June 2, 2011, Pat Parenteau: Entergy Faces Tough Odds

Background

On March 21, 2011, the Nuclear Regulatory Commission (NRC) issued a renewed federal operating license for 20 years for Vermont Yankee, whose license was set to expire March 21, 2012. However, under state law, Entergy must also have a certificate of public good issued by the Vermont Public Service Board to continue operating. Vermont Yankee’s current certificate is set to expire on March 21, 2012.

In 2002, Entergy signed a memorandum of understanding (2002 MOU) in which it agreed to waive any right it might have to contest the Public Service Board’s authority based on federal preemption and to abide by whatever decision the board made with respect to reissuance of the certificate of public good. In 2006, the Vermont Legislature passed a pair of laws dealing with Vermont Yankee. Act 74 authorized storage of radioactive waste in dry casks. Act 160 commissioned certain studies and provided that the Public Service Board may not reissue the certificate without “the explicit approval of the General Assembly.”  In 2010, the Vermont Senate voted against renewal of the certificate. The effect of these various legislative acts is at the heart of Entergy’s case.

Lawsuit

On April 18, 2011, Entergy filed suit in the U.S. District Court for the District of Vermont challenging the constitutionality of Acts 74 and 160. The case has been assigned to Senior Judge Garvin Murtha in Brattleboro. Entergy has filed a motion for a preliminary injunction. Judge Murtha has scheduled a hearing on the motion for June 23-24.

Entergy must satisfy four standards to obtain a preliminary injunction: (1) likelihood of success on the merits; (2) threat of imminent irreparable harm; (3) balance of hardships tips decidedly in Entergy’s favor; and (4) injunction would be in the public interest. Winter v NRDC, 129 S. Ct. 365, 378 (2008)

Likelihood of Success

Entergy argues that Vermont does not have authority to shut down Vermont Yankee because the Atomic Energy Act vests the NRC with exclusive authority over relicensing of operating plants.[1] Vermont responds that Entergy misreads both the law and the facts. Vermont appears to have the better of the argument.

In the landmark case of Pacific Gas & Electric Co. v. State Energy Resource Comm., 461 U.S.  190 (1983) (PGE), the U.S. Supreme Court held that Congress established a dual regulatory scheme over the construction and operation of nuclear plants. Congress vested exclusive control over radiological health and safety issues with the NRC, but it explicitly preserved the states’ traditional authority over land use, need for power, ratemaking, economics and non-radiological matters.[2] Entergy argues that the Vermont Legislature was motivated by safety concerns when it passed Acts 74 and 160 in 2006. However, Entergy testified in favor of Act 74, and has never, until now, raised any preemption concerns.

Moreover, neither Act 74 nor Act 160 even mention radiological health and safety; nor can either one fairly be read as aimed at the regulation of radiation hazards. Rather, Act 74 was passed at Entergy’s request to allow the storage of radioactive waste in above-ground dry casks because the spent rod storage pools were full. Entergy makes much of the fact that Act 160 directed the Public Service Board not to issue a new certificate for Vermont Yankee without legislative approval, claiming that this had the effect of “repudiating” the 2002 MOU.  However, the Supreme Court rejected a similar argument in the PGE case and ruled that it was appropriate for the legislature to override the state utility commission by imposing a moratorium on construction of nuclear plants pending a final solution to the waste disposal problem. The PGE Court recognized that: “There are both safety and economic aspects to the nuclear waste issue.”

Further, NRC has repeatedly stressed that its decision to relicense the plant is not the final decision. NRC’s rules state:  “After the NRC makes its decision based on the safety and environmental considerations, the final decision on whether or not to continue operating the nuclear plant will be made by the utility, State, and Federal (non-NRC) decisionmakers.”  10 C.F.R. § 51.71(f) n.4 (emphasis added). NRC has also stated that a license renewal does not guarantee that a plant is entitled to keep operating:  “[W]hether the facility will continue to operate is based on factors such as the need for power or other matters within the state’s jurisdiction…” NRC has also issued guidance on relicensing stating: “It is possible that a license renewal application could satisfy the NRC’s safety and environmental reviews and still not operate. This is because the NRC does not have a role in the energy-planning decisions of state regulators and licensee officials. NRC, “Final FAQs for License Renewal” (March 2006) (emphasis added)

Entergy points to statements made by individual legislators and by Gov. Shumlin as evidence that Vermont is using land use and economics as a “pretext” for trying to regulate safety issues. However, the Supreme Court and lower courts have uniformly rejected efforts to attribute motives to the legislature based on such statements. Tenney v. Brandhove, 341 U.S. 367, 377 (1951) Rather, the question is whether the statute on its face is unconstitutional. What may have been on the minds of the legislators who voted for it is irrelevant.

