Can NC electric membership corporations (rural co-ops) restructure their wholesale power purchases by buying less from the statewide co-op (NCEMC) and more from a third-party Energy Supplier, including reselling any excess power back to the Energy Supplier?

Plain-English summary

NC has a network of "electric membership corporations" (EMCs), rural electric cooperatives organized under Chapter 117, Article 2 of the General Statutes. EMCs are limited-purpose nonprofit corporations whose only purpose is providing electric service to their members (residents and businesses in the EMC's service territory). EMCs are owned by their members rather than by shareholders.

EMCs historically bought their wholesale electric power from North Carolina Electric Membership Corporation (NCEMC), a generation-and-transmission cooperative whose members are the local EMCs themselves. NCEMC aggregates demand across the state and contracts with generators (or owns generation jointly with investor-owned utilities) to supply power at wholesale.

By the early 2000s, four EMCs wanted to restructure: reduce their NCEMC purchases, sign new contracts with a third-party "Energy Supplier" for power, and let the Energy Supplier optionally use the EMC's NCEMC rights to fulfill the contract. Any excess power (when the EMC's actual demand fell short of what the Energy Supplier was contractually obligated to deliver) would be bought back by the Energy Supplier.

State Senators Walter Dalton and R.B. Sloan asked the AG: do the EMCs have legal authority under Chapter 117 to do this?

The AG said yes. The reasoning:

§ 117-18 grants broad contracting authority. Specifically:
- § 117-18(8): EMCs can make "any and all contracts necessary or convenient for the full exercise of the powers in this Article granted, including, but not limited to, contracts with any person or federal agency, for the purchase or sale of energy."
- § 117-18(12): EMCs can perform their functions through contracts with other persons or federal agencies.
- § 117-18(3): EMCs can acquire, hold, and dispose of property (including intangible interests like energy supply rights).

§ 117-10 directs least-cost service. EMCs must provide energy "at the lowest cost consistent with sound economy and prudent management." Wholesale-market trading to reduce member costs aligns with this statutory duty.

§ 117-17 grants general power to carry out the EMC's purpose. Specific powers in § 117-18 don't limit this general authority.

§ 117-20's member-vote requirement doesn't apply. Generally, EMCs need a member vote before selling, encumbering, or disposing of EMC property. But the statute has exceptions for "merchandise," for property worth less than 10% of total assets, and for property the board judges not necessary to operating the corporation. The AG concluded that an EMC's "merchandise" is electric power. So wholesale resales of power don't trigger the member-vote requirement.

§ 117-16 doesn't restrict EMCs to retail only. The last two sentences of § 117-16 (added in 1979) describe a "corporation whose principal purpose is to furnish or cause to be furnished bulk electric supplies at wholesale" (i.e., NCEMC) and let that corporation enter joint arrangements with other power suppliers. The AG read this as not exclusive: NCEMC's broad wholesale authority doesn't preclude individual EMCs from doing some wholesale trading in service of their members.

Important limitation. The AG was careful to note that wholesale trading must remain incidental to the EMC's primary purpose of serving members. EMCs are not authorized to become standalone power traders or to set up wholesale-trading businesses as separate corporate endeavors. The transactions described in the Purchase Agreements were authorized only because they reduced costs for member retail service.

The opinion does not address federal-law issues, particularly Federal Energy Regulatory Commission (FERC) requirements that might apply to wholesale power transactions under the Federal Power Act.

Signed by Senior Deputy AG Joshua Stein and Assistant AG Leonard Green.

Currency note

This opinion was issued in 2003. 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.

Chapter 117 has been amended since 2003, and the wholesale electric market has changed significantly with the development of FERC-regulated regional transmission organizations and renewables-driven generation shifts. Anyone applying this opinion to a current EMC wholesale-power question should pull the current text of § 117-16, § 117-18, and § 117-20, and check any current NCEMC contracts and FERC tariffs that might apply.

Common questions

Q: What's an EMC?
A: An electric membership corporation, a member-owned nonprofit cooperative that distributes electricity to rural and small-town customers. NC has 26 EMCs covering about a quarter of the state's electric service territory. The largest investor-owned utility (Duke Energy / Progress Energy) covers most of the rest.

Q: What's NCEMC?
A: North Carolina Electric Membership Corporation, a generation-and-transmission cooperative owned by the local EMCs. NCEMC aggregates wholesale demand and either owns generation or contracts with generators on behalf of its member EMCs.

Q: Why did the four EMCs want to restructure?
A: To get lower wholesale prices. The four EMCs believed they could get cheaper power from a third-party Energy Supplier than from their share of NCEMC's portfolio. § 117-10's least-cost mandate arguably required them to consider those alternatives.

Q: What's the 'merchandise exception' in § 117-20?
A: § 117-20 says EMCs must get member approval to sell or dispose of property. The statute has an exception for "merchandise" (because requiring a member vote for routine inventory sales would paralyze the business). The AG read electric power, the product the EMC actually sells, as the EMC's "merchandise."

