Court: Vermont committed 'blackmail' against Entergy

Thursday June 21, 2012

BRATTLEBORO -- Even though "It would not be inaccurate to characterize the fee as a form of blackmail for the state approval of the construction" of a pad to store spent nuclear fuel at Vermont Yankee, Entergy is not entitled to reimbursement from the federal government for its contributions to Vermont's Clean Energy Development fund.

That was a conclusion reached by the U.S. Court of Appeals for the Federal Circuit in a decision issued on June 13.

Entergy, which owns and operates Yankee, like many other nuclear power plant operators, is attempting to recoup costs for spent fuel storage after the U.S. Department of Energy failed to follow through on an agreement to ship the waste to a federal repository.

The Nuclear Waste Policy Act of 1982 authorized the DOE to enter into contracts with nuclear facilities for the disposal of nuclear waste, with pickup beginning no later than Jan. 31, 1998. DOE had chosen Yucca Mountain in Nevada as the repository, but after years of development and billions of dollars spent on the location, the plan was scrapped due to local opposition and concerns about the geological conditions there.

Entergy Nuclear Vermont Yankee sued the federal government in 2003 for its breach of contract and in the decision, the U.S. Claims Court awarded Entergy $34,895,467, the largest portion of which was for the construction of the dry storage facility.

The Claims Court, which was established to hear contract disputes against the government, also awarded Entergy costs incurred for a handful of other expenses, including a portion of the payments into Vermont's CEDF.

The government appealed the decision, and the U.S. Court of Appeals for the Federal Circuit ruled on June 13 that while the DOE was responsible for the costs of the storage of the waste, certain "unforeseeable" costs did not qualify for reimbursement.

That included $5,625,000 for contributions made to the CEDF; $184,552 for a flood analysis; and $412,854 for a visual barrier, which were not foreseeable, wrote the court.

However, wrote the court, "(W)e hold that legal and lobbying fees incurred by ENVY to secure approval from the State of Vermont for a dry storage facility were foreseeable."

Those fees totaled $3,385,783.

Vermont Law School Deputy Vice Dean Mark Latham, who specializes in business and environmental law, has been following the travails of the DOE's attempts to establish a federal repository since the 1980s. Prior to joining VLS, Latham worked for a law firm in Chicago for 15 years, representing businesses and municipalities in environmental matters.

He said that while Entergy's attempt to recoup its contribution to the Clean Energy Development Fund might seem underhanded to some people, "In litigation to seek damages, it's not unusual to ask for the kitchen sink and see what you get."

Despite the fact that the court told Entergy the DOE didn't have to pay it the nearly $6 million it had put in the CEDF, it did award "the lion share of what it sought," said Latham, nearly $35 million.

In 2005, Entergy entered into an agreement with the state to obtain permission to store spent fuel in dry casks outside of the power plant. The agreement required Entergy to pay, over the course of several years, a total of $15,625,000 into the CEDF. It also required Entergy to conduct a new flood analysis and erect a visual barrier around the storage pad.

Entergy challenged the payments into the CEDF on pre-emption grounds in a lawsuit filed in 2011 -- Entergy v. Shumlin et al, in Federal District Court for the District of Vermont -- but abandoned that challenge after the Claims Court awarded those fees as damages.

In Entergy v. Shumlin, Judge J. Garvan Murtha ruled the state Legislature had overstepped its bounds and had considered safety, which is under the sole purview of the federal government, when it prohibited the Vermont Public Service Board from issuing a certificate of public good for Yankee's continued operation. The state appealed the decision to the U.S. Court of Appeals for the Second Circuit, and the parties are still in the process of filing their contentions.

In the Claims Court, Entergy argued that "[d]isputing the state's authority to require the payments (into the CEDF) was not viewed as being in the best interests of the company" because "the company needed to continue to operate and do additional business in the state."

"Just because it may have been in ENVY's best interest to maintain good relations with the state and to agree to pay a fee that was likely pre-empted by federal law does not render the fee recoverable," wrote the court. "ENVY's acquiescence to the state of Vermont went so far as to agree not to challenge the requirements of the (agreement) on pre-emption grounds. But ENVY cannot agree to improper state requirements, agree not to challenge those improper requirements on pre-emption grounds, and then pass the expense of complying with those requirements to the federal government."

Sandy Levine, senior counsel for the Conservation Law Fund, said even if the payments into the CEDF were pre-empted, they are not recoverable because Entergy agreed to pay them and agreed not to challenge paying them.

The court also concluded that because the flood analysis was motivated by safety concerns and "was likely pre-empted," it was not foreseeable.

"ENVY cannot agree to improper state requirements, agree not to challenge those improper requirements on pre-emption grounds, and then pass the expense of complying with those requirements to the federal government," she said. "The Court correctly refused to accept that taxpayers should be on the hook to pick up the tab for Entergy's broken promises and failures."

Deputy Attorney General Scot Kline, who is representing Vermont in the appeal of Entergy v. Shumlin, said he does not believe the spent nuclear fuel decision will have any real effect on the appeal.

"The practical holding on this point was simply that Entergy lost in its attempt to get the federal government to reimburse payments Entergy agreed to make into the Clean Energy Development Fund," said Kline.

Though the June 13 decision touches on the pre-emption issues raised during the recent trial in Brattleboro, Latham also didn't expect it to be a factor in the state's appeal of the decision.

However, he said, Entergy lawyers may hold up the court's use of the term "blackmail" to highlight what it considers the Vermont Legislature's history of engaging in acts that are inconsistent with the roles assigned solely to states and solely to the federal government.

"'Blackmail' wouldn't be determinative on appeal, but it could be used as another example of the state overstepping its bounds," he said.

Entergy could take the spent nuclear fuel decision to the U.S. Supreme Court, but Latham doubted it would accept it for consideration because there are no constitutional issues to interpret.

A spokesman for Entergy said it was still reviewing the decision and had no comment at this time.

The appeals court also affirmed the Claims Court's denial of $7,472,866 in damages for the cost of capital to fund ENVY's mitigation activities, but overturned the Claims Court's award of $276,980 for the costs of disposing contaminated soil and asphalt during the construction of the storage pad, and $156,000 for the costs of performing a characterization on waste moved into on-site dry storage.

Bob Audette can be reached at, or at 802-254-2311, ext. 160.


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