January 20, 2012, Don Kreis: Count III Reconsidered

Don KreisDear Fans of my Vermont Yankee blog posts:

I have good news and bad news if you are my mother or if you are otherwise someone who takes any pleasure in discovering that I am right in my public pronouncements about law or public policy.

The good news is that, upon a re-reading of Judge Murtha’s opinion of yesterday in the Vermont Yankee case, I see clearly now that the prediction I made last fall of how Judge Murtha would decide the case has come true.  I predicted that the Court would conclude that the Vermont Legislature is preempted from closing Vermont Yankee but that the Vermont Public Service Board is not.

Judge Murtha’s opinion doesn’t really say that – he focuses his discussion on why the Legislature was impermissibly roaming into the realm of radiological safety by asserting a right to block continued operation of Vermont Yankee after March 21, 2012.  He nowhere explicitly states that he is severing the relevant provisions of Vermont law so as to cut the Legislature out of the action but not the Public Service Board.

But the remedy actually ordered by Judge Murtha makes clear this is exactly what he did.  Judge Murtha’s directive is that the State of Vermont is

permanently enjoined, as preempted under the Atomic Energy Act, from enforcing Act 160 [i.e., the statute that purports to impose a requirement of Legislative approval] by bringing an enforcement action, or taking other action, to compel Vermont Yankee to shut down after March 21, 2012 because it failed to obtain legislative approval (under the provisions of Act 160) for a Certificate of Public Good for continued operation, as requested by Plaintiffs’ pending petition in Public Service Board Docket No. 7440, or in any subsequent petition.

[Emphasis added.]  Notably, Judge Murtha did not order the Public Service Board to pull the plug on Docket No. 7440 – so, Entergy’s request for a new state-law certificate of public good can and presumably will now go forward.

This renders my blog post of earlier today fatally flawed in one key respect.  I said Judge Murtha should have refused to consider both counts II and III as moot.  Well, Count III isn’t really moot if the Public Service Board now gets to decide whether Vermont Yankee’s continued operation is consistent with the general good of the state.

I would argue that the only way the continued operation could be consistent with the general good of the state would be for Entergy to agree to sell electricity to Vermont utilities at rates lower than they would have to pay to acquire the power elsewhere.  And I must respectfully disagree with Judge Murtha’s determination that the Dormant Commerce Clause precludes Vermont from extracting such a bargain from Entergy.

Here is why:  Entergy waived its Dormant Commerce Clause claim when it agreed, in 2002 to return to the Public Service Board for a renewal of its certificate of public good.  In my view, the logic is inexorable.  If the state is precluded from regulating radiological safety – a legal proposition with which everyone agreed in 2002 and which Judge Murtha has now reaffirmed – than economics is really the only plausible basis for asserting state regulatory authority here.  And the form of economic regulation of which Entergy now complains in both counts II and III of its complaint is precisely the form of economic regulation to which it agreed to submit now.

For the reasons I explained in my previous post, Vermont electric customers paid their utilities to build Vermont Yankee and were entitled to some if not all of the economic value arising out of the sale.  Some of that value was captured in real cash money that was slapped down on the table at the time.  But some of the value remained an unresolved question for the simple reason that nobody knew whether the Nuclear Regulatory Commission would renew Vermont Yankee’s operating license so that the plant could continue pumping out cheap electrons after March 21, 2012.  Thus Entergy and the Department of Public Service – as well as, ultimately, the Public Service Board – all agreed that Entergy could come back before regulators now and craft a new bargain.  And the only thing Entergy can possibly offer Vermont citizens is cheap electricity – period.

There are two problems with Judge Murtha’s holding to the contrary.  First, although his opinion discusses the effect of the MOU at considerable length, he limits his consideration to the separate question of whether the 2002 agreement precludes Entergy from Count I, without discussing Count III.  The Court of Appeals can and should consider this question because it is now critical.

