Kentucky Utilities told the bankruptcy court for Arch Coal on Aug. 29 that the electricity it sells to an Arch subsidiary is a “good,” not a “service,” and so the utility should get paid for what it is owed to provide that electricity.
Arch Coal, one of the nation’s largest coal producers, and various subsidiaries on Jan. 11 sought Chapter 11 protection at the U.S. Bankruptcy Court for the Eastern District of Missouri.
KU provides electricity to Arch Coal’s Lone Mountain Processing Inc. at four separate service locations within Virginia and three separate service locations within eastern Kentucky, with each location having its own account number. Lone Mountain is a producer and supplier of coal. Lone Mountain operates an underground mine using continuous miner units and continuous haulage units. Lone Mountain’s prep plant is reported to have a processing rate of up to 1,200 tons per hour. KU noted that Arch Coal’s website reports 1.6 million tons in sales by Lone Mountain in 2015.
KU told the court: “The amount of electricity purchased and consumed by Lone Mountain is so substantial that it is important to have some understanding of the process used by KU to initially produce the electricity, how it is delivered, and how it is consumed by the customer. The layman’s understanding of electricity (including the undersigned) is limited to the miracle that seems to occur when a switch is flipped at home and the light comes on; or the moment of panic when, during a storm, the lights flicker and then go out. The electrical systems for Lone Mountain are highly complex, and it has a significant financial investment in the portion of the electrical system it is responsible for.
|The electricity manufactured and sold by KU is the very thing that allows much of Lone Mountain’s mining operations to function. Without electricity, there would be no lighting in the processing and prep plant. Likewise, the continuous miner machines, which actually extract the coal mineral from the walls of the mine, run on electricity. Without the electricity purchased by Lone Mountain, it would be forced to remove coal in the same manner that miners did in the 1920’s – by hand, using a pick and shovel. In addition, the pumps that pump out water and prevent the mines from flooding are operated by electricity; and the underground ventilation systems, which are the most critical aspect of the entire mining operation, are wholly powered by electricity.”
KU said that Arch proposes to disallow all of KU’s administrative priority claims for money owed on electricity sales on a single ground: the contention that the claim is based on services, rather than “goods.” KU argued: “The Debtors’ assertion that electricity does not constitute a ‘good’ within the meaning of the Uniform Commercial Code (‘UCC’) or § 503(b)(9) is patently incorrect. Electricity is indeed a ‘good’ under the applicable law of the UCC and KU is entitled to § 503(b)(9) administrate priority claims for the value of electricity it manufactured and sold to Lone Mountain during the 20 days preceding its bankruptcy petition.”