Q: Could an EMC become a full-time wholesale power trader?
A: No, per the AG's caveat. Wholesale trading is authorized only as an incident to serving members. An EMC that wanted to set up a separate wholesale-trading subsidiary would need different statutory authority.

Q: Does this involve FERC?
A: Almost certainly yes in practice, but the AG opinion didn't address FERC. Wholesale power transactions are usually subject to FERC's jurisdiction under the Federal Power Act, including market-based rate tariffs. EMCs entering Purchase Agreements would need to comply with FERC filings.

Q: Can an EMC sell power back to NCEMC?
A: The opinion doesn't directly address that scenario, but the broad contracting authority in § 117-18(8) would let an EMC contract with NCEMC (or any other person) for purchases or sales of energy.

Background and statutory framework

The NC EMC system dates to the New Deal era, when the federal Rural Electrification Administration (REA) financed rural electric cooperatives across the country. NC's Chapter 117, Article 2 was enacted to provide a state-law corporate vehicle for those cooperatives. The "limited purpose nonprofit" structure is the standard form for rural electric co-ops nationally: the corporation exists to serve its members and not to make a profit.

The 1979 amendment to § 117-16 reflected the development of NCEMC as a generation-and-transmission entity. NCEMC needed authority to enter joint ownership arrangements with investor-owned utilities for large generation projects (Roxboro Plant, Mayo Plant, Catawba Plant). The amendment gave NCEMC explicit authority to do that. The AG opinion interprets the 1979 amendment as additive, not preclusive: it expanded NCEMC's powers without limiting other EMCs.

The Senators' question reflects a broader shift in the 2000s wholesale power market. Federal deregulation under the 1992 Energy Policy Act and 1996 FERC Order 888 created competitive wholesale markets in many regions. NC's EMCs began evaluating whether NCEMC's wholesale supply was still the cheapest option or whether market-based alternatives would beat it. The Purchase Agreement structure described in this opinion is a hybrid: keep some NCEMC supply, add Energy Supplier supply, and use Energy Supplier as a counterparty to absorb mismatches in demand forecasting.

The AG opinion's careful framing reflects the EMC system's distinctive features. EMCs are not pure private corporations (they have member-vote governance for major decisions), not pure utilities (they don't have public-service-commission-style retail rate regulation, though the NC Utilities Commission does have some authority), and not pure cooperatives (some operate at near-investor-owned scale). The "lowest cost consistent with sound economy and prudent management" standard in § 117-10 gives EMC boards flexibility to evaluate market alternatives while keeping the focus on member service.

Citations

• N.C.G.S. § 117-10 (least-cost duty)
• N.C.G.S. § 117-16 (EMC purpose; NCEMC joint arrangements)
• N.C.G.S. § 117-17 (general powers)
• N.C.G.S. § 117-18(3), (8), (12) (property, contracts, agents)
• N.C.G.S. § 117-20 (member vote for dispositions; merchandise exception)
• N.C.G.S. § 55-3-01(a), (b) (business corporation general purposes)
• N.C.G.S. § 55A-3-01(a), (b) (nonprofit general purposes)
• Robinson on North Carolina Corporation Law (5th ed.), §§ 3-1, 3-3

Source

• Landing page: https://ncdoj.gov/opinions/wholesale-power-transactions-between-electric-membership-corporations-and-other-persons/

Original opinion text

REPLY TO: Leonard G. Green
Utilities Unit
Telephone (919) 716-6000
FAX (919) 716-6757

October 29, 2003

Senator Walter H. Dalton
523 Legislative Office Building
Raleigh, N.C. 27601-2808

Senator R. B. Sloan, Jr.
406 Legislative Office Building
Raleigh, N.C. 27601-5925

Re: Request for Attorney General's Advisory Opinion

Dear Senators Dalton and Sloan:

Thank you for your letter of October 2, 2003, requesting an advisory opinion concerning certain wholesale power transactions between electric membership corporations and other persons. Your letter states the following facts and question.

Facts

Four electric membership corporations organized under Article 2 of Chapter 117 of the North Carolina General Statutes to render service to their members ("EMCs") wish to restructure their purchase of wholesale electric power. Each of the EMCs currently purchases power from North Carolina Electric Membership Corporation ("NCEMC"), an electric membership corporation organized to furnish or cause to be furnished bulk electric supplies at wholesale. Each EMC plans to contract with NCEMC to purchase a smaller quantity of power from NCEMC and to enter into a new contract with a third party, "Energy Supplier," to purchase power. These new arrangements are sought to provide the lowest cost of power to the EMC and thus to its members.

Under the proposed power purchase agreements with the Energy Supplier (the "Purchase Agreements"), the EMCs will make available to the Energy Supplier their rights to electric power from NCEMC. The Energy Supplier may (but is not required to) utilize this right to electric power from NCEMC to meet the Energy Supplier's obligations to supply power under the Purchase Agreement. The Purchase Agreement also provides that if the amount of power required to be purchased by the EMC from Energy Supplier under the Purchase Agreement exceeds the EMC's actual energy requirements, the Energy Supplier must buy back the excess power from the EMCs.

