Shedding Light on Whether Electricity is a "Good:" In re Southern Montana Electric Generation and Transmission Cooperative, Inc.

Jackson Walker

The question of whether electricity qualifies as a "good" under the Bankruptcy Code's administrative priority provisions has sparked varied rulings from bankruptcy courts. The recent case of In re Southern Montana Electric Generation and Transmission Cooperative, Inc., from the United States Bankruptcy Court for the District of Montana, followed some courts in ruling that electricity is a "good." Other courts have ruled differently and have concluded that electricity is not a "good." In Southern Montana, the court had to address whether electricity qualified as a "good" to determine whether an electricity provider should be entitled to administrative priority for a portion of its claim pursuant to section 503(b)(9) of the Bankruptcy Code.

Section 503(b)(9) of the Bankruptcy Code is unique in that it grants administrative (higher) priority to claims based on the value of "goods" received by the debtor within 20 days from the commencement of a bankruptcy case. In Southern Montana, the debtor, a wholesale electricity supplier, received power from PPL Energy Plus, LLC ("PPL"), pursuant to the terms of a Power Purchase and Sales Agreement between the Debtor and PPL. PPL asserted that it had a claim for the value of the electricity it had provided the debtor. PPL further argued that the portion of the electricity that it had provided to the debtor in the 20 days before the debtor commenced its bankruptcy case, which it valued at over $2.4 million, should be entitled to administrative priority under section 503(b)(9). Not surprisingly, PPL's argument was met with resistance from the Chapter 11 trustee, the unsecured creditors' committee, and various noteholders.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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