From: Reuters
Published October 9, 2007 07:17 AM

AEP says Settles Long-Running U.S. Acid Rain Suit

LOS ANGELES - U.S. power generator American Electric Power has settled an eight-year legal battle over acid rain with the U.S. government and other plaintiffs, but the agreement will not change the company's 2007 earnings, a spokesman said on Monday.

It agreed to pay $15 million in civil penalties and $60 million in pollution cleanup costs to end the long-running dispute about whether AEP illegally modified power plants and spewed acid rain producing chemicals across the northeastern United States.

AEP's biggest expense as a result of the suit will not start until 2017, spokesman Pat Hemlepp told Reuters by telephone. The company will spend $1.6 billion, in current dollars, primarily to upgrade a major coal-fired power plant in southern Indiana.

"That is the biggest portion beyond anything we had already announced or committed to," he said, adding that recent financial forecasts and capital spending plans would not be affected by the deal.

The Associated Press had quoted two people as saying AEP would pay $4.6 billion to cut pollution, but Hemlepp said the figure was not accurate.

"This ends all litigation on this," Hemlepp said, adding that the deal would be formally announced on Tuesday morning.

AEP admits no wrong in the settlement. Hemlepp said that the company decided it was best to settle the suit rather than to drag it out any further.

The suit, brought in 1999, accused AEP of expanding or modifying its older plants without installing pollution-control equipment that would have curbed emissions that cause acid rain.

The suit involved nine of the oldest coal-fired plants of the Columbus, Ohio-based power generator. Those plants are in Indiana, Ohio, Kentucky, Virginia and West Virginia.

AEP, with 38,000 megawatts of power generating capacity, is one of the largest power producers in the United States. About two-thirds of AEP's power is made by burning coal, which creates emissions that cause acid rain, including nitrogen oxide and sulfur dioxide.

The eight states mainly from the U.S. Northeast involved in the suit are the ones that claim they are affected by the acid rain caused by the coal-fired AEP plants in other states. The states that joined the suit are New York, New Jersey, Maryland, Connecticut, Massachusetts, New Hampshire, Vermont and Rhode Island.

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There are 14 environmental groups involved in the suit. Attempts to reach the Environmental Protection Agency and other plaintiffs were not successful.

AEP is among the utilities that have long fought the Environmental Protection Agency and so-called "new source review." Set up in the 1970s by various provisions of the Clean Air Act, new source review requires new plants or substantial expansion to existing plants -- the sources of emission -- have preconstruction environmental reviews.

Environmentalists have long charged that utilities, including AEP which has one of the largest fleets of older coal-fired plants, went ahead with expansions without seeking new source reviews.

The utilities and the EPA have fought over what type of expansions are to be included in the new source reviews for three decades. The Clinton administration settled many of the battles between utilities and the EPA but President George W. Bush's administration threw out those agreements.

Hemlepp said AEP has not violated the process and is cleaning up its fleet already, without pressure from the lawsuit it has now settled.

He said that AEP would stick to its forecast of $2.90 to $3.00 ongoing earnings per share in 2007, and the agreement would not affect the 2008-2010 capital spending plan, he added.

"We still strongly feel we did not violate the new source review regulations," Hemlepp said.

(Additional reporting by Leonard Anderson in San Francisco and Peter Henderson in Los Angeles)

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