The Latest Law Suit: Is It a Constitutional Case in Vermont?

Bill of Attainder or Just a Regular Old Tax?

When is a tax unconstitutional? And when is it-- just a tax?

As usual in issues concerning the state of Vermont and Vermont Yankee, this question will be hammered out in court.  As a matter of fact, the question before the court right now is...which court? Federal court or state court?

It's a question of jurisdiction, but the issue is a bigger question than jurisdiction.

The question is whether a single, law-abiding business can be targeted by a state for a very special and onerous tax.  Is it legal for the state of Vermont to write a tax bill that increases taxes on one entity (Vermont Yankee) by about $7 million dollars a year, and increases no other taxes?

We will see how this case develops, but I suspect businesses all over the country are a bit frightened by this one.  If Vermont can write a special tax that applies to one  business, so can Ohio.  So can Cook County, Illinois. There will be no end to it, in my opinion.

Background: The Clean Energy Development Fund Needs Money

Once upon a time, and not so long ago, either, Vermont Yankee agreed to contribute a great deal of money to something called the Clean Energy Development Fund (CEDF).  The amount varied with the price of power on the grid, but was often several million dollars, sometimes as much as $7 million. This tax funded wind and solar development, and some efficiency projects.

In my opinion, the CEDF contribution requirements were the result of a shakedown.  "Nice little power plant you got there.  Be a shame if something happened to your ability to store fuel rods on site."  Well.  That's just my opinion.

However it happened, (by negotiation, by shakedown)  Entergy agreed to contribute to the Clean Energy Development fund, up until March 21, 2012, when Entergy's first NRC license ended.  After March 2012, a great many legal obligations changed.  Entergy was no longer obliged to sell power to Vermont utilities at a fixed rate, and Vermont utilities were no longer obliged to buy power from Vermont Yankee.  Entergy's obligation to the Clean Energy Development Fund ended.  And so forth.

If you visit the Clean Energy Development Fund website, you can see that the grant and loan programs are now closed.  No money from Entergy, no money for grants or loans. (Note: CEDF did not get all its money from Entergy.  It also received money from the ARRA stimulus funds. That money is not available for the future.)

The lack of money for the CEDF has been very irritating to the groups in Montpelier that support wind turbines, etc.  They want that Entergy money to come back, and pronto!

Of course, the same people also want Vermont Yankee to shut down, and pronto! Logical consistency is not their strong suit.

This year, the legislature passed a law adding $7 million dollars to the $5 million dollar generation tax that Entergy pays already.  The idea was that CEDF would once again be funded by Entergy, and everyone will be happy.  At least, that is what the legislators hope.

State Legal Team Issues a Warning to Legislature

In April, when the legislature was considering this tax, two state lawyers issued a warning.  Vermont Assistant Attorney General Scot Kline  and legislative lawyer Peter Griffin were quoted in an article in the Burlington Free Press:

Although two lawyers told them it would be a risky move, legislators are poised to approve a tax increase on the Vermont Yankee nuclear power plant.

“There is some legal risk associated with increasing the generating tax,” Assistant Attorney General Scot Kline told the Senate Finance Committee this week.

Kline said the tax change could be challenged in court...Kline said the Attorney General’s Office decided lawmakers should be told of the risk. Peter Griffin, a legislative lawyer, told the committee he agreed with Kline’s assessment.

The legislature passed the bill anyway, of course.  To some extent, I gotta smile at this.  It reminds me of when Entergy sued in Federal Court in the main case about shutting the plant down.  At that point, the legislature quickly passed a law saying Entergy had to pay the state costs and lawyers to defend the case.  They passed the law, but the State Attorney General had to admit that the law was on "shaky ground" and never tried to enforce it.  Plus ça change, as they say...The Vermont legislature never seems to learn.

Oh yeah.  I have an earlier post on this attempt to get money. In January:  Taxing Fuel Rods, Vermont Legislature Plans Another Law Which Will End Up in Court.

