On May 15, 2023, the U.S. Bankruptcy Court for the Southern District of New York entered a memorandum opinion holding that electricity is not a “good” under the Uniform Commercial Code, and claims for providing power are not entitled to administrative priority under Section 503(b)(9) of the Bankruptcy Code. This issue is closely linked to claims lodged by the Puerto Rico Electric Power Authority (PREPA) against Sears Holdings Corporation and Kmart, which, as a result, are ultimately designated as general unsecured claims.
The issue was an objection to two claims lodged by PREPA against Sears and its affiliates. PREPA advocated for administrative priority status for two claims amounting to about $530,000. These claims represent unpaid electricity expenses that had accrued before the Debtors filed for bankruptcy. However, the Debtors disputed this, arguing that the claims shouldn’t be accorded administrative priority status, contending that electric energy is not a “good” as defined by Section 503(b)(9). Agreeing with the Debtors, the court sustained their objection and reclassified the claims as general unsecured claims.
The court’s determination is heavily based on the definition of “goods” under the UCC. The opinion comments that it is common practice for bankruptcy courts to utilize the UCC’s definition of “goods” when applying Section 503(b)(9).
PREPA, on the other hand, pushes for the court to adopt the perspective of bankruptcy courts in certain other jurisdictions that have classified electric energy as a good under the UCC. However, the court dismissed this argument, highlighting that an equal number of cases have arrived at the contrary conclusion. PREPA also argued that Puerto Rico law should be applied, but the court dismissed this suggestion as well, observing that it would conflict with the objective of maintaining uniformity in bankruptcy law.