United States: Hudson Energy Denied Administrative Priority For Electricity Sold Pre-Bankruptcy

In a September 18, 2015 order, the U.S. District Court for the Southern District of New York affirmed a bankruptcy court order denying administrative claim treatment to Hudson Energy Services, LLC ("Hudson") for its retail sales of electricity to the debtor.1 The decision does not address any "safe-harbor" or forward contract issues, but is among a number of decisions providing for inconsistent treatment of such sales.

Hudson filed a claim for administrative priority related to its provision of $875,943.90 in electricity to Great Atlantic & Pacific Tea Company, Inc. ("GAPTC") and its affiliates. In affirming the bankruptcy court's order, the district court agreed that electricity is not a "good" for purposes of the administrative priority provisions of the Bankruptcy Code and, alternatively, that the principle that administrative priority claims should be narrowly construed dictated that Hudson's claim was properly denied.


In April 2012, Hudson filed a motion in the GAPTC bankruptcy proceeding pursuant to 11 U.S.C. § 503(b)(9 seeking allowance and administrative priority for $875,943.90 in electricity it sold to GAPTC and its affiliates within the 20 days before the petition date. Section 503(b)(9) provides for "administrative expenses...[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 business." GAPTC objected to Hudson's motion on the basis that electricity (at least when sold at retail) does not constitute a "good" under Section 503(b)(9) of the Bankruptcy Code. The bankruptcy court recognized that administrative priority claims are narrowly construed and held that electricity did not clearly fall within the definition of "goods" under the Bankruptcy Code. Accordingly, the bankruptcy court denied Hudson's motion for administrative priority. Hudson appealed the bankruptcy court's first ruling on the motion to the district court—which vacated the order and remanded the case for further factual development regarding the nature of electricity.2 Upon remand and evidentiary hearing, the bankruptcy court again denied Hudson's motion and found that electricity does not satisfy the definition of "goods" found in the UCC.3 Hudson once again appealed the bankruptcy court's order to the district court, as discussed below.

Hudson's Appeal

Hudson contended that the bankruptcy court had erred as a matter of law by failing to find that electricity is a "good" under the UCC (and, therefore, under Section 503(b)(9) of the Bankruptcy Code) because (i) electricity is moving as it passes through the meter and (ii) electricity is identified at the moment it passes through the meter.

Bankruptcy Court's Findings and Order

The court rejected Hudson's position. The bankruptcy court's findings hinge on the temporal order of events as electricity flows to a load and is measured. The court found (and the district court agreed) that electricity first flows through the meter and, because electricity travels at nearly the speed of light, it is next used by a device on the circuit. Only then, according to the bankruptcy court's findings, does the meter catch up and register the electricity that flowed through it. While the power takes nanoseconds to flow, it takes milliseconds for the meter to register that flow. Additionally, and contrary to Hudson's contention, the bankruptcy court found that the point of identification is when the meter registers the electricity—an event occurring after it had been used. Accordingly, electricity is no longer moving at the time of identification. Therefore, being unable to satisfy the "movable" element of the UCC definition of "goods," electricity cannot properly be categorized as such. The district court held that the bankruptcy court's findings were not clearly erroneous. Moreover, the district court agreed with the bankruptcy court's alternative analysis that, under its command to narrowly construe administrative priority claims, electricity did not clearly fall within the definition of "goods."

Divergent Opinions

As the district court discusses—from a jurisprudential standpoint—electricity's status as a good or a service is far from clear. For example, in addition to courts holding that electricity is not a good under analyses similar to Hudson,4 courts have reached the same conclusion by merely weighing electricity's attributes and determining it is more appropriately characterized as a service.5 Other courts have held the opposite—that there is no difference between electricity and other utilities like natural gas or water, or that the identification, movement, and consumption are nearly simultaneous and sufficient to satisfy the UCC's definition of "goods."6 Moreover, power is measured at several points during its transmission, including by the seller providing power to the grid. The following chart displays several commonly cited bankruptcy cases deciding whether electricity is a good or a service:

