Duke Energy, NC WARN in power struggle over the right to sell solar energy

Duke Energy, NC WARN in power struggle over the right to sell solar energy

- in Environment
NC WARN installed a 5.25-kilowatt solar system on the roof of Faith Community Church and sells it the electricity. Duke has filed an opinion against their request at the NCUC, alleging it is acting as a public utility. (Photo: NC WARN)

Faith Community Church lies over the railroad tracks south of downtown Greensboro, an area with few trees to shade it from the sun. That makes for a hot walk in the summertime, but the neighborhood, and specifically, the 11,839-square-foot church and community center, is an ideal place for NC WARN to install a solar energy system on a roof.

“We deeply believe that solar energy is a gift from God from which all can and should benefit,” Faith Community’s Rev. Nelson Johnson and other members of Concerned African-American clergy, wrote to the state legislature in 2015.

But who is allowed to install and charge for that heavenly gift has prompted a protracted legal battle between one of the nation’s largest utilities, Duke Energy, and NC WARN, an environmental nonprofit based in Durham.

Three justices from the North Carolina Court of Appeals heard arguments on the case last week: Donna Stroud, Chris Dillon and Hunter Murphy.

The case, though, carries larger ramifications than just settling a squabble between the utility and its longtime nemesis. If NC WARN prevails, North Carolina could join Georgia and 24 other states in allowing third parties to sell solar power from small rooftop systems, bypassing utilities that hold legal monopolies in those states. However, the market upheaval could compel Duke to raise its rates.

If the court rules in favor of Duke, the utility would retain its unilateral grip on selling even minute amounts of electricity. That effectively holds hostage any small, independent forays into the electricity business.

Lawyers for Duke Energy argued that the very act of selling power transforms NC WARN from a nonprofit into a utility. NC WARN says it’s not in the utility business, but rather, is selling power to the church as part of the system’s lease agreement.

Jonas Monast co-directs the Center on Climate, Energy, Environment & Economics. Photo: Steve Exum. 

“Is this an arrangement more like a new company coming in and building a power plant and selling the power in your back yard?” says Jonas Monast, co-director of the Center on Climate, Energy Environment & Economics at UNC Chapel Hill. Monast is also an attorney with expertise in utility regulation, but is not involved in the case. “Or is it more like leasing a generator from Home Depot? The court did ask that question.”

At the congregation’s request, NC WARN installed a small 5.25-kilowatt system on the roof of the church in May 2015. The system covers only part of the building’s energy needs; the church buys the rest of its power from Duke.

As part of a power purchase agreement, the church leases the system from NC WARN by paying 5 cents a kilowatt hour for solar-generated electricity. At some point, NC WARN could transfer ownership of the system to church, although it’s not mandatory.

After NC WARN installed the system, Duke Energy filed its opposition, and the state Utilities Commission fined the group $60,000. (The penalty was later dismissed.) “Duke said we were knowingly breaking the law,” says NC WARN Executive Director Jim Warren. “ We were not breaking the law. We intend to donate the system to the church down the road.”

NC WARN has stopped selling power to the church, Warren says, until the court case is resolved. The group has escrowed the money the church had already paid.

“This is a case of over-regulation,” Matt Quinn, an attorney representing NC WARN, told the court last week. “The church should have the freedom to determine how it wants to finance its solar system.”

Quinn said that according to state statute, rooftop systems that generate less than 2 megawatts are not regulated by the utilities commission. System owners or lessees do have to file a construction plan and apply to connect to the utility. But otherwise, he said, “The Utilities Commission has never cared how you paid for it.”

Duke’s lawyers dismissed the “notion” that the arrangement is “nothing but a finance agreement.” It is, in fact, an outright sale, said Dwight Allen, an attorney representing Duke Energy.

He told the court that the church is also defined as “the public.” And state statute doesn’t allow third parties to sell electricity to the public. “The church can provide service to itself, but it can’t get it from anyone else,” Allen said.

In 2015, House Bill 245, “The Energy Freedom Act” would have made this court case moot. The measure would have allowed third-party sales of renewable energy under easily achieved circumstances:

  • as long as the amount was less than 125 percent of the average annual consumption of electricity by the customer at that site
  • and before construction, the third-party owner notified the Utilities Commission.

NC WARN complied with both those requirements, had they been in effect. However, even though the bill had bipartisan support, it died in committee and never made it to a vote.

“They have given you a view of what they’d like the law to be rather than what it is,” Allen, an attorney representing Duke Energy, told the court.

Had it become law, the Energy Freedom Act would have mirrored parts of a similar measure passed in Georgia. And that state has a utility structure a lot like North Carolina’s: A utility monopoly (Georgia Power) that in exchange for its dominance, legally must provide reliable and affordable electricity to anyone who wants to pay for it. Those utilities are also allowed to recover costs — by adjusting rates on customers — for building power plants, upgrading the grid and other infrastructure improvements. The states’ respective utilities commissions ostensibly ensure that the utility monopolies follow the law.

Under third party leasing, groups can sell renewable power of up to 10 kilowatts for a residential system and for a commercial variety, 125 percent of annual peak electricity for the site. “Thus far, it hasn’t led to a dramatic expansion of rooftop solar in the state,” Monast says.

Twenty-five states allow third parties to sell solar power. In states where utilities compete for customers, a monopoly isn’t guaranteed. In those cases, Monast says, “the entire business model is putting photovoltaic on rooftops.” According to the Rocky Mountain Institute, third-party-owned systems make up 60 to 90 percent of new residential installations in Arizona, California, Colorado and Massachusetts.

In the Southeast, third-party sales are illegal in North Carolina and Florida, both Duke Energy strongholds.

Duke is rightfully concerned about how third-party sales would upend its business model. For example, the utility has built power plants — and co-owns a proposed natural gas pipeline — with the expectation it can offset some of those costs by raising rates on its customers. “Those investments have been made without thinking about competition,” Monast says. “If you allow competition, that changes the dynamics.”

Fewer customers or less electricity consumption could mean that in the likely event Duke hikes its rates, those increases would be spread over a shrinking customer base. Each customer would then pay more.

Carol Rosenfeld, senior project director at UNC’s Environmental Finance Center (Photo: UNC)

There are other options for third-party solar sales in North Carolina, says Carol Rosenfeld, senior project director at the UNC Environmental Finance Center. For example, a homeowner could rent his or her rooftop to a solar installer; that company could in turn sell electricity to Duke. But that requires some steep upfront costs, particularly if many roofs are involved. “The economics don’t work out as well,” Rosenfeld says.

The upfront costs, though, could be offset by what’s known as “on billing.” A customer agrees to take out a loan from a utility — it could be a co-op, like Roanoke Electric, which uses this method for energy efficiency — and the low-interest payment is tacked on to the bill. But since the customer’s energy bill is lower, the loan payment is not onerous.

Regardless of the appellate court’s decision, it’s likely the losing party will appeal to the state Supreme Court. But in its persistence, NC WARN could push the boundaries of what is possible outside the traditional utility way of doing business. “It’s an impetus for us to be thinking creatively about new models,” Rosenfeld says.