Hoosier Energy, an Indiana-based rural cooperative, on Friday reached an agreement with the U.S. Environmental Protection Agency (EPA) and the Indiana Department of Environmental Management (IDEM) to resolve alleged New Source Review (NSR) violations of the Clean Air Act.

The cooperative, which provides power to 17 member cooperatives in central and southern Indiana and one in Illinois, agreed to pay a $950,0000 civil penalty and complete emission reduction projects at coal-fired power plants over the next eight to ten years that will further reduce sulfur dioxide, nitrogen oxide, sulfuric acid, and particulate emissions.

Under terms of a proposed consent decree filed in the U.S. District Court, Southern District of Indiana, Hoosier Energy will maintain flexibility in operating its generating stations to produce reliable power for member electric cooperatives and their consumer-owners. But it will also provide approximately $5 million for other programs to benefit the environment.

Hoosier Energy claims that it has already made significant environmental upgrades. It said that it produces 20% more power today than 10 years ago, while emissions have been reduced by more than 50%.

“The generation and transmission cooperative, which has earned state and national recognition for environmental outreach programs, maintains it has been and remains in compliance with the Clean Air Act and that routine power plant activities have not violated New Source Review provisions,” it said.

However as Chief Executive Officer Steve Smith noted, “The settlement agreement is in the best interests of our members and their consumers in southern Indiana and Illinois.” Smith said that the agreement would remove “litigation risk and uncertainty,” and enable the cooperative to “focus on power supply operations and reliability, and minimizes cost and rate impacts to consumers.”

Terms of the settlement allow Hoosier Energy to maintain operating flexibility at the 250-MW Frank E. Ratts Generating Station in Pike County. The cooperative also agreed to enhance and add environmental equipment to further reduce emissions at the 1,000-MW Merom Generating Station in Sullivan County.

“Projects addressed in the consent decree, and related costs, are consistent with the types of projects in Hoosier Energy’s five year plan. The EPA-required projects in the settlement will add $50 million to $100 million to already budgeted costs for improvements to environmental equipment,” the cooperative said in a statement.

The EPA issued a Notice of Violation (NOV) on August 26, 2009, alleging that Hoosier Energy power plant maintenance projects had violated NSR provisions of the Clean Air Act. The settlement agreement was reached after 10 months of negotiations.

As part of the 1977 Clean Air Act amendments, NSR is a preconstruction permitting program that requires existing sources of emissions to receive a permit when facilities are modified, and if modifications could result increased emissions. What constitutes a modification has been disputed by the EPA, utilities, industrial groups, and environmental interest organizations.

Sources: Hoosier Energy, POWERnews