Technical article from Blue Sea Systems
The power companies have developed a standard for 120-volt single-phase power distribution in which one of the two conductors is designated the "hot" wire (the black wire in North America) and the other, by default, the neutral (the white wire). Neither power conductor in an AC system is permanently at either a positive or a negative potential. Their respective potentials alternate between zero, the maximum positive, zero, and the maximum negative potential. This is what makes it AC.
Keeping track of which wire is the neutral is necessary in order to prevent potentially dangerous voltage differences from existing between one boat and another, connected to the same or separated shore-power systems. In a properly wired AC system, there should be no significant voltage difference between the neutral wire and the safety ground wire. Therefore, an incorrect connection may be detected by sensing a current flow between the neutral wire from the shore power system and the electrical system's safety ground wire.
The ABYC requirement for where Reverse Polarity indicators should be installed is as follows:
E-8.10 SHORE POWER POLARITY DEVICES
E-8.10.1 Reverse polarity indicating devices providing a continuous visible or audible signal shall be installed in 120 V AC shore power systems and must respond to the reversal of the ungrounded (black) and the grounded (white) conductors (See E-8.23.1, Diagram 3,) if
E-18.104.22.168 the polarity of the system must be maintained for the proper operation of the electrical devices in the system, or
E-22.214.171.124 a branch circuit is provided with overcurrent protection in only the ungrounded current-carrying conductors per ABYC E-126.96.36.199 (This is how most AC distribution panels are wired.)
E-8.10.2 Reverse polarity indicating devices are not required in systems employing polarization or isolation transformers that establish the polarity on the boat.
Upon detection of a reverse-polarity indication on any boat the shore power should be immediately disconnected and the shore-power system wiring on the dock inspected. It may be that the polarity of the shore power is reversed from the normal or the neutral is "floating" and not properly referenced to ground. It is also possible that the shore power safety ground wire (the green wire) may not be connected to proper earth ground. Connecting to an improperly wired shore-power system can create potentially harmful conditions for personnel as well as damaging galvanic currents.
See also: Technical Brief "Reverse Polarity Indicators"
Original article from Blue Sea Systems