Ken Silverstein EnergyBiz Insider Editor-in-Chief

The uncertainty and confusion are therefore mounting. The lawsuits, initially filed during the late 1990s under the Clinton administration and against 51 separate sites, say that utilities owning coal-fired power plants made modifications to their facilities that increased their output and without installing the required pollution controls. Utilities, by contrast, say that they were performing routine maintenance and are therefore not required to install such expensive equipment in those cases.

The Bush administration's Justice Department has said that the Clinton administration's legal view of the so-called New Source Review (NSR) provision of the Clean Air Act is "supported by a reasonable basis in law and fact." That said, the current president has sought to clarify the rules so that utilities could maintain their plants without fear of lawsuits that could entangle the process for years to come and prevent basic remediation, or clean up efforts. That course of action, however, has set off a firestorm of protests from environmentalists who say that anything less than just enforcing the provisions of the Clean Air Act is tantamount to selling out to the utilities.

In the meantime, the battle lines are drawn. In Duke's case, the Environmental Protection Agency had alleged that it violated NSR pre-construction permitting of the Clean Air Act when it undertook 29 component replacement projects at its coal-fired power plants between 1998 and 2000. EPA alleged that Duke's projects were "major modifications," or "physical changes" that resulted in a "net emissions increase." Duke, however, countered that its endeavors were not subject to NSR laws because they were "routine maintenance, repair and replacement" that did not result in a net emissions increase.

The United States Fourth Circuit Court of Appeals last week affirmed an earlier ruling from the U.S. District Court of North Carolina in favor of Duke Energy in the EPA's clean air enforcement litigation brought against the company in 2000. Likewise, Alabama Power, a subsidiary of Southern Co., prevailed in its case against the EPA. A U.S. district court ruled that routine maintenance applies to projects "performed commonly within the industry." The case was decided in June.

"We have vigorously defended our rights in this case and we have prevailed," says Duke Power President and Chief Executive Officer Ruth Shaw. "More importantly, we continue to do our level best to meet electric power demand in ways that are both economical and environmentally sound."

Strategies Vary

But other courts have interpreted the Clean Air Act differently. Take Cinergy, which had reached an agreement with EPA only to see parts of it unravel: In December 2000 it agreed to spend $1.4 billion installing scrubbers at its existing coal-fired plants by 2007 as well as pay millions in fines. Now, though, EPA is insisting that the utility spend $400 million more on two additional scrubbers--something which Cinergy refuses to do at this point. And so the fight continues and just last week, a lower court in Indiana sided with the EPA.

Meantime, American Electric Power is moving closer to trial. That is the government's largest clean air suit with 9 of the utility's facilities in the limelight and in four different states. The U.S. District Court for the Southern District of Ohio is hearing the case. And that's the same judge who ruled against FirstEnergy in an earlier NSR suit. The judge in that case determined that the $136.5 million spent resulted in a "significant increase" not only in the output of one of FirstEnergy's plants but also in its pollution levels.

What's the difference between the Duke and Alabama Power cases and the FirstEnergy and Cinergy cases? Alabama Judge Virginia Emerson Hopkins acknowledged that the issues are the same and the arguments in all cases do overlap. But she wrote that the Duke decision was more "thorough, comprehensive and rigorous in its analysis, and therefore the more persuasive decision ..."

The NSR affects 17,000 U.S. industrial plants that include almost 600 coal-fired power facilities. When the original 1970 Clean Air Act passed, it was thought that many existing coal plants would shut down after they reached the end of their useful economic lives, and few suspected they would extend into a new century. As such, those plants were granted "routine maintenance" exemptions from the act.

Under a new rulemaking proposal from EPA, a power plant would only have to install controls if it increased its hourly pollution. That would allow plants to upgrade equipment to enable them to operate -- and to emit more pollutants -- for many more hours per year without installing new pollution controls, says the Natural Resources Defense Council. If the EPA adopts this proposal, the environmental organization says that the agency would be endorsing the utility companies' legal position in all of the clean air enforcement cases brought by EPA, states and citizens -- even though the agency has consistently opposed that position.

"By trashing this key provision of the Clean Air Act designed to protect our health, the EPA wants to grant power plants a 10- to 20-year delay to clean up smog, soot and mercury," said John Walke, the group's clean air director. The Electric Reliability Council disagrees, saying that the rule does not eliminate annual review of emission levels. It merely tries to clarify the law so as to avoid perpetual litigation.

Needless-to-say, the legal wrangling over the NSR provision will continue, with some analysts saying that there is no way the pending cases could be resolved before 2007. The latest decisions on the matter involving Duke and Cinergy indicate the verdict is still out on what the law of the land actually means.

Legal strategies to cope with the pending suits will vary from utility-to-utility. Some companies might think it is best to settle for less than what a judge or jury might determine and others might reason it is best to fight on and hope the regulatory environment changes in a way that might mitigate future financial damages.

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