Settling the settlement question

Polluters, put your checkbooks away: The Air Quality Agency will not take a cash settlement in exchange for dropping a citation. At its Nov. 13 meeting, the agency board unanimously agreed that it will not negotiate pollution violations — although the door will remain open for settlements of penalty amounts.

Board attorney Jim Siemens summed up the new policy: “If a violator approaches me and says, ‘We’re willing to negotiate on the violation,’ my response would be, ‘I have no authority to negotiate on that. It’s the board’s policy that they don’t negotiate violations.’ If they approach me and say they want to negotiate the amount of the penalty, my response is I have no prior authority to negotiate the amount of that penalty; if you, however, can make an offer, I will relay that offer to [the board’s hearing officer],” who would pass it on to the board at its next public meeting.

The decision was prompted by a confrontation between the local regulatory agency and the largest pollution source under its jurisdiction, Carolina Power and Light’s coal-burning power plant at Lake Julian. A year ago — following the state-mandated reform of the air agency — an inspector conducting the agency’s first-ever surprise inspection of the plant issued the utility a Notice of Violation (NOV) after he observed that one of the plant’s smokestack monitors showed excessive sulfur-dioxide emissions. The company fought the NOV “on principle,” according to company attorneys and spokespersons — who didn’t deny the monitor readings, but objected that the plant was within its sulfur-dioxide limits when measured by the traditional method of analyzing the chemical content of a sample of coal once a month. They argued that the agency should have notified CP&L that it intended to measure compliance by other methods as well.

Then, in May — just before the company’s appeal was to reach a public hearing — CP&L’s attorneys quietly made an offer to Siemens to contribute $5,000 (double the amount of the penalty attached to the NOV) to the Clean Air Community Trust Fund the agency was then seeking to establish, with the tacit understanding that the agency would withdraw the violation in exchange.

The behind-the-scenes settlement offer from the powerful corporation polarized the agency board’s two Asheville appointees. Then-Chairwoman Nelda Holder told Xpress she felt that the “greater good” the settlement could produce made it worth considering, and that other regulatory agencies engage in the practice. (The EPA often makes environmental mitigation efforts, called Supplemental Environmental Projects, a part of its penalty settlements with major polluters — though it’s not clear how often, if ever, the EPA drops charges in exchange for a settlement.)

Hearing Officer Arlis Queen, however, asserted that opening NOVs to negotiation would render “ineffective … the only control we’ve got,” and demoralize the agency staff who issue NOVs. The board rejected the company’s offer and, after two public hearings, turned down its appeal. In the end, CP&L decided not to appeal further to Superior Court, and paid the $2,500 fine.

The AQA’s new policy puts it in line with North Carolina’s air-pollution regulators, at least.

“The [state] Attorney General can negotiate the amount of a civil penalty, and could settle it,” says Paul Muller, WNC regional director of the state Division of Air Quality. “We only rescind NOVs if we believe they are in error. If a company shows us data to prove they didn’t commit the violation, and we agree, we’ll withdraw it. [Otherwise] there’s no negotiation of an NOV, only the amount.” A source at the Attorney General’s office, who asked to remain anonymous, confirmed Muller’s statement.

Fines of $2,500, $5,000 — even $15,000, the maximum daily penalty the AQA is allowed to charge — may not seem like much of a deterrent for corporations making many times that much in profits every day. But Notice of Violations themselves, regardless of the penalties attached, do have the potential to affect a large company’s bottom line in a significant way.

Xpress contacted two utilities analysts at Standard and Poor’s bond-rating service to find out how a pollution violation might affect the rating of a company such as CP&L. Even more than its stock price, a company’s bond rating is an indicator of its financial health — the poorer the rating, the riskier an investment economic analysts consider the company to be for lenders (remember “junk bonds”?). A company with a low bond rating finds it much harder to raise capital than one with a strong rating.

According to the analysts — who asked to remain anonymous — a utility company’s rating “wouldn’t react” to a “single event” such as CP&L’s NOV, unless it led to the closure of a plant for a long enough time to depress the company’s bottom line. But they emphasized that they perform both “quantitative and qualitative analysis” of a company. A string of pollution violations, even if the accompanying fines were insubstantial, could very well cause analysts to investigate what the analysts called the “credibility” and “imprudence” of the company’s management, leading to the downgrading of its bond rating.

CP&L has a mid-range bond rating (equivalent to 5 on a scale of 1 to 10), and the analysts say that — aside from the industry-wide “uncertainty” of coal’s future as a power-generating fuel — their only current concern is the company’s pending merger with a Florida utility. They indicated they were not aware of any significant record of pollution violations on CP&L’s part.

