The state of Vermont cannot force Entergy to shutter the Vermont Yankee nuclear power plant, the U.S. Court of Appeals for the Second Circuit ruled on Tuesday.

The federal appeals court partially upheld a prior lower court decision stemming from a lawsuit filed by Entergy Corp., the owner of Vermont’s only reactor. In his January 2012 decision, U.S. District Judge Garvan Murtha in ruled that Vermont’s Yankee can remain operating beyond the state-mandated shutdown deadline of March 2012. The three Vermont state laws governing the plant were grounded in nuclear safety concerns—and they were therefore invalid because they are preempted by the federal Atomic Energy Act, he found.

The appeals court on Tuesday affirmed the ruling that the Vermont statutes are preempted by federal law. It reversed the district court’s decision, however, that found the state had imposed unconstitutional restrictions on the sale of power by the plant, agreeing with the state’s argument that Entergy’s claim was premature.

While the appeals court’s decision allows the plant to continue operation in the state, it “removes the basis for Entergy’s current claim that State taxpayers should reimburse Entergy for $4.62 million in attorney’s fees in addition to any fees incurred by Entergy during the course of this appeal,” Vermont Attorney General William Sorrell said in a statement on Tuesday.

The Vermont Yankee Nuclear Plant began operating in 1972 under a 40-year operating license issued by the Atomic Energy Commission (the Nuclear Regulatory Commission’s [NRC’s] predecessor). In 2006, however, Vermont’s General Assembly passed a law that outlined the requirements for continued operation of a nuclear power plant in the state. Later, in 2010, the state Senate voted 26-4 to block the plant from operating past March 2012, when its state permit expired. In 2011, the NRC issued the plant a 20-year license extension that allows it to operate until 2032. The plant sells power wholesale on the interstate market.

Entergy, which bought the plant from a group of New England utilities in 2002, last year filed suit, arguing the 2006 law violated a key provision of a Memorandum of Understanding signed by Vermont officials and other parties at the time of the plant’s purchase. After the U.S. district court remanded the case to the Vermont Public Service Board, Vermont Attorney General Sorrel appealed that decision.

On Tuesday, Sorrell expressed disappointment at the court’s conclusion that the state’s legislative acts were preempted by federal law. He noted, however, that an “important role” of the Public Service Board was not affected by the court’s ruling.

“The court’s decision notes that the Board has statutory authority to consider issues such as ‘power generation stability, economic impact on the State, aesthetic and environmental issues, and likelihood of compliance with federal regulations’ in deciding whether to grant Entergy’s pending application for a certificate of public good,” he said.

The appeals case is Entergy Vermont Yankee v. Shumlin, 12-00791, U.S. Court of Appeals for the Second Circuit (Manhattan). The district court case is Entergy Nuclear Vermont Yankee LLC v. Shumlin, 1:11-cv-00099, U.S. District Court, District of Vermont (Brattleboro).

Sources: POWER, U.S. Court of Appeals for the Second Circuit, Vermont Attorney General, Entergy

—Sonal Patel, Senior Writer (@POWERmagazine, @sonalcpatel)