Can an electric membership corporation (EMC) in NC sell propane gas at retail to its members? What if a wholly-owned subsidiary does it, or through a joint venture?

Plain-English summary

Electric Membership Corporations are NC's rural electric cooperatives, organized under Article 2 of Chapter 117 to bring affordable electricity to rural communities. By the late 1990s, EMCs across the country were looking to diversify into related energy services as rural-electrification's original mission was substantially complete and competition increased. Representative David Miner asked whether NC EMCs could sell propane gas at retail to their members. He also asked whether an EMC could indirectly enter the propane business through a wholly-owned subsidiary participating in a joint venture.

General Counsel Andrew Vanore and Assistant AG Margaret Force answered no to both questions.

The corporate-purpose argument. Chapter 117 EMCs are NC corporations whose powers and limits come from Article 2 of Chapter 117. G.S. 117-10 lets EMCs be formed "for the purpose of promoting and encouraging the fullest possible use of electric energy in the rural section of the State by making electric energy available to inhabitants of the State at the lowest cost consistent with sound economy and prudent management of the business of such corporations." G.S. 117-16 says the corporate purpose is to "render service to its members only." G.S. 117-17 and 117-18 grant general and specific powers, but those powers are vested as "necessary" or "requisite" for accomplishment of the corporate purpose.

The combination is narrow. EMCs have broad operational powers (eminent domain, financing, contracting) but those powers must serve the purpose of providing electric service. Propane distribution is not electric service. So it is outside the EMC's corporate authority.

The amendment-restriction argument. G.S. 117-25 lets an EMC amend its certificate of incorporation, but "no corporation shall amend its certificate of incorporation to embody therein any purpose, power or provisions which would not be authorized if its original certificate, including such additional or changed purpose, power or provisions, were offered for filing at the time a certificate under this section is offered." So an EMC cannot expand into a non-electric line of business by amending its articles of incorporation. The legislative cap holds.

The subsidiary-and-joint-venture question. An EMC's broad general and specific powers (G.S. 117-17, 117-18) probably allow formation of a wholly-owned subsidiary and participation in joint ventures. But those powers must be exercised "as necessary, requisite, or convenient for carrying out [the EMC's] corporate purposes, i.e., the provision of electric service to EMC members." Propane distribution does not further the electric-service purpose. So a subsidiary formed to enter propane retail would face the same limit as the parent EMC, and a joint venture for propane distribution would not be a permissible use of the EMC's powers.

The Edward Lee Act analog. A June 10, 1988 AG opinion (attached to Miner's letter) reached a similar conclusion: EMCs are not eligible to engage generally in electrical contracting except for narrow phases of contracting related to energy-saving load control equipment for members (which is indirectly authorized by G.S. 117-2.1). The 1998 opinion adopts the same framework for propane.

The legislative fix. The AG closed with a note that the legislature could authorize EMC propane distribution by amending Chapter 117, but had not done so. The narrow EMC purpose continues to limit business expansion unless and until the legislature changes it.

Currency note

This opinion was issued in 1998. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

EMC diversification has been a recurring topic in NC and elsewhere since 1998. Chapter 117 has been amended several times, and the NC EMCs have entered various non-traditional lines of business (broadband, energy efficiency services) under either statutory amendments or different legal structures. Anyone analyzing a current EMC diversification question must check the current text of Chapter 117 and the EMC's own articles of incorporation. The general rule (corporate-purpose limits constrain business expansion, including through subsidiaries) remains a durable principle of NC corporate law.

Common questions

Q: What is an EMC?
A: An Electric Membership Corporation, NC's term for a rural electric cooperative. EMCs are member-owned, nonprofit cooperatives formed under Article 2 of Chapter 117 to provide electricity to rural areas not served by investor-owned utilities. NC has about two dozen EMCs covering most of the state's rural geography.

Q: Why is EMC corporate purpose so narrow?
A: Because the 1930s/40s legislation that created EMCs targeted a specific public-policy problem: rural electrification. The legislature granted EMCs special powers (eminent domain, special borrowing authority, exemption from PUC rate regulation) tied to that specific purpose. The narrowness of corporate purpose is part of the bargain.

Q: Why does the subsidiary route not work?
A: Because a corporate parent's powers, including the power to form subsidiaries, flow from its corporate purpose. An EMC can form subsidiaries for purposes "necessary, requisite, or convenient" for the electric-service mission. Forming a subsidiary to enter a different business is outside that mission, so the formation itself is ultra vires.

