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On January 8, in In re Southern Montana Electric Generation and Transmission Cooperative, No. 11-62031-11, 2013 Bankr. LEXIS 62 (Bankr. D. Mont. 2013), the U.S. Bankruptcy Court for the District of Montana entertained argument by the Chapter 11 trustee, the debtor's official committee of unsecured creditors, and certain individual creditors (collectively, the movants) in a motion aimed at defeating the administrative claim of a competing creditor, PPL EnergyPlus LLC. The court was unpersuaded by the movants' "unconventional" position, and upheld PPL's administrative expense claim. In doing so, the court rejected the movants' argument that electricity was not a "good" within the meaning of 11 U.S.C. § 503(b)(9), which formed the basis for PPL's administrative expense claim.

The Facts

In September 2004, the debtor, Southern Montana Electric Generation and Transmission Cooperative Inc., entered into a prepetition power purchase and sales agreement with PPL that required the debtor to purchase electricity wholesale from PPL on a monthly basis; the debtor then resold the electricity to its own customers. The debtor filed for Chapter 11 bankruptcy protection October 21, 2011. PPL filed a proof of claim in July 2012, asserting a claim of nearly $375 million it claimed to be owed by the debtor under the power purchase and sales agreement. PPL's proof of claim asserted that approximately $2.5 million of its total claim was entitled to priority status under 11 U.S.C. § 507(a)(2), which, in turn, grants priority status to administrative expenses as defined in 11 U.S.C. § 503(b). Accordingly, PPL also filed an application for allowance and payment of administrative claim pursuant to 11 U.S.C. § 503(b)(9). Satisfied with PPL's filings, the court entered an order allowing PPL an administrative expense claim for the $2.5 million. Three days later, the movants responded by filing a "joint motion to vacate administrative expense order and fix objection deadline," according to the opinion, in which they argued that the court's order was mistakenly entered due to PPL's alleged failure to comply with the notice provisions contained in Montana Local Rule of Bankruptcy Procedure 9013-1(e). The court was sufficiently persuaded to schedule a hearing for December 18, 2012, to allow the movants to prosecute their motion and present argument as to why PPL's administrative expense claim should be denied. At the December 18 hearing, the movants argued for the first time that electricity was not a "good" within the meaning of 11 U.S.C. § 503(b)(9), which allows administrative claims for "goods" received within 20 days before the petition date.

The Court's Analysis

Under 11 U.S.C. § 503(b)(9), an administrative expense claim shall be allowed for "the value of any goods received by the debtor within 20 days before the [petition] date" where "the goods have been sold to the debtor in the ordinary course of such debtor's business." Of PPL's nearly $375 million claim, $2.5 million represented the value of the electricity that had been supplied to the debtor in the 20 days before the Chapter 11 filing. The movants argued that the electricity was outside the scope of § 503(b)(9) because it was not a "good."

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