James E. Rogers Jr. seems pretty cheerful for a man whose company expects to take a $1.6 billion hit under the new Clean Air Act and faces painful, high-risk decisions about its business.

"It's chaotic, but the wonderful thing about chaos is that's where the opportunities are," he said. "It's going to be interesting."

Rogers is chairman of PSI Energy Inc., an electric utility in Indiana. The company generates nearly all of its output by burning high-sulfur coal, emitting the sulfur dioxide that causes acid rain.

According to Rogers, PSI is the utility most affected by the Clean Air Act signed by President Bush on Nov. 15, which requires that the emissions be curtailed beginning in 1995.

PSI executives have calculated that it will cost the utility $1.4 billion in this decade to meet the acid rain limits of the new law and another $200 million to cut nitrous oxide emissions. Those are serious numbers for a company that was brought to the brink of bankruptcy by the cost of writing off an uncompleted nuclear plant in 1984 and that has a book value of $2.8 billion.

What Rogers wants to do is engineer a combination of legislative support, regulatory approval and technological change that will allow the company to recoup the costs of clean air compliance and make money in the process.

Industry analysts say polluting utilities such as PSI have a limited number of ways to meet the new requirements. They can switch to low-sulfur coal, which is more expensive, generates less electricity per ton and requires new combustion equipment; add emission-cutting "scrubbers" to their generating units, at a cost of at least $125 million each; or install new technologies such as "co-firing" burners that use a mixture of coal and natural gas.

But Rogers said in an interview that PSI's options are more limited: PSI cannot just abandon high-sulfur coal. Of the 13 million tons of coal the utility burns each year, he said, half comes from Indiana mines that are within PSI's service area.

"Some of the coal companies are our largest customers," he said. "Because of the politics of the state, because of who we serve, we have to comply with clean air {regulations} and continue to use high-sulfur coal. Our strategy is driven by that objective."

While PSI's compliance plan won't be completed until the Environmental Protection Agency issues regulations for implementing the new law, Rogers said the company is considering several moves:

Purchase a portion of a nuclear plant owned by another utility in nearby Illinois, run a 19-mile transmission line to link the two systems and mothball one of PSI's coal plants, using the nuclear power to make up the difference.

PSI already has links to 10 neighboring utilities, and it recently won the approval of federal regulators to sell surplus power to them at an unregulated price. A link to the Illinois nuclear plant would fit in with Rogers's long-term strategy of using PSI's transmission lines as a source of cash by allowing other generators of power to use them as conduits -- for a fee.

Install on one plant a new type of coal converter that turns coal into a synthetic gas that meets the new emissions requirements. PSI has announced an agreement with Destec Energy Inc., a subsidiary of Dow Chemical Co., to install a Destec coal gasification unit at one of its plants, to produce 230 megawatts of power from a burner that meets the new federal standards.

Add scrubbers to its remaining coal-fired units. Here is where Rogers hopes to take advantage of a provision of the new law to convert expenditure into opportunity.

Under the new law, utilities that reduce acid rain emissions earn credits, or allowances, that they can sell to other utilities that are not in compliance.

"Maybe I'll over-comply early" by adding scrubbers as soon as possible, instead of waiting, Rogers said. "I'll generate all these allowances and maximize my burn of Indiana coal."

By "over-compliance," a strategy several utilities are reportedly contemplating, PSI would acquire allowances it could sell to help defray the cost of the scrubbers.

But what is the value of the allowances in the marketplace? No one knows, because the market has never been tested.

So Rogers faces the problem of convincing Indiana regulators that the cost of adding the expensive scrubbers now is justified by thepotential return, so the regulators will approve the expense and allow it to be passed along to PSI's consumers.

In the electric utility business, one of the favorite jargon words is CWIP (pronounced quip), an acronym for construction work in progress. Some states permit utilities to bill their customers for CWIP projects -- that is, get some of the cost back before the work is finished.

Indiana does not permit CWIP billing for power plants, but it does permit CWIP billing for pollution-control equipment, Rogers said.

"To the extent we invest in scrubbers, we have the ability to collect before the facilities are completed," he said. "That means the ratepayers {customers} pay for the scrubbers, so they should benefit from the allowances they create" -- that is, get reduced rates if the scrubbers they pay for allow PSI to earn money from selling its credits.

What Rogers does not want to do is invest in scrubbers, the Destec project and other compliance strategies only to have state regulators reject the plan after the fact and disapprove rate increases.

Using his commitment to Indiana coal as leverage, he said, he plans to ask the state legislature for a law that would require the Indiana Public Service Commission to approve PSI's acid rain compliance plan in advance.

"I want to get the commission to hold hands with me," he said. "I want to over-comply early and generate these credits and use them to offset our costs and attract business" with reduced rates.

"But we're going to have to gamble together on what the credits will be worth," Rogers said.