Breaking down Entergy’s new suit against Vermont

Vermont Yankee on the banks of the Connecticut River

The Louisiana-based Entergy Corp. responded to a Vermont tax hike on its Vermont Yankee Nuclear Power Plant by filing a federal lawsuit on Tuesday against Gov. Peter Shumlin and the state of Vermont.

Entergy is suing the state on four counts of allegedly violating the U.S. Constitution. The suit is aimed at reversing a tax increase on electricity generation, which was passed during the 2012 legislative session and that would raise roughly $12.5 million annually for the state, instead of the $5 million previously raised by the tax.

But Gov. Peter Shumlin and leading legislators maintain that the tax increase is reasonable and warranted.

“Entergy’s decision to challenge the generating tax is disappointing,” said Shumlin in a press statement. “I firmly believe the tax is reasonable. It is less than the tax rate on wind projects, and it is comparable to the generating tax on nuclear plants in Connecticut. Nevertheless, Entergy clearly prefers to sue the state of Vermont, consistent with its history.”

The nuclear generating tax of $0.0025 per kilowatt-hour (kWh) is the same as Connecticut’s and less than the Vermont tax on large wind projects of $0.003 per kWh.

Scot Kline, chief environmental lawyer for the state, said Thursday morning that he and his team are reviewing the injunction and weighing the state’s options. While Kline and the Attorney General’s office get their ducks in a row, the nonprofit Vermont Public Interest Research Group (VPIRG) threw in its two cents on the issue.

“Given Entergy’s track record, it’s not a surprise that it would rather spend its money on high-priced lawyers than pay its fair share to the people of Vermont,” said Ben Walsh, clean energy advocate at VPIRG. “That’s what this lawsuit is all about.”

If Entergy wins this case, however, it wouldn’t be paying for Entergy’s lawyers at the Burlington-based Gravel & Shea — Vermont taxpayers would.

Cheryl Hanna, law professor at Vermont Law School.

“Anytime a state violates the constitutional rights of an entity that entity is entitled to reasonable attorney fees under federal law if they win,” said Cheryl Hanna, a constitutional law professor at Vermont Law School.

And that’s a situation Sorrell and his team are already trying to avoid, as the state appeals a previous lawsuit filed by Entergy.

The case

In January, Entergy won a federal case to continue operating its Vernon plant past the March 21, 2012, deadline imposed by the state. U.S. District Court Judge John J. Murtha ruled against a Vermont legislative act that prohibited Vermont Yankee from operating past its 40-year license, and he shot down another state act that would have required Yankee to obtain legislative approval to store nuclear waste on site.

The Nuclear Regulatory Commission (NRC) in 2011 extended Yankee’s operating license by another 20 years.

These incidents make Entergy’s newest case all the more convincing, said Hanna.

“I think the state of Vermont is going to have a difficult time defending the tax because the court is going to look at the reasons behind the state’s actions in light of all the history that’s led up to it,” she said. “I think Entergy has a fairly good argument that this is just another attempt by the state to preempt federal law and shut down an otherwise viable power plant.”

But Rep. Tony Klein, D-East Montpelier, who chairs the House Natural Resources and Energy Committee, and Rep. Dave Sharpe, D-Bristol, who is on the House Ways and Means Committee that designed the tax, steadfastly deny that the Legislature’s intent was to create a tax aimed at inhibiting the plant’s operation.

Rep. Tony Klein. VTD/Josh Larkin

Sharpe indicated that the tax is meant to replace the former tax of just under $5 million annually, as well as to make up revenue for agreements with Entergy that are set to expire. Those agreements have brought roughly $6 million annually into the state’s Clean Energy Development Fund since fiscal year (FY) 2007.

“Our goal in the Legislature was to work through this transition period and come up with a fair taxation of the power they were producing,” said Sharpe.

While Entergy acknowledges the state’s intent, it doesn’t agree with its methods.

“The State seeks to replace these amounts by imposing what it labels a ‘tax’ on a single Vermont taxpayer, Entergy,” writes Entergy in the injunction. “As such, (state officials) improperly seek to continue the expired contractual payments.”

Entergy filed its suit almost two months before its first state-mandated payment is due on Oct. 25. The Legislature called for Entergy to make tax payments on a quarterly basis. In FY 2013, the Legislature expected the tax to generate $9.5 million, as Entergy was only responsible for three-quarters worth of fiscal year payments. Entergy has proposed paying the previous generation tax — the $5 million annually — while this issues is being litigated.

In the bill (H.782,) that leverages this new tax, Vermont Yankee isn’t specifically named. Instead, the House bill places the tax on any electric power plants that were constructed after July 1, 1965, and have a generating capacity of more than 200,000 kW.

According to Department of Public Service Commissioner Elizabeth Miller, the state only has one such plant: Vermont Yankee.

Entergy’s four counts

Entergy is suing the state on four counts of violating the Constitution.

The first count alleges that the state violated the supremacy clause, which places federal authority above that of a state. In this case, Entergy paints a picture of the state interfering with a federally licensed plant. Hanna, however, does not think this is the company’s strongest argument.

The second count accuses the state of violating the commerce clause for interfering with interstate commerce. As Yankee only sells power to out-of-state customers at the present, Entergy argues that the new tax rate doesn’t affect Vermont and “discriminates against interstate commerce in favor of intrastate commerce.”

In the third count, Entergy complains that the state violates the equal protection clause in the 14th Amendment, which provides all people with equal protection of the law. Since a corporation is considered a person in the court of law, Entergy has the right to equal protection, and it is accusing the state of discrimination “by singling out one entity,” as the injunction reads.

Fourthly, Entergy accuses the state of violating the contract clause by preventing the company’s ability to extend its previous contracts with the state. In this count, Entergy argues that the state aims to “unilaterally” extend the agreements “without providing any contractual consideration.”

Hanna thinks the equal protection argument might be Entergy’s strongest.

“Where the Legislature runs the greatest risk is that they targeted Vermont Yankee,” she said.

When asked about singling out Yankee, Sharpe said he would prefer to institute a flat generation tax for all commercial power producers in Vermont.

“My desire would be to tax all electric producers the same, and this was an attempt to bring Vermont Yankee closer to others,” he said.