AEP to Pay $4.6 Billion to Cut Chemical Emissions

A major power generator agreed in a court settlement Tuesday to spend $4.6 billion to reduce chemical emissions blamed for spreading smog and acid rain across the Northeast.

Ending a prolonged legal battle with the government over air pollution, American Electric Power agreed to major reduction in emissions at its power plants, a move that government lawyers said could save $32 billion in annual health costs to treat lung problems caused by the pollution.

AEP said it had already committed to spending at least $5 billion in so-called scrubbers and other tools to reduce emissions. Failure to comply could result in daily penalties of hundreds of thousands of dollars, according to the government attorneys, who spoke on condition of anonymity because they were not authorized to speak publicly about the settlement. They also described the $4.6 billion figure as conservative.

The settlement was unsealed in front of U.S. District Judge Edmund Sargus in Columbus, Ohio, where AEP is based and where a liability trial against the company had been scheduled to start Tuesday. The Justice Department and the Environmental Protection Agency were announcing the agreement in Washington later in the morning.

AEP's chairman, president and CEO, Michael Morris, called the settlement "an excellent outcome for our shareholders." Under the settlement's terms, AEP also will spend $60 million in cleanup and mitigation costs to help heal polluted parkland and waterways.

"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 in a statement.

The EPA, a dozen environmental groups and eight states -- Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont -- brought the lawsuit against AEP in 1999 during the Clinton administration. They accused the energy company of rebuilding coal-fired power plants without installing pollution controls as required under the Clean Air Act.

In all, the government brought eight lawsuits against polluters accused of violating the Clean Air Act. Four are still ongoing, and AEP was considered the largest polluter of the bunch, government attorneys said.

The settlement marks one of the largest government fines in an environmental case. By contrast, Exxon Mobil estimates it has paid $3.5 billion in cleanup costs, government settlements, fines and compensation for the 1989 Exxon Valdez oil spill. The company is fighting an additional $2.5 billion in criminal punitive fines.

The settlement sends a clear message that protecting public health means cutting emissions from coal-fired power plants, said Sandy Buchanan, executive director of Ohio Citizen Action, one of the groups that brought the 1999 lawsuit.

"Citizens of the five states and our downwind neighbors have just won an unprecedented public health victory," Buchanan said. "We regret that it took eight years and a legal two-by-four to get AEP's attention."

Environmentalists blame acid rain caused by coal-fired power plants for plaguing the Northeast over the last quarter-century, including damage that has eaten away at the Statue of Liberty and the Adirondacks mountain range in upstate New York. Smog and acid rain have been linked to sulfates and nitrates that are products of coal-fired plants.

AEP has more than 5 million customers in 11 states. It has agreed to clean up 46 coal-fired operations in 16 of the plants in its eastern system -- a group likely to include at least nine plants in Ohio, Indiana, Virginia and West Virginia.

AEP has maintained that the work in at least some of its plants was routine maintenance that didn't fall under federal requirements for pollution controls.

The settlement requires AEP to:

-- Spend $4.6 billion on so-called scrubbers and other pollution controls to reduce emissions of nitrogen oxide and sulfur dioxide, which cause acid rain and smog.

-- Cut nitrogen oxide emissions by 69 percent by 2016, and reduce sulfur dioxide emissions by 79 percent by 2018.

-- Pay civil fines of $15 million.

-- Pay $60 million in mitigation measures. The money includes $21 million to reduce emissions from barges and trucks in the Ohio River Valley; $24 million for projects to conserve energy and produce alternative energy; and $3 million for the Chesapeake Bay, $2 million for Shenandoah National Park and $10 million to acquire ecologically sensitive lands in Appalachia.

AEP said it had not violated the Clean Air Act. The company had opposed the $15 million civil penalty but did not have to admit guilt as part of the settlement, a spokesman said.