Ken Silverstein EnergyBiz Insider Editor-in-Chief

The law requires utilities that modernize or upgrade their facilities to get permits and to implement modern pollution control equipment. Utilities with a total of 51 facilities in question are now being sued by the Environmental Protection Agency. The power companies say that they are exempt because they are just fixing their plants.

EPA and the environmental community just won a case in the 7th U.S. Circuit Court of Appeals in Chicago. That court ruled that Cinergy Corp. had violated the Clean Air Act by modernizing plants so that they could run for longer hours.

Cinergy had agreed to settle its case in 2001 and to install pollution control devices worth $1.4 billion at the plants in question. But, it decided against such an investment when the Clinton administration was replaced by the more business-friendly Bush administration. Now, the Supreme Court will hear arguments on the disputed provisions contained in the Clean Air Act, albeit as it relates to Duke Energy that has since merged with Cinergy.

"Cinergy's suggested interpretation, besides not conforming well to the language of the regulation... would elude the permit requirement," Circuit Judge Richard Posner wrote for a three-judge panel of the federal appeals court.

Several cities and states -- mostly in the West and Northeast -- have complained that the plant operators used the 'routine maintenance' exemption to make 'major modifications.' That led to lawsuits in 1999, affecting 17,000 industrial facilities that include 600 coal-fired power generators. The Bush administration tried to clarify the so-called New Source Review provision of the Clean Air Act to mean that power plants could avoid installing new pollution controls if they modernized less than 20 percent of their operations.

President Bush says that the nation needs the additional generation capacity and the restoration of the older coal-fired power plants is an effective source. By loosening the New Source Revision restrictions, he said plant operators would be more inclined to revamp their plants -- adding the needed pollution controls -- without fear of being sued.

To complicate the matter, Duke Energy has been vindicated. In that 4th Circuit case, the EPA had alleged that Duke violated the law when it undertook 29 component replacement projects at its coal-fired power plants between 1998 and 2000. EPA said 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 such laws because they were "routine maintenance, repair and replacement" that did not result in a net emissions increase.

Mixed Rulings

Trade group Environmental Defense asked the United States Supreme Court to review the Richmond-based Fourth Circuit case involving Duke. It is specifically asking the High Court to decide whether the Clean Air Act requires the EPA to interpret the term "modification" in the New Source Review program to encompass changes that result in actual overall increases in air pollution.

Vickie Patton, senior attorney for Environmental Defense, praised the Chicago appeal's court ruling involving Cinergy, saying it will have an influence on the ultimate fate of the New Source Review. "The court's strong, clear decision also puts its considerable weight behind a protective interpretation of the Clean Air Act's clean up requirements for coal plants at the same time that the Supreme Court is considering a major case presenting these very questions."

The Supreme Court will also consider another federal judge's decision on this issue -- one involving Alabama Power Co., a subsidiary of Southern Co. Just recently, A U.S. district court reaffirmed that routine maintenance applies to projects "performed commonly within the industry." Judge Virginia Hopkins said not only that the power company was not required to install new pollution control equipment but also that its emissions would be measured at an "hourly rate" that the utility had sought and not at annual totals that the EPA and other plaintiffs had wanted.

The issues between the Duke Energy and Alabama Power cases and that of Cinergy do overlap, Judge Hopkins wrote. But, she added that the Duke decision was more "thorough, comprehensive and rigorous in its analysis, and therefore the more persuasive decision." Judge Posner, who presided over the Cinergy case, disagrees and writes that the Fourth Circuit that ruled in the Duke case overstepped its bounds and that "the argument's premise is incorrect."

Meantime, American Electric Power is scheduled to go 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 New Source Review 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.

Ben Zeismer, with Jacobs Consultancy in Houston, says that the Bush administration is not trying to eliminate annual review of emission levels. It is merely trying to clarify the law so as to avoid perpetual litigation. He says that the EPA has intentionally misconstrued the definition of "repairs" and renamed them as "modifications" or "upgrades" in its pursuit to require prior approval of anything power plants do. "When you get a brake job done on your car, do you tell people that you upgraded or modified your car?

The issue will soon be before the High Court. And 30 years after the New Source Review provisions were added to the law, utilities will know what is required of them.

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