The Warning Comes Home: Entergy Sues

Clearly, Entergy had an incentive to avoid being targeted this way, and brought suit against the state.  It brought this suit in federal court, on constitutional grounds. Andrew Stein at Vermont Digger has a comprehensive article on the lawsuit, including the four constitutional issues Entergy named in its suit, and an interview with Cheryl Hanna of Vermont Law School.  A quote from the article below:

Hanna thinks the equal protection argument might be Entergy’s strongest.

“Where the Legislature runs the greatest risk is that they targeted Vermont Yankee,” she said.

To see the actual wording of the law, follow this link to the omnibus tax bill, and read the words on page 47:

(a) There is hereby assessed each year upon electric generating plants constructed in the state subsequent to July 1, 1965, and having a name plate generating capacity of 200,000 kilowatts, or more, a state tax in accordance with the following table: at the rate of $0.0025 per kWh of electrical energy produced.

There's only one such plant.  It would have been easier to just name "Vermont Yankee."

The Empire Under the Dome Fights Back

The state asked the federal judge to dismiss the Entergy lawsuit, claiming it was merely a matter of a state tax, not a federal or constitutional issue.  Susan Smallheer of the Rutland Herald reports on the Entergy counter-argument that this is a levy, not a tax.

This is clearly an on-going dispute which will be going on for quite a while.  I will continue to cover it as more information is available.

Meanwhile, let's hope that Cook County doesn't get any bright ideas on how to raise money for Chicago city government, by targeting the richest businesses in town!  I used to live in Chicago, and I wouldn't put it past the city government to do that.

Of course, now I live in the clean green state of Vermont.

The Mountains of Vermont Yankee: The Issues Behind the Issues

This morning, I have a blog post at ANS Nuclear Cafe: The Mountains of Vermont Yankee.

In this post, I show how every issue about Vermont Yankee has another issue hidden behind it. There's Vermont Yankee and the Constitution, and behind that there's Vermont and other constitutional challenges, and behind that there's the business climate in Vermont, and behind that there's Vermont Yankee as cash cow and behind that...well, you get the picture!

Writing about Vermont Yankee is like facing a mountain range. There's always another issue behind this issue, another hill behind this hill! Hopefully, my post puts some Vermont Yankee controversies in perspective.

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Ahem. Before everyone emails me with corrections.

• I am aware that Vermont Yankee is in a comparatively flat section of Vermont.
• I am also aware that the iconic Vermont mountain pictured here (Camel's Hump) is in the northwest part of Vermont, while Vermont Yankee is in the southeast corner of the state.

Vermont and the Supreme Court: A Guest Post by Representative Thomas Koch

Rep. Thomas F. Koch

Barre Town

“Scribblings”

An Occasional Newsletter from the Legislature

January 22, 2012

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I hate to say “I told you so,” but….

In 1997, the legislature passed a new campaign finance law, severely restricting both contributions and expenditures permitted in Vermont elections. The restrictions were, for most offices, totally unreasonable, without any inflation factor for future years, and in clear and absolute contravention of the 1976 United States Supreme Court decision in the case of Buckley vs. Valeo, which held that for the exercise of First Amendment rights in this day and age, it is often necessary to spend substantial amounts of money, and that many campaign finance restrictions, therefore, were unconstitutional.

During the debate, I quoted the Buckley case, and the answer I received was that the committee was well aware of that case, but that it was 20 years old, and the committee thought it was time for the Supreme Court to reconsider the case, and the bill before us was designed to set up the necessary challenge to Buckley. Obviously, the committee was totally unaware that in constitutional law, 20 years is like yesterday, and there was absolutely no reason to believe that the Supreme Court was inclined to change its mind.

Eventually, the bill passed, with only 17 negative votes in the House, mine being one of them. The court challenge eventually came, it went up to the Supreme Court, Vermont lost, and the Court threw out most of Vermont’s 1997 law. No surprise there. But in certain federal cases, including cases based on constitutional claims, the loser often has to pay the attorney fees of the winners. In this case, the state paid about $1.5 million—a rather poor use of the taxpayers’ money for what was a thoroughly improvident escapade in the first place.

One would think we would have learned our lesson. Don’t be silly.