Electricity is a Good 

Electricity is a Service 

In re S. Montana Elec. Generation & Transmission Coop.,Inc., No.11-62031-11, 2013 WL 85162 (Bankr. D. Mont. Jan.8, 2013)

Hudson Energy Servs., LLC v. Great Atl. & Pac. Tea Co., Inc. (In re Great Atl. & Pac. Tea Co.,Inc.), No.15-CV-416 (CS) (S.D.N.Y. Sept. 18, 2015)

GFI Wisconsin, Inc. v. Reedsburg Util. Comm'n (In re Grede Foundries), 440 B.R. 791 (W.D. Wis. 2010)

In re NE Opco, Inc., 501 B.R. 233 (Bankr. D. Del. 2013)

In re Erving Indus., Inc., 432 B.R. 354 (Bankr. D. Mass. 2010)

In re Pilgrim's Pride Corp., 421 B.R. 231 (N.D. Tex. 2009) 

Lightfoot v. MXEnergy Elec., Inc. (In re MBS Mgmt. Servs., Inc.), 430 B.R. 750 (Bankr. E.D. La. 2010)

In re Samaritan Alliance, LLC, No. 07-BK-50735, 2008 WL 2520107 (Bankr. E.D. Ky. June 20, 2008) 

Puget Sound Energy, Inc. v. Pac. Gas & Elec. Co. (In re Pac. Gas & Elec. Co.), 271 B.R. 626 (N.D. Cal. 2002)  


Not to be Confused with Safe Harbor Analysis

Frequently, Section 503(b)(9) issues arise in cases that also include safe-harbor questions related to the treatment of forward contracts under the Bankruptcy Code where the electricity is provided under the supply agreements in question. The parties did not raise issues related to the safe-harbor nature of such electricity contracts in the Hudson case. This decision is a pure Section 503(b)(9) case—a point of consideration when comparing Hudson's particular set of facts with other Section 503(b)(9) case law that includes safe-harbor analysis.

Parties to electricity supply agreements—whether the purchaser or the supplier—should closely analyze the state of the law where a purchaser declares bankruptcy and has been supplied with electricity leading up to filing its petition. As the Hudson case highlights, the ability to seek administrative priority for such supply may hinge on whether the bankruptcy courts in that district or circuit have determined that retail sales of electricity involve sales of goods or provision of a service.


1. Hudson Energy Servs., LLC v. Great Atl. & Pac. Tea Co., Inc. (In re Great Atl. & Pac. Tea Co., Inc.), No. 15-CV-416 (CS) (S.D.N.Y. Sept. 18, 2015).

2 . Hudson Energy Servs., LLC v. Great Atl. & Pac. Tea Co., Inc. (In re Great Atl. & Pac. Tea Co., Inc.), 498 B.R. 19 (S.D.N.Y. 2013).

3. UCC § 2-105(1) defines "goods" as "all things . . . which are movable at the time of identification to the contract for sale...."

4. See, e.g., In re Pilgrim's Pride Corp., 421 B.R. 231 (N.D. Tex. 2009).

5. In re Samaritan Alliance, LLC, No. 07-BK-50735, 2008 WL 2520107 (Bankr. E.D. Ky. June 20, 2008).

6. See, e.g., In re S. Montana Elec. Generation & Transmission Coop., Inc., No. 11-62031-11, 2013 WL 85162 (Bankr. D. Mont. Jan. 8, 2013); GFI Wisconsin, Inc. v. Reedsburg Util. Comm'n (In re Grede Foundries), 440 B.R. 791 (W.D. Wis 2010).

7. Lightfoot v. MXEnergy Electric, Inc. is a safe-harbor case determining that electricity is a "commodity" under Section 761(8) of the Bankruptcy Code—and not a Section 503(b)(9) case—but includes discussion of the nature of electricity in the context of forward contracts.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions