Changing All the Rules
By BRUCE BARCOTT
Bruce Barcott is a contributing editor at Outside magazine. This is his first cover article for The Times Magazine.
President Bush doesn't talk about new-source review very often. In fact, he has mentioned it in a speech to the public only once, in remarks he delivered on Sept. 15, 2003, to a cheering crowd of power-plant workers and executives in Monroe, Mich., about 35 miles south of Detroit. It was an ideal audience for his chosen subject. New-source review, or N.S.R., involves an obscure and complex set of environmental rules and regulations that most Americans have never heard of, but to people who work in the power industry, few subjects are more crucial.
The Monroe plant, which is operated by Detroit Edison, is one of the nation's top polluters. Its coal-fired generators emit more mercury, a toxic chemical, than any other power plant in the state. Until recently, power plants like the one in Monroe were governed by N.S.R. regulations, which required the plant's owners to install new pollution-control devices if they made any significant improvements to the plant. Those regulations now exist in name only; they were effectively eliminated by a series of rule changes that the Bush administration made out of the public eye in 2002 and 2003. What the president was celebrating in Monroe was the effective end of new-source review.
''The old regulations,'' he said, speaking in front of a huge American flag, ''undermined our goals for protecting the environment and growing the economy.'' New-source review just didn't work, he said. It dissuaded power companies from updating old equipment. It kept power plants from operating at full efficiency. ''Now we've issued new rules that will allow utility companies, like this one right here, to make routine repairs and upgrades without enormous costs and endless disputes,'' the president said. ''We simplified the rules. We made them easy to understand. We trust the people in this plant to make the right decisions.'' The audience applauded.
Of the many environmental changes brought about by the Bush White House, none illustrate the administration's modus operandi better than the overhaul of new-source review. The president has had little success in the past three years at getting his environmental agenda through Congress. His energy bill remains unpassed. His Clear Skies package of clean-air laws is collecting dust on a committee shelf. The Arctic National Wildlife Refuge remains closed to oil and gas exploration.
But while its legislative initiatives have languished on Capitol Hill, the administration has managed to effect a radical transformation of the nation's environmental laws, quietly and subtly, by means of regulatory changes and bureaucratic directives. Overturning new-source review -- the phrase itself embodies the kind of dull, eye-glazing bureaucrat-speak that distracts attention -- represents the most sweeping change, and among the least noticed.
The changes to new-source review have been portrayed by the president and his advisers as a compromise between the twin goals of preserving the environment and enabling business, based on a desire to make environmental regulations more streamlined and effective. But a careful examination of the process that led to the new policy reveals a very different story, and a different motivation. I conducted months of extensive interviews with those involved in the process, including current and former government officials, industry representatives, public health researchers and environmental advocates. (Top environmental officials in the Bush administration declined to comment for this article.) Through those interviews and the review of hundreds of pages of documents and transcripts, one thing has become clear: the administration's real problem with the new-source review program wasn't that it didn't work. The problem was that it was about to work all too well -- in the way, finally, that it was designed to when it was passed by Congress more than 25 years ago.
Having long flouted the new-source review law, many of the nation's biggest power companies were facing, in the last months of the 1990's, an expensive day of reckoning. E.P.A. investigators had caught them breaking the law. To make amends, the power companies were on the verge of signing agreements to clean up their plants, which would have delivered one of the greatest advances in clean air in the nation's history. Then George W. Bush took office, and everything changed.
II.
The Clean Air Act, adopted by Congress and signed by President Nixon in 1970, required industrial polluters to clean up their operations. The law forced power plants and large factories to minimize their emissions of harmful pollutants like sulfur dioxide and lead, and it established national air-quality standards to be met by 1975. Congress acknowledged, however, that forcing polluters to retrofit every existing plant immediately would be tremendously costly, potentially crippling entire industries. So in a concession to industry, the lawmakers agreed to apply the tough standards only to newly built facilities.