In the February 1, 2008 issue of “Scribblings,” I wrote:

Then there is the subject of data mining, which is the practice of the pharmaceutical industry trying to determine which drugs physicians are prescribing, and then using that information to approach the physicians and persuade them to prescribe a particular manufacturer’s drug instead. It is a practice that I do not like and believe should be outlawed or severely restricted.

The problem is that the State of New Hampshire was the first to outlaw data mining. They got sued, and last spring the federal district court in New Hampshire declared their law unconstitutional. That just happened to be the same week our legislature was about to vote on a copycat data mining law. Faced with the likelihood that a copycat law in Vermont would meet the same fate as New Hampshire’s law, the health care committee pulled the bill back into committee and, with the help of the Attorney General, “tweaked” the bill, which the Attorney General then pronounced “defensible.”

There were those of us who urged caution and suggested that we ought to wait until the New Hampshire case had fully run its course through all appeals before adopting a law in Vermont. We suggested that the tweaked version was not so different as to avoid a court challenge, and that such a challenge—win or lose—would be very expensive. Nevertheless, the majority proceeded full steam ahead and voted for the bill.

Meanwhile, Maine also adopted a similar law, less strict than either New Hampshire’s or Vermont’s. Not surprisingly, the pharmaceutical industry sued Maine, and the federal district court in Maine, concluding that the drug companies would likely prevail at a trial on the merits, issued a temporary injunction preventing Maine’s law from taking effect.

Vermont has now been sued as well, and it is costing us dearly. The Attorney General has seven attorneys in his civil litigation division, four of whom are known to be working on this case, at least part time. That is a substantial allocation of limited resources. In addition, the budget adjustment bill that passed the House this week contains $117,000.00 to pay expert witnesses for this case, and the case is just beginning.

The Attorney General has now come to the legislature suggesting some amendments to make this “defensible” law even “more defensible!” Seeing the handwriting on the wall, the AG is asking that we re-write the law before we lose the case! But even with these amendments, the AG now advises that this is “an uphill fight.”

So the question is why are we looking for this fight in the first place? What do we have to gain? The theory is that if we can prevent data mining, then we can prevent the use of the data for marketing purposes, and if we can restrict marketing and advertising, we can drive down the price of drugs. The trouble with that theory is that it is untested, and as the New Hampshire court concluded, there is no evidence that it will work.

If our only gain is speculative cost savings, what are the risks? First, the lawsuit will be expensive just to present Vermont’s case. The current tab of $117,000.00 for expert witnesses will undoubtedly grow, and lawyer time, depositions, travel, and other expenses need to be considered. Half a million dollars is not an unreasonable estimate. And if we lose, the law requires that we reimburse the drug companies for their attorney fees and other expenses in challenging the law. We need to remember that just a year ago, we lost a challenge to our campaign finance law, and we had to pay $1,500,000.00 to the challengers. We could end up doing so in this present litigation.

I have a suggestion. Rather than amend the data mining law, repeal it! The drug companies would have to drop their lawsuit, and we could cut our losses. Then wait to see how the New Hampshire and Maine cases finally turn out after all appeals have been taken. That should give us some pretty good guidance as to what we can and cannot do to limit the practice of date mining. Once we have that guidance, re-enact a law that follows the court’s guidelines and takes the maximum permitted action to restrict data mining. That way, we may avoid a new lawsuit, and even if we do get sued, the new law will be most likely to survive the challenge. I intend to offer such a repeal amendment next week, but I predict that I will not be successful. It seems that we enjoy being sued!

Guess what. The Attorney General took his “defensible” case to the Supreme Court…and lost. So far, we have received claims for legal bills from the drug companies who challenged the Vermont law in excess of one million dollars, and this week, the House voted to add $3,000,000 to the “state insurance liability fund” (now there’s a euphemism if I ever heard one!) to cover “pending or possible” liabilities.

