The "Air Pollution Management" Newsletter

June 2008
No. 362

NSR Litigation

In the original CAA there was an exemption for existing power plants which were going to retire within a few years. However, instead of just setting a grace period as did Germany, Congress wrote a confusing clause that offered permanent exemption to any plant which did not modify or try to extend the life of its plant. This clause called “New Source Review” requires any existing plant to report modifications and life extension expenditures. These plants would then face the same requirements as new plants.

The intention of the law was to give operators a few years to retire old plants. No one would have predicted that this would be extended for 38 years on plants already beyond their 20-year normal lifetime. Now we have 50-year-old plants whose life has been extended by decades.

In the 1990s EPA discovered that most if not all the utilities with older plants had not reported modifications and life extensions. These plants are liable to penalties dating from the time of the first modification or life extension. Subsequently, court opinion has set such a low bar that almost every plant was a violator within a few years of the original ACT.

During the Clinton Administration a series of lawsuits was launched. The petroleum industry was the first target. After several successful suits the remainder of the industry voluntarily settled with EPA.

Attention was then focused on the power plants. After some successful settlements it appeared that the rest of the industry would voluntarily settle. Then the Bush Administration arrived on the scene and wanted to redefine the interpretation of NSR. This should have had no effect on past violations. But the Dept. of Justice became less aggressive and only a few lawsuits did go forward.

The recent AEP settlement was significant because of its size. The First Energy settlement was significant because it was the first time a court ruled on a case. Previously all the suits were settled prior to trial. In this case the agreement for 90 percent control was higher than the agreements in previous settlements.

In 2007 American Electric Power (AEP) reached a settlement agreement with the U.S. Environmental Protection Agency (U.S. EPA). Under terms of the settlement agreement filed in the U.S. District Court for the Southern District of Ohio, AEP agreed to annual SO2 and NOx emissions limits for its fleet of 16 coal-fired power plants in Indiana, Kentucky, Ohio, Virginia and West Virginia.

Additionally, the company agreed to install additional emissions control equipment on two plants. AEP will pay a civil penalty of $15 million. AEP agreed to annual SO2 and NOx emissions limits for its fleet of 16 coal-fired power plants in Indiana, Kentucky, Ohio, Virginia and West Virginia. There are penalties should AEP fail to comply with the settlement, which requires the company reduce and cap SO2 and NOx emissions by more than 813,000 tons annually.

The agreement calls for a 79 percent reduction in SO2 emissions, responsible for acid rain, from 2006 levels by 2018. In addition it requires a 69 percent cut in emissions of NOx from 2006 levels by 2016. AEP also agreed to install SCR and FGD emissions control equipment on both generating units at its Rockport Plant in Rockport, Indiana. Unit 1 at Rockport will be retrofitted with an SCR system to reduce NOx and a scrubber to reduce SO2 by the end of 2017. Unit 2 at Rockport will receive the same equipment by the end of 2019.

To reduce SO2 emissions AEP committed to complete the previously announced scrubbers for its Big Sandy and Muskingum River plants by December 31, 2015. AEP also agreed to plant-specific SO2 emission limits for its Clinch River Plant, and it’s Kammer Plant near Moundsville, WV. Since 2004, AEP has spent nearly $2.6 billion on installation of emissions control equipment on its coal-fired plants in Kentucky, Ohio, Virginia and West Virginia as part of a larger plan to invest more than $5.1 billion by 2010 to reduce the emissions of its generating fleet. The cost of the additional environmental controls for Rockport and Clinch River agreed to in the settlement will be approximately $1.6 billion (net present value).

FirstEnergy Corp. has agreed to spend $1.1 billion to drastically cut pollution from the W.H. Sammis power plant found to be in violation of NSR regulations. Under the agreement FirstEnergy will reduce emissions by at least 90 percent by 2010 for SO2 and NOx. The plan calls for switching immediately to burning low-sulfur coal and installing FGD at Sammis and for cutting emissions at several other FirstEnergy plants. This agreement is important for two reasons. First it underlines the resolve of the Administration to pursue past NSR violations. Second it sets a new bar of 90 percent rather than the 70 percent in previous consent agreements.

