While controversy over a church’s solar array has drawn attention to the issue of third-party solar sales in North Carolina, a bill to allow the practice is stalled in the state legislature, despite bipartisan support.
North Carolina is one of seven states that ban third-party sales, which allows a private company to develop a solar project and sell the electricity to another entity. The arrangement is particularly beneficial for schools, churches or other nonprofits that are unable to take advantage of tax credits.
Nancy LaPlaca, an energy consultant working for the advocacy group NC WARN, believes what is really at issue in North Carolina is the future of the state’s solar market. While the state is currently third in the nation for solar energy capacity, she believes that “our solar market is going to go down by 80 or 90 percent in 2016,” adding, “North Carolina basically has no residential market.”
She points to House Bill 245, the Energy Freedom Act (also known as the “third-party financing bill”), as evidence of that. The bill hasn’t moved since last August, despite having 26 cosponsors from both parties, and it doesn’t look like it will pop up in the current General Assembly short session.
The legislature also allowed the state’s renewable energy tax credits – once considered among the most aggressive in the nation at 35 percent – to expire at the end of 2015. It does not appear that the General Assembly will address that issue in this session either.
Utilities, including Duke Energy, routinely oppose third-party sales.
Twenty states explicitly allow for third-party financing. A report by the Rocky Mountain Institute describes third-party rules in the remaining states, especially in the Southeast, as “unclear.”
North Carolina first investigated the viability of third-party sales, which they call “retail competition,” in the late 1990s, and the Utility Commission had even gone so far as to hire an employee to oversee the endeavor.
But during the committee’s last meeting, which occurred during blackouts in California that were blamed on retail competition, the committee’s co-chair, Sen. David Hoyle (D-Gaston), turned the lights out in the room, he said, to pay homage to the people of California.
The initiative never made it to the General Assembly, and third-party financing legislation wasn’t pushed again until HB 245.
NC WARN’s test case
One year ago, NC WARN requested a declaratory ruling from the state Utilities Commission regarding its third-party solar installation – the Solar Freedom Project – on the roof of the Faith Community Church in Greensboro, North Carolina.
In short, the group asked the commission to agree that their solar deal with the church – a purchase power agreement – “would not cause (NC WARN) to be regarded as a public utility.”
Since NC WARN’s request was filed with the Commission on June 17, 2015, the Commission declared the advocacy group a public utility and, in April 2016, fined it $60,000, though the Utility Commission offered to suspend the fine if the group stopped selling solar energy to the church. Last month, NC WARN appealed the Commission’s ruling to the N.C. Court of Appeals.
On its website, NC WARN calls this a “test case” and the penalty “truly odd.” And, it stopped charging the church for solar energy following the Commission’s ruling.
LaPlaca likens third-party financing agreements to the lease or purchase of a car that can be financed over time when the buyer does not have the ability to come up with the purchase price in full at the time of the sale. She says that power purchase agreements, such as the one between NC WARN and the church, allow non-profit organizations to enjoy lower energy bills and a degree of energy independence.
Sam Watson, General Counsel and Director of the Utility Commission’s Legal and Administrative Division, disagrees, saying, “Prohibition on third party sales doesn’t prohibit customers from financing solar panels just as they would with other large purchases.”
At issue in the NC WARN case is the interpretation of the Public Utility Regulatory Policies Act of 1978 (PURPA) and the definition of “Qualifying Facilities.”
PURPA encourages the production of renewable energy and defines what it means to be a small production facility. It also requires investor-owned utilities to purchase the energy generated by small producers within their coverage territory, as assigned by state utility commissions. In this case, the utility is Duke Energy, the country’s largest energy producer which is headquartered in Charlotte.
Duke Energy urged the Utility Commission to fine NC WARN $1,000 per day for infringing on its territory, or twice what the group was actually fined.
According to the Federal Energy Regulatory Commission, “A small power production facility is a generating facility of 80 MW or less whose primary energy source is renewable (hydro, wind or solar), biomass, waste, or geothermal resources.”
The Utility Commission maintains that because NC WARN’s 5.2-kilowatt solar installation is located within Duke Energy’s territory, that it has to sell the energy produced by its solar panels to the company which will then sell electricity to the church. If, instead, NC WARN sells its produced energy to the church it is then acting as a utility – and that is against the law in North Carolina.
In filings, the Commission cites state Supreme Court cases that held that if an energy producer sells a utility product – energy, water or telephonic service – to even one customer, it is selling to the public and therefore a public utility.
The Commission’s Public Staff, which represents consumers, agrees with the Commission’s finding. James McLawhorn, the director of the Public Staff’s Electric Division, said, “It is our legal opinion that what NC WARN did violated the third-party sale law in North Carolina.”
The Public Staff’s report found that the advocacy group charged the church a total of $245.27 for electric service between June 30, 2015, and March 25, 2016. The Commission’s ruling against NC WARN, the one now being appealed, ordered the group to reimburse the church plus 10 percent.
NC WARN has said that if it loses its appeal, it will donate the solar installation to the church.
[Editor’s note: This story has been updated to further clarify the distinction between third-party financing and sales]