Why do utilities enjoy greater protections under the Bankruptcy Code than other creditors? Not only do utilities benefit from adequate assurance and setoff provisions in §366, but, in certain circumstances, they also enjoy the safe harbor protections under §556 and administrative expense priority under §503(b)(9). With all the focus recently on how the Bankruptcy Code should be amended, it is surprising that the protections utilities receive, some of which are grounded in anachronistic notions of how utility services work, have not been subject to more scrutiny.
Section 366 of the Bankruptcy Code, as originally enacted in 1978, temporarily enjoined a utility from altering, refusing, or discontinuing services to, or discriminating against, a debtor solely on the basis of commencement of a bankruptcy case or the existence of an unpaid prepetition debt. The injunction was lifted if, within 20 days after the petition date, the debtor did not provide “adequate assurance” of payment to the utility for postpetition service (irrespective of whether adequate assurance was required under state law). Courts sometimes interpreted the adequate assurance requirement to include simply according administrative expense priority for postpetition utility services in cases in which the debtor had a prepetition history of timely payments or expected postpetition cash flows.
