Defining Power: Electrons and the Law

Steven Ferrey

[Editor's Note: This is the second of two Articles by Professor Ferrey on the California electricity crisis. In the December 2001 issue, Professor Ferrey surveyed developments in California, describing the ongoing and threatened litigation. In this Article, he discusses the unresolved question of whether the common law or the Uniform Commercial Code governs disputes concerning deregulated electric markets.] Copyright 2002 Steven Ferrey.

Steven Ferrey is Professor of Law at Suffolk University Law School and Professor of Law (Adjunct) at Boston University School of Law, both in Boston. Among his 5 books (and more than 50 articles) are THE LAW OF INDEPENDENT POWER (West Publishing 2001), a 3-volume treatise now in its 18th edition, THE NEW RULES (Penwell Publishing 2001), a book on navigating through the deregulated electric market, and ENVIRONMENTAL LAW: EXAMPLES AND EXPLANATIONS (Aspen Publishing, 2d ed. 2001). Professor Ferrey has served as legal counsel or an expert witness for many private and government clients on energy and environmental issues. He has represented some of the largest and most active power market participants in asset acquisition and sale, siting, and operation of facilities. He also has consulted for various federal energy and environmental agencies, as well as for the state of California and other government entities. He consults for the World Bank on power sector privatization globally. He holds degrees in economics, law, and environmental planning, and was a post-doctoral Fulbright Fellow in London, England.

[32 ELR 10038]

The Tunnel Before the Light

There is a long way to go through the tunnel of judicial review and/or administrative proceedings before California reaches the light. The cornerstone of the state's response to the electricity crisis has been to execute $ 43 billion in long-term power contracts with 18 wholesale suppliers to secure an emergency long-term power supply for a significant share of its future requirements, on behalf of its insolvent utilities. This, in the long run, could prove inopportune. When both natural gas and local wholesale electric prices were at historic highs, it may not have been the time to lock in long-term deals in the market. California appeared to buy either too much or too little power during different months. The long-term (10-year) average price for future power paid by California under these contracts averages about 7 cents/kilowatt hour.

Prices of natural gas, and by consequence the marginal cost of wholesale power, had declined to 18-month lows by Labor Day 2001. Gov. Gray Davis (D-Cal.), in June 2001, conceded that the state had locked-in long-term power sale contracts at a higher price than available shortly thereafter on the spot market. Reacted state legislator Tony Strickland: "People are going to get ripped off for the next 10, 15, 20 years."¹ Governor Davis responded: "We've basically won the war. [The state] is on the verge of breaking the back of the spot market."²

Over time, both long-term natural gas and wholesale electric prices are expected to decline from their early 2001 values in the California market. Even if time demonstrates that California got extremely favorable wholesale electric price contracts, those contracts could cause the wholesale suppliers to go bankrupt, in which case the contracts would not be enforceable. In some ways, this could serve to shift the bankruptcy risk from the existing utilities in California to wholesale suppliers who execute contracts that prove not viable for them in the long term. California appears, however, to have bought high.

The ultimate modus operandi is evident: California's energy crisis and legislative response have and will breed a plethera of contests and litigation of every conceivable type in every possible forum. Therefore, court decision rules become as important now, or more so, as regulatory commission rules did during former periods of traditional regulation. So which rules apply to electric power contracts?

What Is Electricity?

As the role of direct regulation is replaced by new restructured market rules, the judicial system replaces the prior role of regulators. An unanswered question is whether these disputes should be adjudicated under contract rules that treat the transactions of electric power as transactions in goods or, alternatively, as involving services. This is more than an academic exercise. It can be outcome-determinative.

The still unresolved question in California and many states is whether electricity is a "good" or a "service." While electricity can be measured and somewhat controlled, it is not a "thing" produced or manufactured by humans. Electric production merely channels into a copper wire the electromagnetic energy naturally in the environment. There are distinctively different legal rules applying to (1) power contracts as well as to (2) injuries related to power. There are two primary fields of law that are relevant to electricity: torts (personal and property injuries) and contracts. Both involve state-law determinations. A few states have wrestled with whether electricity is a good/product or a service. The answer will change as different rules apply. Moreover, as individual state courts determine these issues, there can be 50 separate and distinct answers.

In resolving contract disputes over matters such as production, sale, operation and maintenance arrangements, power wheeling, and trading of power, different rules can apply. It remains critical to determine whether electricity is a good (a movable tangible item) or a service.

Contract disputes involving goods are resolved pursuant to the statutory rules of the Uniform Commercial Code (U.C.C.) and its implied warranties of fitness and merchantability for goods. State U.C.C. statutes are, within some variation, uniform from state to state. Contractual disputes involving services are not covered by the statutory provisions of the U.C.C., but rather are ruled by the generic [32 ELR 10039] common law in each state. The common law is the amalgam of legal precedent, in the form of court decisions, in each state. The rules under each system, as mentioned earlier, are different.

How do these rules vary? National generalizations are not possible because the contract law that governs the deals in the new market are a matter of state law, and vary from state to state depending on that state's legal precedent. However, some generalizations can be made about how the typical (so-called majority view) state common-law rule for electric services differs from the U.C.C. rule for goods. A sample of these key differences is set out in the following table.

ISSUE COMMON U.C.C.

LAW

1. Must acceptance of a contract offer exactly "mirror" Yes No

the terms of the offer?

2. Can additional terms to the deal be added by the No Yes

acceptance, even if not contained in the offer, in

wholesale electric transactions?

3. Must enforceable contracts for more than $ 500 either No Yes

be in writing or evidenced by a writing?(NEWLINE)

4. Can an existing contract be modified without new No Yes

consideration?

5. Are prior oral statements includable as part of a Less Possibly

written contract? likely

6. Can a contract be orally modified even where that Yes No

contract prevents such modifications?

7. Will indefinite gaps in a contract be filled in and Often not Usually

the contract enforced?

8. Must a demand for assurances of performance be in No Yes

writing? Is response always required in less than 30

days?

9. Can a firm offer in writing not supported by Yes No

consideration be revoked?

10. Is substantial performance of obligations, rather Yes No

than perfect performance, allowed?

11. Are trade practices and past conduct relevant in Often not Always

interpreting the deal?

12. Is the market value of an item measured at the time Yes No

of breach rather than at the time that the party was to

perform?

13. Will implied warranties of merchantability and No Yes

fitness be read into the contract?

14. If the warranty/remedy fails, will courts throw out No Yes

quality disclaimers?

[32 ELR 10040]

It is important to note that in a given state, contract law precedent must eventually decide that electricity is either a good or a service. It is either one or the other. It would be unusual, but not impossible, for state courts to shift back and forth depending upon specific factual circumstances. Therefore, which way a state goes on the issue of "good" or "service," while a matter that to date has attracted little attention, may be regarded in retrospect as a key formative force in establishing the new rules of the deregulated marketplace.

Electricity as a Good Under the U.C.C.

No reported court decision has defined all electricity as a good under the U.C.C. Instead, courts tend to draw a distinction between so-called raw electricity and metered electricity, similar to the line drawn by some courts in strict products liability actions, discussed later as part of the law governing injuries related to electricity.

In a deregulated power market, individual contracts will need to address a variety of factors: how primary and backup power resources will be supplied, the allowable loss, disruption, or variation in the quality and quantity of electricity supplied, the remedies and damages for failure to supply, specific force majeure provisions to relieve supply obligations, general allocation of risk among various suppliers, transporters, intermediaries, and users of power, insurance provisions to support power supply obligations, and agreement on the standard of provision of electric power.

Section 105 of Article 2 of the U.C.C. defines "goods" as "all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale . . . ."³ "Goods must be both existing and identified before any interest in them can pass."⁴ As early as 1913, a California court heldthat electricity was personal property, which "may be bartered and sold."⁵ Almost every jurisdiction has found that electricity may be stolen and taxed.⁶ Some courts have found that the delivery of electricity is a service, but the actual consumable energy was a "good."⁷ In Helvey v. Wabash County REMC,⁸ the court reasoned that "logic would indicate that whatever can be measured in order to establish the price to be paid would be indicative of fulfilling both the existing and movable requirements of 'goods.'"⁹

Electricity as a Service

No court considers electricity a "good" under the U.C.C. under all circumstances.¹⁰ Some courts draw a distinction between raw electricity and metered electricity, similar to the line drawn by some courts in strict products liability actions. One court determined that electricity in its raw state, such as in high-tension lines, cannot be characterized as a good, but instead is a service; metered electricity passing through homes, on the other hand, does constitute a good.¹¹ In most cases involving stray voltage, courts typically hold that stray voltage does not fall within the U.C.C. because stray voltage usually does not pass through the customer's meter.¹²

[32 ELR 10041]

A Maryland court determined raw electricity did not constitute a good under the Maryland U.C.C.¹³ Raw electricity still within the utility's distribution system exists in an unmarketed and unmarketable state. This high-voltage electricity, not yet converted into usable electricity, is not "the refined product that the customer intends to buy."¹⁴

Other courts do not make such form distinctions, but characterize electricity, in general, as a service.¹⁵ Massachusetts, New York, and Ohio consider electricity to be a service provided by the utility.¹⁶ New York has refused to recognize electricity as a "good."¹⁷ A New York court, after deeming electricity a service, refused to enforce the U.C.C.'s provision governing the right to demand adequate assurances of future performance.¹⁸ The court in New Balance Athletic Shoes Co. v. Boston Edison Co.¹⁹ refused to acknowledge electricity as a "good."

In a Texas case, the plaintiff unsuccessfully attempted to sue a utility for a violation of the U.C.C. implied warranty of merchantability for sale of a good under the Texas Business and Commerce Code.²⁰ Unlike goods intended to fall within the purview of the statute, electricity could not be classified as fungible goods.²¹ Moreover, no method exists to package or label electricity. As a result, a court decided that the better classification was that of a service.

Characterizing electricity as a service does not relieve a utility or other provider of all liability; instead, it merely imposes different decision rules on contracts and purchases, rather than strict products liability or U.C.C. implied warranties.²² Several states hold utilities and other enterprises dealing in electricity to a higher duty to exercise the utmost care to protect customers and the public and to prevent destruction of life and property.

What does this mean in the case of deregulated electricity markets? In a deregulated market, individual state common-law court interpretation will replace systematized regulation by the Federal Energy Regulatory Commission (FERC) or local state regulatory agencies. In essence, rules of the new market will be made by contract, and interpreted by courts. Which set of rules will apply depends, in large part, on the evolving issue of whether electricity is characterized as a good or a service.

Some courts are altering the characterization when electricity passes through the retail meter. These metering distinctions may create two separate rules for adjudicating electric market disputes. Wholesale electricity transactions and damages will be assessed as "services" transactions, not involving a product or a good, and therefore governed by common law. Conversely, retail electricity transactions and damages will be assessed as goods or "products" transactions, governed by the U.C.C. Same electricity; different legal characterization; different legal rules; different outcome. These metering distinctions, over time, will likely prove to be an unsatisfactory decision rule dichotomy for the new market. Attorneys may be able to structure deals to make one rule or another govern.

Key distinctions for power trading/sale contracts involve how contract offers can be accepted, how contract modifications can be made, whether contracts must be in or evidenced by a writing, and standards for and amounts of damages when legal liability arises. It may be particularly vexing to attempt to apply damages remedies under the U.C.C. to electricity transactions. The U.C.C. damages remedies infer either a resale or market value to the electric "good." However, since electricity cannot only be stored, if at all, for only a fraction of a second before it perishes, the actual "good" has no long-term resale or re-market value. The U.C.C., nonetheless, assumes some such value in its damages formulae. The legal distinction between these two labels becomes crucial in setting which new rules will apply to legal disputes involving electricity.

Electricity and Tort Law

Tort law governs situations in which electricity injures persons or damages property. Obviously in a deregulated market injuries related to electricity can still occur. Retailers, [32 ELR 10042] wholesalers, brokers, marketers, and utilities can and will be sued. Courts in these cases likewise struggle to ascertain into which category electricity falls.

Most states tend to identify electricity as a product. This is a tort law equivalent to considering electricity a "good" for contract law purposes. However, a minority of states view electricity as a service, but have yet to give a clear indication of what the status of the law will be in light of that distinction. Thus, due to the varied rules of law and the emergence of electricity deregulation, it is important for each electric industry market participant to understand liability in the current market system, and how deregulation may alter the status quo of current legal liabilities. The answer will vary from state to state.

Electricity and Product Liability

For injuries related to electricity, distinctions include whether the injured party must prove negligence as well as the type and magnitude of legal liability. Tort law imposes strict liability on manufacturers or distributors of a defective or inherently dangerous product.²³ So-called strict products liability rules require that, to impose liability, a defendant only must have placed a product into the stream of commerce.²⁴ The product need not be defective and the supplier need not be negligent to incur liability.

A plaintiff bringing a strict products liability action need not prove negligence, recklessness, or intention to harm of the manufacturer or distributor of the product, thus facing a lower legal burden of proof to win a lawsuit at trial. Hence, injured plaintiffs who sue any electric industry participant will ask the court to label electricity as a product. Utilities or other accused defendant electricity market participants, on the other hand, strive to avoid liability and will argue that electricity constitutes a service. Courts will not impose strict products liability on services.²⁵

Most states have yet to resolve the controversy. The majority of state courts reaching the issue have held that electricity is a product rather than a service. At least eight states have determined electricity to be a product, including California, Colorado, Connecticut, Indiana, New Jersey, Pennsylvania, Texas, and Wisconsin. At least two states, however, consider electricity a service, and hold defendant utilities to a negligence standard, rather than to strict products liability: New York and Ohio. This result could favor the defendant electricity market participant.

The reasoning utilized by several courts in making the choice is instructive. A product, according to one California court, means any object possessing intrinsic value, capable of delivery either as an assembled whole or as a component part or parts, and produced for introduction into trade or commerce.²⁶ The California court reasoned that electricity is a commodity that can be manufactured, transported, and sold, and as such could only be classified as a product. Interestingly, having used physical characteristics to justify its decision, the court, refused to dwell on electricity's physical properties and identify which specific properties of electricity constitute a product. As a sidebar to industry participants, this court's failure to address the technical characteristics of electricity illustrates the norm, rather than the exception, in electricity litigation.

In a leading Wisconsin case, for example, the court stated that it need not be concerned with the accurate, technical description of electricity.²⁷ The distribution of electricity may be a service, but the actual electricity, in its ordinary use, is a consumable product. According to the Wisconsin court, it was this product—electricity—that caused the injuries leading to a strict products liability suit, rather than the fact of its distribution. Moreover, the court found significant its finding that the ordinary user considers electricity to be a product.

The court, however, failed to fully comprehend the tenuousness of one's ability to actually control and confine electricity. It is impossible to track exactly where any individual electron travels. As the defendant utility in a California case argued, put simply, electricity is a force, like the wind, with the potential to do work. Thus, if control is a benchmark physical characteristic of a product, it is difficult to reasonably characterize electricity as such, because it is not created and controlled until use and consumption.

Public Policy Considerations

Instead of concentrating on technical definitions of electricity, some courts imposing strict products liability on utilities rely on public policy reasons to support their decisions. For example, a California court stated that it did not definitively depend on definitional arguments to determine whether electricity constituted a product or a service. Instead, and more significantly, the court held that public policy reasons support the imposition of strict products liability, including:

(1) the goal of providing a short cut to liability where negligence may be present but is difficult to prove²⁸;

(2) to provide an economics incentive for improved product safety²⁹;

(3) to induce the reallocation of resources toward safer products; and

(4) to spread the risk of loss among all who use the products.³⁰

[32 ELR 10043]

But public policy considerations can cut both ways. In a decision favoring suppliers of electricity and other electricity market defendants, an Ohio court rejected any public policy-minded justification for the imposition of strict products liability. According to that court, public policy considerations lack legitimacy in a highly regulated environment. In other industries, manufacturers may allocate the risk of strict products liability by raising consumer prices to reflect this legal risk. In a regulated environment, however, the transmission and distribution system owner cannot at will raise its prices and pass on the risk to consumers. Utilities must petition their respective utility commissions for a rate increase before any such risk allocation can occur.

Furthermore, in the Ohio example, the damage resulted from stray voltage, which several courts have explicitly deemed a natural and unavoidable byproduct of electricity transmission. Utilities may be incapable of making an inherently safer product in order to prevent these types of harms. In such cases, liability could be avoided for public policy reasons.

The Ohio court's public policy reasoning may begin to lose some of its legitimacy in light of deregulation and the onset of open retail competition. Once states complete deregulation, utilities, generators, and marketers will face the same incentives and disincentives as other industries. Nevertheless, the transmission and distribution function, for the intermediate term at least, will remain a regulated monopoly. Similar to the Ohio court's reasoning, a New York court found public policy reasons insufficient to impose strict products liability.³¹

The Meter: When Electricity Becomes a Good Rather Than a Service

Strict products liability actions or lawsuits, favored by injured plaintiffs, require defendant electric industry participants to place the electricity product into the stream of commerce—or, more simply, to sell it. To determine whether electricity has been sold, some courts consider whether the electricity has passed through a consumer's meter, reasoning that by then it has been sold and the utility can levy charges.³² The states making such a distinction include California, Colorado, Connecticut, Michigan, New Jersey, New York, and Wisconsin.

Kentucky courts have found this a crucial distinction, refusing to impose strict products liability to injuries occurring upstream of the retail meter, outside the home or business. Other states, such as Colorado, Michigan, and New York, have flatly rejected the application of strict liability, because the electricity had not yet flowed through the retail meter. On the other hand, California, Connecticut, New Jersey, and Wisconsin have applied strict liability at a point near to or where electricity had flowed through the meter.

At the point electricity passes through a meter, it has been reduced to a voltage suitable for ordinary use, in contrast to the higher voltages found at a generation station or in transmission lines. Following this rationale, in Georgia a product's title need not have passed nor the purchase price paid in order for a product to enter the stream of commerce.³³ Georgia courts consider the relinquishment of control over the electricity and its marketability as key factors to be considered as to when it becomes a product.

California courts look at whether or not the electricity has been metered: While still in the distribution system, electricity is a service, not a product. Electricity becomes a product, for the purposes of strict liability, once it passes through the customer's meter and into the stream of commerce.³⁴

These diverse and inapposite reasonings illustrate the inability of courts to agree on a cogent and well-reasoned explanation for their legal interpretations of rights associated with a standardized commodity or service. While the metering distinction may provide an easy gauge for courts, it is a conclusion unsupported and somewhat at odds with the physical nature and flow of electricity. Plainly, the electricity that the consumer consumes is not necessarily the same electricity that a particular producer produces, places in commerce, and sells. A change in voltage occurs at the point of transformation, not at metering. Thus, metered electricity merely serves as a measure and method of charging the consumer for consumption, as much as time serves the same purpose for telephone service. In actuality, electricity does not become a product by passing through a meter; rather it is merely measured and remains unchanged.

Conclusion

While some California courts have held that electricity is a "product" for tort actions based on public policy and metering distinctions, the courts have yet to definitely address exactly what is "electricity" for contract purposes, especially in a deregulated context amid the rash of recent commercial litigation that has ensued with the restructuring debacle there. The California courts have not determined whether electricity is a "good" or a "service" for contract disputes. It is a decision that they will have to make definitively. As often with new technologies, the law will struggle to determine exactly how to characterize something that is physically ethereal. In this case, electricity has been extent, harnessed, and sold for 125 years. However, in the highly regulated past, the common-law courts have seldom confronted directly the question of exactly what is this modern phenomenon.

Electricity cannot be held, or seen, yet certainly may be felt. It is an invisible intermediate product that powers much [32 ELR 10044] of the modern industrial world. Without electricity, there could be no high-rise cities dotting the landscape (there would be no means for the operation of elevators or air conditioning necessary for high-rise design), most modern appliances would not exist, and the Internet age would still be Jules Verne science fiction. The essential role of electricity in the U.S. economy has been painfully clear in California over the past year. With just a very slight supply deficit at key times, Californians have seen their rates go up dramatically, incurred billions of dollars of debt, endured rolling blackouts, seen consumer prices and school budgets skyrocket, and been forced to work without electricity at key times.

These kinds of disruptions and inconveniences are all too familiar in many developing nations; in the last 50 years, however, they have been unheard of in major metropolitan areas in the United States. With the courts and private contracts replacing a significant portion of the traditional role previously assumed by regulators of electric utility monopolies, the decision rules discussed in this Article become critical.

Courts in each of the states will make individual decisions as to whether electricity is a good or product, on the one hand, or a service on the other. This definitive decision for the deregulated environment could be based on a pre-deregulation case, or it could be made in a matter that is not representative of typical conflicts. However made, these determinations will fundamentally shape the rules of the new market, as case law supplants traditional regulation to a significant degree.

1. Todd S. Purdum, California: Conservation Pays Off, N.Y. TIMES, June 15, 2001, at A3.

2. David Lazarus, State "Turning a Corner": Davis Expresses Optimism About Crisis, Seeks Blackout Protection for Refineries, S.F. CHRON., June 8, 2001, at A1.

3. U.C.C. § 2-105(1).

4. Id. § 2-105(2).

5. Hill v. Pacific Gas & Elec. Co., 22 Cal. App. 788, 790, 136 P. 492, 494 (Cal. 1913). See also Terrace Water Co. v. San Antonio Light & Power, 1 Cal. App. 511, 82 P. 562 (Cal. 1905); Sixty-Seventh S. Mun. v. Board of Pub. Util. Comm'rs, 106 N.J.L. 45, 147 A. 735 (N.J. 1929).

6. See, e.g., Gross Income Tax Div. v. Chicago Dist. Elec. Generating Corp., 236 Ind. 117, 139 N.E.2d 161 (1956); Alabama, ALA. CODE § 13A-8-23 (1975); Alaska, ALASKA STAT. § 11.46.100 (Michie 2000); Louisiana, LA. REV. STAT. ANN. § 14:67.6 (West 2000); Maryland, MD. CODE ANN., art. 27 § 194 (1999); Missouri, MO. REV. STAT. § 511.020 (2000); Rhode Island, R.I. GEN. LAWS § 11-35-7 (1956); Tennessee, TENN. CODE ANN. § 65-35-103 (1998).

7. See Ransome v. Wisconsin Elec. Power Co., 275 N.W.2d 641, 643 (Wis. 1979).

8. 151 Ind. App. 176 (Ind. App. 1972). Mr. Helvey filed the action to recover damages caused to his 110-volt household appliances when an electrical current in excess of 135 volts damaged them. The argument was raised by the electricity provider, Wabash County REMC, that it provided a "good" or product that was subject to the four-year statute of limitations in the U.C.C. It was unusual for the electric company to take this position because in most cases it argues against the U.C.C.'s applicability. The court held that the electricity, having passed through the consumer's meter, was a "good" and that the four-year statute of limitations applied, thus barring recovery. The court stated: "It is necessary for a 'goods' to be (1) a thing; (2) existing; and (3) movable [with] (2) and (3) existing simultaneously." Id. at 179.

9. Id.

10. See, e.g., Singer Co., Link Simulation Sys. Div. v. Baltimore Gas & Elec. Co., 558 A.2d 419 (Md. Ct. Spec. App. 1989) (stating that the court had found no reported decision holding electricity to be a good while it remained within the utility company's distribution system). Therefore, the utility was not liable for implied warranties for failure to deliver power. On August 29, 1986, Baltimore Gas & Electric Company (BG&E) sent a letter to Singer indicating the cause of power interruption as a faulty distribution system, parts of which were damaged by severe lightning storms. Singer then sued BG&E asserting claims of contractual breach, breaches of U.C.C. implied warranties, and ordinary and gross negligence. The trial court dismissed the implied warranty claims, because Title 2 of the U.C.C. applied only to "transactions in goods," MD. COM. LAW CODE ANN. § 2-102. In addition, since electricity is not a "good" within the meaning of the U.C.C. under § 2-105, the claims were inapplicable to the power outages. The court held that most jurisdictions with similar or identical versions of the U.C.C. did not find electricity to be a "good" within the meaning of the U.C.C. It cited Hedges v. Public Serv. Co., 396 N.E.2d 933 (Ind. App. 1979); Helvey, 151 Ind. App. at 176; Williams v. Detroit Edison Co., 63 Mich. App. 559 (Mich. Ct. App. 1975); Farina v. Niagara Mohawk Power Corp., 438 N.Y.S.2d 316 (N.Y. 1981); and Cincinnati Gas & Elec. v. Goebel, 28 Ohio Misc. 2d 4 (Hamilton Cty. Mun. Ct. 1986). Those courts based their decision on the fact that electricity, prior to being metered and passing into consumers' homes, was not a good within the meaning of their states' U.C.C. The court held that electricity, while in the transmission and distribution system, is not a "good" within Title 2 of Maryland's U.C.C. Singer Co., 558 A.2d at 471-72.

