A recent North Carolina Court of Appeals decision, State of North Carolina ex. rel. Utilities Commission, et. al. v. N.C. Waste Awareness and Reduction Network (NC WARN), affirming an order of the North Carolina Utilities Commission (the “Commission”) clarifies that North Carolina does not permit power purchase agreements for solar panel installations.

NC WARN, a non-profit corporation, filed a petition for a declaratory ruling from the Commission in June 2015 that it would not be considered a public utility under North Carolina’s Public Utilities Act (the “Act”), if it entered into a power purchase agreement with a church to install solar panels on the roof of the church and to sell the electricity produced by the solar PV system to the church. NC WARN fashioned its request as a “test case” in order to establish precedent with respect to the treatment of solar PPAs in North Carolina. In April 2016, the Commission ruled and said that NC WARN would be considered a “public utility” under the Act because NC WARN was selling electricity to the public in direct competition with Duke Energy Progress that had been granted a regional monopoly in which the church was located. Third-party sales of electricity are prohibited in North Carolina.

NC WARN appealed the Commission’s decision to the Court of Appeals of North Carolina which affirmed the Commission’s decision in its September 19, 2017 order. The Court of Appeals held that based on the state’s legal precedent that defined the parameters of what selling to the public entails generally and the North Carolina legislature’s clear mandate to retain a monopolistic electric marketplace – there was no question that NC WARN was operating as a public utility under North Carolina law and accordingly, subject to the Commission’s jurisdiction that had ordered it to cease and desist under the terms of the PPA and therefore it was affirming the order.

Specifically, the court pointed to legal precedent that broadly defines sales to the public establishing the seller as a “public utility” to mean when an entity or person “holds himself out to the public as willing to service all who apply up to the capacity of his facilities…[regardless] that his service is limited to a specific area and his facilities are limited in capacity.” And with respect to legislative intent the court cited to the Act which plainly states that it is North Carolina’s policy “to promote the inherent advantage of regulated public utilities” so as to provide “an adequate and reliable supply of electric power.”

The dissent highlighted that NC WARN’s equipment was designed to generate power for a single customer and that the Commission had held in its previous decisions that solar power installers were not public utilities where they “owned or operated solar thermal panels located on-site to a single entity pursuant to a ‘bargained for’ transaction.” The dissenting opinion summed up the Commission’s opposition to NC WARN’s PPA as based on the way NC WARN was being compensated based on the church’s usage as opposed to some other compensation arrangement such as a lease agreement.

While the court’s decision is discouraging with respect to the present viability of solar PPA implementation in the state, the court acknowledged that the legislature had also recently declared that it is the state’s policy “to promote the development of renewable energy and energy efficiency.” The rigorous dissent leaves the door open for NC WARN to appeal to the North Carolina Supreme Court.