State v. Friesian Holdings, LLC
| Decision Date | 18 January 2022 |
| Docket Number | COA20-867 |
| Parties | STATE of North Carolina EX REL. UTILITIES COMMISSION; Public Staff-North Carolina Utilities Commission, Appellees, v. FRIESIAN HOLDINGS, LLC, Petitioner; North Carolina Sustainable Energy Association, Intervenor; and North Carolina Clean Energy Business Alliance, Intervenor, Appellants, v. Duke Energy Progress, LLC and North Carolina Electric Membership Corporation, Intervenors. |
| Court | North Carolina Court of Appeals |
Fox Rothschild LLP, Raleigh, by Karen M. Kemerait, and Kilpatrick, Townsend & Stockton LLP, by Steven J. Levitas, Benjamin L. Snowden, Raleigh, and Adam H. Charnes, for Petitioner-Appellant.
Layla Cummings, Dianna W. Downey, and Robert B. Josey, Jr., for Appellee Public Staff-North Carolina Utilities Commission.
Benjamin W. Smith and Peter H. Ledford, for Intervenor-Appellant North Carolina Sustainable Energy Association.
Adam Foodman, Charlotte, and John D. Burns, for Intervenor-Appellant North Carolina Clean Energy Business Alliance.
Nexsen Pruet PLLC, by David P. Ferrell, Raleigh, and Richard M. Feathers and Michael D. Youth, for Intervenor-Appellee North Carolina Electric Membership Corporation.
Jack E. Jirak, for Intervenor Duke Energy Progress, LLC.
¶ 1 North Carolina has made significant strides in generating and employing alternatives to carbon-emitting fuels. We rank fourth in the nation in solar installations, with solar making up nearly eight percent of our state's electricity.1 Our legislature has enacted clean energy goals including a 70 percent reduction in carbon emissions by the year 2030 and carbon neutrality by 2050.2 The southeastern region of the state, in particular, has attracted several solar energy facilities.3 But growing production has strained the region's existing electric grid. A dispute over the cost and timing of upgrading the grid gives rise to this appeal.
¶ 2 Unlike other industrial and commercial enterprises, energy generation facilities can operate only as permitted by the North Carolina Utilities Commission ("the Commission"). N.C. Gen. Stat. § 62-110.1(a) (2019). This system of regulation is analogous to state law limiting medical facilities to providers who have obtained a certificate of need from the Department of Health and Human Services. See N.C. Gen. Stat. § 131E-175(7) (2019). Energy plants cannot spring up like many restaurants, fitness centers, or dry cleaners, even if consumer demand would support the increased supply. In this way, government regulation influences the energy market.
¶ 3 Petitioner-Appellant Friesian Holdings, LLC ("Friesian"), an independent energy company, seeks to generate additional solar energy in the southeast. Friesian applied to the Commission for a certificate of public convenience and necessity ("CPCN" or "certificate") to build and operate a solar energy plant, which would sell and distribute electricity through an existing electric grid. Citing the cost of upgrading the region's electric grid to accommodate additional transmission, the Commission denied Friesian's application. Friesian appeals, contending that the Commission's decision unfairly favors larger energy utilities and squelches competition, to the detriment of consumers.
¶ 4 Friesian presents three arguments on appeal: (1) federal law aimed at fostering free competition preempts the Commission's decision; (2) the Commission's cost analysis was unsupported by the evidence and was arbitrary and capricious; and (3) the Commission erred in concluding Friesian did not demonstrate a need for its facility. After careful review of the record and our precedent, we affirm the Commission.
¶ 5 This appeal arises from Friesian's second application to the Commission to build and operate a solar energy plant. As explained below, Friesian's first application was successful, but Friesian amended its energy distribution plan, leading to the application process we now review.
¶ 6 On 9 September 2016, Friesian filed its first application with the Commission seeking a CPCN to construct a 70-MWAC solar photovoltaic electric generation facility ("the facility") in Scotland County. Pursuant to Commission Rule R8-64, Friesian classified itself as a small power producer or "qualifying facility," intending to sell the energy produced by its facility to the public utility Duke Energy Progress ("Duke") which owns and operates the energy grid servicing Scotland County. At the time of its application, Friesian had obtained most of the other federal and state permits required of them and planned to begin construction in early 2023 with commercial operation by December of the same year. The project did not generate any opposition from local residents or other interested parties. On 7 November 2016, the Commission granted Friesian a CPCN.