Q: What about joint ventures with third parties?
A: Same analysis. The EMC's power to participate in joint ventures must serve the electric-service purpose. A joint venture to distribute propane doesn't.

Q: Could the EMC just amend its articles of incorporation?
A: No. G.S. 117-25 specifically prohibits amending the articles to add a purpose, power, or provision that would not be authorized in an original Article 2 incorporation. So the amendment route can't add propane authority either.

Q: What can the legislature do?
A: Amend Chapter 117 to expand EMC authority. The AG explicitly said: "The General Assembly, if it wishes, may authorize EMCs to engage in the direct or indirect distribution of propane gas. To date, however, such an amendment to Chapter 117 has not been pursued."

Q: What is G.S. 117-2.1's "energy-saving load control" exception?
A: A statutory carve-out that lets EMCs perform certain electrical-contracting work related to load control equipment (devices that help shift or reduce electric demand). The 1988 AG opinion read this as evidence that the legislature knew how to authorize specific non-core activities when it wanted to, reinforcing the rule that absent such authorization, EMCs stay in their lane.

Background and statutory framework

NC's rural electrification effort dates to the 1930s, when the General Assembly enacted Article 2 of Chapter 117 to enable formation of member-owned cooperatives that could bring electricity to rural areas. Investor-owned utilities had limited interest in rural service because of the low density and high construction cost. EMCs filled the gap.

The statutory bargain gave EMCs unusual powers (eminent domain, exemption from rate regulation by the Utilities Commission, federal-loan eligibility through the Rural Electrification Administration / Rural Utilities Service) in exchange for a narrow public-purpose mandate. The narrowness is what gives the bargain coherence.

By the 1990s, the original rural-electrification mission was substantially accomplished. EMCs faced pressure to diversify into adjacent businesses: propane, fuel oil, internet, security services, energy efficiency, financing. Each diversification raises the same legal question: is the new line of business within or outside the corporate purpose?

The 1998 opinion applies a strict reading. Activities directly related to electric service are within the purpose. Activities adjacent to electric service (propane, fuel oil) are not. The narrow reading protects the legislative bargain but constrains EMC business strategy.

NC EMCs have generally adapted by lobbying for specific statutory expansions or by structuring activities outside the EMC's corporate envelope (separately funded foundations, for example). The legislature has expanded EMC authority in specific areas over the years, most prominently to permit EMC participation in broadband deployment.

Citations

• N.C. Gen. Stat. § 55-3-01(a), (b) (NC Business Corporation Act purposes and regulated-activity limit)
• N.C. Gen. Stat. § 55A-3-01(a), (b) (NC Nonprofit Corporation Act parallel provisions)
• N.C. Gen. Stat. ch. 117, art. 2 (Electric Membership Corporations)
• N.C. Gen. Stat. § 117-2.1 (energy-saving load control)
• N.C. Gen. Stat. § 117-10 (EMC formation purposes)
• N.C. Gen. Stat. § 117-14 (general powers)
• N.C. Gen. Stat. § 117-16 (service to members only)
• N.C. Gen. Stat. § 117-17 (powers necessary for corporate purpose)
• N.C. Gen. Stat. § 117-18 (additional specific powers)
• N.C. Gen. Stat. § 117-25 (limits on certificate amendments)
• Op. Att'y Gen. of June 10, 1988 (EMC electrical contracting limits)
• Robinson on North Carolina Corporation Law, 5th Ed. (1995), §§ 3-1, 3-3 (corporate purpose treatise)

Source

• Landing page: https://ncdoj.gov/opinions/electric-membership-corporations-authority-to-engage-in-retail-distribution-of-propane-gas/

Original opinion text

December 14, 1998

Representative David M. Miner
2219 Legislative Building
Raleigh, NC 27601-109

Re: Advisory Opinion – Electric Membership Corporations: Authority to Engage in Retail Distribution of Propane Gas; Article 2, Chapter 117 of the North Carolina General Statutes

Dear Representative Miner:

You request our opinion whether an Electric Membership Corporation ("EMC") organized under Article 2 of Chapter 117 of the General Statutes may engage in the business of the retail distribution of propane gas in North Carolina. You also ask the related question whether a North Carolina wholly-owned subsidiary of an EMC may engage in the business of the retail distribution of propane gas indirectly, by participation in a joint venture with a third party for such purpose. For reasons which follow, it is our opinion that the answer to both questions is no, an EMC may not engage in such activity either directly or indirectly.

