Monday, January 23, 2012

Why the Vermont Yankee case matters

Beyond the obvious implications for nuclear and the state of Vermont itself, the outcome of the Vermont Yankee case has several key implications for energy projects writ large. Among them:

  • Nailing down who regulates radiological safety: Per the Atomic Energy Act of 1954, the federal government is the sole regulator of radiological safety issues. While confined mostly to the nuclear fleet, it goes without saying that such issues (be they currently regulated or not) also implicitly come into play with other energy sources such as coal, which emits far more radiation from the flue than any nuclear plant (due to trace uranium daughter products found naturally in the ground with coal, in turn concentrated and lofted into the air as coal is burned). The Vermont Yankee case was particularly egregious in the regard that it pitted decisions of radiological safety (clumsily couched in terms of "reliability" to avoid legal objection) between a decidedly non-expert (and frankly arbitrary) state legislature versus the professional expertise of regulatory staff at the NRC, working from established regulatory guidelines and specific scientific principles. Given the significant investment at stake with nuclear units, it is eminently reasonable to expect an objective and consistent review process performed by experts across the nuclear fleet - especially compared to the alternative of decidedly arbitrary decisions by state lawmakers whose background in radiological safety issues to be (in rather generous terms), decidedly limited.
  • Highlighting the problems of ex post facto rulemaking with multi-billion dollar assets: An issue which has burned both the nuclear industry as well as others before it has been the issue of after-the-fact rule changes which adversely impact multi-billion dollar investments. The most infamous of these cases in U.S. history may have been the fate of commercial spent fuel reprocessing facilities, which represented billions of dollars of private investment by companies such as Nuclear Fuel Services, General Electric and others. With a stroke of a pen, President Jimmy Carter wiped out the value of each of these investments through his famous executive order indefinitely suspending spent fuel reprocessing. While this order was later revoked by President Reagan, the damage had been done - companies became acutely aware of the political volatility associated with such investments, and thus were unwilling to risk further political reversals - thus precipitating the stalemate in spent fuel management which persist until today.

    Vermont Yankee represents a similar point along this trend - after Entergy signed an MOU with the State of Vermont agreeing to the conditions for the purchase of the plant, the state legislature decided to retroactively change the conditions of the arrangement, granting the state a legislative veto over future operation of the plant not included in the arrangement Entergy originally agreed to (and arguably an arrangement which would have lowered Entergy's offering price had it been included in the original deal). While the case itself did not turn on this matter of ex post facto rule-making by the state of Vermont, the case establishes an important precedent against such adverse rule-making by states. Such a matter has implications for energy investments ranging far beyond nuclear.
  • Establishing that states cannot predicate approval of energy projects on below-market energy sales agreements: This may be perhaps the most important and yet understated consequence of the federal court decision. One tactic Vermont had attempted to employ against Vermont Yankee was to attempt to force Entergy to enter into favorable, long-term, below-market sales agreements for power from the plant to the state as a condition of renewing its Certificate of Public Good (i.e., its authorization from the state to continue operations). If such a tactic sounds like brazen extortion, that's because it is. Fortunately, this was explicitly identified by the federal court judge as violating the dormant Commerce Clause (and thus unconstitutional). Again, such a finding has implications well beyond nuclear projects - it clearly repudiates the corrupt practice of states extorting electric utilities into favorable energy sales arrangements as a condition of operation.