Utility Agrees to Large Settlement, Emissions Cuts

By Steven Mufson
Washington Post Staff Writer
Tuesday, October 9, 2007; 2:10 PM

In a major Clean Air Act settlement, one of the nation's biggest coal-fired electricity producers has agreed to spend hundreds of millions of dollars to slash its acid-rain-causing emissions by more than two-thirds over the next decade.

American Electric Power has agreed to spend as much as $4.6 billion to reduce emissions of sulfur dioxide and nitrogen oxides. But AEP spokesman Pat Hemlepp said most of that amount has already been spent or included in company spending plans.

As part of the settlement, AEP will not admit any wrongdoing, but will pay $15 million in civil penalties, and $60 million to clean up and mitigate damage caused in parks and waterways, including the Chesapeake Bay. The settlement was made public today, ending a lawsuit that was filed in 1999 and was set to go to trial today in federal court in Columbus, Ohio, where AEP has its headquarters.

Nine states, 13 environmental groups and the Environmental Protection Agency filed the suit, alleging that the company had done enough modification of its existing coal plants to trigger a Clean Air Act clause that requires the installation of new pollution controls when significant work is done. The plaintiffs alleged that AEP had violated limits at 30 of 46 coal-fired units.

Hemlepp said AEP had simply done "prudent maintenance . . . on very expensive assets." It has argued that it had not expanded the capacity of the plants and that it therefore should not have to upgrade the pollution-control equipment.

The Clean Air Act clause, known as "new source review," has been the subject of intense dispute among major electric utilities, environmental groups and federal regulators. Even within the Bush administration there have been different views on how to interpret the regulation. Environmental groups have accused the administration of attempting to undermine the rule.

"Since November 1999, when the initial complaint was filed by the government, we have remained firm in our belief that we operated our plants in compliance with the New Source Review provisions," Michael G. Morris, AEP's chairman and chief executive, said in a statement on the company's Web site. "That remains our position today. But we have also said that we would be willing to consider ways to reasonably resolve these issues. . . . "

"While we would have preferred that the agreement not include a civil penalty . . . this settlement is an excellent outcome for our shareholders," Morris said. "It eliminates the potentially significant financial risk of pursuing the litigation to its conclusion while still achieving the environmental improvements that both we and the government want."

An April Supreme Court decision may have contributed to AEP's decision to settle the lawsuit. In that case, Environmental Defense v. Duke Energy Corp., the court backed the policy dating back to the Clinton administration aimed at making power plants install new pollution-control equipment. The justices' unambiguous ruling made it clear to utilities that, sooner or later, they might be forced under law to curtail their emissions from aging coal-fired plants.

Pollution from those plants, located in the Ohio River Valley and Appalachia, affected trees, lakes and air in northeastern and mid-Atlantic states. Under the settlement, AEP is to spend $10 million to acquire ecologically sensitive lands harmed by acid deposition, mostly in central Appalachia; $3 million to address nitrification of the Chesapeake Bay; $2 million for a restoration project in Shenandoah National Park; and $21 million to reduce emissions from barges and large trucks in the Ohio River Valley.

Hemlepp said that new pollution-control equipment would have been installed as part of AEP's "ongoing business." He said that only two new projects were included in the settlement: pollution-control equipment at its Rockport plant in southern Indiana to be completed in 2017 and one at a smaller plant in Virginia, to be completed in 2019. The present value of those would be $1.6 billion, Hemlepp added.

Environmental groups contended, however, that the lawsuit has already prodded AEP into spending more than it would have to reduce acid rain emissions. In its 2006 annual report, AEP said it had spent $1.2 billion in 2006 to cut emissions and would spend an additional $1.5 billion in 2007 and 2008. Those expenditures will go a considerable way to help the company meet the emissions targets in the settlement, sources familiar with the negotiations said.

Although sulfur dioxide emissions are subject to a cap-and-trade program that allows companies to buy credits to offset their emissions, under the terms of the settlement, AEP will have to reduce its own actual emissions.

Last year, AEP's power plants emitted 828,000 tons of sulfur dioxide, an environmental group involved in the litigation said. That level is expected to decline to 450,000 tons in 2010, in part because of spending already planned. Under the settlement, sulfur dioxide emissions must drop to 174,000 tons by 2018, sources said.

In 2006, AEP produced 231,000 tons of nitrogen oxides. That level is expected to decline to 96,000 tons by 2009 and under the settlement must fall to 72,000 tons by 2016.

"This underscores the critical importance of enforcement," said a representative from one environmental group.

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