Seven years passed, and the national air-quality standards went unmet. Instead of building new, cleaner plants, many companies simply patched and upgraded their old, dirty plants. So Congress updated the act in 1977, introducing a regulation called new-source review to bring older plants into compliance. Under N.S.R., a company could operate an old factory as long as it wasn't substantially modified. Eventually, it was assumed, the company would have to update its equipment, at which point new-source rules required the company to install the best available pollution-control technology. It was a way to let companies phase in the switch to cleaner factories over a number of years instead of all at once.
The legislators who passed new-source review expected the law to encourage electric utilities to replace old, heavily polluting coal-fired plants with cleaner new ones. And during the 80's and 90's, some power companies did replace coal plants with cleaner ones that burned natural gas. But many others retooled plants to keep them running long past their expected life spans, and few were fitted with the scrubbers and other equipment required under N.S.R.
The electric industry complained that N.S.R. rules were so complicated and confusing that it was impossible for utilities to determine the difference between ''routine'' maintenance, which wouldn't require an upgrade, and a significant ''physical change,'' which would. An examination of documents made public as a result of lawsuits, however, makes it difficult to credit these complaints. Beginning soon after N.S.R. was implemented, E.P.A. officials issued frequent letters and bulletins telling power companies exactly where the agency was drawing the line. And in 1990, after a Wisconsin power company lost a suit against the E.P.A. over N.S.R., Henry Nickel, an attorney representing the Utility Air Regulatory Group, an industry association, complained in a letter to William Reilly, the head of the E.P.A. under the first President Bush, that the court's decision meant that ''any time a component breaks -- even a minor component -- and repair is needed to maintain normal operations,'' new-source standards would ''be triggered unless the work is found to be 'routine' by the E.P.A. staff.'' Nickel seemed to understand clearly what the new-source rules said -- but that didn't mean he and other industry representatives liked them. Nickel said that the rules were bad not only for utilities but also for clean air, because power companies would be discouraged from updating their plants with cleaner, more efficient technology.
Officials in the Clinton administration spent years trying to make the N.S.R. program more palatable to industry without sacrificing public health. Carol M. Browner, President Clinton's E.P.A. administrator, floated new ideas like plantwide applicability limits (P.A.L.'s), a program to cap and reduce emissions on a plant-by-plant basis, but chose not to pursue them when it became apparent that they wouldn't reduce pollution faster than the existing new-source regulations. Robert Perciasepe, Browner's assistant administrator for air and radiation, kept the flagging effort alive by bringing together industry officials, state and local clean-air regulators, environmental leaders and public health advocates in an ad-hoc working group that struggled to find a mutually acceptable way to implement N.S.R. regulations. But by the end of 2000, Browner told me, the E.P.A.'s efforts to find a compromise ''were essentially dead.''
When I spoke to him recently, Perciasepe, now C.E.O. of the National Audubon Society, put the matter bluntly. The reason new-source review did not get streamlined during the Clinton years, he said, was that the energy companies, utilities and other industries had no interest in any sort of workable reforms. ''In hindsight, maybe we were going after a sort of holy grail,'' he told me. ''You were not going to reach agreement with some of these folks,'' he said, referring to industry representatives, ''because what they really wanted was to not have to do it.''
Oddly, while industry and government haggled fruitlessly over potential rule changes, nobody was making sure that companies were complying with the existing law. Mostly the E.P.A. was leaving them alone. ''There were other things that had to be done first,'' Browner explained. ''We looked at where we could get the biggest bang for the buck in terms of pollution reduction.'' Coal-fired power plants didn't move to the top of the agency's list until late 1996, when Bruce Buckheit, a former Justice Department lawyer who had recently joined the E.P.A. as director of its air-enforcement division, happened to notice an article in The Washington Post about proposed changes to the ownership rules that govern the power industry. ''The story predicted that deregulation would increase the use of coal-fired power generation in the Midwest,'' Buckheit recalled. ''So we thought, If they're going to have all that expansion, they're going to have to pay attention to new-source review rules.'' That led him to wonder, he said, whether utilities had been paying attention to the rules at all.