Judge Sargus, in a 109-page opinion, said Ohio Edison's (now FirstEnergy) Sammis plant clearly went beyond routine maintenance with a series of 11 construction projects. The projects cost the company about $136.5 million and resulted in a "significant increase" in the electricity output of the plant as well as emissions of sulfur dioxide and nitrogen oxides, he wrote. FirstEnergy accounted for the $136.5 million as capital costs, not maintenance expenses. It also hired outside contractors to do most of the work instead of using in-house maintenance crews, the court said. "When coal-fired generating plants undertake activities at a unit which are not frequent, which come at a great cost, which extend the life of the unit and which require the unit to be placed out of service for a number of months, such activities can hardly be considered 'routine'," Sargus said.

The judge had this to say about EPA. "It is also evident from the record in this case that various electric utilities and industry organizations have sought within legal bounds to influence the conduct of the EPA," the judge said. "What should be unexpected and condemned, however, is an agency unwilling to enforce a clear statutory mandate set forth in an act of Congress."

An important question is to what extent this ruling is applicable to other plants built prior to 1970. The answer is that it appears to be sweeping enough to indict any plant which did enough maintenance to extend the life until 2003. The judge ruled that maintenance that results in a reduction of forced outages results in higher emissions. In other words, if availability rises, so does the capability to emit. He said that the distinction between routine maintenance and a modification to trigger compliance is hardly subtle. Routine maintenance involves no permanent improvements, is limited in expense, is usually performed by in-house employees, and is treated for accounting purposes as an expense.

In contrast, capital improvements generally involve more expense, are large in scope, often involve outside contractors, involve an increase of value to the unit, are not undertaken with regular frequency, and are treated as capital expenditures. One clue for other utilities about their fate is association with the EPRI life extension strategy. This program was cited by the government and by the judge. EPRI conferences on this subject indicated that the design life was 30 years. However, with life extension older plants can be retained for 50 to 60 years. Judge Sargus ruled for EPA on all eleven counts. This included some minor and some major expenditures.

One example is the 1993 scheduled outage on Unit l. Ohio Edison replaced three banks of horizontal reheater tubes for $2 million. It also replaced furnace ash hopper boiler tubes for another $2 million. With an additional cost for replacing super heater outlet headers the cost came to $6.1 million, so even this relatively minor project should have triggered NSR. A larger project was the replacement of the vertical tube furnace with a spiral tube furnace on Unit 5 in 1984. Low NOx burners were also installed for a total project price of $12 million.

Another big project was the replacement of the CR 77 pulverizers with MPS pulverizers on unit 6. This was a $16 million project The court cited other decisions as support for its conclusion that “the government has proven its case by a preponderance of evidence and accordingly the court finds with respect to all eleven projects that Ohio Edison is in violation of the CAA.”

Relative to the argument that Ohio Edison did not have fair notice it cites Chevron U.S.A. v. Natural Resources Defense Council and United States v. Southern Indiana Gas and Electric Co. Relative to the definition of routine maintenance, the court cited the WEPCO rule. Routine maintenance was also explained as very narrow (de minimus) in Alabama Power Co. v. Costle.

In its summary, the court found that most of the 11 projects would result in a net increase of NOx and SO2 emissions. Two of the activities would result in increases in PM10 emissions.

These determinations are significant because they indicate that every power plant which has operated an older plant for any length of time will trigger NSR. Thus every power plant in the country is probably guilty of triggering NSR and not reporting it.

There is a consensus that continued litigation against each utility is not the best method of resolving the situation. But in absence of a new CAA the odds are seven to one that NSR alone will cause the installation of NOx control in the next 15 years and probably in the next seven years (2015) at an individual plant which escapes control under other rules.



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