Entergy files suit over Vermont Yankee tax treatment

Two Entergy (NYSE: ETR) subsidiaries have filed suit in federal district court seeking to overturn tax policy affecting the Vermont Yankee nuclear plant which was passed by the Vermont Legislature during the 2012 session and signed into law by Gov. Peter Shumlin.

The company announced the litigation, the latest legal tussle with the state over the 600-MW nuclear plant, on Sept. 11. The suit was filed by Entergy Vermont Yankee LLC and Entergy Nuclear Operations in the U.S. District Court for the District of Vermont.

Entergy maintains that the legislation imposes a new levy on Vermont Yankee, based upon its generation of electricity, which increases its obligations to the state from approximately $5m annually to an estimated $12.8m per year.

Entergy argues that the agreement that required the plant to pay the annual levy has expired and now the state has merely dressed up the prior levy as a tax, which would apply only to Vermont Yankee.

The lawsuit contends that the legislation is expressly preempted by federal law and is unconstitutional under several provisions of the U.S. Constitution. While Vermont Yankee is contesting the new levy, it is proposing to pay approximately $5m on an annual basis, which is roughly what would have been due previously, until the matter is decided, the company said.

Entergy says MOU levy deal has expired

In 2003, Vermont Yankee entered into a revenue sharing agreement with the state as part of the Vermont Public Service Board’s issuance of a “certificate of public good” for a power uprate at the nuclear plant.

Terms of the deal were spelled out in a memorandum of understanding (MOU) that expired in March 2012. This agreement resulted in Vermont Yankee making annual payments ranging from several hundred thousand to several million dollars between 2003 and 2012, Entergy said.

In 2005, Vermont Yankee entered into a second MOU with the state related to the Public Service Board’s approval for dry-cask storage of used nuclear fuel at the station site. This MOU stipulated that Vermont Yankee would make annual payments of roughly $2.6m through March 2012.

Earlier this year, the Vermont legislature decided to amend the law to impose the new levy in order to replace the annual payments Vermont Yankee would no longer be making after the expiration of the MOUs. “Vermont Yankee fulfilled its obligations under the MOUs,” said Entergy Wholesale Commodities Vice President of External Affairs Michael Twomey, “The state should not be permitted to transform negotiated – and expired – agreements into a new, illegal charge.”

In its complaint, Entergy said some members of the Vermont General Assembly have described previous levy payments as a “quid pro quo for favorable state regulatory action.” Now Vermont seeks to replace these amounts “by imposing what it labels a ‘tax’ on a single Vermont taxpayer, Entergy,” the company said in its suit.

The new levy is imposed on electric generating plants having a nameplate generating capacity of 200,000 kilowatts or more. Vermont Yankee is the only plant in the state subject to the new levy, Entergy claims in the suit.

Entergy took the case to federal court because it says Vermont law provides no procedure for the company to challenge or seek review of the new levy. “Nor does Vermont law provide any procedure by which Entergy can obtain a refund once the new levy is paid,” Entergy said.

The company also said that between 2003 and 2012, Entergy made contractual payments that totaled more than $30m, over half of which were earmarked for the Clean Energy Development Fund (CEDF), which was set up by state lawmakers to encourage deployment of renewable energy in the state.

Over the past few years, Vermont officials have refused to issue Entergy a renewed certificate of public good for Vermont Yankee although the nuclear plant won a 20-year license renewal from the U.S. Nuclear Regulatory Commission (NRC). Thus far, Entergy has prevailed against state legal efforts to force the plant to retire.

Since Vermont Yankee’s state certificate expired, the plant has sold power exclusively to out-of-state consumers because Vermont utilities no longer buy power from Entergy, the company said in the suit.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.