Question

Do the EMCs have the corporate power and authority under Chapter 117 of the North Carolina General Statutes to enter into the Purchase Agreements with the Energy Supplier, under which the EMCs will make available to the Energy Supplier the EMCs' rights to electric power and energy under the NCEMC contracts and make incidental sales of excess power to the Energy Supplier?

For the reasons that follow, it is our opinion that North Carolina's statutes grant the EMCs the necessary authority to engage in such wholesale power transactions that are consummated in order to provide economical electric service to EMC members.

A corporation is an entity created under state law. Therefore, its purposes and powers are governed by state law. A corporation organized under North Carolina's Business Corporation Act or Nonprofit Corporation Act normally has the purpose of engaging in any lawful activity, although a more limited purpose may be specified in its articles of incorporation. N.C.G.S. §§ 55-3-01(a) and 55A-3-01(a); Robinson on North Carolina Corporation Law, 5th Edition, §§ 3-1 and 3-3. However, a corporation engaging in an activity that is regulated by another statute is subject to all limitations of the other statute, including limitations on the purpose of the corporation. N.C.G.S. §§ 55-3-01(b) and 55A-3-01(b); Robinson § 3-1(a).

EMCs are authorized and governed by Article 2 of Chapter 117. These statutes permit the establishment of EMCs as limited-purpose nonprofit corporations to provide electric service to their members only. N.C.G.S. § 117-16. In fulfilling that purpose, EMCs are directed to provide electric energy "...at the lowest cost consistent with sound economy and prudent management of the business of such corporations." N.C.G.S. § 117-10. In N.C.G.S. § 117-17, EMCs are given the general power necessary or requisite to accomplish their corporate purpose, with the further provision that no enumeration of specific powers is to be construed to limit this general power.

In N.C.G.S. § 117-18, specific powers are granted EMCs, where such powers are necessary or convenient to enable them to carry out their purpose, including:

(3) To acquire, hold and dispose of property, real and personal, tangible and intangible, or interests therein, and to pay therefor in cash or on credit, and to secure or procure payment of all or any part of the purchase price thereof on such terms and conditions as the board may determine.

(8) To make any and all contracts necessary or convenient for the full exercise of the powers in this Article granted, including, but not limited to, contracts with any person or federal agency, for the purchase or sale of energy;...

(12) To perform any and all of the foregoing acts and to do any and all of the foregoing things under, through or by means of its own officers, agents and employees, or by contracts with other persons or federal agencies.

Pursuant to these specific powers, EMCs are authorized to contract with any person for the purchase and sale of energy. Since an EMC's primary purpose is retail sales to its members, the provisions of G.S. § 117-18(8) and (12) appear to refer to wholesale purchases and sales of energy. This is consistent with the EMC's duty to provide the most economic and least cost service to its members. Buying bulk power to meet fluctuating loads means there will be excess power available at times. Thus, EMCs need to be able to take their excess power to the wholesale market for resale, trade or credit. However, such wholesale power trading activities must be necessary for an EMC's service to its members, and not a separate corporate endeavor. See N.C.G.S. §§ 117-17 and 117-18.

In reaching our conclusion, we have fully considered the possible effects of N.C.G.S. § 117-16 and § 117-20 on the question presented. In § 117-16, the last two sentences specify certain powers and activities for a corporation whose "principal purpose is to furnish or cause to be furnished bulk electric supplies at wholesale..." These sentences were added in 1979 to allow NCEMC to enter into joint arrangements with other power suppliers for the purchase and sale of bulk power, including joint ownership of bulk power supply properties. The wording and timing of this addition to the statute indicates the legislature's intent to allow NCEMC to enter into joint financing, construction and ownership of generating facilities with investor owned utilities, a course of action that NCEMC did pursue after the amendment to § 117-16. It does not state, however, that only NCEMC can buy and sell power at wholesale.

Under § 117-20, EMCs must conduct a vote of their members in order to sell, encumber or dispose of EMC property, except merchandise, or property not in excess of 10% of the value of the corporation's total assets, or property which the board judges not to be necessary or useful in operating the corporation. Since the business of an EMC is to sell electric power to its members for their use, an EMC's "merchandise" is electric power. Thus, an EMC's acquisition, trading and resale of wholesale power falls within the merchandise exception of the statute.

This opinion does not include any assessment other than the EMCs' authority under North Carolina's statutes. For example, it does not include any assessment of particular contracts, rights or restrictions created by such contracts, or requirements that may be imposed under federal law by the Federal Energy Regulatory Commission.

We hope that the information provided in this advisory opinion is helpful.

Yours truly,

Joshua Stein
Senior Deputy Attorney General

Leonard G. Green
Assistant Attorney General