A recent ruling in North Carolina highlights the importance to solar developers and non-profits in understanding the extent to which applicable state rules permit third-part sales of electricity or other PPA-type arrangements.

In an order issued on April 15, 2016, the North Carolina Utilities Commission (the “Commission”) found that the non-profit utility watchdog group, North Carolina Waste Awareness and Reduction Network (“NC WARN”), violated North Carolina law when it entered into a power purchase agreement (“PPA”) with Faith Community Church to install a 5.2 kW solar PV system on the Church’s roof and then sold electricity produced by the system to the Church pursuant to the PPA. The Commission levied a fine against NC WARN in the amount of $200 per day for each day that NC WARN sold or continued to sell electricity to the Church and ordered that NC WARN refund any PPA amounts billed to the Church plus interest on such amounts at a rate of 10% per annum. Notwithstanding the Commission’s findings, the Commission ruled that NC WARN could avoid the $200 per day fine if it complied with certain conditions set forth in the order, one of which was that NC WARN donate the PV system to the Church.

The Commission’s order was the result of a Request for Declaratory Ruling filed by NC WARN in June of 2015. Under this petition, NC WARN asked the Commission to determine whether its activities under the PPA would cause it to be considered a public utility pursuant to Chapter 62 of the North Carolina General Statutes Public Utilities Act, N.C.G.S. §§ 62-1 to -333 (the “PUA”). Under NC law, retail electric competition is prohibited and only public utilities may sell electricity to retail customers. As a result, NC WARN noted that its petition was a “test case to determine if the up-front costs of solar equipment and installation can be financed through the sale of electricity generated by the PV panels”. Since the Church is located in Greensboro, NC, which is in the service area assigned to Duke, the Commission made Duke Energy Carolinas, LLC and Duke Energy Progress, LLC (collectively, “Duke”) parties to the docket.

In connection with its petition, NC WARN argued that its PPA arrangement with the Church was a funding mechanism (as opposed to the sale of electricity) that allowed the Church to avoid the up-front costs of installing a PV system and avail themselves of the benefits of solar generation. NC WARN further argued that, even if the Commission chose to classify its activities under the PPA as the sale of electricity instead of the provision of a funding service to the Church, NC WARN should still not be considered subject to regulation under the PUA because its actions did not constitute selling electricity “to or for the public” as required by the definition of the term “public utility” under the PUA. NC WARN contended that, instead of selling electricity to “the public”, it was selling electricity “to a specific non-profit” with which it was working to obtain solar electricity. To support this contention, NC WARN noted, among other things, that (i) there is an “acute need for some type of funding mechanism to assist the faith community and other limited resource non-profits to avail themselves of solar generation”, (ii) NC WARN is only selling to a single customer and (iii) the Church would eventually own the PV system under the PPA arrangement.

In response to NC WARN’s petition, Duke argued that a customer is not exempted from the law or excluded as a member of the consuming public just because it is a non-profit. Duke further argued that the Commission did not have the legal authority to allow for third-party sales of Commission-regulated electric utility service and that, since the Commission had no such authority, it could not approve the actions of NC WARN under the PPA.

In its order, the Commission noted that the request before it was to determine “on a generic basis” the extent to which third party sales from PV facilities are permissible under Chapter 62 of the PUA and related court decisions. Since all parties agreed that NC WARN was furnishing electricity for compensation and that the electricity was being used by a third party, the Commission noted that the dispositive issue raised by NC WARN’s request was whether, under Section 32-3(23)a.1 of the PUA, “the sales under [the PPA] are sales ‘to or for the public’ based on North Carolina law as it exists today”. The Commission found that NC WARN acted as a de facto public utility when it furnished electricity to the Church for compensation and rejected NC WARN’s argument that it was providing a financing mechanism to the Church as opposed to engaging in a third-party sale of electricity. The Commission stated that it was unclear why NC WARN felt that the financing of the PV system needed to be structured as a sale of electricity and noted that “[f]inancing of PV installations and sales of capacity and energy need not be linked.”

In summary, the Commission concluded as follows:

  • NC WARN’s program constitutes sales “to or for the public” based on current North Carolina law;
  • NC WARN’s electric sales to the public (the Church) is impermissible due to the fact that the Church is located within a service area that has been assigned exclusively to Duke;
  • the General Assembly has determined that the public is better served by a regulated monopoly than by competing suppliers of service, and this policy decision by the General Assembly has resulted in consistently low electric rates compared to other parts of the country;
  • the Church has legal ways to finance the installation of solar on its premises, including, among others, financing over a period of time by using electric bill savings to pay for the purchase and installation;
  • NC WARN knowingly entered into a contract to sell electricity in a franchised area and sold electricity without prior permission from the Commission subjecting itself to sanctions; and
  • although the Commission determined that penalties should be issued, those penalties shall be waived if NC WARN refunds all billings to the Church (with 10% interest), ceases any further attempt to provide electric service for compensation to any consumers in North Carolina and donates the PV system to the Church.

A copy of the order can be found at http://starw1.ncuc.net/NCUC/portal/ncuc/page/docket-docs/PSC/DocketDetails.aspx