11. Cincinnati Gas & Elec. Co. v. Goebel, 502 N.E.2d 713, 714 (Ohio Misc. 1986). The dispute in Cincinnati involved a breach of contract action over unpaid bills for the sale of electricity. The court, however, after determining electricity did constitute a good under the U.C.C., granted defendant's motion to dismiss. The court granted defendant's motion since Ohio's U.C.C. contained a four-year statute of limitations, and plaintiff failed to commence his action within four years. See id. at 714.

12. See G&K Dairy v. Princeton Elec. Plant Bd., 781 F. Supp. 485, 490 (W.D. Ky. 1991). There, the U.S. District Court for the Western District of Kentucky found that a municipal electric board that received electricity from the Tennessee Valley Authority did not manufacture the "product" within the meaning of strict liability doctrine. Kentucky had adopted the Restatement Second of Torts, and applied § 402A of the Restatement to the claim that G & K Dairy's cattle were injured by stray electricity. The court found that under Kentucky law, "strict product liability is unavailable against one who renders a service as opposed to one who manufactures or supplies a product." The court placed much weight on the term "service" which was used "consistently" by the Kentucky Public Service Commission's regulation in reference to the furnishing of electricity. The court stated that because the Princeton Electric Plant Board did not generate electricity, but rather received it and distributed it to its customers, it provided a service and product liability could not be applied. Id.

13. See Singer Co., 558 A.2d at 420. Following a series of power interruptions, plaintiff sued for common-law breach of contract, breach of the U.C.C. implied warranty of merchantability, breach of the U.C.C. implied warranty of fitness for a particular use, negligence in the supply of electric power, negligent repair, and gross negligence.

14. Id. at 424. This raw electricity included electricity in the overhead cable transmission lines. See id.

15. See Encogen Four Partners, L.P. v. Niagara Mohawk Power Corp., 914 F. Supp. 57, 61 (S.D.N.Y. 1996). The court, summarily and without discussion, stated that under New York law, the sale of electricity does not constitute a sale of goods, but a service.

16. Farina v. Niagara Mohawk Power Corp., 81 A.D.2d 700 (N.Y. App. Div. 1981). See also Bowen v. Niagara Mohawk Power Corp., 183 A.D.2d 293, 295 (N.Y. App. Div. 1992); New Balance Athletic Shoes Co. v. Boston Edison Co., No. 95-5321-E, 1996 WL 406673 (Mass. Mar. 26, 1996).

17. Farina, 81 A.D.2d at 701. Mr. Farina was killed when an antenna he was removing from the roof of his home came in contact with an electrical wire owned by Niagara Mohawk Power Corporation. Unlike in Texas or Indiana where the courts found the electricity was not a product at the stage when the contact occurred, the New York court concluded that electricity could never be a product or "good."

18. U.C.C. § 2-609.

19. No. 95-5321-E, 1996 WL 406673 (Mass. Mar. 26, 1996). A New Balance athletic shoe factory in Boston was severely damaged by a fire caused by an electrical power surge emanating from equipment owned and operated by Boston Edison Company. New Balance had asserted a claim for breach of the warranties under §§ 212-315 of Article 2 of the U.C.C. Boston Edison moved for, and the court granted, summary judgment on the warranty claims.

20. See Navarro County Elec. Coop., Inc. v. Prince, 640 S.W.2d 398 (Tex. Ct. App. 1982); TEX. BUS. & COM. CODE ANN. art. 2.314 (Vernon 1990). Plaintiff lived in a mobile home beneath high-voltage electrical transmission lines. The wires did not directly carry electricity into plaintiff's home. While adjusting a television antenna beneath the wires, plaintiff received a shock, causing injuries.

