Sept. 28, 2011, Don Kreis: Searching for Your Friends at the Vermont Yankee Cocktail Party

Don KreisA long time ago, during a job interview when I was a law student, the chief justice of the Maine Supreme Judicial Court asked me where I saw myself in 10 years.  “Chairman of the Maine Public Utilities Commission,” I confidently asserted.

Times have changed, and not just because I have long since left Maine for Vermont.  What job would I least like to have right now?  Chairman of Vermont’s counterpart agency, the Public Service Board (PSB).

The ugly thud you just heard? Perhaps it was the sound of the Vermont Yankee controversy, currently pending at the U.S. District Court in Brattleboro, landing on the desk of PSB Chairman James Volz.

Entergy and the state of Vermont have now filed their post-trial briefs in an effort to explain what insights U.S. District Judge J. Garvan Murtha should glean from the three days of testimony and argument in his courtroom earlier this month.  The short answer:  Not much.

Key factoid from the state’s brief:  There is lots of chatter in the State House cafeteria; legislators and lobbyists run into each other there and hold casual conversations about pending legislation and other issues of the day.

Key factoid from Entergy’s brief:  Sen. Ann Cummings, who chairs the Senate Finance Committee, apparently once referred to “sterile sheep” and “three-headed turtles” in connection with legislation about state regulation of Vermont Yankee that was pending. Just another bit of proof, Vermont Yankee would have Judge Murtha determine, that when the Legislature was legislating, it was regulating radiological safety and thus intruding on territory that Congress has reserved for the federal government.

Evidence of that sort – indeed, virtually everything that was introduced, interminably cross-examined, and belabored in arguments both written and oral throughout the case so far – falls under the rubric of what is known in the trade as “legislative history.”

Here’s the problem: If the question is “what does a statute mean?,” the authoritative statement is the statutory text, not the legislative history or any other extrinsic material. Legislative history, in particular, is vulnerable to two serious criticisms. First, legislative history is itself often murky, ambiguous, and contradictory.  Judicial investigation of legislative history has a tendency to become, to borrow the late U.S. Circuit Judge Harold Leventhal’s memorable phrase, an exercise in “looking over a crowd and picking out your friends.”

Second, judicial reliance on legislative materials like committee reports may give unrepresentative committee members—or, worse yet, unelected staffers and lobbyists—both the power and the incentive to attempt strategic manipulations of legislative history to secure results they were unable to achieve through the statutory text.

Earth to litigants, and to everyone else who is obsessed with all that evidence about who said what and when at the State House: I did not make up the preceding two paragraphs.  They are lifted nearly verbatim from Exxon Mobil Corp. v. Allapattah Services, Inc., 545 U.S. 546, 568 (2005), an opinion of the U.S. Supreme Court written by Justice Anthony Kennedy.  He, by the way, is not just any old Supreme Court Justice. He is widely regarded as the swing vote on an otherwise equally divided Court and, thus, in some legal scholars’ estimation the most powerful person in America. Justice Kennedy’s views deserve to be taken seriously when pondering a case that many think will land with a thud at the U.S. Supreme Court.

Meanwhile, back to the thud resonating from the desk of Chairman Volz in Montpelier.

It turns out that when the parties are not arguing in their post-trial briefs about cafeteria chatter and mutant turtles, they are agreeing about something: That Judge Murtha could decide that the Public Service Board, as distinct from the Legislature, has the authority under Vermont law to rule on Vermont Yankee’s future and is not prevented by the pre-emption doctrine from doing so.

How can this be? Well, recall that when the PSB approved the purchase of Vermont Yankee by Entergy from a consortium of regulated utilities, Entergy explicitly agreed that its authority under state law to operate the plant would expire on March 21, 2012 – the same date on which the then-applicable federal license would run out. This agreement is memorialized in the much-debated memorandum of understanding (MOU) that Entergy signed with the Public Service Department and ratified by the PSB.

As to state-law operating authority as of this coming March 21, Entergy agreed to seek approval from the PSB (and not challenge the PSB’s authority in litigation). At the conclusion of the trial, Judge Murtha asked the parties to comment on a legal concept known as severability – see Professor Hanna’s Sept. 20 disquisition on this principle on our blog – a query that comes down to whether the law permits him to hold Entergy to its MOU bargain even if the Legislature is pre-empted from deciding to shut the nuclear plant.

Earlier in the case, Entergy argued that the whole process under state law has become so tainted by politics and pre-emption that even the PSB should not be permitted to consider Vermont Yankee’s fate.  The company now appears to have abandoned that argument and is willing to take its case before the PSB.

