Appeals court shoots down Entergy tax challenge

BRATTLEBORO -- It is a tax and if Entergy doesn't like it, it needs to pursue a challenge in state courts, not the federal courts. That is the gist of a decision issued Dec. 10 by the U.S. Court of Appeals for the Second Circuit.

In May 2012, the Vermont Legislature approved a $.0025 per kilowatt hour generating tax on electricity produced by any power plants having a generating capacity of 200,000 kilowatts or more. Because Entergy's Vermont Yankee nuclear power plant in Vernon is the only generator of that size in the state, it was the only entity affected by the legislation.

In September 2012, Entergy brought suit in U.S. District Court for the District of Vermont, claiming the tax was unconstitutional. Judge Christina Reiss dismissed the suit, opining that the tax satisfied the requirements of the Tax Injunction Act, which prohibits federal courts from interfering with state taxation schemes as long as a state has an adequate forum to litigate the validity of the tax.

The appeals court agreed with Reiss' decision.

"We conclude that it is (a tax), and that Vermont's procedures offer an adequate opportunity to challenge the constitionality of the tax in state court," wrote the appeals court. According to precedent, noted Circuit Judge Gerard E. Lynch, who penned the decision, because revenues raised by the generating tax are deposited into Vermont's general fund, it "easily qualifies as a tax for the purpose of the (Tax Injuntion Act)."

Larry Robbins, of Robbins Russell in Washington, D.C., who argued on behalf of the state, said Lynch's opining was "quite clear and quite accessible."

"The state is grateful that the court of appeals agreed with the district court that the case belongs in the Vermont state courts where Entergy can get a plain, speedy and efficient remedy if it chooses to avail itself of that option," said Robbins.

Robbins, who is a part-time resident of Vermont, said the arguments he presented to the appeals court were designed by the office of Bill Sorrell, the Vermont Attorney General.

"Even though they relied on me, this is really a victory for the state's lawyers," he said.

Gov. Peter Shumlin, who was a named defendant in the case, said that he was pleased by the decision.

"The court recognized what we have known: that the generation tax is just that, a tax and not a punitive fine as Entergy claimed," he stated in a press release. Obviously, much has changed since the generation tax was enacted. I remain optimistic that the state and Entergy can work together to avoid legal battles going forward, and work to ensure that Vermont Yankee is decommissioned responsibly and without delay."

Entergy argued that the generating tax was a "punitive fine or regulatory fee" to substitute for payments formerly received as a result of memoranda of understanding with the state that allowed for a 20-percent power uprate in 2003 and the 2005 approval of on-site storage of spent nuclear fuel.

But in March 2012, Entergy ceased making payments uner the existing MOUs "In the context of a broader dispute regarding Vermont's refusal to extend regulatory approval for (Yankee's) continuing operation ..." noted Lynch.

Even if the termination of the MOUs was the impetus for the generating tax, wrote Lynch, it has no bearing on the appeals court's analysis, which must focus on the allocation of the proceeds "and not the allocation of prior, repealed or terminated revenue-raising devices."

"Entergy's arguments that the Generating Tax ought to be treated as a punitive fine or regulatory fee are unpersuasive," he wrote.

According to Lynch, Entergy attempted "to inject ambiguity" by arguing the Legislature appropriated "certain funds to various particular purposes that had previously been the beneficiaries of payments under the MOUs." But because the appropriations were made out of the general fund, and were not designated to come directly from the generating tax, that argument failed to sway the court.

Entergy also argued that it was singled out for the tax, "But Entergy's treatment of this factor is too simplistic," wrote Lynch. "A tax on casino revenue, for example, where proceeds go to general revenues, is no less a tax because the state has licensed only one casino."

Lynch also wrote that Entergy's argument that the tax was enacted because of "local hostility toward the plant" was "unavailing," because it has no bearing on whether the tax falls within the parameters of the Tax Injunction Act.

The federal courts do have a role in determining the constitutionality of a tax, but only in cases where a state doesn't have an adequate remedy to challenge it, wrote Lynch.

"The Vermont statutory framework ... articulates precisely this type of administrative and judicial review that has been deemed adquate under the TIA," he wrote. "We are confident that the Vemront courts have jurisdiction to hear the full array of Entergy's grievances against the tax ... provided that administrative remedies .. are exhausted first ..."

If the plant runs at full capacity, the tax would raise about $12.5 million a year.

Whether or not Entergy has paid any portion of the tax is considered confidential, according to the Vermont Department of Taxes. It would only become public knowledge if Entergy files a complaint with the Vermont Supreme Court.

"We are reviewing the court's decision and will determine next steps," said Rob Williams, spokesman for Vermont Yankee.

In August, Entergy announced it would be closing Yankee due to financial reasons in late 2014.

Bob Audette can be reached at, or at 802-254-2311, ext. 160. Follow Bob on Twitter @audette.reformer.


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