Text of Governor Douglas' letter on veto of Vermont Yankee decommissioning bill

May 7, 2008
The Honorable David A. Gibson
Secretary of the Senate
State House
115 State Street, Drawer 33
Montpelier, VT 05633
Dear Mr. Secretary:
Pursuant to Chapter II, Section 11 of the Vermont Constitution, I am returning S.373, An Act Relating to Full Funding of Decommissioning Costs of a Nuclear Plant without my signature because of my objections described herein.
The safety, reliability and affordability of the Vermont Yankee Nuclear Power Station (the Yankee Station) are the most important issues related to its continued operation.
I remain unwavering in my commitment to ensuring Vermont's best interests are represented and that in every discussion of our energy future the safety and reliability of this facility come first. That is why I called for an independent safety assessment and look forward to signing legislation supporting a comprehensive audit of the Yankee Station.
Vermonters need affordably priced power to grow the economy and create more and better paying jobs. As Vermont's employers have made abundantly clear, they oppose this legislation because it would unnecessarily and substantially increase the future cost of electricity on both businesses and families. I agree.
There is no doubt that increases in electricity costs slow economic growth and impair job creation, but rising electricity bills also impair the ability of working families to make ends meet.
Achieving prosperity through affordability will remain a core focus of my administration. At a time when growing the economy must be state government's top priority, I will not allow this legislation-or any other irresponsible legislation-to become law that would slow economic growth, or make our families less prosperous.
I fully support ensuring that there is adequate funding for the total decommissioning of the Yankee Station by Entergy Nuclear Vermont Yankee (VY) whenever that should occur.
There are, however, existing procedures to accomplish this goal, and many of my additional objections to S.373 are directed at the intrusion of the General Assembly in a matter better left to the expertise and procedures of the regulatory system and to the quasi-judicial Public Service Board (PSB). Indeed, S.373 can be characterized as legislative activity that risks blurring the lines of Government at the state and federal level, resulting ultimately in an unnecessary duplication of time and resources.
Vermonters should know that VY is currently operating under a PSB order issued in 2002 that holds it responsible for the complete decommissioning of the Yankee Station. The anticipated cost of decommissioning is currently estimated to be $893 million. Today, approximately $425 million of that amount is in an established decommissioning trust fund.
Because the PSB anticipated that the decommissioning fund might not be fully funded at the time the Yankee Station ceased operation, the PSB authorized VY in that 2002 order to use a decommissioning method, referred to as SAFSTOR, in which the nuclear facility is placed and maintained in a safe storage condition while the decommissioning fund grows and the facility is decontaminated. SAFSTOR is a decommissioning method approved by the Nuclear Regulatory Commission (NRC).
Entergy Corporation, VY's parent corporation, is also obligated by that same PSB order to guarantee $60 million of operating costs after the Yankee Station's removal from commercial operation. This guarantee is Entergy's only responsibility for decommissioning type activities under the PSB order currently in effect.
S.373 purports to legislatively after the fact change the nature of this PSB order and to direct the outcome of a pending PSB docket, opened in January 2008, in which Entergy is seeking PSB approval to transfer the Yankee Station to another corporation, NewCo. The PSB's responsibility is to determine whether this proposed transfer is in the public good. The PSB is required by law to review several factors, including the financial stability and soundness, technical knowledge and competence, and generally the effect on Vermont if the transaction were to be approved.
The PSB has the authority and responsibility to impose conditions if the transfer is ultimately approved to ensure the public is protected. S.373, however, requires that the PSB determine, without the benefit of evidentiary hearings, "that the nuclear plant's decommissioning fund and other funds and financial guarantees available solely for the purpose of decommissioning are adequate to pay for complete and immediate decommissioning at the time of the acquisition..."
In other words, S.373 sets out to ultimately change the balance of public good in the pending PSB docket by demanding a payment in excess of $450 million, or its financial equivalent, if the transfer is approved. The General Assembly has substituted its judgment for that of the PSB and the NRC -- the two regulatory bodies that have the ultimate authority regarding these matters and who have not deemed it to be in the public's interest to order these payments to date.