Buckheit and other E.P.A. officials began asking questions. They found disturbing answers. Industry records indicated that many power plants had upgraded their facilities to burn more coal, which required new-source review permits, but ''we started looking around for the permits,'' Buckheit said, ''and there weren't any.'' Many of the nation's biggest energy companies, E.P.A. officials found, had updated their plants without putting in any new pollution controls and were illegally releasing millions of tons of harmful pollutants. ''Companies understood what was going on, and a lot of them thought they could evade the law,'' recalled Sylvia Lowrance, who was the E.P.A.'s top official for enforcement and compliance (and Buckheit's boss) from 1996 to 2002.
At the same time, a growing body of medical research indicated that industrial air pollution was making a lot of people sick. Power plants pump dozens of chemicals into the air; among the most harmful are nitrogen oxides, sulfur dioxide and mercury. Nitrogen oxides are major producers of ground-level ozone, or smog, and they interact in the atmosphere with sulfur dioxide, water and oxygen to form acid rain. Mercury, a highly toxic chemical that is emitted as a vapor when coal is burned, has been found to cause brain disorders in developing fetuses and young children, and unhealthy levels of it have recently been detected in swordfish and tuna.
The most disturbing research, though, involved fine particulates, the tiny particles of air pollution that spew out of smokestacks and lodge deep within the lungs of people nearby and even miles away. During the late 80's and 90's, medical researchers found that long-term exposure to fine particulates caused asthma attacks in children and raised the risk of chronic bronchitis in adults. Coal-fired plants account for about 60 percent of the nation's sulfur dioxide emissions and 40 percent of the mercury, and power plants as a whole are the nation's second-largest source of nitrogen-oxides pollution, after automobiles. Public health researchers estimate that fine-particulate pollution from power plants shortens the lives of more than 30,000 Americans every year. Pollution-controlling technology, while costly, can make an enormous difference. A new scrubber can cut emissions up to 95 percent.
Spurred on by that research, E.P.A. officials mounted a campaign to clean up the illegally polluting coal-fired power plants. E.P.A. agents began to go after suspected Clean Air Act violators through the companies' own accounting books. In any corporation, big capital improvement projects usually leave a trail of documents. Any department in a company that proposes a capital improvement has to justify it to the company's higher-ups, often by way of memos, briefing books, e-mail messages or PowerPoint presentations. In 1997, the E.P.A. started collecting such data, threatening subpoenas if companies didn't comply. ''We got lists of capital projects, then went after the internal justifications for those projects,'' Buckheit said.
After two years of investigation, E.P.A. officials had accumulated a daunting amount of evidence of wrongdoing by the coal-burning power industry. ''This was the most significant noncompliance pattern E.P.A. had ever found,'' Sylvia Lowrance said. ''It was the environmental equivalent of the tobacco litigation.'' Records compiled by the utilities themselves showed, according to former E.P.A. officials, that companies industrywide had systematically broken the law. If that was true, E.P.A. officials noted, the agency might have enough legal leverage to force the industry to install up-to-date pollution controls and achieve something truly historic: not merely incremental cuts in emissions but across-the-board reductions of 50 percent or more. ''On sulfur dioxide alone, we expected to get several million tons per year out of the atmosphere,'' Buckheit said.
E.P.A. agents are sometimes portrayed as eco-cops, but they function more like overworked and financially strapped prosecutors. Big enforcement actions are rarely carried out in courtrooms; instead, there's a lot of negotiating and plea bargaining involved. From the E.P.A.'s perspective, at least during the Clinton years, the point was not to hammer violators with big fines but to get them to reduce the amount of pollution they were creating. That strategy had proved effective with the oil-refinery industry, which like the utilities had systematically skirted the new-source review law in the 80's and 90's: E.P.A. officials presented their case, and many refinery executives agreed to pay fines and install new pollution-control measures. Once the agreements had been reached, some refinery officials even embraced the changes. Tim Scruggs, the manager of BP's Texas City refinery, the nation's largest, told Octane Week, an industry publication, ''We are a society that can afford a few cents per gallon to achieve cleaner air.''
