June 30, 2011, Don Kreis: The Waiver Theory Won’t Fly

Don KreisMonday, June 27 was a memorable afternoon for me.  I had the honor of sharing the podium with two very distinguished colleagues, Cheryl Hanna and Pat Parenteau, to talk about the pending Vermont Yankee litigation. But what I will really remember is not what any of us said but what a very distinguished member of the faculty addressed to me from the audience.

This faculty member disagreed with me on an important question in the lawsuit:  whether Entergy has waived its right to sue the State of Vermont for requiring the company to seek a new operating license under state law if it is to stay in business after March 21, 2012.  My answer has been an unambiguous “no.”

At the heart of this issue, of course, is the infamous Memorandum of Understanding (MOU) entered into between Entergy’s Vermont Yankee subsidiary and the Department of Public Service (DPS).  The MOU contained compromises by Entergy that caused the DPS to change its position from opposing to supporting the proposed purchase of Vermont Yankee by Entergy.  Ultimately, the Public Service Board (PSB) approved and adopted the MOU and, with it, the sale of Vermont Yankee from a consortium of regulated utilities to Entergy.  As a result, among other things, Entergy received a certificate of public good (CPG) under section 248 of Title 30 of the Vermont Statutes Annotated.  This is the statute that governs the construction or transfer of major utility facilities – for such facilities, it is the equivalent of Act 250.

Paragraph 12 of the MOU recites that the signatories to the document – including Entergy – agreed that the CPG Entergy acquired would be valid only through March 21, 2012 – the same date on which Vermont Yankee’s then-current operating license from the federal Nuclear Regulatory Commission (NRC) was to expire.  (The NRC recently renewed this license for an additional 20 years.)  Paragraph 12 further specifies that the PSB order approving Entergy’s acquisition of Vermont Yankee “shall provide that operation of [Vermont Yankee] beyond March 21, 2012 only if application for renewal authority only if application for renewal of authority under the CPG to operate [Vermont Yankee] is made and granted.”  The PSB did, indeed, attach this condition to its order granting the CPG.

So it’s a no brainer, right?  Entergy agreed to seek the very approval under Vermont law that it is now claiming Vermont cannot require?  Not quite.

The last sentence of Paragraph 12 provides that Entergy agreed, “expressly and irrevocably,” that the PSB “has jurisdiction under current law to grant or deny approval of the continued operation of [Vermont Yankee] beyond March 21, 2012.”  In this same sentence, Entergy “expressly and irrevocably” agreed “to waive any claim [it] may have that federal law preempts the jurisdiction of the [PSB] to take the actions and impose the conditions agreed upon in this paragraph to renew, amend or extend the [Entergy Vermont Yankee] CPG to allow operation of [Vermont Yankee] after March 21, 2012, or to decline to so renew, amend, or extend.”

My position has been, and remains, that although Entergy agreed to seek a license renewal from the PSB – and not to claim that preemption precludes the PSB from exerting such authority over Vermont Yankee – Entergy did not agree to the Legislature exerting such authority.  Legislation adopted in 2005 and 2006 (Acts 74 and 160, respectively) provided for precisely that.

It is black-letter administrative law that agencies like the Public Service Board have authority only because the power has been delegated to them by the legislative body that oversees them.  So, with this long-settled proposition in mind, the faculty colleague who addressed me from the floor contended that the Legislature has simply un-delegated the authority the PSB had, and to which Entergy agreed to submit, to revisit the operation of Vermont Yankee as of March 21, 2012.  As I understand this argument, it’s a question of principal and agent:  The PSB is the agent of the Legislature and, thus, the authority to which Entergy agreed to submit is ultimately that of the principal.  Ergo, in paragraph 12 of the MOU, Entergy agreed to let the Legislature decide its fate unless the Legislature chose to leave that authority delegated to the PSB.

I must respectfully, but emphatically, disagree with this view.

The first problem, as Entergy has pointed out, is the reference to “current law” in paragraph 12.  The plain meaning of this phrase can only be “the law as it existed when the MOU was signed and implemented in 2002.”  In other words, Entergy did not waive its right to challenge on preemption grounds, nor agree to submit to, any new and more stringent standards the Legislature might impose, whether directly or via the PSB.  Think about it:  What if the Legislature had amended section 248 in 2006 to provide that no nuclear power plant shall be relicensed unless it agreed to provide 300 megawatts of free electricity to Vermonters?  Could anyone plausibly argue that in paragraph 12 of the MOU Entergy waived any right to challenge such a clearly confiscatory condition?