Then why — aside from its stated “principle” — did CP&L spend so much on lawyers’ fees to fight this relatively minor NOV, if it wasn’t even on financial analysts’ radar screen?

Probably for “political reasons,” speculated one analyst, which are “part and parcel of being in the [power-generating] business. It’s hard to find an environmentally friendly fuel source — even with solar power, the solar panels cover large tracts of land.”

Budget-strapped agency seeks help from the community

Politics has taken a heavy toll on the AQA’s own bottom line. Haywood County’s withdrawal from the regional agency last February — prompted by a local developer’s complaints to county commissioners about open-burning enforcement — has deprived it of a substantial portion of the income from fines and fees it once received, and forced cutbacks in its technical staff. Meanwhile, the Clean Air Trust Fund, which the AQA board hoped would help promote public education about air pollution, remains mired in a lawsuit brought against it by Council of Independent Business Owners (CIBO) activists Betty Donoho and attorney Albert Sneed. The lawsuit argues that state law compels fines collected by the agency to be turned over to the public-school system, rather than the Trust Fund.

“The money in the budget is all gone for things like the video [about WNC’s air pollution that the agency produced last year, called Breathing Troubled Air: A Prayer for the Mountains],” says Holder. “We have to be careful now of staff time involved in public information.” (The agency receives frequent requests from schools and civic groups to give presentations on local air pollution.)

To relieve the burden on its staff and director, the agency’s board plans to outsource some of its technical and educational functions by appointing qualified members of the public to serve on a Technical Advisory Committee and a Community Relations Committee.

The Technical Advisory Committee — chaired by Arlis Queen and Doug Clark — will include, among others, a physician, engineer, meteorologist, transportation planner, attorney, and community, industry and regional representatives who will, says Chairman Alan McKenzie, “be technical advisors to the staff and board as we consider new policy and set strategic goals.” CP&L engineer Josh Collins is one of the nominees.

The Community Relations Committee “will include people who have some media savvy and community links,” says Holder, who will co-chair it with Dr. Lewis Patrie. “We want to respond to the very direct mandate we’ve gotten from the public for information [on air pollution] from the agency, but given the fact that we’re compromised financially, we have to turn to the public for help.” She and Patrie will meet in late November with representatives from Land-of-Sky Council, the Department of Environment and Natural Resources, the Mountain Clean Air Coalition Task Force, and other community and government groups.

Holder insists that both committees “must involve the public — not just regulated industries.”

Board members are still seeking nominations from the public for the committees, which they will present at the next board meeting, in January. (There will be no board meeting in December.)

TVA to square off against CIBO

Lately, many WNC politicians, businessmen and environmentalists have taken to blaming the old coal-burning power plants owned by the Tennessee Valley Authority for the lion’s share of our area’s ozone pollution. Just how much of our haze is actually contributed by outside sources and how much is due to our own rapidly increasing development is still very much an open question, say air-quality experts in the AQA and the regional Division of Air Quality. They are awaiting quantitative answers from a study by the Southern Appalachian Mountain Initiative to be completed sometime next year.

But TVA isn’t waiting to counter what it insists is an unfair accusation. TVA scientist Niki Nicholas told local officials at an Aug. 18 public meeting the company called in Asheville that TVA’s plants contribute only about 15 percent of the nitrogen oxide (NOX) that combines with sunlight to create the ozone in WNC’s skies. Overall, Nicholas and other TVA spokespersons said, coal-burning power plants, motor vehicles and miscellaneous other sources each contribute about a third of our NOX, making TVA’s 15 percent responsible for only about half of our pollution from power-plant emissions.

TVA representatives also announced that the company is installing 18 SCR (selective catalytic reduction) devices — the most advanced smoke-scrubbing technology currently available — at coal-fired plants throughout Eastern Tennessee.

CIBO leader Mac Swicegood, by contrast, has been among the most vocal proponents of the assertion that “80 percent” of our NOX comes from out of state, and most of that from TVA. Swicegood believes that air-pollution regulatory efforts should focus on TVA, not on local businesses.

You can watch the two sides go at it on Dec. 1, when Nicholas is the guest speaker at CIBO’s monthly breakfast meeting at the Cornerstone Restaurant (102 Tunnel Rd.). For further details, call 254-2426.

Incidentally, while speaking with the anonymous source in the state Attorney General’s office, Xpress asked if the state is considering filing a lawsuit against TVA. “Not likely,” was the answer. Nor is the state likely to return to the multi-state lawsuit against the EPA’s new emissions limits for coal-burning power plants, the source said. Gov. Hunt announced recently that the state was dropping out of the lawsuit.