The consequences of such a mandate are many. First and foremost, S.373 is built upon several false premises. Key among them is that S.373 is merely cementing in statute an obligation already owed by Entergy Corporation. This is simply not accurate. As noted above, the current PSB orders hold VY, not Entergy, fully responsible for the Yankee Station's decommissioning while Entergy is only responsible for a $60 million guarantee of funds to be committed to this process. In fact, if the NewCo transfer is approved by the PSB, responsibilities for decommissioning will remain with VY and Entergy's $60 million guarantee will be converted to letters of credit from an investment grade banking institution.
In addition, when the PSB allowed the sale of the facility in 2002, its order recognized that a great financial risk was being transferred away from Vermont ratepayers onto VY. The PSB stated:
In today's Order, we approve the sale of Vermont
Yankee and the associated commitment for the present
owners to purchase 510 MW of power from the station
until 2012. We do so for two primary reasons. First,
we conclude that ENVY and ENO will be likely to
operate the plant as well as, or better than, the current owners.
Second, we find that, under most reasonably foreseeable
scenarios, the transactions are highly likely to produce
an economic benefit for Vermont ratepayers. Together,
these findings lead us to conclude that the sale will promote
the general good. . . In addition, the sale has the advantage
of transferring to ENVY significant financial risks associated
with continued ownership of Vermont Yankee. If the costs of
operation increase (due to equipment failures, increased security
or other reasons), ENVY will bear the additional expenses;
Green Mountain, Central Vermont, and Vermont ratepayers
will be shielded. Similarly, increases in the contributions
needed to ensure decommissioning upon shutdown will not be
passed on to Vermont consumers.
- Docket 6545, Order of 6/13/2002 at 3-4.
In exchange for the transfer of risk to VY and the ability for it to use the SAFSTOR method to ensure funds are available for full decommissioning, Vermont ratepayers benefited by a $180 million sale price and a favorable Power Purchase Agreement between VY and Green Mountain Power Corporation and Central Vermont Public Service Company.
The Power Purchase Agreement has, and will, save Vermonters approximately $743 million from 2003-2012 based on past market prices and future market forecasts. It is reasonable to conclude that had Vermont regulators required Entergy Corporation to make contributions to the fund at the time of the sale instead of transferring the risk to VY, the terms of the Power Purchase Agreement would have been far less favorable to Vermonters.
S.373 also prematurely characterizes the decommissioning fund as "underfunded." Just last year, the Legislature mandated several studies in Act 160 that are currently being undertaken by the Department of Public Service. The studies will analyze the decommissioning fund to determine if there are any material weaknesses in the fund prior to the State's negotiations with VY when and if the Yankee Station is relicensed. These studies will be completed by year's end, and then we will have a factual basis for understanding the status of the decommissioning fund and acting in an informed fashion.
The Department has retained an independent financial expert who will study the many aspects of the financial obligations and capacity of VY to meet their commitments. The conclusions and recommendations from the responsible due diligence required by these studies is unknown because they are not yet complete. Instead of allowing the studies to conclude, the General Assembly chose to short-circuit a careful determination of the facts that may prove detrimental to Vermonters in the end. Whether it is prudent to require VY to make additional payments than those currently anticipated is a determination that I agree must be made--but not until all the facts are available on safety, reliability, and decommissioning.
Another reason that I will not approve S.373 is because of the General Assembly's unprecedented attempt to enact a new law that in fact would apply to an ongoing case before the PSB. Although it is not unusual for the General Assembly to share their concerns and opinions on matters pending before the Board through letters and public statements, I believe the General Assembly should not have attempted to go so far as to actually change the law, and hence the rules of the game, in the middle of an open docket.
Finally, the PSB was created by the Legislature to delve into highly technical matters and the intricacies of transactions like NewCo to determine whether they serve
the public good. It is through the evidentiary process, the written and oral testimony by experts in the field, and the crucible of cross-examination that the PSB makes its determinations. S.373 removes an important quasi-judicial decision from the body with the expertise, resources and authority to make it and instead allows legislative action to determine the outcome.
After careful consideration of the facts, I am returning S.373.
Sincerely,
James H. Douglas
Governor
JHD/pbb