In re Escalera Res. Co.

• Citation: 563 B.R. 336
• Decision Date: 10 February 2017
• Docket Number: Bankruptcy Case No. 15–22395 TBM
• Parties: IN RE: ESCALERA RESOURCES CO., Debtor.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado

563 B.R. 336

IN RE: ESCALERA RESOURCES CO., Debtor.

Bankruptcy Case No. 15–22395 TBM

United States Bankruptcy Court, D. Colorado.

February 10, 2017

Reid A. Godbolt, Jones & Keller, P.C., Gary C. Davenport, Michael J. Guyerson, Andrew D. Johnson, Christian C. Onsager, Gabrielle Palmer, Alice A. White, Denver, CO, Thomas F. Reese, Williams, Porter, Day & Neville, P.C., Casper, WY, for Debtor.

OPINION AND ORDER ON APPLICATION FOR ALLOWANCE OF ADMINISTRATIVE EXPENSE CLAIM (ELECTRICAL ENERGY) UNDER 11 U.S.C. § 503(b)(9)

Thomas B. McNamara, United States Bankruptcy Judge

I. Introduction.

Electrical energy. Since Thales of Miletus (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 Ampère, 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.¹

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 possession" 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 of business during the 20 day period prior to the Petition Date."

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 PacifiCorp'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.² (Docket No. 237, the "Joinder.") The Debtor and PacifiCorp requested an evidentiary hearing.

Prior to trial, the parties submitted a "Stipulation of Agreed Facts for Evidentiary 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, PacifiCorp 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 their evidence and arguments. The Application and Response 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. , 2015 WL 7351396, at *1 (Bankr. D. Colo. Nov. 9, 2015). Its core operations are natural gas (coal bed methane) wells in Wyoming. Id. PacifiCorp is a public utility company that sells electricity to the Debtor. (Stipulated Fact No. 1.)

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 PacifiCorp (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 PacifiCorp) and Ben Geertsen (a Senior Credit Analyst of PacifiCorp) 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 PacifiCorp. (Stipulated Fact No. 3.) However, PacifiCorp 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 prior 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.

PacifiCorp 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. PacifiCorp 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 Debtor's coal bed methane natural gas operations. (Tr. at 72.)

3. The Invoices, Amount of Electrical Energy Supplied, and Amount of Administrative Expense Claim.

PacifiCorp 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:

METER        SERVICE PERIOD          ELAPSED     METER                    METER          AMOUNT
                NUMBER       From      To            DAYS        READINGS                 MULTIPLIER     USED THIS
                                                                 Previous     Current                    MONTH
                35739021     Oct 19, 2015 Nov 5,     17          76158        76299       3,500.0        500.500 kwh
                             2015
                35739021     Demand Nov 5, 2015                  0.54                     3,500.0        1,890 onkw
                35739021     Demand Nov 5, 2015                  0.476                    3,500.0        1,658 offkw
                35739021     Demand Nov 5, 2015                  0                        3,500.0        0 kvar
                

(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...