rev. Stat, Ann. § 360B.485; (New Jersey) N.J. Stat. Ann. § 54:32B-2(g); (New Mexico) N.M. Stat. Ann. § 7-9-46(F)(l); (North Dakota) N.D. Cent. Code Ann. § 57-39.2-01(25); (Ohio) Ohio Rev. Code. Ann. § 5739.01(YY); (Oklahoma) 68 Okla. Stat. Ann. § 1352(24); (Rhode Island) R.I. Gen. Laws Ann. § 44-18-16; (Tennessee) Tenn. Code Ann. § 67-6-102(89)(A); (Utah) Utah Code Ann. § 59-12-102(125)(b); (Vermont) 32 Vt. Stat. Ann. § 9701(7); (Virgina) Va. Code Ann. § 58.1-400.2(0; (Washington) Wash. Rev. Code Ann. § 82.08.010(7); (West Virginia) W. Va. Code Ann. § 11—15A—1(12); (Wyoming) Wyo. Stat. Ann. § 39-15-101(a)(ix). Some other States do not specifically categorize electrical energy. Some States recognize that electricity generally is tangible personal property but exclude it from the general provisions for taxation of tangible personal property. And, some States, such as Colorado, have defined the sale of electrical energy for commercial consumption as a “service” for taxation purposes. See Colo. Rev. Stat. §§ 39-26-104(1)(a) and (d.1); Dep't of Revenue v. Pub. Serv. Co. of Colo.,
. The Harmonized Tariff Schedule of the United States is promulgated by the U.S. In-temational Trade Commission and available at: www.hts.usitc.gov/current.
. Available at: www3.cec.org/islando-ra/en/item/1821-nafta-provisions-and-electri-citysector-en.pdf.
. Available at: www.uncitral.org/uncitral/en/ uncitral_texts/sale_goods/l980CISG.html. The Explanatory Note was prepared by the Secretariat of the United Nations Commission on International Trade Law at the time that the UNCISG became effective. However, the Explanatory Note states that it is "for informational purposes" and is “not an official commentary on the Convention.”
. Available at: www.wto.org/enKlish/res_e/ publications_eAvtrlO-e.htm.
. Available at: www.wto.org/engIisb/res_e/ publications-e/wtr 10_forum_e/wtr 10_2july 10_ e.htm.
. Available at: www.wto.org/english/res-je/ publicatións-e/wtrl 0_7may 10_e.pdf, The General Agreement on Tariffs and Trade ("GATT”) includes electrical energy as part of the Schedule of Commitments thereby suggesting that it is a "good.” Gary Horlick and Chrisliane Schuchhardt, NAFTA Provisions and the Electric Sector, Background Paper No. 4 at 4, Secretariat Report to Council Under Article 13 of the North American Agreement on Environmental Cooperation (June 2002). However, there has been some discussion regarding reclassifying electricity (or at least some of its value chain activities such as transmission and supply) as services under the General Agreement on Trade in Services. Id. Such recharacterization has not occurred.
. Some suggest that Section 503(b)(9) should be repealed entirely or changed because of its alleged negative impacts on corporate reorganizations. See Brendan M. Gage, Should Congress Repeal Bankruptcy Code Section 503(b)(9)?, 19 Am. Bankr. Inst. L. Rev. 215 (2011) (arguing that “unless Congress provides some sort of legislative gloss on why section 503(b)(9) was passed and then revises the section to advance that objective, section 503(b)(9) should be repealed").