American Electric Power Co., based in Columbus, Ohio, also will be required to reduce the emissions by at least 69 percent over the next 10 years and pay an additional $15 million (EUR 10.65 million) in civil penalties and $60 million (EUR 42.59 million) in cleanup and mitigation costs to help heal polluted parkland and waterways.
The settlement was filed Tuesday in federal court in Columbus, Ohio as a six-week trial was scheduled to begin before U.S. District Judge Edmund Sargus.
"This settlement is an excellent outcome for our shareholders," said Michael Morris, AEP's chairman, president and CEO, in a statement. "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."
Representatives of the Justice Department and the Environmental Protection Agency declined to comment.
The settlement marks one of the largest government fines in an environmental case. By contrast, Exxon Mobil Corp. estimates it has paid $3.5 billion (EUR 2.48 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 (EUR 1.77 billion) in punitive fines.
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.
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 (EUR 3.26 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 (EUR 10.65 million).
- Pay $60 million (EUR 42.59 million) in mitigation measures.
AEP was adamant that it had not violated the Clean Air Act, its spokesman Pat Hemlepp said Monday night. The company had opposed the $15 million (EUR 10.65 million) civil penalty but did not have to admit guilt as part of the settlement, he said.
Hemlepp said the company planned to spend only $1.6 billion (EUR 1.14 billion) in improvements under the terms of the settlement. Emissions-reducing devices would be installed in two plants in Indiana and Virginia for that cost, he said.
Hemlepp speculated that the $4.6 billion (EUR 3.26 billion) figure given to the AP includes money that AEP has already committed to cleanup efforts. The company has already budgeted an estimated $5 billion (EUR 3.55 billion) through 2010, and those improvements "include things we've already done or committed to do or already budgeted, even before the settlement," he said.