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

Monday, 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?