Electricity is Good

In a recent case of first impression in the First Circuit, Judge Boroff held that a creditor’s supply of electricity constitutes a sale of goods under § 503(b)(9), and therefore the supplier’s claim against the Debtor enjoys an administrative priority claim under the Bankruptcy Code.

Rejecting the Debtor’s claim that the provision of electricity, an intangible phenomenon or service, is not covered under § 2-105(1) of the UCC, Judge Boroff In re Erving Industries, Inc., ___ B.R. ___, 2010 WL 1416148 (Bankr. D. Mass. Apr. 7, 2010) (downloadable from http://www.hendelcollins.com/website_pdfs/erving_apr_2010_decision.pdf)  first applied the scientific description of electricity concluding that “although the ultimate nature may be mystifying to most, electricity is tangible and does possess physical properties.” In distinguishing it from telecommunication signals, the court distinguished a marked difference between electricity and telecommunication signals in both physical attributes and the purposes for which they are purchased. Electricity is not “merely a medium of delivery, but is the thing the customer seeks when purchasing electricity.” Telecommunication signals are mechanisms by which non-goods like ideas, sounds, and images are sent from one location to another.

In addition, Judge Boroff found electricity easily meets the movability and identifiability requirement of § 2-105(1) of the UCC. In the debate whether electricity is movable at the time it is identified to the contract for sale, the Court disagreed with the Debtor’s conclusion that electricity is consumed at the same time it is identified by a meter and thereby no longer movable. In contrast, he found electricity continues to move past the meter, through the wiring, to the products seeking to be electrified, albeit at imperceptible speeds, and therefore is movable at the time it is identified to the contract.

The Court addressed the “predominant factor test”, in which the Court would view electricity as part-good, part-service, and decide which one is more predominant. Judge Boroff concluded the test to be irrelevant as to the value of the goods within the meaning of §503(b)(9).

The decision is on appeal as of this posting to the Bankruptcy Appellate Panel. Hendel & Collins, P.C. represents the Debtor. In the event this ruling stands, however, future debtors contemplating a trip through Title II will have to worry about one more expense that would have to be paid in full prior to emerging from Bankruptcy. An already expensive excursion through the Bankruptcy Court would get that much more expensive and risky.