States receive energy windfall

This year, Tennessee has an extra $5.25 million to spend on clean energy and environmental projects that clear the air.

And over the coming five years, the state will have $26.4 million, all thanks to a landmark lawsuit settlement over coal-fired air pollution among four states, three environmental groups and the Tennessee Valley Authority.

The question is: How will Tennessee spend the money, which must be earmarked for things that save energy and keep down air pollution? Possibilities include solar, wind, geothermal and co-generation projects.

"We are currently working to identify energy efficiency projects within state government that will be good for both the environment and the bottom line," said Tisha Calabrese-Benton, spokeswoman for the Tennessee Department of Conservation and Environment, the state agency charged with deciding how to use the money.

"In general we're looking for opportunities to add things like energy efficient windows, lighting and geothermal systems to state facilities," she said.

In all, the settlement, reached in April, requires TVA to pay $60 million to four states over five years. Tennessee is getting more than $26.4 million, while Alabama, Kentucky and North Carolina each will receive $11.2 million, according to TVA spokesman Mike Bradley.

Those amounts are over and above the $10 million in fines TVA was required to pay to the U.S. Environmental Protection Agency and the states. The fines included $1 million to Tennessee and $500,000 to Alabama.

According to the settlement, the $60 million must be used to fund energy saving technology and retrofits. In addition to solar, wind and other renewable-energy technologies, specific suggestions include carbon sequestration, biofuel and water and wastewater treatment-related energy-savings projects.

The settlement also states that if TVA puts signs on any projects to tout the utility's funding for renewable energy, the sign must make it clear the money came from an environmental lawsuit settlement.

PRIORITIZING A PLAN

Calabrese-Benton said that, of the first $5.25 million received from TVA this year, the state will allocate about $3 million to state projects "that will be good for both the environment and the bottom line."

Another $2.25 will be allocated for a grant program to help with similar energy efficiency projects in other public and private entities that may apply for the funds, she said.

"We are finalizing how that process will work," she said. "In order to prioritize projects, we look at how much it would cost to implement, the energy savings and how long it would take for the energy savings to cover the cost of implementation."

Among the considerations for the projects are the emissions reductions associated with the proposed change, as well as whether there are any opportunities to incorporate energy efficiency projects into other renovations that may be taking place.

"We anticipate being able to get that wrapped up and announce how the application process will work in the first half of January," Calabrese-Benton said.

Jerome Hand, spokesman for the Alabama Department of Environmental Management, said that state, too, is putting together a program to manage its TVA settlement windfall of $11.2 million over five years, or $2.4 million a year.

"The projects we will fund will be ones that benefit a wide range of folks in Alabama," he said. "Some will be energy efficiency programs, and some will be drinking water systems and wastewater treatment plant improvements."

Alabama already is taking applications for funding and will be until the end of the year, Hand said.

North Carolina officials are holding hearings to get ideas from the public.

"We heard there's no shortage of good ideas, motivation or opportunities to put those funds to good use," Jonathan Williams, assistant secretary for energy in the North Carolina Department of Commerce, recently told reporters after officials spent three days in outreach sessions in Murphy, Waynesville and Boone, N.C.

WHY THE WINDFALLS?

The $60 million settlement was the result of a public nuisance action filed in 2006 by North Carolina. The action eventually morphed into a lawsuit by the U.S. Environmental Protection Agency, four states and three environmental advocacy groups against TVA.

The lawsuit claimed TVA's coal-fired power plants created pollution that blew over the southeast, harming the environment and the public.

After years in court, TVA agreed to pay the settlements, close 18 coal units and invest up to $5 billion on new and upgraded pollution controls, including "scrubbers" to physically remove some of the pollution coming out of the plants. The changes are estimated to prevent up to 3,000 premature deaths and 2,000 heart attacks each year, according to the agreement.

The settlement also resolved long-running disputes about how the Clean Air Act's "new source review" provision applied to routine maintenance and equipment replacement at TVA fossil plants.

EPA and environmental groups had long contended the utility substantially rebuilt its oldest coal-fired plants -- all built before the Clean Air Act of 1977 was passed -- to skirt the law's stricter requirements for new coal power plants.

The law's intent was that the older plants would be phased out after normal operating lives, giving way to newer plants built with better technology.

But TVA insisted that adding scrubbers was included in "routine maintenance" and therefore meant they could keep their 50- and 60-year-old plants in service and "grandfathered in" -- exempt from the tougher standards.

Ultimately TVA agreed to retire the 18 older, dirtier coal-fired units by 2017 and to convert, idle or retire 16 more by 2019. Seven units were idled in 2011.

TVA also agreed to replace the retired coal power with low-emission or zero-emission electricity sources, including renewable energy, natural gas, nuclear power and energy efficiency.

TVA already had invested more than $5.3 billion to install advanced environmental controls on some coal plants, and the settlement absolved the utility from liability for those retrofits under new source review requirements.

Utility officials have said TVA will further reduce air emissions from its remaining coal fleet by installing another $3 billion to $5 billion in emission controls or by converting them to biomass by 2019.