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Vermont Yankee trust-fund tax scrutinized

Over 10 years, Entergy paid $34 million in federal taxes on investment earnings of VY’s decommissioning trust fund. Some say a change in that tax could speed cleanup work.

BRATTLEBORO—There has been much debate about how Vermont Yankee administrators are using the plant’s decommissioning trust fund.

As it turns out, the federal government has been taking its share of that same pot of money.

In response to an information request from the Vermont Nuclear Decommissioning Citizens Advisory Panel (VNDCAP), Entergy administrators have disclosed that they paid $34 million in federal trust fund taxes over a 10-year period.

Those tax payments — the result of a 20 percent federal levy on trust-fund investment earnings — will continue throughout the decades-long process of decommissioning Vermont Yankee. And that has some wondering whether some sort of tax relief could help speed cleanup work at the Vernon plant.

“Maybe we could get a little [federal] action going here to get some relief, not for the benefit of Entergy but for the benefit of Vermont to have a faster decommissioning,” said Martin Langeveld, the advisory panel’s vice chairman.

At this point, there is no consensus among VNDCAP members to lobby for a change in the federal tax structure. But panel Chairwoman Kate O’Connor predicts the issue “will come up again” this year as the group gets more information.

Vermont Yankee stopped power production in December 2014, but the bulk of Entergy’s decommissioning work isn’t happening right away. The plant is heading into an extended period of dormancy called SAFSTOR, under which decommissioning can take up to 60 years.

Delayed decommissioning gives a trust fund time to grow due to investment earnings. That’s important at Vermont Yankee, where Entergy’s federally approved long-range plan says decommissioning is expected to cost $1.24 billion.

Entergy has been spending Vermont Yankee trust-fund money since shutdown; those withdrawals, combined with changes in investment performance, have led to frequent fluctuations in the fund. The company reported that the trust fund held $594.1 million at the end of April.

The trust fund has been a source of conflict. Though federal regulators have thus far sided with Entergy, Vermont officials want a speedier decommissioning and argue that the fund shouldn’t cover expenses such as insurance payments, property taxes, and long-term spent-fuel management.

So anything that affects the Vermont Yankee trust fund attracts scrutiny. The focus usually is on Entergy’s spending, but Langeveld has been inquiring for the past few months about the impact of any federal taxes on the trust fund.

Entergy’s answers show that the impact has been significant. While publicly owned power utilities are exempt from nuclear trust-fund taxes, private utilities like Entergy must pay, said Vermont Yankee Government Affairs Manager Joe Lynch.

At one point, the federal tax rate on trust-fund earnings was 35 percent. “Fortunately, in 1992 ... Congress enacted certain rules associated with these trust funds and set the income tax for gains on the fund at 20 percent,” Lynch told panel members at a recent meeting. “And that’s what we pay right now.”

Some trust-fund investments are subject to the tax, while others aren’t. Lynch said Entergy tries to manage the Vermont Yankee fund “to maximize after-tax returns and thus minimize the overall taxes that we do have to pay.”

Nevertheless, Entergy’s new report shows that the Vermont Yankee trust fund paid $34 million in federal taxes from 2005 to 2014.

Even in context of an expensive decommissioning job, that’s no small amount. For example, $34 million is 24 percent of the money needed to transfer all of Vermont Yankee’s remaining spent fuel into dry cask storage. And it’s 15 percent of the estimated cost of managing that radioactive material until it is removed from the Vernon site.

There is no state tax on nuclear decommissioning trust funds, and “that’s one good thing,” Langeveld said. But he expressed concern about the federal levy’s depletion of the Vermont Yankee fund.

Without that tax, “how much sooner would decommissioning be able to take place?” Langeveld asked.

Lynch said he couldn’t answer that. Entergy’s decommissioning plans, officials said, assume that the tax will remain in place.

Not everyone is eager to seek trust-fund tax relief. For instance, state Public Service Department Commissioner Chris Recchia argued against “changing the rules” of a federal tax that has been in place for almost a quarter-century.

“These people bought the plant in 2002 as a private entity and knew that to be the case, factored that [tax] into all their financials,” Recchia said. “That was part of the deal.”

Langeveld pointed out, though, that Entergy didn’t build the trust fund. The principal funding came from a fee charged to Vermont electrical ratepayers; when Entergy purchased the plant, the decommissioning trust fund was part of the sale approved by the Vermont Public Service Board.

If there is any trust-fund money remaining at the end of decommissioning, 55 percent of that total must be returned to Vermont Yankee Nuclear Power Corp., the plant’s original owner. Green Mountain Power now owns that corporation.

“This fund doesn’t really belong to Entergy — it belongs to the ratepayers,” Langeveld said. “This is a tax on the money of the ratepayers who paid into it for years, and our grandchildren stand to gain a little refund of some sort at the end of the day ... I think that this is something that’s more important to the state of Vermont, really, than it is to Entergy.”

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Originally published in The Commons issue #360 (Wednesday, June 8, 2016). This story appeared on page A1.

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