This, of course, raises the question of what happens if Judge Murtha concludes that (a) the PSB can and should exercise its authority to review Vermont Yankee’s continued operation, but (b) the Legislature is pre-empted from doing so.  Indeed, this seems to be the outcome the judge is most likely to embrace.  Does Vermont Yankee continue to operate while the PSB case unfolds? Can the state appeal Judge Murtha’s adverse ruling about the Legislature’s authority?

It is anybody’s guess.  But it seems likely that Judge Murtha, or perhaps the U.S. Court of Appeals for the Second Circuit in New York, would enter an injunction that would preserve the status quo ante and keep Vermont Yankee in business. And it also seems quite possible that the Second Circuit, and perhaps the U.S. Supreme Court, would determine that Judge Murtha’s ruling about the Vermont Legislature is not ripe for consideration while the PSB proceeding is pending.  The PSB, after all, could ultimately rule that Vermont Yankee must shut down – and that would be that.

Or would it? Out of Entergy’s post-trial brief can be teased the somewhat subtly stated proposition that the PSB wouldn’t have much of a legal basis on which to determine that the plant should be shuttered. Entergy argues, quite persuasively, that under the MOU as well as applicable state and federal law, the PSB would be precluded from basing its decision on radiological safety. And Entergy further argues that other key questions are out of bounds as well.

Prominent among those questions is the economic effect of Vermont Yankee. And here the little discussed second and third counts of Entergy’s original complaint in federal court come to the fore. Entergy, unlike Vermont Yankee’s previous owners, is not a regulated utility but a merchant generator. In other words, its business is to sell power via wholesale contracts to utilities and other electricity suppliers. It has long been established that these transactions are interstate commerce for purposes of the U.S. Constitution’s Commerce Clause, which precludes states from regulating or burdening interstate commerce. Counts II and III claim that Vermont can not regulate Vermont Yankee’s power transactions because the Federal Power Act pre-empts such state authority and because such regulation would violate the Commerce Clause.

As Entergy persuasively points out, a merchant generator, even a big one based in Vermont, has no direct impact on Vermont utility rates, and thus no significant effect on the Vermont economy (or the diversity of its electricity sources) for the simple reason that no Vermont utility is obliged to purchase power from Vermont Yankee. So, while the PSB could arguably tell a utility to shutter a plant because it is too expensive for its customers or represents too big a reliance on one fuel source, these principles are simply inapplicable here for purposes of any PSB deliberations on the future of the plant.

Not so fast. Recall that when Vermont Yankee was utility property, utility customers effectively paid, over time, the cost of building Vermont Yankee. This is because, under established rate-making principles, the carrying costs of the utilities’ investment in the plant were included in rates, as were depreciation charges that gradually paid back the cost of the plant itself. So, when the utilities decided to sell Vermont Yankee, they were, in effect, giving up an asset that was, in a broad sense, co-owned with their customers. What the customers got in return was real cash money. Money that was reflected, in part, by whatever portion of the sales price that was ultimately credited to them through rates, and also reflected, in part, by Entergy’s agreement to sell relatively cheap power from Vermont Yankee to the utilities as well as to share with Vermont utilities some of the profits from lucrative sales to buyers in other states. Those agreements to share the merchant generation benefits of Vermont Yankee run out on the magic date of March 21, 2012.

Therefore, a fair reading of the MOU is that it was intended by its signatories to give the PSB the opportunity, as to Vermont Yankee operations after the magic date, to consider not the radiological safety of the plant but the extent to which Vermont utility customers would continue to benefit from what is, after all, power that is cheaper than the otherwise prevailing wholesale rate. (The reason is not that nuclear power is inherently cheap – it isn’t – but that a plant that’s been depreciating for 40 years is relatively inexpensive to operate. Have you ever decided to drive a really old car for as long as possible? Then you grasp this principle.)

This is why the negotiations involving Entergy prior to the litigation focused not on safety but on the possibility of new power deals with Vermont utilities. It is also why Counts II and III are in Entergy’s complaint now;  the company does not want to be forced to sell cheap power in Vermont. This may well be the festering underbelly of Entergy’s position in the case. Via the MOU, Entergy may or may not have agreed to let the PSB rule on radiological safety. But it seems much clearer that Entergy agreed not to sue the state, on constitutional grounds or otherwise, if the PSB tells Vermont Yankee that its continued operation is only consistent with the general good of the state (the statutory standard) if Vermont electric customers continue to reap the benefits of inexpensive Vermont Yankee power.

Still, what sane person would want to be PSB Chairman Volz right now – or one of his two colleagues, commissioners David Coen and John Burke? Each is a capable, thoughtful and independent regulator. But, if forced to conduct a Vermont Yankee proceeding, they will do so in the crucible of hostile public opinion about the plant and its owners, to say nothing of the already established judgment of the Vermont Legislature that Vermont Yankee should close.

They say that bad cases make bad law. This is a bad case, whether heard in a federal courtroom or in the hearing room of the Public Service Board.

 

 

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