Think we’re finished? Not a chance. You’ve no doubt heard that Vermont lost its Entergy Vermont Yankee case in Federal District Court and that Vermont Yankee will not be closing in March, as planned by its opponents, including Governor Shumlin. Because nuclear safety issues are solely the province of the federal government, and Judge J. Garvin Murtha found that the law Vermont was using to close down Vermont Yankee was predominantly motivated by safety concerns, he ruled that the Vermont legislature could have no legitimate role in the matter of relicensing the nuclear plant, and the matter should be handled by the Vermont Public Service Board.

Here’s what I wrote in “Scribblings” on January 10, 2010:

We have established processes to decide contested public utility cases. The Public Service Board is a three-member board appointed by the governor and confirmed by the Senate, which has special qualifications and experience with public power and utility issues. The board is appointed to act in a judicial-like capacity, finding facts after formally hearing the evidence, applying the law to the facts it has found to be true, and ultimately determining whether granting the applicant’s petition is or is not in the “public good.” An applicant and other interested parties, both pro and con, present their cases before the Public Service Board. The public is formally represented by the Public Service Department. Eventually, the PSB makes its decision. But in the case of licensing or relicensing a nuclear plant, the PSB is prohibited from making a decision—for or against the applicant—unless the legislature flashes the PSB a green light.

So what, one might ask, does the legislature really know about nuclear plants? What special expertise do the 150 members of the House and 30 members of the Senate have? Why should the legislature hold the ace of trump, to play or not to play at will? I would argue that we have no such expertise, and that we should not be involved in the process in the manner that we are. Forty-nine other legislatures have seen fit to respect established processes; only the Vermont legislature thinks it is the repository of all wisdom.

I trust that the established process will work to the benefit of all Vermonters if we allow it to, and for that reason, I am prepared to vote to get out of the way and allow the PSB to do the job it was appointed to do.

Now that Judge Murtha has sent the question of relicensing back to the PSB and other established regulatory agencies, we are waiting to find out if the Governor and the Attorney General will decide to appeal. In view of the fact that legislative involvement in the relicensing process was improvident in the first place, that few legal authorities are surprised by Judge Murtha’s decision, and that his 102 page opinion has been described as very detailed and well reasoned (not to mention the Attorney General’s track record in the Supreme Court), they would be little short of crazy to file an appeal.

By the way, expect Entergy to send the state its legal bills, which will probably be in excess of two million dollars!

One might hope that by now we have learned our lesson, but I have no confidence that we have done so. I am absolutely fed up with the idea that Vermont must “lead the nation,” that we need to be David slaying Goliath, and that we should waste the taxpayers’ hard-earned dollars in fruitless legal challenges that any good lawyer will tell you up front are losing causes.

As I said at the beginning, “I don’t like to say ‘I told you so,’ but…” the fact is, I did.

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This "Scribbling" also appeared in Vermont Tiger.

Representative Koch puts the current court case in the perspective of other Vermont attempts at redefining the Constitution.

Other Vermont reviews of this case include:

"But He Sure Can Take a Punch. Sorrell Comes Out of His Corner for Another Round" by Todd Smith at Vermont Tiger.

Legal Bills, by John McClaughry at Vermont Tiger.

Vermont and the Constitution: Three Posts

Vermont and the Constitution

I am working on a blog post about Vermont and State's Rights. Meanwhile, here are three recent articles on related issues.

Geoff Norman at Vermont Tiger. We have abundant evidence that the Vermont legislature repeatedly passes unfair laws that fail the constitutional test. However, the only people who can fight these laws are big companies like Entergy. What does that mean for the ordinary Vermont citizens who do not have resources to fight unfair laws? Read Norman at Grounds for Appeal.

Howard Shaffer at ANS Nuclear Cafe. Howard Shaffer describes the irony of the legislature promoting States Rights while holding press conferences in the Cedar Creek Room. The huge painting in this room commemorates Vermont's important role in the Battle of Cedar Creek during the Civil War. Read Reflections on the Cedar Creek Room.

Tamar Cerafici at ANS Nuclear Cafe. Lawyer Tamar Cerafici describes the ruling and its constitutional grounds. Read Cerafici Let's Find Another Word for Safety--Entergy v. Vermont in plain English.

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Sheridan at the Battle of Cedar Creek and Vermont State House in Winter from Wikipedia.