The second problem is with the substantive content of Judge Murtha’s Dormant Commerce Clause analysis.  He relies principally on, but may have misread, the 1982 decision of the U.S. Supreme Court in New England Power Company v. New Hampshire.  Ironically, New England Power concerns the same fleet of Connecticut River hydroelectric dams that Vermont regrettably declined to purchase and turn into public power at roughly the same time Entergy was buying Vermont Yankee.

In the New England Power case, the New Hampshire Public Utilities Commission (PUC) had invoked an ancient statute – adopted in 1913 by the New Hampshire Legislature – that authorized the PUC to require hydroelectric plants to reserve their output for in-state use when the energy is “reasonably required for use within this state and that the public good requires that it be delivered for such use.”  The PUC ordered New England Power to sell its power only to New Hampshire utilities on the ground that this would save New Hampshire customers $25 million a year.

The U.S. Supreme Court found this to be in violation of the Commerce Clause.  Here is the heart of the Court’s analysis, stripped of its citations to other cases:

[We] consistently have held that the Commerce Clause of the Constitution precludes a state from mandating that its residents be given a preferred right of access, over out‐of‐state consumers, to natural resources located within its borders or to the products derived therefrom. [A] State is without power to prevent privately owned articles of trade from being shipped and sold in interstate commerce on the ground that they are required to satisfy local demands or because they are needed by the people of the State.

The order of the New Hampshire Commission, prohibiting New England Power from selling its hydroelectric energy outside the State of New Hampshire, is precisely the sort of protectionist regulation that the Commerce Clause declares off‐limits to the states. The Commission has made clear that its order is designed to gain an economic advantage for New Hampshire citizens at the expense of New England Power’s customers in neighboring states. Moreover, it cannot be disputed that the Commission’s “exportation ban” places direct and substantial burdens on transactions in interstate commerce. Such state‐imposed burdens cannot be squared with the Commerce Clause when they serve only to advance simple economic protectionism.

To the extent the Vermont Public Service Board could use the pending Docket No. 7440 to extract a price discount from Entergy for Vermont consumers, this is not the kind of “economic protectionism” that the Supreme Court determined to be out-of-bounds in New England Power.  The premise of any authority of the Public Service Board to extract rate concessions is not that Vermont Yankee’s power is somehow required in Vermont to satisfy local demands or are otherwise needed by Vermonters.  Nor is Vermont seeking to obtain economic advantage at the expense of other states.  This is not a case of economic protectionism.  This is simply a case of Entergy being potentially required to give Vermont electric customers the full benefit of their 2002 bargain while in no way precluding Vermont Yankee from participating in interstate commerce via New England’s wholesale power markets.

At the very least, Judge Murtha’s ruling on Count III was premature since nobody knows whether, or to what extent, the Public Service Board would require Entergy to sell cheap power to Vermonters in exchange for a new certificate of public good.  Yes, as Judge Murtha observed, the Shumlin Administration (through the Department of Public Service) is already on record in Docket 7440 as arguing that such discounts are necessary.  But this by no means made it certain that such a view would prevail before the Public Service Board.

This is important stuff.  At the heart of this litigation is money at least as much as safety.  Nuclear power is dangerous, as the recent events at Fukushima in Japan have amply demonstrated.  But so are cars.  Every time a Vermont citizen gets behind the wheel of a car and drives to work, she is making a cost-benefit analysis.  Our hypothetical driver is way more likely to die in an automobile accident than from radiological harms traceable to Vermont Yankee.  So, if she drives off to work anyway, it is because the economic value she receives from doing so justifies the risk of death by motor vehicle-induced blunt trauma.  Vermont, as a state, is entitled to conduct exactly the same kind of cost-benefit analysis at a larger scale because Entergy agreed to it in 2002.  Since regulating the costs (i.e., radiological safety) is out of bounds, the federal courts should not stand in the way of Vermont extracting the benefits that the current owners of Vermont Yankee have agreed to provide.

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