When environmental advocates started selling cheap solar power to a church in Greensboro, N.C., five months ago, they did it to test the state's ban on non-utility providers of renewable energy. But now the state's largest utility, Duke Energy, is fighting back.

As state regulators review the controversial case, the battle lines are clearly drawn. Advocates at North Carolina Waste Awareness and Reduction Network (NC WARN) and members of Faith Community Church support policy change. Duke Energy has responded by asking regulators to impose a stiff financial penalty against NC WARN that could threaten to shut down the organization.

"The stakes are high," said Jim Warren, executive director of NC WARN, a small nonprofit dedicated to tackling climate change by promoting renewable energy. Referring to Duke Energy, Warren said, "they certainly don't want competition."

When NC WARN submitted the case for regulatory review by the North Carolina Utilities Commission back in June, it argued that it should be exempted from the third-party sales restriction because it was providing funding and a service to the church beyond selling electricity.

If the commission lets the partnership stand—a decision not expected for several months—it would open the door to similar projects. And the interest is already there: dozens of churches looking to following in Faith Community Church's footsteps have reached out to NC WARN in recent months, said Warren.

North Carolina is one of four states with limitations on third-party sales. Earlier this year legislators proposed a bill allowing third-party solar providers in the state, but it failed to get out of committee. Seeing this case as an opportunity, SolarCity and other solar proponents including North Carolina Interfaith Power & Light have filed in support of NC WARN's position.

But Duke Energy argues there is no wiggle room in the existing law, a position shared by the public staff of the Utilities commission, which makes policy recommendations to the commission but is not the same as the seven commissioners who will ultimately vote on this case.

"The law is clear in North Carolina," said company spokesman Randy Wheeless. If you want to sell power in the state, that makes you a utility and subject to all the regulations that come with that role. That's why Duke has proposed regulators impose a $1,000 fine on NC WARN for every day its solar panels are connected to the grid. That would amount to more than $120,000.

Regulators have charged power providers similar daily fines for violations in the past, Wheeless explained.

Sam Watson, general counsel for the Utilities Commission, told InsideClimate News that similar penalties have been imposed, but their circumstances are not similar to this case.

According to NC WARN's Warren, the group's budget in 2015 was less than $1 million and a large fine would be debilitating.

"It's a strong attack and ... we have never heard of them doing anything like this in any other state," Warren said. He added that he believed Duke Energy was targeting the group because of its criticism of North Carolina's largest utility in recent years.

Duke did not respond directly to this charge. But Wheeless did say that NC WARN's efforts, beyond the church solar project, amounted to "tossing fireballs against the fence" and were a "waste of time and money" for the utility company.

Both sides have until Nov. 20 to respond to one another's comments. After that, the commission may either decide to hold an evidentiary hearing—which would lead to more hearings and extend the case—or make a decision.

If NC WARN loses the case, it has already agreed to donate the 20-panel solar array to Faith Community so the non-denomenational, largely African-American church would continue to benefit from solar power.