Utility officials, however, weren't going to give in so easily. In the summer of 1999, Buckheit and other E.P.A. officials asked executives at the worst-offending power companies to come to the agency's headquarters in Washington. In a series of meetings, E.P.A. officials sat down with representatives from each company, one by one, and laid out their evidence. ''Is there something we're missing?'' Buckheit said he asked them. Later, he gathered all the executives together in one room and reiterated the agency's suspicion that their companies had systematically violated the Clean Air Act. ''Unless we're getting something wrong here,'' Buckheit recalled saying, ''these are violations of the law. Y'all want to step up to the plate?'' No one did.
Months passed. Industry executives and lawyers refused to address the E.P.A.'s complaints. Finally, in November 1999, the agency decided to take the polluters to court. The Justice Department, on behalf of the E.P.A., announced lawsuits against seven electric utility companies in the Midwest and South, charging that their power plants had been illegally releasing enormous amounts of pollutants, in some cases for 20 years or more. The companies included FirstEnergy, American Electric Power and Cinergy, all headquartered in Ohio; Southern Indiana Gas and Electric; Illinois Power; Tampa Electric, in Florida; and Alabama Power and Georgia Power, two subsidiaries of the Atlanta-based Southern Company, the biggest power supplier in the Southeast. The E.P.A. also issued a compliance order to the Tennessee Valley Authority (T.V.A.), the nation's largest public power company, charging T.V.A. with similar violations at seven of its coal-fired plants in Kentucky, Tennessee and Alabama. In addition, the E.P.A. put a number of other utilities on notice, warning them that the Justice Department would come after them next if they didn't clean up their acts.
Taken together, the companies named in the suits emitted more than 2 million tons of sulfur dioxide every year and 660,000 tons of nitrogen oxides. Attorney General Janet Reno announced the suits herself. ''When children can't breathe because of pollution from a utility plant hundreds of miles away,'' she said, ''something must be done.''
III.
From the perspective of the utility industry, the E.P.A. was changing the rules in the middle of the game. Dan Riedinger, spokesman for the Edison Electric Institute, the leading trade association for electric utilities, told me that the lawsuits came as a surprise. ''For years we'd asked the E.P.A. for guidance about how we should meet N.S.R. requirements,'' Riedinger said. ''That guidance never came. Instead, the agency just began suing power plants.''
''I've heard that argument,'' Eric Schaeffer, a former E.P.A. official, responded in an interview. ''And I've got to say, that's completely hokey. I was in dozens of conversations with company officials and their lawyers, and the idea that we were enforcing regulations they were unaware of -- that simply didn't come up.''
A statement issued by the Southern Company shortly after the lawsuits were announced noted that the utility had cooperated with the E.P.A.'s investigation by providing the agency with more than 120,000 pages of documents. ''Our goal throughout this process has been to cooperate with E.P.A. and find a workable solution to this issue,'' the statement said.
The amount of money at stake was enormous. Potential penalties ran to $27,500 per plant for each day it had been in violation. Since many of the violations the utilities were charged with began in the 70's, they faced potential fines of tens of millions of dollars. Cost estimates for fitting power plants with new scrubbers and, in some cases, reconfiguring entire plants to run on cleaner-burning natural gas were estimated in the hundreds of millions of dollars. The cost of installing new equipment was, of course, the reason the companies had, according to the E.P.A., skirted the new-source review rules in the first place. (Still, the companies were not about to be put out of business by complying with E.P.A. regulations. In 1999, the Southern Company reported profits of $1.3 billion.)
The utility industry immediately turned to the Republican-controlled Congress for relief from the lawsuits. A few days after the suits were announced, power companies and industry trade groups asked sympathetic House members to attach a rider to an appropriations bill. The rider would allow companies to perform ''routine maintenance'' while the lawsuits were pending. In the opinion of the rider's opponents, it would let power companies perform more illegal retooling while the industry's lawyers delayed the E.P.A.'s lawsuit in court. But Representative C.W. Bill Young, a Tampa-area Republican, unexpectedly turned a deaf ear to the overtures of his local utility company, Tampa Electric, and refused to put the rider on the bill. As chairman of the House Appropriations Committee, Young had fought to keep House members from sneaking special-interest riders onto spending bills. He stood on principle, and the rider died.
