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| Jeffrey Energy Center environmental upgrades |
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January 25, 2010
Westar Energy to invest in environmental upgrades, proposed as settlement of litigation
Westar Energy, Inc. (NYSE:WR) today announced a settlement with the U.S. Department of Justice pending lawsuit over allegations regarding environmental air regulations. The settlement was filed with the federal court, seeking the court's approval.
Read the announcement | Appendix A | Consent Decree
Questions and Answers
Q. How much does an SCR system cost?
A. It will depend on the unique characteristics of the generating unit on which it’s being installed. While we’re just now beginning the engineering and design, other plants of similar size suggest an SCR may cost at least $200 million.
Q. Isn’t the $3 Million you call a “charge” really just a fine?
A. We won't quibble about what to call it. We’re convinced it makes more sense to get on with meaningful projects instead of spending a lot of money on lawyers fighting things out in court.
Q. Why settle if you really believe that you have obeyed all laws and regulations?
A. We’re in the electricity business, not the lawsuit business. That means we’re pragmatic, weighing the costs of each path. Simply put, it costs a lot less to settle than to litigate, especially when we were already committing to environmental upgrades and mitigation measures anyway, with or without the lawsuit. Our ethic is to be a good environmental steward, not to waste time and money on lawyers.
Q. Based on that logic, wouldn’t you just “cave in” on any lawsuit filed against you and pay a settlement?
A. No. We determine whether to settle and what we are willing to pay to settle based on our evaluation of the risks and costs of litigation. In many cases, we decide to litigate because the costs and risks of litigation are relatively low. However, in this instance, history shows that utilities don’t always win, and even when they do, they pay a very high legal cost and often end up doing the same work at the plants anyway. Settling allows us to negotiate the time frame within which the environmental work is to be done. Had we litigated and lost, we could well have found ourselves forced to do the work on a compressed schedule that would significantly raise the costs of compliance.
Q. What exactly are the environmental mitigation initiatives?
A. In summary, they include investments in such green technologies as plug-in electric vehicles, clean diesel fleet conversions, and renewable energy at distribution levels, as outlined our news release. We will work out project details with EPA in the months ahead. A fuller description of the mitigation initiatives is attached as an exhibit to our settlement.
Q. Is this settlement a done deal?
A. No. It’s an important development, but it’s up to the federal judge presiding over the lawsuit to decide whether to approve the settlement.
Q. When will the judge make a decision?
A. The settlement will be subject to public comment for a period of days. The judge will render her decision after expiration of the comment period.
Q. Will you try to recover the cost of the SCR in rates?
A. Yes. Consumers ultimately pay for environmental investments. This is true across all businesses, including the electric utility sector. The investments called for in the settlement are like other environmental upgrades we’ve already completed and are now recovering in our rates.
Q. Will you plan to recover the cost of the environmental mitigation measures in rates?
A. We expect most of them to become just another part of our business. For that portion, the answer is yes. To the extent that we make contributions to support environmental efforts by third parties, we will likely propose such payments be treated like other charitable contributions.
Q. Your release says you won’t seek the $3 million charge in rates. Why not?
A. Regulators typically have not allowed recovery of this kind of expense, so we’re not even going to ask for it. Reasonable litigation costs, however, are part of normal business expenses reflected in our cost of service and our rates. If this settlement is approved, we will avoid millions of dollars of legal expenses, which could have otherwise ended up in electric rates. This should save customers money.
Q. What does the DOJ lawsuit allege?
A. About 10 years ago, the EPA started alleging that utilities, in making improvements to their existing coal plants, should have begun treating those enhanced plants as “new” plants required to meet the latest environmental rules for newly constructed plants. (Using your automobile as an analogy, you can imagine that there might be quite a bit of debate about how many repairs you can make to an old car before it effectively becomes a “new” one.) For Westar’s Jeffrey Energy Center, EPA made its allegation in late 2002 and asked DOJ to sue us on EPA’s behalf in late January, 2009.
What the lawsuit isn’t about
- Westar hasn’t exceeded its emissions limits
Westar has continued to reduce emissions
It has nothing to do with climate change or carbon emissions |
Relevant facts
- The plant modifications subject to the allegation were routine within the electric industry.
They were done “in the light of day” – our environmental regulators were aware of the modifications when they were being done.
The modifications were believed to be in compliance with relevant regulations at the time they were made.
They weren’t questioned at the time.
The allegation of violation is hindsight regulation: “We’ve thought about it, Westar, and even though it is years after the fact and despite common thinking at the time you were making the modifications, we now think you were in violation.” |
Q. Are Westar’s other plants covered by this settlement, or are they still exposed to similar allegations that might raise rates in the future?
A. The settlement covers only Jeffrey Energy Center, our largest plant. We believe our other power stations are and remain in compliance, although there can be no assurance that similar allegations won’t be made about those plants some time in the future.
Q. The DOJ’s (or EPA’s) release/comments on this settlement sound(s) much different than yours.
A. When litigants settle lawsuits, the thing that matters is the outcome, which all parties in this case agree will be good for the environment. We all have our own differing reasons for settling, and we have clearly state our reasons for settling and our opinion about DOJ’s allegations.
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