Friday, October 19, 2012

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 ├ža 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.


Robert Maynard said...

When it comes to parsing words, Vermont's Democratic leadership seems to be right up there in the same league with former President Bill Clinton. In this case, instead of quibbling over the definition of "is", the word parsing is over what constitutes a tax.

Atomikrabbit said...

"Logical consistency is not their strong suit."

With all due respect for your beautiful state Meredith, may I suggest that the current legislature adopt this motto, along with a stylized flightless dodo bird, on their official seal?

John McClaughry said...

The state has long practiced simony - the selling of indulgences - to get Entergy to fund its leading energy scam,the CEDF. The Catholic church ended this practice in 1517, but it lingers on in Montpelier.
See this from 2005:

Guy Page said...

This particular "contribution" to the Clean Energy Fund was supposed to sunset in 2012. And technically, it did. But as the sun never set on the British Empire of old, so it never sets on a "contribution" by a manufacturer that has been targeted for elimination. It is simply renamed as a tax and pushed through, notwithstanding the misgivings of the state's legal advocates who have actually faced Entergy in a federal courtroom and found that statehouse rhetoric didn't carry the day there.

I think there is something bigger at stake here than Vermont Yankee's 1100 jobs, $15 million in revenue, and carbon-free energy generation - and those are pretty big stakes! What's at stake is the future of Vermont's manufacturing industry. The State of Vermont, for whatever reason, is determined to close Vermont Yankee. This sends a message to all employers, big and small, instate and out of state: offend us at your peril. If the State and its supportive advocacy groups get you in their sights, and push hard enough, you're toast. No amount of common-sense arguing about your economic and environmental value will convince them otherwise. Because you are expendable, you must be subservient. Few boards of directors would choose such an environment when there are hundreds of others more friendly from which to choose. Vermonters who believe Vermont Yankee offers good jobs and clean air do still have one more forum, though - they can speak directly to the Vermont Public Service Board at 7 pm at Vernon Elementary School Nov. 7, at the one and only truly public hearing for Vermont Yankee's Certificate of Public Good. This will be the last official, public forum to describe the many ways Vermont Yankee benefits Vermont.