Finally, Vermont makes a convincing case that Entergy has repeatedly waived its right to argue preemption in various proceedings following the 2002 MOU and has several times acknowledged, on the record, the state’s authority to deny a certificate of public good based on land use, economics and other environmental aspects of Vermont Yankee. Invoking the equitable doctrine of estoppel, Vermont argues that, having benefited from its prior acquiescence in state authority, Entergy should not be allowed change its tune at this late date.

Irreparable Harm

The purpose of a preliminary injunction is to preserve the “status quo” pending a hearing on the merits. Judge Murtha has scheduled a trial on the merits for October. So, the narrow question presented at this juncture is whether Entergy will suffer “irreparable harm” between now and October.  Importantly, Entergy is entitled to continue operation of the plant until March 21, 2012. Therefore, an injunction is not necessary to preserve the status quo because nothing is preventing Vermont Yankee from continuing to operate until the court has rendered a decision on the merits, which is expected well before the expiration of the current certificate of public good.

Entergy bases its irreparable harm on three primary grounds. First, Entergy argues that it must order new fuel rods by mid-July and it doesn’t want to make that investment without knowing whether it will be able to keep operating past the closure date. Vermont responds by pointing out that Entergy has known about this for some time and has sat on its hands when it could have brought suit years ago to challenge the state laws that were passed in 2006. Vermont appears to have the better of the argument based on the legal precedents cited by the Attorney General. Vermont also argues that this is simply a business risk that Entergy assumed when it accepted the certificate of public good in 2002.

Second, Entergy argues that the uncertainty is causing it to lose senior staff. Vermont responds with internal records showing that Entergy’s staffing levels are actually above its own budget figures. Furthermore, the state argues that the attrition rate is not so unusual that it threatens the economic health of the company and therefore does not constitute “irreparable” harm under current Supreme Court standards as set forth in the Winter decision. Again, the state seems to be on solid ground with these arguments.

Finally, Entergy argues that the uncertainty over the plant’s future is causing it to suffer economic losses even now due to “higher risk from volatile short-term electricity market prices” as a result of its inability to enter into long-term agreements. Vermont responds that Entergy has failed to provide evidence of lost revenues and in any case monetary loss alone is not sufficient to establish irreparable harm. Precedent in the Second Circuit supports Vermont’s position. City of N.Y. v. Mickalis Pawn Shop, LLC., 2011 WL 1663427 (2d Cir. May 4, 2011)

Balance of Hardships

Vermont makes a strong argument that Entergy is trying to change the status quo, not simply preserve it. The state has taken no action to shut Vermont Yankee down and the plant is authorized to operate until March 21, 2012. Judge Murtha has scheduled a trial on the merits for October and indicated he will issue a final decision well before that deadline. Thus, Entergy is actually seeking a judgment on the merits now that entitles it to operate beyond March 21, 2012. That goes well beyond the purpose of a preliminary injunction. In the absence of any imminent harm, Entergy is not entitled to the “extraordinary remedy” of an injunction.  Winter v NRDC.

Public Interest

Entergy argues that a shutdown will result in loss of jobs at the plant. Vermont counters that replacements for Vermont Yankee could actually result in a net increase in jobs. Entergy argues that shutdown will result in lost tax revenues. Vermont has presented evidence that the negative impacts on revenue are temporary, and over the long run tax revenues turn positive. Entergy argues that shutdown will result in higher electricity prices. Vermont counters that better prices are already available, including the recent purchase by Green Mountain Power of electricity from Seabrook Nuclear Plant at a price below what Entergy had offered. Vermont also points out that the Axelrod study relied upon by Entergy assumed that Vermont Yankee would be replaced by a very expensive gas-fired combined cycle gas turbine plant. However, according to an analysis of the Independent System Operator of the New England grid, which is responsible for setting market power prices, complete replacement of Vermont Yankee by a combined cycle gas turbine plant is not a feasible option. In fact, the New England grid operator has identified a range of generation, transmission and demand-side alternatives to the continued operation of Vermont Yankee.

Conclusion

As Yogi Berra is reputed to have said: “Prediction is hard, especially when it comes to the future.” Predicting the outcome of litigation is especially tricky. It is, of course, up to Judge Murtha to decide what the law is and apply it to the evidence as he sees it. Entergy does have some arguments that might convince him to issue a preliminary injunction. But the odds are that he will deny the injunction, proceed to trial in October and issue a final ruling before the end of the year. No matter who wins this round, an appeal to the Second Circuit is inevitable. Ultimately, the U.S. Supreme Court may be called upon to decide the fate of Vermont Yankee.