• Is Electricity a Good or a Service?
  • August 19, 2014 | Author: Timothy K. Spencer
  • Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Brooklyn Heights Office
  • Intuition would seem to make the issue of whether electricity qualifies as a good or service simple, for purposes of Uniform Commercial Code applicability. After all, that electricity usage is measured in certain units (kilowatts) by a device (electric meter) that lends a great deal of common sense support for the idea that electricity must be a good. Moreover, because electricity can be touched and moved, the conclusion that electricity is a good seems even more certain. Despite electricity's apparently obvious classification as a good, courts struggle in classifying electricity as a good, a struggle that has led to a division amongst courts in handling this issue. This uncertainty has led to confusion over whether certain tools under the UCC—a demand for adequate assurances or UCC-specific statute of limitations, for instance—are applicable in a dispute involving a contract for electricity.

    The Uniform Commercial Code and Electricity

    Article 2 of the Uniform Commercial Code ("UCC") applies to “transactions in goods."1 Under the UCC, "[g]oods means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale..."2 Under the UCC's definition that some courts construe electricity as a good is easy to digest, given the obviousness of electricity’s classification as a thing (as opposed to a service or otherwise) and its movability. Because a customer's electric meter measures the amount of electricity sent from the electricity provider and consumed by the customer, electricity is movable at the time of identification—that is, a simple meter reading reflects the amount of electricity that was moved to the customer, and this amount of "moved electricity" is then used to generate the customer's bill. As a moveable, identifiable thing, electricity squarely falls within the definition of a good under the UCC. Many courts follow this logic.

    To courts concluding that electricity is a good, electricity fits squarely within the definition of goods. These courts conclude that "electricity is identified at the moment it is metered; and something is a good if movable at the time of identification."3 Proponents of this argument also point to the tangibility of electricity: "[o]ne only need touch a live electric connection; e.g., place one's finger in an electric socket, to feel and sense [electricity]."4 In short, because proponent courts see electricity as falling within the definition of goods under the UCC, it is easily classifiable as such. Some courts, however, disagree with the supposed simplistic construction.

    Those courts concluding that electricity is a service, do so utilizing an appeal to metaphysical reasoning, public policy, or a dissection of the distribution chain. To courts adopting the metaphysical argument for concluding that electricity is a service, they argue that "[e]lectricity is the flow of electrically charged particles along a conductor" and that "the utility [company] does not 'manufacture' electrically charged particles, 'but rather, sets in motion the necessary elements that allow the flow of electricity.'"5 According to this argument, the consumer pays for the length of time electricity flows through the system, not the creation or utilization of individual product.6 Authors in the field criticize this view as focusing "on whether the utility is a distributor or a generator, rather than whether electricity is a movable thing."7

    Public policy forms the basis of yet another argument that electricity is a service instead of a good. Courts have rejected the classification of electricity as a good, on grounds of public policy and dependent upon where in the distribution chain the electricity is at a point in time. As a matter of public policy, at least one court is concerned about the "implications of subjecting heavily regulated utility to the UCC's warranty remedies."8 Additionally, some courts base their determination of whether electricity qualifies as a good under the UCCon where in the distribution chain the electricity is.9 "If the electricity is metered, as it is when it enters a home, then these courts find it to be a good to which the UCC applies."10 If the electricity exists in a high-voltage transmission line, however, then courts following this reasoning conclude that, nearly inexplicably, electricity is not a good under the UCC.11 According to the Court in Hedges,12 "[t]he high-voltage electricity with which the [plaintiffs] came into contact was not the good [the utility] was intending to sell or the [plaintiffs] were intending to buy. . . . [T]he tragic escape of 7200 volts from the transmission wire, through the ladder, and into the bodies of these men is not a transaction in goods intended to be covered by the Uniform Commercial Code." The Hedges Court seemed to focus more on the existence of a transaction as opposed to the characteristics of electricity.

    The ramifications for when a court concludes that electricity is a good for UCC applicability is significant. For starters, the UCC's four-year statute of limitations applies to the transaction, not the statutory or case law statute of limitations otherwise controlling. Moreover, certain remedies available to parties in a UCC dispute such as demanding adequate assurances13 and warranties for fitness for a particular purpose14 are not available if the UCC is not applicable. In the right scenario, these tools may prove invaluable, but they would be unavailable in an electricity-based dispute where the court rules that electricity is not a good but a service.

    Conclusion. Whether electricity qualifies as a good or service is important, especially for purposes of construing which state's law will govern a contract and whether the implications of the UCC apply or do not apply. While a significant number of courts readily apply electricity as a good to the UCC, other courts hold otherwise under rather peculiar logic. For these other courts, the unusual characteristics of electricity compel a conclusion different than classifying electricity as a good. Thus, while the categorization of electricity as a good may appear obvious, courts have gone a long way to obscure this seemingly clear notion.

    1 U.C.C. § 2-105.
    2 U.C.C. § 2-105(1).
    3 Gilbert L. Hamberg, Federal Courts Conflict Whether Electricity is a Goods Under Section 503(b)(9) of the Bankruptcy Code, energybiz, http://www.energybiz.com/article/14/01/federal-courts-conflict-whether-electricity-goods-under-section-503b9-bankruptcy-code (Jan. 24, 2014) (citing In re Grede Foundaries, 440 B.R. 791 (W.D. Wis. 2010); In re Erving Indus., Inc., 432 B.R. 354 (Bankr. D. Mass. 2010)).
    4 Hamberg, supra Note 3.
    5 Bowen v. Niagra Mohwak Power Corp., 183 A.D.2d 293, 297 (N.Y. App. Div. 1992)
    6 Id.
    7 MORRISON & FOERSTER, Electricity: A "Good" under the UCC. Should be a Simple Question—Right?, ENERGY LAW BULLETIN (April 2005), http://faculty.law.miami.edu/rrosen/courses/documents/05kelectricityagood&under;000.pdf.
    8 MORRISON & FOERSTER,Supra Note 7 (citing New Balance Ath. Shoe v. Boston Edison Co., 1996 Mass. Super. LEXIS 496 (Mass. Super. 1996)).
    9 Id.
    10 Id.
    11 Id. (citing Hedges v. Public Service Co. of Indiana, 396 N.E.2d 933, 936 (Ind. Ct. App. 1979) (noting that electricity is a "good" under the UCC when it has been metered, but finding that electricity escaping from a high-voltage power line is not a transaction in goods subject to the UCC); Cincinnati Gas & Electric Co. v. Goebel, 502 N.E.2d 713 (Hamilton County Mun. Ct., 1986) ("We distinguish electricity in its raw state from metered amounts passing through utility-owned conduits and into the homes of consumers.")).
    12 A personal injury case in which plaintiffs sought remedies under the UCC warranty provisions.
    13 A remedy that allows an insecure party, whether buyer or seller, to demand some sort of demonstrable assurance from the other party that the other party will perform as directed under the contract.
    14 Essentially, a guarantee that the item in question fulfills the known purpose for which the item is purchased.