The second problem is that the analogy to agency law does not withstand the withering scrutiny to which it should be subject in the federal courts.  The PSB is not merely the agent of the Legislature, free to execute whatever instructions its principal issues.  Rather, the PSB is subject to constitutional constraints to which the Legislature is not itself subject.  The Legislature can act for any reason or for no reason; it can adopt legislation for the most whimsical or cynical reasons, and it is not obliged to treat interested parties fairly along the way.  Agencies are constrained by notions of due process; their decisions are subject to review by the courts under an “arbitrary and capricious” standard; whatever actions they take in adjudicative proceedings must be supported by substantial evidence.  As a matter of garden variety contract law – assuming, arguendo, that the MOU is, in fact a contract that binds Entergy —  it is simply untenable that by agreeing to submit to a PSB proceeding Entergy was also agreeing to live with the vicissitudes of the legislative process.

Finally, I think the Court will look beyond the somewhat complicated mechanism established by Act 160 and consider its practical effect, which was to order Vermont Yankee closed as of March 21, 2012.  Given that legislatures are free to amend previously adopted statutes, there is no difference between a law specifying that continued operation of VY requires the approval of a future legislature and a law specifying that continued operation is simply prohibited.  Can anyone seriously contend that when it signed the MOU in 2002 Entergy was agreeing simply to surrender any authority to operate after March 21, 2012?  If that was the intent of paragraph 12, it could certainly have been worded much more straightforwardly.

Finally it bears noting that Act 160 expressly provides that the Legislature must consider Vermont Yankee’s future before the PSB does.  If the bill hadn’t been worded that way, and if it had provided that the Legislature would act after the PSB, Entergy would have a pretty compelling case that Act 160 violates the Vermont Constitution.  That’s because the Vermont Constitution, like its federal counterpart, embraces bicameralism and the requirement that legislation be submitted to the governor for his signature or veto.  Requiring legislative approval of any PSB order granting a CPG renewal would be, in effect, a one-house veto of that renewal.

Last week’s proceedings before Judge Murtha in U.S. District Court were noteworthy, among other things, for their lack of any reference to the MOU.  That’s probably a good indication that the case will ultimately not turn on the notion that when it signed the document in 2002 it was foregoing its right to pursue the very lawsuit it is now prosecuting against Governor Shumlin.

Rather, it appears, the case turns on whether Acts 74 and 160 amount to state-law regulation of radiological safety, a realm that is preempted in light of the federal Atomic Energy Act.  To those who are certain that these state laws do not concern radiological safety, but are rather an exertion of police power with economics or the environment or reliability in mind, I propose the following thought experiment:

Consider commercial aviation.  It’s pretty safe as practiced in the U.S., but we have seen in recent years some very serious accidents in foreign countries– plane crashes that caused much death and destruction both in the air and on the ground.  If a commercial airliner were to crash, say, in downtown Burlington, there would certainly be dire economic and environmental consequences.  The Legislature could declare that other forms of transportation are more reliable (a determination that would not, by the way, withstand scrutiny under an “arbitrary and capricious” standard, if made by an administrative agency).  The safety of commercial aviation is the exclusive province of the Federal Aviation Administration.  Does anyone seriously think it would be constitutional for the Legislature to order the Burlington International Airport to shut down by invoking state-law authority over economic impacts, environmental externalities, and reliability?

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4 Responses to June 30, 2011, Don Kreis: The Waiver Theory Won’t Fly

  1. Bud Haas says:

    What would be the purpose of having the PSB (or the Legislature) have a say in the continued operation of VY after the initial license expired, if it were not to have the option of denying the issuance of a CPG? What phony reason would Entergy employ to challenge the PSB if they denied them a new CPG?
    For Entergy to now challenge that possibility is just plain dirty pool.
    As for the commercial airline analogy, I fail to see why the Vermont legislature, even the City of Burlington, who owns the airport, could not shut down the Burlington Airport. Certainly they couldn’t shut down an airline for safety reasons, but they sure could close BTV.
    Vermont can’t control where Entergy runs Nukes, except in Vermont.
    Perhaps New York and California mail follow. Stay tuned.

  2. John Greenberg says:

    I have a number of problems with Professor Kreis’s arguments (which will surprise no one at this point).

