Duke to Spend $93 Million to Settle Clean Air Act Violations at Ind. Plant

Duke Energy this week agreed under a settlement with the Environmental Protection Agency (EPA) and the U.S. Department of Justice (DOJ) to spend $93 million to resolve Clean Air Act violations at its coal-fired 560-MW Gallagher Station in New Albany, Ind.

The company will spend about $85 million to reduce air pollution at the power plant and pay a $1.75 million civil penalty, the federal agencies said. The settlement also requires Duke to spend $6.25 million on environmental mitigation projects.

As part of the settlement filed in federal court in Indianapolis, Duke Energy can continue to operate the power plant and has the option to either convert Units 1 and 3 at the Gallagher plant from coal to natural gas or retire the units. The Charlotte, N.C., based company said in a statement on Tuesday that it would convert the units to gas, but no final decision was required until Jan. 1, 2012. The settlement also requires that Duke install new pollution controls for sulfur dioxide (SO2)  at the other two units at the plant, Units 2 and 4. Duke also said it would switch to using “lower sulfur fuel at the plant.”

Duke estimates the cost to convert the units to natural gas and install additional pollution controls will be approximately $80 million. In addition to resolving litigation, the steps would “help the company comply with future federal rules that are anticipated to further limit power plant emissions,” Duke said.

According to the EPA, the settlement is expected to reduce SO2 emissions at the Gallagher Plant by almost 35,000 tons per year, an 86% reduction when compared to 2008 emissions.

The $6.25 million spent on environmental mitigation projects includes $250,000 for the U.S. Forest Service to address acid rain in downwind national forests, $5 million for one or more additional projects such as conversion to hydro generation or hybrid vehicle fleets, and $1 million for environmental mitigation projects to be allocated among the states that joined the settlement.

Duke said it would invest $5 million of those funds in an upgrade to expand the power output of the company’s 81-MW Markland Dam hydroelectric power plant near Vevay, Ind. The company said it had been exploring a 20% expansion of the Markland facility, and that this settlement facilitates that effort. That expansion will need Indiana Utility Regulatory Commission approval.

"This is a reasonable settlement that resolves some long-standing issues, advances our two-decades long effort to improve air quality in the region, and positions us to comply with increasingly stringent environmental regulations" said Jim Turner, president and chief operating officer of Duke Energy’s Franchised Electric and Gas business.

The settlement includes civil penalties of $1.75 million and the surrendering of SO2 emission allowances during the conversion period of the units from coal to gas. The value of the emission allowances and fuel switch will depend on market prices. As part of the settlement, the government agreed not to pursue further litigation for past Gallagher maintenance projects.

The litigation stems from an effort that began in 1999 when the EPA filed a number of environmental enforcement actions across the utility industry. In this case, the EPA alleged that Cinergy, which merged with Duke Energy in 2006, undertook six power plant upgrades in Indiana and Ohio without obtaining new permits. The government alleged that the company’s work did not qualify as routine maintenance and that Cinergy should have predicted that the projects would increase emissions at the plants.

In May, a jury found in favor of the company for one project at its Gibson plant near Princeton, Ind., two projects at its Beckjord Station in New Richmond, Ohio, and one project at its Gallagher Station in New Albany, Ind. The jury ruled against two other Gallagher projects, which prompted the settlement announced today. A trial to determine what remedies the company should take at Gallagher had been scheduled for January.

The settlement is the seventeenth reached by the  EPA and DOJ as part of a national enforcement initiative to control harmful emissions from coal-fired power plants under the Clean Air Act’s New Source Review requirements. The federal bodies said that “the total combined SO2 and nitrogen oxides emission reductions secured from these settlements will exceed nearly 2 million tons each year once all the required pollution controls have been installed and implemented.”

The states of New York, New Jersey, and Connecticut, as well as the Hoosier Environmental Council and the Ohio Environmental Council, joined the federal government in the settlement lodged in the U.S. District Court for the Southern District of Indiana. The agreement is subject to a 30-day public comment period.

Sources: Duke Energy, EPA, DOJ

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