Faced with Congressional rejection and mounting fines, some utilities struck bargains with the federal government. Tampa Electric, unable to make any headway with Young, agreed in February 2000 to spend more than $1 billion on new pollution controls and pay a $3.5 million civil penalty. The agreement took 123,000 annual tons of pollution out of the sky, and the civil penalty amounted to a little less than 2 percent of Tampa Electric's profits from 1999. Officials at some other utilities followed Tampa Electric to the negotiating table.
But others took an alternate route: they started writing checks to George W. Bush's presidential campaign fund. The Bush campaign had a special title for contributors who raised at least $100,000: Pioneers. Among the more than 200 Pioneers during the 2000 Bush election campaign were FirstEnergy's president, Anthony Alexander; Reliant Resources' C.E.O., Steve Letbetter; and Reliant's chairman, Don Jordan. (MidAmerican Energy's C.E.O., David Sokol, has joined the elite rank for the 2004 re-election campaign; Southern Company's executive vice president Dwight Evans has been named a Ranger, meaning he has raised more than $200,000.) Each of these executives' companies was either in litigation or was soon to be under investigation for new-source review violations. Six other Pioneers were lawyers or lobbyists for companies charged with N.S.R. violations.
Even in the early stages of Bush's 2000 run, energy executives understood what strong support of a winning candidate could mean. Thomas R. Kuhn, a Yale classmate of President Bush's and president of the Edison Electric Institute, was a 2000 Pioneer and is a Pioneer for the 2004 campaign as well. On May 27, 1999, Kuhn sent energy-industry executives a confidential memo, later made public in the course of a lawsuit, advising them to bundle their contributions to the Bush campaign under a tracking number to ''ensure that our industry is credited'' for its generosity.
After Bush eventually emerged as the winner of the 2000 election, industry leaders were upbeat about the prospect of the coming four years. The president and the vice president, Dick Cheney, were, after all, oilmen. The coal-industry trade magazine Coal Age exulted in the industry's ''high-level access to policymakers in the new administration.'' Soon after Bush's inauguration, the electric utilities sought relief from the E.P.A. and its new-source review program. The problem was that most voters -- including Republican voters -- opposed rollbacks. A Gallup poll in 2001 found that 81 percent of Americans supported stronger environmental standards for industry. According to another 2001 poll, only 11 percent thought the government was doing ''too much'' to protect the environment.
Previous Republican leaders tried to enact a pro-industry environmental agenda and met with only limited success. In 1981, President Reagan took office promising that in his administration the E.P.A. would have ''leaders who know and care about the coal industry.'' He appointed as head of the E.P.A. Anne Gorsuch, an attorney who had fought the E.P.A.'s enforcement of clean-air laws, and he named James Watt, a staunch defender of private enterprise against environmental regulation, as secretary of the interior. Watt pushed to open up potential federal wilderness lands to developers. Gorsuch took office under instructions from the White House to make the E.P.A. more friendly to industry. Within two years, they had become provocative symbols of anti-environmentalism and were forced to resign in separate scandals. Similarly, in 1994, Newt Gingrich and his House Republicans rode into power determined to weaken the Clean Water Act and the E.P.A.'s Superfund program. Their bold frontal attacks galvanized environmental activists and the Clinton administration, and Congress was persuaded to leave the laws alone.
