Distributed Energy Resources

Solar deal places nonprofit under state law, N.C. appeals court says

A solar sales arrangement between the North Carolina Waste Awareness and Reduction Network, or NC WARN, and a church in Greensboro, N.C., means that NC WARN falls under the category of “public utility” as defined in the state’s Public Utilities Act, the North Carolina Appeals Court said in affirming a North Carolina Utilities Commission order.

At the same time, the appeals court, in its Sept. 19 opinion, said that NC WARN’s activities “are in direct competition with Duke Energy’s services, as both entities are selling kilowatt hours of electricity to Duke Energy’s customers,” with the court pointing out that state law precludes retail electric competition.

PPA with church in 2014

In December 2014, NC WARN entered into a power purchase agreement with a church in Greensboro, N.C.

NC WARN describes itself as a “member-based nonprofit tackling the climate crisis – and other hazards posed by electricity generation – by watch-dogging Duke Energy practices and building people power for a swift North Carolina transition to clean, renewable and affordable power generation and increased energy efficiency.” Duke Energy is an investor-owned utility based in Charlotte, N.C.

The PPA provided that NC WARN would install and maintain a system of solar panels on the church’s property.  Under the agreement, the solar panels would remain the property of NC WARN and the agreement did not “constitute a contract to sell or lease” the solar panels to the church, the appeals court said in its opinion.

In exchange, the church agreed to compensate NC WARN based on the amount of electricity produced by the system at a rate of $0.05 per kWh.     

In June 2015, NC WARN filed a request with the NCUC for a declaratory ruling that its proposed activities under the PPA would not cause it to be regarded as a “public utility” pursuant to the North Carolina Public Utilities Act.

The NCUC, however, concluded that NC WARN’s arrangement with the church constituted a public utility in violation of the Public Utilities Act. NC WARN subsequently appealed the commission’s order, placing the matter before the appeals court.

Court’s analysis

In its opinion, the appeals court said that the “dispositive issue” on appeal is whether the NCUC correctly determined that NC WARN was operating as a “public utility.”

The court said that the state’s Public Utilities Act gives the commission the power to supervise and control the “public utilities” in North Carolina and that a “public utility” as defined in the act is any entity which owns and operates “equipment and facilities” that provides electricity to or for the public for compensation.

“In the present case, there is no doubt that NC WARN owns and operates equipment (a system of solar panels) which produces electricity and that NC WARN receives compensation from the church in exchange for the electricity produced by the system,” the court said. “The dispute here is whether NC WARN is producing electricity ‘for the public,’ therefore, making it a ‘public utility,’” the opinion said.

The court said that NC WARN wants to provide affordable solar electricity to non-profits. “If we uphold the Agreement NC WARN has in place with the church, NC WARN would like ‘to provide similar projects to other non-profits in the future,’” the court noted.  

“In that way, NC WARN serves, or seeks to serve, a subset of the population,” just as a defendant did in a prior case mentioned throughout the opinion (State ex rel. Utils. Comm’n v. Simpson).

A footnote in the opinion states that even though NC WARN is only offering its services to a subset of the population, it has offered to provide all of the energy produced by the solar system located on the church’s roof to the church itself, “and in this way NC WARN has shown itself to be willing to serve the church up to the full capacity of NC WARN’s facility – in this case up to the full capacity of the solar system at issue.”  

Moreover, the PPA provides that any electricity generated by the system, for example, during times of low on-site usage, will be put onto the power grid and credited against the kWh sold to the church by Duke Energy, the court said in the footnote.

The transfer of energy produced by the solar system to the energy grid for unrestricted use by all of Duke Energy’s Greensboro customers leads the court to conclude that NC WARN is holding itself out as willing to serve all who apply up to the capacity of its facilities.

North Carolina law precludes retail competition

The Greensboro, N.C., area has been assigned exclusively to Duke Energy, just as other regions of the state are exclusively assigned to other electricity suppliers.  

“North Carolina law precludes retail electric competition and establishes regional monopolies on the sale of electricity based on the premise that the provision of electricity to the public is imperative and that competition within the marketplace results in duplication of investment, economic waste, inefficient service, and high rates,” the court said in the opinion.

“In particular, although the provision of electricity might be lucrative in some areas, it may also be costly in others.  Monopolies exist in North Carolina so that it makes financial sense for utilities to serve all North Carolinians and so that service can be provided at a reasonable price.”

For these reasons, the North Carolina Legislature has elected to prohibit any competition that might otherwise naturally exist in the market and to limit providers of electricity to specific providers in different regions of the state, the court went to say.

“NC WARN’s activities are in direct competition with Duke Energy’s services, as both entities are selling kilowatt hours of electricity to Duke Energy’s customers,” the opinion concluded.

NC WARN maintains that it only intends to provide its services to self-selected non-profit organizations and has no desire to offer its services to all of Duke Energy’s customers, the court said.

“However, the Supreme Court of North Carolina previously rejected this same argument in Simpson when the defendant argued that he was spared from regulation because he only endeavored to provide his services to the Cleveland County Medical Society,” the court pointed out. In that case, the defendant was offering two-way radio communication service.