A corporation is a creature of the state that has created it, and state law governs its purposes and powers. A corporation organized under the Business Corporation Act or the Nonprofit Corporation Act in North Carolina normally has the purpose of engaging in any lawful activity unless a more limited purpose is set forth in its articles of incorporation. N.C.G.S. §§ 55-3-01(a), 55A-3-01(a); Robinson on North Carolina Corporation Law, 5th Edition, 1995, §§ 3-1, 3-3. However, a corporation engaging in an activity that is subject to regulation under another statute is subject to all limitations of the other statute and will have the purposes permitted by the special statute. N.C.G.S. §§ 55-3-01(b), 55A-3-01(b); Robinson § 3-1(a).

EMCs are authorized and governed by Article 2 of Chapter 117. Although there is not a specific provision in Chapter 117 which prohibits an EMC from entering new lines of business such as distribution of propane gas, a number of provisions in the Chapter demonstrate a legislative intent that the corporate authority of an EMC is limited to purposes relating to the provision of electric service to EMC members. Pursuant to N.C.G.S. § 117-10, EMCs may be formed by the filing of a certificate of incorporation for a not for profit corporation "for the purpose of promoting and encouraging the fullest possible use of electric energy in the rural section of the State by making electric energy available to inhabitants of the State at the lowest cost consistent with sound economy and prudent management of the business of such corporations." Pursuant to N.C.G.S. § 117-16, the corporate purpose of each EMC shall be to "render service to its members only." Other provisions grant broad general and specific powers to EMCs and their boards, but those powers are vested as "necessary" or "requisite" for the accomplishment of the corporate purpose. See N.C.G.S. § 117-17 and comparable language in N.C.G.S. §§ 117-18 and 117-14. Hence, it appears the broad powers must be used to carry out the narrowly-defined purpose of EMCs.

Once an EMC has been formed and governed to meet its corporate purpose, an argument might be posed that it should then be free to enter into other legitimate enterprises for the benefit of its members. However, this argument is not consistent with the provision in Chapter 117 which places restrictions on amendments to the purpose, power or provisions contained in the certificate of incorporation of an EMC. N.C.G.S. § 117-25 states,

A corporation created hereunder may amend its certificate of incorporation to change its corporate name, to increase or reduce the number of its directors or change any other provision therein: Provided, however, that no corporation shall amend its certificate of incorporation to embody therein any purpose, power or provisions which would not be authorized if its original certificate, including such additional or changed purpose, power or provisions, were offered for filing at the time a certificate under this section is offered. (Emphasis added.)

The Attorney General opinion letter of June 10, 1988, attached to your letter, reaches a similar conclusion that EMCs are restricted in the businesses they may undertake. It finds that the powers of an EMC are limited by the corporate purpose for which it was formed and therefore an EMC is not eligible for a license to engage generally in the business of electrical contracting except for discrete phases of electrical contracting which might be used to provide energy-saving load control equipment for its members (indirectly authorized pursuant to N.C.G.S. § 117-2.1) or other such utility-related purposes.

We conclude, therefore, that EMCs may not engage in the business of retail distribution of propane.

As to your second question, we conclude for similar reasons that an EMC would not be authorized under Chapter 117 to participate in propane distribution indirectly through a joint venture involving a wholly owned subsidiary. An EMC's general and specific powers appear broad enough to allow the formation and maintenance of a wholly-owned subsidiary and participation in a joint venture; however, such powers must be exercised only as necessary, requisite, or convenient for carrying out its corporate purposes, i.e., the provision of electric service to EMC members. See N.C.G.S. §§ 117-17 and 117-18. Hence, a properly formed subsidiary corporation would face limitations similar to those of its parent in undertaking to distribute propane, whether it participates directly or through a joint venture.

You are aware, of course, that the General Assembly, if it wishes, may authorize EMCs to engage in the direct or indirect distribution of propane gas. To date, however, such an amendment to Chapter 117 has not been pursued.

signed by:

Andrew A. Vanore, Jr.
General Counsel

Margaret A. Force
Assistant Attorney General