EPA's record settlement with utility could lead to other deals

AEP agreed Tuesday to spend $4.6 billion to install pollution controls on 16 power plants.

In what is being called the largest pollution-enforcement victory in history, the US Environmental Protection Agency Tuesday announced a mammoth settlement with the nation's largest utility, American Electric Power, that requires it to spend $4.6 billion to clean up its smokestack emissions.

The deal will lead to a dramatic drop in AEP's harmful emissions – some 813,000 tons of pollution annually – the EPA says. But the agreement could have an even larger impact if it persuades other big power companies to settle their own pending legal cases, environmentalists say.

Duke Energy and partner Cinergy, the nation's third- and fourth- largest utilities before they merged last year, are still fighting similar pollution charges by the EPA. Another suit against Southern Company, the nation's second-largest utility, is also pending.

If those three utilities alone agreed to clean up their emissions as AEP now has, all four would eliminate about 2 million tons of sulfur-dioxide and nitrogen-oxide emissions a year – roughly one-fifth of the annual SO2 and NOx output from all US power plants, says John Walke, clean-air program director for the Natural Resources Defense Council. Those two pollutants are said to cause acid rain and smog, respectively.

"We think this deal could be even more significant down the road if the other utilities go ahead and settle," says Mr. Walke.

The utilities themselves say the AEP settlement will have no effect on their legal strategy.

"Basically, the AEP decision to settle has no impact on the Alabama Power case," says Mike Tyndall, a spokesman for Atlanta-based Southern Company, which owns Alabama Power. "We won the lower court decision and the government has appealed and is challenging that decision."

Indeed, the companies say they are already equipping their power plants with pollution-control equipment.

"We are already installing scrubbers on the vast majority of our units," says Tom Williams, spokesman for Duke Energy, based in Charlotte, N.C. While it's company policy not to comment on any settlement discussions in ongoing litigation, he adds, "We still think we have a solid defense against the government claims" in the Duke Energy and Cinergy cases.

Tuesday's AEP deal stems from a 1999 lawsuit that the EPA filed against the company, based in Columbus, Ohio. The government, which was joined later by at least eight states and 13 citizen groups, charged AEP with rebuilding coal-fired plants without installing pollution controls – a violation, they said, of the so-called New Source Review provisions of the Clean Air Act.

Companies had been reluctant to settle with the government because, under President Bush, the EPA in concert with the White House had signaled a preference for the industry-favored interpretation of the arcane but critical pollution rule. But in June, the US Supreme Court ruled 9 to 0 in favor of a stricter interpretation of that key provision, helping precipitate the AEP settlement, Walke says.

The settlement makes other government-utility deals more likely, he adds, in part because it deals a further blow to power companies' longstanding claim that the New Source Review does not require additional pollution controls after new plant equipment is installed, as long as hourly pollution levels don't rise.

In a statement, AEP officials said the company had done nothing wrong, but that for business reasons it was best to get the dispute resolved.

"We have remained firm in our belief that we operated our plants in compliance with the New Source Review provisions," said Michael Morris, AEP's chief executive officer. "That remains our position today."

Besides cutting 79 percent of SO2 and 69 percent of NOx emissions from 16 coal-fired plants in five states, the company also agreed to pay a $15 million civil penalty as well as $60 million to help fix environmental damage to Maryland's Chesapeake Bay and the Shenandoah National Park in Virginia.

While unhappy over the civil penalty, Mr. Morris noted that resolving the case produced "an excellent outcome for our shareholders."

Federal officials also cheered the agreement.

"The AEP settlement will have an unprecedented impact on air quality in the eastern United States," said Ronald Tenpas, acting assistant attorney general for the Justice Department's Environment and Natural Resources Division in a statement.

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