    First, in arguing that the MOU was invalidated by Act 160, as Entergy does also when it suits them, Kreis ignores the fact that Entergy argues in this case that the PSB NEVER had authority over them. On page 14 of its injunction brief, Entergy states: “Plaintiffs are likely to succeed on either of two independent bases for finding Vermont’s effort to assert control … preempted … WHETHER EXERCISED BY THE PSB ALONE AS BEFORE THE 2006 ACT , or by the PSB and the Vermont legislature after that Act.” (emphasis added). Either Kreis thinks Entergy is wrong on this point, or there must be some OTHER reason for this posture.

    Second, Kreis completely ignores provision 16.1 of the MOU which requires disagreements to be brought to the PSB for settlement under VERMONT law. No such action has ensued.

    Third, we have this from Kreis: “Entergy did not waive its right to challenge on preemption grounds, nor agree to submit to, any new and more stringent standards the Legislature might impose, whether directly or via the PSB.” He then gives an example of a legislative condition being imposed. Suppose the PSB, rather than the legislature, imposed the same condition he imagines or any other outlandish condition UNRELATED to nuclear safety issues. Such an act could certainly justify Entergy’s demand that the condition was unreasonable, an argument to the PSB under 16.1 that it had been arbitrary (or whatever) and if needed, a suit in Vermont court. But how would it justify a Constitutional claim of preemption in federal court?

    What Kreis appears to be saying here, in interpreting the words “current law,” is that Entergy agreed to waive preemption if (but only if) a CPG is, in fact, guaranteed without conditions. Otherwise, Entergy could simply argue that “current law” has changed (since under “current law” they were being granted a CPG along with the MOU). This argument doesn’t make much sense to me.

    Third, there is neither a legal nor a factual basis for the notion that “the Court will look beyond the somewhat complicated mechanism established by Act 160 and consider its practical effect, which was to order Vermont Yankee closed as of March 21, 2012. ” We learned (at least I did) during this court case that Entergy objected to Act 160 NOT because they thought it would shut them down, but ONLY because it was “redundant.” They had ALREADY agreed to bring the matter before the legislature in Act 74, and then endorsed that agreement in court. Moreover, writing as someone who has been quite active in this matter since 2008 (and sporadically for 1/4 of a century), I spoke to NO ONE in 2008 who thought that continued operations would be denied. Had Entergy withheld the Enexus proposal till after the vote and proposed what would now look like an egregiously overpriced contract back in 2008, the legislature would have voted lopsidedly FOR continued operations. I ranked my chances of success at roughly 5% when I re-entered this battle. As Senator Brock noted during the 2010 debate, Entergy destroyed all of the support it had in the legislature, starting with its stubborn refusal to offer reasonable contracts to Vermont’s utilities, and only after repeatedly and almost systematically destroying each of the grounds for support did it manage to lose legislative approval by an overwhelming majority. While I cannot thank Entergy enough for its help in the matter, I cannot allow Kreis to simply re-write history here to suit his case.

    “Can anyone seriously contend that when it signed the MOU in 2002 Entergy was agreeing simply to surrender any authority to operate after March 21, 2012?” Can Kreis deny that when it signed it, Entergy was explicitly acknowledging that continued operations were dependent on State action? What part of the PSB “has jurisdiction under current law to grant or deny approval of the continued operation of [Vermont Yankee] beyond March 21, 2012” is Mr. Kreis claiming is unclear in THAT regard?

    It is also simply false to say: “Last week’s proceedings before Judge Murtha in U.S. District Court were noteworthy, among other things, for their lack of any reference to the MOU.” In fact, it came up repeatedly, raised by Judge Murtha, at least twice, and by Ms. Asey at least once. However, I completely agree with Professor Kreis that: “… the case will ultimately not turn on the notion that when it signed the document in 2002 it was foregoing its right to pursue the very lawsuit it is now prosecuting….” Judge Murtha’s interest, and the role of the MOU in this case, if any, appears to be confined to the question of whether Entergy is bringing this suit with “clean hands.”

    Like Mr. Haas above, I find Kreis’s aviation analogy singularly unconvincing, though I will be the first to admit my complete and utter ignorance of airport law. Like Mr. Haas, it seems to me that ANY locality could challenge an airport on a wide variety of grounds as long as they were not matters within the sole purview of federal authorities. Is Kreis saying that if Burlington Airport were draining the city economically, the city would have no recourse? Or that any level of noise would be acceptable?

    It’s fine to say, as a general matter, that States are preempted when it comes to matters of radiological safety. I certainly don’t challenge that notion, nor does the State of Vermont. Entergy even acknowledges (at excessive length) that the legislature received a LOT of advice on federal preemption law and tacitly acknowledges that they did, as a matter of fact, avoid writing the laws in such a way as to trigger those very preemption issues.