The Bush administration seemed determined not to repeat those political mistakes. Taking a lesson from Reagan's experience with Gorsuch and Watt, Bush officials realized that it would be self-defeating to appoint to public positions people with outspoken views on the environment, so they found noncombative figures instead. They named as head of the E.P.A. Christie Whitman, who was seen as a moderate when she was appointed, in part because she had participated in a clean-air lawsuit against a power company as governor of New Jersey. Learning from the Gingrich defeat, administration officials recognized that bills that overtly attacked environmental protections stood little chance of surviving in Congress. So they adopted a two-track strategy. Publicly, the president asked Congress to pass major environmental legislation like the Clear Skies Initiative and a sweeping energy bill, which he knew would face considerable opposition. Privately, the president's political appointees at the Department of the Interior, Environmental Protection Agency, Department of Agriculture and Office of Management and Budget would carry out those same policies less visibly, through closed-door legal settlements and obscure rule changes.
One key element of the strategy was putting the right people in under-the-radar positions. The Bush administration appointed officials who came directly from industry into these lower rungs of power -- deputy secretaries and assistant administrators. These second-tier appointees knew exactly which rules and regulations to change because they had been trying to change them, on behalf of their industries, for years. One appointee was Jeffrey Holmstead, a lawyer and lobbyist for groups like the Alliance for Constructive Air Policy, an electric utility trade group that sought to weaken the Clean Air Act. Holmstead stepped into the role of assistant E.P.A. administrator for air and radiation, where he would oversee changes to new-source review.
IV.
In the past, industry succeeded in blocking environmental reforms by arguing that they would mean lost jobs. But the jobs-versus-the-environment defense became less convincing during the economic expansion of the 90's, which took place under the relatively tough environmental restrictions of the Clinton administration. The Bush administration needed a different engine of necessity to propel environmental rollbacks like the scuttling of new-source review. It found one in the Cheney energy task force.
Nine days after his swearing in, President Bush created the National Energy Policy Development Group, a task force headed by Vice President Dick Cheney and charged with developing a national energy policy. The timing of Bush's ascendance to the presidency could not have been better for the energy industry. When Bush came to office, the nation was riveted by a bizarre energy crisis unfolding in California. We now know that California's energy shock was largely caused by market manipulation (by Enron, among other companies) and regulatory breakdown, not by a drought in supply. But we didn't know it then. A few days after he created the energy task force, President Bush went on CNN and blamed environmentalists for the crisis. ''If there's any environmental regulation that's preventing California from having 100 percent max output at their plants -- as I understand there may be -- then we need to relax those regulations,'' he said. California utility officials denied that environmental rules had anything to do with the crisis. But their protests didn't matter. The president had forged the link.
Cheney's energy task force solicited suggestions from various quarters, but few outside a tight circle of industry insiders were able to make themselves heard. Although the vice president continues to fight a lawsuit -- now before the Supreme Court -- that would require him to divulge the names of industry executives consulted by his task force, documents released in the course of the legal battle reveal the tenor of the exchanges.
On March 18, 2001, Joseph Kelliher, a top assistant to Energy Secretary Spencer Abraham, e-mailed Dana Contratto, an energy-industry lobbyist. ''If you were King, or Il Duce,'' Kelliher wrote, ''what would you include in a national energy policy . . . ?'' Apparently that was one of many e-mail messages to industry lobbyists, for Kelliher's electronic mailbox was soon pinging with activity. A March 20, 2001, message from Jim Ford, lobbyist for the American Petroleum Institute, a powerful oil-and-gas-industry trade group, included a ready-made decree. ''The last document,'' Ford wrote, referring to one of 10 attachments, ''is a suggested executive order to ensure that energy implications are considered and acted on in rulemakings and other executive actions.'' President Bush would issue a very similar executive order two months later, the day after the energy task force report was released.
Another Kelliher correspondent, Stephen Sayle, a Republican Congressional aide, who is now an energy lobbyist, added a somewhat abashed note to the end of his March 23, 2001, wish list, which included a plea to stop enforcement of new-source review. ''Obviously, this is a dream list,'' he wrote. ''Not all will be done. But perhaps some of these ideas could be floated and adopted.'' In fact, Sayle was being needlessly pessimistic; most of the items on his list, many of which dealt with new-source review, were eventually adopted.
END OF PART ONE |