21. See Navarro, 640 S.W.2d at 399. The Texas Business and Commercial Code states that

goods to be merchantable must be at least such as (1) pass without objection in the trade under the contract description; and (2) in the case of fungible goods, are of fair average quality within the description; and (3) are fit for the ordinary purpose for which such goods are used; and (4) run, within the variation permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and (5) are adequately contained, packaged and labeled as the agreement may require; and (6) conform to the promises or affirmation of fact made on the container or label if any.

TEX. BUS. & COM. CODE ANN. art. 2.314(b) (Vernon 1975). Plaintiff used these requirements to initially contend that the electricity was not fit for the purpose for which it was to be used. Secondly, the plaintiff alleged that the implied warranty extended to the container of the product, the wiring, and that it was unfit for transporting electricity. Plaintiff testified that the current jumped from the transmission line to the antenna. See id.

22. See, e.g., G & K Dairy v. Princeton Elec. Plant Bd., 781 F. Supp. 485, 491 (W.D. Ky. 1991). In cases in which the existence of a duty is unclear, the question is a question of law for the court.

23. See, e.g., Singer Co., Link Simulation Sys. Div. v. Baltimore Gas & Elec. Co., 558 A.2d 419 (Md. Ct. Spec. App. 1989)

24. See RESTATEMENT (SECOND) OF TORTS § 402A.

25. See Allied Properties v. John A. Blume & Assocs., 25 Cal. App. 3d 848, 855 (Cal. Ct. App. 1972). See also Fogo v. Cutter Labs., Inc., 68 Cal. App. 3d 744 (Cal. Ct. App. 1977) (deeming the sale of blood a service and so outside of strict products liability actions).

26. See Pierce v. Pacific Gas & Elec. Co., 166 Cal. App. 3d 68, 80 (Cal. Ct. App. 1985).

27. See Ransome v. Wisconsin Elec. Power Co., 275 N.W.2d 641, 643 (Wis. 1979).

28. Id. A negligence standard requires a plaintiff to present a jury with evidence of a complex electrical system, requiring knowledge beyond that of the average juror.

29. Id. Some courts believe that a utility can position itself to best discover and correct defects, and that strict products liability creates incentives to use and develop better products before injuries occur. In fact, utilities can spread the cost of injuries to all consumers, rather than exclusively upon the blameless victims.

30. Id. In light of this rationale, some courts have suggested that utilities, instead of raising prices, could also protect against strict liability actions by either purchasing insurance or implementing a form of self-insurance. The consumer then enjoys the right to rely on the apparent safety of the electrical product, while the seller retains the risk since it creates that risk by placing the defective product into the market. Also, courts have rejected the utilities' argument that since a utility lies at the mercy of public regulation, it is somehow restricted from reducing its risk. In practice, utilities are limited in how far they can alter electric delivery systems because of restraints on how that cost can be passed on to the public. Yet, in spite of both arguments, courts do not need the strict products liability doctrine to ensure cost-spreading and increased safety, or to overcome problems of proof. Negligence actions fulfill the same public policy purposes, but without making the leap to the strict products liability doctrine. Negligence actions impose on utilities, generators, and distributors the responsibility to monitor and inspect the service of electricity without the unreasonable liability imposed by strict products liability law. However, many courts err on the side of caution, thereby exposing electric market participants to enormous potential liability.

31. In that case, a healthy tree fell on several power lines, causing abnormally high voltage to pass into the plaintiff's residence. Surprisingly, the court determined that imposing strict liability would have little, if any, impact on the defendant's future conduct. The utility could not control the likelihood of trees falling on lines, absent eliminating all trees located near lines. Ruling in favor of the utility, the court dismissed the case. Otte v. Dayton Power & Light Co., 523 N.E.2d 835 (Ohio 1988).

32. See C.G. Bryant v. Tri-County Elec. Membership Corp., 844 F. Supp. 347, 350 (W.D. Ky. 1994).

33. See Monroe v. Savannah Elec. & Power Co., 471 S.E.2d 854, 856 (Ga. 1996).

34. See Mancuso v. Southern Cal. Edison Co., 232 Cal. App. 3d 88, 99 (Cal. Ct. App. 1991).