Clayton Hale

October 14, 2007

On October 9, 2007, the American Electric Power Company ("AEP") agreed to a multi-billion dollar settlement with the Environmental Protection Agency ("EPA"), eight states, and twelve environmental organizations. The settlement is a product of a lawsuit filed in 1999 by the EPA and the other plaintiffs. The suit alleged that AEP violated the Clean Air Act's New Source Review provisions by illegally modifying and upgrading their power plants. As a result of the settlement, AEP must spend $4.6 billion on pollution control devices at their power plants nationwide. These measures will significantly reduce the amount of nitrogen oxide and sulfur dioxide released to the air. Nitrogen oxide and sulfur dioxide emissions are two main causes of acid rain and ozone depletion.

In addition to adopting new pollution control methods, AEP must pay a civil fine of $15 million. Also, AEP agreed to spend $60 million for environmental protection and clean up projects. As part of the $60 million, AEP will spend: (1) $21 million on reducing emissions from transportation vehicles; (2) $24 million on energy reduction and alternative energy projects; (3) $3 million earmarked for Chesapeake Bay cleanup; (4) $2 million dollars toward preserving the Shenandoah National Park; and, (5) $10 million dollars to acquire and protect ecologically sensitive lands in Appalachia.

Both sides to the settlement claim victory. The EPA stated that this settlement, aimed at protecting human health and the environment, is the largest of its kind in U.S. history. In addition to the obvious environmental benefits derived from this settlement, EPA and the Federal Government claim that the general public will save approximately $32 billion per year in health care costs and publicly funded environmental cleanups. Although both sides agree that the cost of the settlement will not affect AEP's profitability, EPA believes that the settlement will provide strong precedent for future environmental lawsuits.

Although AEP is required to spend over $4 billion as a result of the settlement, the company claims that it and its customers will benefit from this settlement. An AEP spokesperson stated that the company already began updating their plants to make them cleaner. Thus, their position is that the settlement requires them to take action that the company already planned on undertaking. AEP also claims, contrary to assertions by Paul Justice, a financial analyst in Chicago, that the settlement will save money for its customers. Supposedly, the costs and uncertainty of litigation would be more expensive then the small increase in rates. Now, AEP argues that its customers can accurately rely on the cost of their service.

Sources:

Daniel Cusick, AEP Settlement Ends Long Battle Over Power Plant Upgrades, Oct. 9, 2007, http://www.earthportal.org/news/?p=544 (last visited Oct. 11, 2007).

Lara Jakes Jordan, Settlement Reached in Acid Rain Case, Oct. 9, 2007, http://news.yahoo.com/s/ap/20071009/ap_on_go_ot/clean_air_lawsuit (last visited Oct. 11, 2007).

Kevin Mayhood, Breathing Easier: Government says AEP's Settlement will Save Billions by Improving Our Health, Oct. 10, 2007, http://www.dispatch.com/live/content/local_news/stories/2007/10/10/aep.ART_ART_10-10-07_A1_IM853O6.html (last visited Oct. 11, 2007).