EPA vs. AEP

The largest environmental settlement on record or the largest environmental spin job on record?

I'm still trying to figure that one out, what with the EPA settling a lawsuit against American Electric Power.

Here are the details, beginning by quoting a news release from the U.S. Department of Justice:

On October 9, 2007, the United States, eight states, and thirteen citizen groups announced a settlement agreement with American Electric Power (AEP) under the Clean Air Act’s (Act) New Source Review (NSR) provisions that obtains relief at sixteen (16) of AEP’s coal-fired power plants (46 units) located in Indiana, Kentucky, Ohio, Virginia, and West Virginia.

By several measures this is the single largest environmental enforcement settlement. It is the largest environmental settlement as measured in terms of injunctive relief. As described in more detail below, it is estimated that AEP will spend more than $4.6 billion to comply with the consent decree. The settlement also is the largest as measured in terms of pollution reductions obtained from the owner or operator of a Clean Air Act stationary source(s). Upon full implementation, the settlement will secure at least 813,000 tons per year of air pollution reductions from AEP’s 16 power plants.

In 2006, nitrogen oxide (NOx) emissions at these 16 plants totaled 231,000 tons per year. By 2016, these AEP emissions will be reduced to 72,000 tons per year, continuing in perpetuity. In 2006, sulfur dioxide (SO2) emissions at these 16 plants totaled 828,000 tons per year. By 2018, these AEP emissions will be reduced to 174,000 tons per year, continuing in perpetuity. This SO2 reduction -- from a single settlement -- is more than the SO2 emitted from most states (45 out of 50). This reduction in emissions is one of the largest percentage decreases achieved in any of the United States’ prior settlements with coal-fired electric utilities, and it reflects a multibillion dollar investment by AEP.

The settlement requires the installation and continuous operation of pollution control technology such as selective catalytic reduction devices (SCRs) for the control of NOx and flue gas desulfurization equipment (FGD), also known as scrubbers, for the control of SO2 emissions.

In addition to the significant reductions of SO2 and NOx, AEP will pay a $15 million penalty, the highest penalty paid by any electric utility in settlement of a New Source Review case. Under the settlement, AEP also committed $60 million to perform or finance environmental mitigation projects.

Here is AEP's interpretation, based on a news release issued by the company today:

AEP also will provide $36 million for environmental projects coordinated with the federal government and $24 million to the states that were parties to the agreement for environmental mitigation. AEP will pay a civil penalty of $15 million.

The NSR provisions require new major sources of emissions or existing sources that undergo major modifications to install additional environmental controls. The complaint alleged that AEP made major modifications at some of its coal-fueled generating units without obtaining the necessary permits and without installing controls required by the Clean Air Act to reduce SO2, NOx and particulate matter emissions.

“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,” said Michael G. Morris, AEP’s chairman, president and chief executive officer. “That remains our position today.

“But we have also said that we would be willing to consider ways to reasonably resolve these issues,” Morris said. “This consent decree represents such a resolution. It recognizes the billions we have spent on environmental retrofits at our plants as part of ongoing business and the significant emissions reductions achieved at our plants. It also takes into account our existing plans for additional environmental retrofits on other plants. The mitigation projects included in the agreement are the types of activities that we have often undertaken on our own. And most importantly, this agreement enables us to make much-needed efficiency improvements at our plants without fear of additional NSR allegations.

“While we would have preferred that the agreement not include a civil penalty – a position we argued vigorously during our discussions with the plaintiffs – this settlement is an excellent outcome for our shareholders. 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,” Morris said.

So AEP will do what it says it was going to do anyway, only this time under pressure of a court order. That $15 million penalty? Based on the company's second quarter financial statement, that $15 million represents 5.3 days of profits for AEP.

The pollution reduction is necessary. How much of it was really on the construction schedule before all this, I know not at this point in time.

But I do know that I'll need a day or two to sort out the real news and the real significance of this from all the spin. Both sides can claim victory. Who really won? Right now, I can't say.

I have read one interpretation already that this case shows that the Clinton-era Justice Department, which filed the original suit, was much more vigilant about going after polluters than the Bush 43-era Justice Department. I'm looking for other interpretations. It's like global warming. I get the feeling everyone will read their own prejudices or talking points into this.

I do know that if this does hurt AEP in the pocketbook, we consumers will feel it eventually.