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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