In the Simpson case, the state’s high court concluded, were “a definition of ‘public’ adopted that allowed prospective offerors of services to approach these separate classes without falling under the statute, the industry could easily shift from a regulated to a largely unregulated one.”

The appeals court said, “Simply put, Duke Energy has been granted an exclusive right to provide electricity in return for compensation within its designated territory and with that right comes the obligation to serve all customers at rates and service requirements established by the commission.”

NC WARN wants to serve customers “of its own choosing within Duke Energy’s territory at whatever rates and service requirements it sets for itself without oversight. Although NC WARN at the present date is only providing its services to a small number of organizations in the Greensboro area, if it were allowed to generate and sell electricity to cherry-picked non-profit organizations throughout the area or state, that activity stands to upset the balance of the marketplace,” the appeals court went on to say. 

“Specifically, such a stamp of approval by this court would open the door for other organizations like NC WARN to offer similar arrangements to other classes of the public, including large commercial establishments, which would jeopardize regulation of the industry itself.”

N.C. General Assembly declaration on renewables, efficiency

The appeals court noted that the North Carolina General Assembly has recently declared that it is the policy of the state to promote the development of renewable energy and energy efficiency.

“However, statutory pronouncements of policy are meant to coexist with North Carolina’s well-established ban on third party sales of electricity rather than supersede it until such time as the monopoly model is abandoned by our legislature,” the opinion said.

The court ruled that NC WARN is operating as a public utility. “Consequently, NC WARN is subject to regulation by the commission.  Accordingly, we affirm the order of the commission from which NC WARN appealed.”

Judge offers dissent

In a dissent, Judge Chris Dillon said that he agrees with the majority that NC WARN “owns and operates” “equipment” (a system of solar panels) that provides “electricity” “for compensation.”  

But he disagrees “with the majority that the equipment at issue here is designed to produce electricity ‘for the public,’ because the system of solar panels in this case is designed to produce electricity on the property of a single customer for that customer’s sole use.”

Dillon said that the state’s supreme court “has had occasion to define the contours of what constitutes a ‘public utility,’ subject to regulation by our utilities commission.  But every instance cited by the majority where our supreme court has determined that a ‘public utility’ exists involved equipment or a facility which served multiple customers.”

Dillon said that the majority’s decision “appears to be the first in North Carolina where equipment designed to generate power (or other utility-type service) for a single customer from the customer’s own property is held to be a ‘public utility’ subject to regulation by our utilities commission.”

The judge went on to say that in the years since Simpson was decided, “our appellate courts have applied Simpson to determine whether a certain enterprise constituted a ‘public utility.’  Many of these cases are cited by the commission in support of its order. However, unlike the present case, each of those cases involved a system which provided some utility service to multiple consumers accessing the system.”

Dillon believes that the state supreme court’s “jurisprudence compels the conclusion in the present case that NC WARN’s equipment, which is designed to generate power for a single customer, is not a ‘public utility.’”  

From the judge’s point of view, the manner in which NC WARN and the Church choose for NC WARN to be compensated, “based on usage rather than based on a flat rate per month, does not convert NC WARN’s solar panel system on the church’s property into a public utility.”

Dillon said “a hardware store renting a portable generator to a homeowner would not be acting as a public utility if it chose to charge the customer, at least in part, based on the power generated by the generator rather than solely at a flat daily rate.  Such billing is a logical method by which private parties should be free to contract to account for wear and tear on the system itself.”

The judge said that “it is true that the more the system operates, the quicker its components deteriorate and need maintenance, repair, or replacement.”  And North Carolina law “does not deem the form of compensation relevant to the determination of whether a system is serving ‘the public,’” he said. 

“Certainly, the commission would not argue that Duke Energy would cease operating as a public utility subject to regulation if it changed its billing method to a flat monthly rate for unlimited access to its power grid,” Dillon wrote in his dissent.

“Additionally, I would point out that the fact that NC WARN might, in the future, enter into similar private contracts with other entities seeking to install other solar panel systems does not compel the conclusion that NC WARN is holding itself out as willing to serve ‘all who apply up to the capacity of [the] facilit[y]’ at issue here,” the judge said.

“Indeed, a hardware store does not act as a public utility simply because it leases out more than one generator. The Simpson factors focus on the function of the single system or facility at issue, not the company offering the service, the company’s marketing of its service, or the manner of compensation given to the company in exchange for the service,” wrote Dillon.

NC WARN mulls appeal to state supreme court

In a Sept. 19 news release, NC WARN said it disagreed with the court’s decision. It said that third-party sales “such as this one are in the public interest and are in accord with the NC General Assembly’s declared policy ‘to encourage private investment in the development of renewable energy,’ as noted in Judge Chris Dillon’s dissent.”

NC WARN “is strongly considering” an appeal to the North Carolina Supreme Court, it said, adding that Dillon’s “extensive and powerful dissent guarantees our right to do so.”