¶ 7 The Commission's policies for state generator interconnections assign directly to the qualifying facility—also known as the "interconnection customer," here Friesian—the cost of upgrades to the grid necessary to connect to the qualifying facility. See Order Approving Revised Interconnection Standard, In the Matter of Petition for Approval of Revisions to Generator Interconnection Standards , State of North Carolina Utilities Commission, Docket No. E-100, Sub 101 (May 5, 2015).
¶ 8 On 2 August 2018, Friesian filed a request with the Commission to amend the CPCN previously issued for its facility to file as a different type of energy facility so that it could sell energy to a third-party energy distributor. Friesian's proposed facility would still have to interconnect with the electric grid owned and operated by Duke. Because the amount of electricity already transmitted through the grid is approaching its current maximum capacity, the grid must be upgraded to accommodate Friesian's additional energy supply.
¶ 9 On 15 May 2019, Friesian requested the Commission (1) allow Friesian to withdraw the requested amendment and (2) consider a new application for a CPCN as a "merchant plant" pursuant to Commission Rule R8-63 for the same facility. The Commission treated Friesian's filing as a request to cancel the previously issued CPCN. The Commission allowed withdrawal of the requested amendment, cancelled the previously issued CPCN, and closed the docket on 14 June 2019.
¶ 10 On 6 June 2019, Friesian and Duke entered into a large generator interconnection agreement defining the parties’ respective obligations for constructing and upgrading existing systems to accommodate the new facility. The necessary upgrade is estimated to require reconstruction of roughly 73 miles of the existing grid at a cost of $223.5 million plus $25 million in interest.4 The interconnection agreement requires Friesian to bear sole responsibility for $100 million in estimated construction costs and another $4 million to interconnect the old and new facilities. However, a crediting policy provided by the Federal Energy Regulatory Commission ("FERC") to level the playing field between large public utility companies and independent energy producers requires Duke to reimburse Friesian for the upgrade costs, in full, by passing along those costs in higher rates charged to its wholesale and North Carolina retail customers.5
¶ 11 On 14 June 2019, eight days after entering into the agreement with Duke, Friesian executed a purchase power agreement ("PPA") with North Carolina Electric Membership Corporation ("NCEMC")6 providing that Friesian would sell all the power and renewable energy credits generated by its facility to NCEMC. Duke would distribute the energy produced by the facility to NCEMC on a wholesale basis. FERC maintains jurisdiction over generating facilities’ wholesale distribution rates. See Miss. Power & Light Co. v. Miss. ex rel. Moore , 487 U.S. 354, 374, 108 S.Ct. 2428, 2440-41, 101 L. Ed. 2d 322, 340 (1988).
¶ 12 Friesian's arrangements with Duke and NCEMC changed the regulatory classification of its facility to a "merchant plant," so Friesian filed a second petition with the Commission for a CPCN as a "merchant plant." A "merchant plant" is "an electric generating facility ... the output of which will be sold exclusively at wholesale [.]" Commission Rule R8-63(a)(2) (emphasis added). Duke, NCEMC, the North Carolina Sustainable Energy Association ("NCSEA"), and the North Carolina Clean Energy Business Alliance ("NCCEBA") petitioned to intervene in Friesian's certificate application proceeding. The Commission allowed those petitions. The Public Staff of the Commission ("Public Staff"), an independent agency charged with representing the interests of consumers,7 also participated in the application process.
¶ 13 The Public Staff filed a motion asking the Commission to determine, among other legal questions:
[w]hether the Commission has authority under state and federal law to consider as part of its review of the CPCN application the costs associated with the approximately $227 million dollars in transmission network upgrades and interconnection facilities necessary to accommodate the FERC-jurisdictional interconnection of the merchant generating facility, and the resulting impact of those network costs on retail rates in North Carolina[.]
Following briefing and arguments, the Commission entered an interlocutory order determining it could consider the upgrade costs pursuant to our General Statutes and its own rules. See § 62-110.1 ; Commission Rule R8-63.
¶ 14 In its second certificate application and before the Commission, Friesian presented evidence of potential benefits that could stem from its facility and the associated grid updates, including: (1) the interconnection of multiple gigawatts of new renewable generation in North Carolina and South Carolina; (2) expansion of the grid capacity so that other solar facilities in Duke's queue could be added in the future without additional upgrades; (3) the public would bear less of the upgrade costs compared to an alterative cost allocation under one of Duke's...
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