UTILITY GIANT TO PAY $4.6 BILLION IN LANDMARK POLLUTION CASE

by J.R. Pegg

(ENS) WASHINGTON -- One of the nation's largest electric utilities has agreed to spend $4.6 billion to reduce harmful air emissions from 16 coal-fired power plants, ending an eight year legal battle over alleged violations of the Clean Air Act.

Federal officials called the agreement with American Electric Power, AEP, the largest environmental settlement in U.S. history and said it would dramatically improve air quality in the eastern United States.

The settlement also requires AEP to pay a $15 million civil penalty and spend $60 million on projects to remediate some of the environmental damage from past emissions.

"This settlement fulfills the best hopes of the Clean Air Act and provides a demonstrably better future for our citizens," said Ron Tenpas, acting assistant attorney general for the Justice Department's environment and natural resources division.

The federal government, joined by eight states and 14 citizen groups, filed suit against the AEP in 1999, accusing the company of making major modifications to power plants without acquiring the proper permits and or installing new pollution controls as required by the New Source Review provisions of the Clean Air Act.

The suit alleged that the changes made by AEP to nine facilities in Indiana, Kentucky, Ohio, Virginia and West Virginia resulted in increased emissions of air pollutants that cause smog and acid rain.

AEP, which provides electricity to more than five million customers in 11 states, denied the allegations, arguing that the modifications made at the plants in question were maintenance activities that are exempted from the New Source Review requirements.

The Ohio-based company maintains that position, CEO Michael Morris said in a statement released today.

"But we have also said that we would be willing to consider ways to reasonably resolve these issues," Morris added. "This consent decree represents such a resolution."

AEP noted that it has already spent more than $3 billion on new pollution controls and plans to spend another $2 billion on additional scrubbers and emission reducing equipment by 2010.

"While we would have preferred that the agreement not include a civil penalty É this settlement is an excellent outcome for our shareholders," Morris added. "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."

Tenpas rebuffed the suggestion that AEP had already committed to the activities outlined in the settlement.

"Those things were not in its in the plans in 1999 when this case was first brought," he told reporters at a news conference Tuesday. "Plans change and there is obviously a big difference between a company saying it has plans to do something in the future and a company being bound by an order of the court to take those steps."

A trial on liability was held in July 2005 in U.S. District Court for the Southern District of Ohio, but no decision has been rendered.

Tenpas added that there are penalties should AEP fail to comply with the settlement, which requires the company reduce and cap sulfur dioxide and nitrogen oxide emissions by more than 813,000 tons annually.

The agreement calls for a 79 percent reduction in sulfur dioxide emissions, responsible for acid rain, from 2006 levels by 2018.

In addition it requires a 69 percent cut in emissions of nitrogen oxide, a key ingredient in smog, from 2006 levels by 2016.

The result will be cleaner air for mid-Atlantic and Northeastern states and should save some $32 billion annually in public health costs, said Grant Nakayama, U.S. Environmental Protection Agency assistant administrator for enforcement and compliance assurance.

"Less air pollution from power plants means fewer cases of asthma and other respiratory illnesses," Nakayama said. "This is truly an historic day for the United States."

Some $24 million of the money earmarked for environmental remediation projects outlined in the settlement will be distributed among the states who joined the litigation -- Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. Projects include efforts to clean up lands in Shenandoah National Park as well as waters of the Chesapeake Bay.

"This is a significant outcome for the quality of life and health of all New Jersey residents," said state Attorney General Anne Milgram. "Over time, New Jersey has taken any number of regulatory steps to reduce its own sources of pollution. However, emissions from upwind, coal-fired plants such as those impacted by this agreement have continued to pose a safety and health threat. This agreement will result in a substantial reduction in those potentially harmful emissions, and at the same time provide funding for projects that are environmentally beneficial."

Environmentalists praised the settlement, noting that it forces AEP to make improvements at its plants rather than allowing it to purchase pollution credits or allowances.

"After years of trying to evade installing proper pollution controls, AEP is finally cleaning up their old power plants," said Carl Pope, executive director of Sierra Club." The massive reductions in smog, fine soot and acid rain from these plants will profoundly benefit both public health and the environment."

Sierra Club was one of 14 public interest groups that also joined the settlement as plaintiffs, along with Natural Resources Defense Council, National Wildlife Federation, United States Public Interest Research Group, Izaak Walton League of America, Ohio Citizen Action, Citizens Action Coalition of Indiana, Hoosier Environmental Council, Ohio Valley Environmental Coalition, West Virginia Environmental Council, Clean Air Council, Indiana Wildlife Federation, and the League of Ohio Sportsmen.