Posted on: June 24, 2010
Who other than bankruptcy lawyers could successfully argue that a bunch of electrons streaming through a wire is a “sale of goods”? Seem ridiculous? Erving Industries certainly thought so, but Judge Boroff of the Bankruptcy Court in Massachusetts ruled otherwise. The result of this decision was that New Energy, which had sold electricity to Erving, was entitled to an administrative expense priority under Bankruptcy Code Section 503(b)(9).
Noting that there is "no doubt" that Section 503(b)(9) does not cover claims arising from provision of services to a debtor, the court first determined that New Energy's claim arose solely from the sale of electricity to the debtor and not from provision of a service. In particular, the court noted that New Energy has no role in the delivery of electricity to customers, but only sells as a "competitive supplier", while the debtor paid separately to an electric utility for delivery. Additionally, the court considered the terms of the contract between the debtor and New Energy to support the conclusion that New Energy was not providing a service to the debtor, noting the title of that contract - Master Electricity Supply Agreement – and the consistent descriptions of the "purchase" and "sale" of electricity demonstrated that the contract governed the sale of electricity rather than the provision of a service.
In concluding that electricity is a “good”, the court noted that electricity is identified by a customer's meter at the time of sale. Rather than being consumed at the time it is identified, the electricity literally moves through the meter and remains movable for some time thereafter, however short, until it is used. Thus, the court found that electricity is a good because it is "movable at the time it is identified to the contract."
The court specifically departed from the analysis of the court in In re Pilgrim's Pride Corp., which analogized electricity to television, radio, telephone and internet signals, which are not "goods" as defined by the UCC. Instead, the Erving court found that electricity is unlike telecommunication signals both physically and in the purpose for its purchase. The court considered telecommunication signals to be services because they are mechanisms whereby other non-goods such as intellectual property are distributed. By contrast, electricity itself is the thing that the consumer is purchasing. It is tangible and possesses physical properties. "[E]lectricity really is some thing, something that can be felt… something that can be created, measured and stored."
Something tells us that Ben Franklin would find it amusing that it only took us lawyers about 150 years to finally (sorta) figure out what the heck electricity is!