    It seems to me that there are 3 possible arguments here, and that none of them works.

    1) One could argue that States have no role in decisions about nuclear plants. To do so, one must read PG&E as obtusely as Entergy attempted to in its initial briefs, or argue that it was wrongly decided. It is worthy of note, however, that the federal agency in question, to whom the courts have repeatedly said they should give great deference, thinks otherwise. As a general matter, and specifically as it concerns Vermont Yankee, the NRC has acknowledged that the State DOES have a role, as does the core holding of “dual regulation” in PG&E.

    2) One can argue, as Entergy now does, that Vermont’s laws don’t mean what they say, but rather precisely what they do NOT say, thus ignoring the entire text of the laws in question. This is Entergy’s core argument, as I tried to show here: http://vtyankeelawsuit.vermontlaw.edu/june-24-2011-belly-buttons-and-blarney-in-brattleboro/ .

    In this regard, it is worth noting that there were, during the hearing, two sets or words to which a great deal of attention was turned: “reliability” and “public health.” As to the former, it does not make its appearance until Act 189, playing no substantive role in Acts 74 or 160 (It’s mentioned once as the title of another bill in Act 160). As to the latter, they appear in a list of items to be studied. The studies have been completed, and are being used by Entergy to bolster its claims about rates, reliability, etc. , so clearly Entergy is NOT unhappy with them. As far as I can see, the words have no further effect, in any case. I think it’s fair to say that other than these terms, there was no specific language in these laws which Entergy challenges. If Mr. Kreis wants to point out some OTHER reason why they don’t mean what they say, he should do so.

    or

    3) The laws mean what they say, but there is language, not brought up by anyone so far, which puts them within federally preempted fields. If so, it’s about time that the language be introduced into the argument.

    For my part, I find, based on what I’ve seen, that PG&E follows the dual regulatory structure of both the Constitution and of the Atomic Energy Act, that there is simply no reason to ASSUME that clear, unambiguous laws which purport to be about matters of state jurisdiction ARE, in fact, about matters of State jurisdiction, and that the notion that ANY legal theory which un-tethers us entirely from the text as a fundamental anchor is a dangerous incursion into the mad world of Alice in Wonderland’s Humpty Dumpty, where meanings are simply free-floating.

    I’m still waiting for Mr. Kreis to show us, as a matter of specificity rather than generality, how and where Vermont’s laws transgress the barriers of radiological safety.

  3. Don Kreis says:

    I would just like to take a moment to remind everyone that I have no connection to Entergy or its lawyers, and have had no involvement whatsoever in the development of Entergy’s case. It is not my role to to defend Entergy in any way. I agree with John Greenberg that it borders on the preposterous for Entergy to argue that even the PSB is preempted from reviewing the continued operation of Vermont Yankee notwithstanding Entergy’e explicit agreement to the contrary in the MOU.
    It might also be useful to remember that this discussion is a bit like an argument over whether the Red Sox or the Phillies will win the 2011 World Series. Ultimately, we’re just spectators; the discussion we are having here is intended merely to enlighten and not necessarily to persuade. It is not as if the case will be decided in the court of public opinion or via the ballot box. As a lawyer, I am trained to try to predict how the Court might ultimately resolve the case. For the reasons I have already explained, I am concerned that Entergy may well prevail. But I obviously don’t know that’s how it will turn out and I have no opportunity to influence the outcome.

    • John Greenberg says:

      First, Don, I want to assure you that I’ve understood from the beginning that the views you express are your own and do not in any way represent Entergy’s. Indeed, I believe you to have said you actual favor shutting the plant down.

      Our purposes here do appear to be somewhat different. You’re interested in predicting the outcome; my effort has to been to diligently examine the MERITS of the case. We all know that it isn’t always the best case which prevails.

      Still, I am doing my level best to see that, as observers, we truly understand the quality of the facts and the logic behind the arguments both sides are making. I think a fair reading of my comments in response to the arguments presented on this website will show that I have appealed, not to “public opinion or … the ballot box,” but rather to objective recitation of facts, to legal precedent, and especially to logical analysis. In particular, I have been at some paints to show what lies BEHIND the apparent logic, and then to show where that reasoning leads. Despite a few cases which seem to step entirely outside of both, I am idealistic enough to believe that these things still matter in the federal courts.

      Additionally, in the interest of full disclosure, I make no bones about being a partisan in this matter. By understanding the merits of the arguments on the other side, I am better able to refute them. Wherever I have found the State’s case wanting — which fortunately is not often — I have tried to supply useful suggestions to “my team.”