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By Joel Berg

For years, environmentalists and regulators targeted coal-burning power plants because of what they put in the air.

Plants may cease operations. But a host of environmental risks and liabilities will trail current and future owners.

In some cases, state and federal laws governing treatment of former industrial sites may shelter owners. However, a few voices are insisting coal plants should be handled differently.

"Some of these older coal plants have been operating for 50 years or even longer," said Howard Learner, executive director of the Chicago-based Environmental Law and Policy Center. The State Line Power Station in Hammond, Ind., which closed in March, is more than 80 years old, he said.

Environmental practices were not the same 50-plus years ago as they are today, Learner said. "What that means is, in some cases, the public really doesn't know what's on the site or in the ground underneath the site."

Independent environmental assessments should be standard practice at closing coal plants, Learner said. "Too often public officials wait until something happens, and then there's a lot of finger-pointing of who should have done what to avoid a serious contamination problem that emerges," he said.

Quick action is necessary before corporate liability becomes too tangled to sort out, Learner said. "Why do we have orphan Superfund sites?Because companies merge, get purged. Facilities get moved from one company to another and it becomes very difficult later to put Humpty Dumpty back together," Learner said.

While there may be some surprises at coal plants, most of the potential contamination is relatively well-known, said Stacy Brown, president and managing partner of Denver-based Freberg Environmental Inc., a managing general agency and insurance program manager.

Coal ash, a byproduct of combustion, is among the challenges, Brown said. At most plants, ash is stored on site, either in landfills or impoundment areas. It often contains elements such as arsenic, lead and mercury that could leach out if not properly contained.

The U.S. Environmental Protection Agency has proposed classifying coal ash as hazardous waste. The proposal was spurred, in part, by a 2008 ash spill in Tennessee that poured over land and into parts of two rivers.

PCBs, or polychlorinated biphenyls, which may be found in old transformers, are another potential hazard, Brown said. "They can be very, very difficult to clean up, and it's difficult to track down their sources."

Fuel storage tanks also might be lurking underground, not to mention stores of lubricants, greases and solvents used in cleaning, maintenance and repair, Brown said."All of those waste streams would have to be identified."

At older power plants, asbestos could be an issue, Brown said, as could refractory bricks removed from combustion ovens. "They very likely contain high levels of heavy metals," he added.

Utilities closing plants either declined to discuss their plans or did not return calls or emails.

Houston-based GenOn Energy is shutting down eight plants -- in New Jersey, Ohio and Pennsylvania -- between June 2012 and May 2015.

Starting this fall, Ohio-based FirstEnergy Corp. is retiring six plants in Maryland, Ohio and Pennsylvania.

Midwest Generation, a subsidiary of California-based Edison Mission Group, is closing two plants in Chicago, one by the end of this year and a second by the end of 2014.

"At this time, we're still evaluating what the future of the sites will be," said Susan Olavarria, a Midwest spokeswoman.

While no rules today cover the closure of coal plants specifically, rules are likely in the future, said Deborah Sewell, a managing director at insurance brokerage Frank Crystal & Company in New York City.

The proposed federal rule on coal ash is one indicator, she said. "The other thing that we are seeing, just in general, is a lot of increased regulatory activity from an environmental perspective as a whole, both on the state and federal level."

Plant owners may decide to wait to see what, if any, regulations apply, Sewell said. In the meantime, they will want to make sure plants are secured. Thieves may target the facilities as a source of copper wiring and other valuables.

Another reason utilities might wait to act is so they have more freedom to restart plants, perhaps using another fuel source, such as natural gas. Federal rules govern the reactivation process and, depending on what plant owners do post-closure, they could need new permits, said Robert Alessi, global co-chairman of the environmental regulatory and litigation practice group at law firm Dewey & LeBoeuf in New York City.

"If you don't use the facility for a period of time, you lose what is called your grandfathering," Alessi said.

At plants that aren't reactivated, attention is likely to come from redevelopers hoping to reuse the sites. Plans could range from establishing parks and museums to developing shops and housing to establishing manufacturing centers for renewable energy technologies.

In Alexandria, Va., consultants envision a mixed-use community at the site of a coal-burning plant on the Potomac River. The plant is slated to close in October after more than 60 years of operation. Demolition and remediation costs are estimated to fall between $35 million and $50 million.

For any site, sellers will have at least two concerns, said Thomas Swartz, a senior vice president in the environmental practice at brokerage Marsh Inc. in Houston.

First, they will want a good sale price, which means looking for a buyer who will put the property to the best use economically. "Turning a valuable piece of waterfront property that may even have a docking facility that is fairly valuable in the commercial world into a park is financially not the best outcome for the seller," Swartz said.

Second, sellers may want indemnities or other assurances that limit future liabilities, he said. "You can never make the risk completely go away. You can just allocate it, whether it be to buyer, seller or insurer."

In some cases, the risk allocation may be geographic. Some large Midwestern plants sit on thousands of acres, said Kenn Anderson, a regional managing director for Aon Environmental Services Group in Chicago.

Relatively untouched acres could be redeveloped, while the utility holds onto areas of concern, Anderson said. The owner will have to pay taxes and provide security. Still, he said, "That's a valid risk management decision."

Some liabilities may be difficult to shake, namely, lawsuits linking present-day damage to past emissions of greenhouse gases. Over the last few years, courts have been hearing lawsuits claiming that the impact of severe weather or other natural forces was exacerbated by climate change, triggered by industrial emitters.

Residents of an Alaskan island battered by erosion, for example, have pressed a lawsuit asking oil companies and electric utilities to pay up to $400 million to cover the cost of relocating residents. A panel of judges from the Ninth Circuit Court of Appeals in San Francisco is weighing whether to reverse the suit's earlier dismissal, which came on the grounds that the matter poses a political, not legal, question.

Insurance issues already have been dragged in to the case, known as Kivalina v. ExxonMobil. The insurer for one defendant, utility AES Corp., balked at paying for defense. The Supreme Court of Virginia ruled in favor of the insurer, Steadfast Insurance.

It's unclear whether the precedent will apply elsewhere, said J. Wylie Donald, a partner and head of the climate change and renewable energy specialty group at law firm McCarter & English in Wilmington, Del.

The decision seemed to suggest that negligence would not always be covered by general liability insurance, Donald said. "I don't think many other places are going to want to suggest that their general liability policies don't cover negligence."

Regardless of individual court decisions, climate change lawsuits are unlikely to go away, Donald said. And questions about insurance coverage are likely to keep surfacing.

Since 1986, insurance policies typically include pollution exclusions, but the exclusions may not apply to carbon dioxide, Donald said. Utilities that need coverage may have to sort out past insurance policies to see if they are claims-made or occurrence-based.

So while some workers are digging up soil at shuttered coal plants, others may be rummaging through file cabinets, especially at plants that have changed hands.

"It's absolutely going to be complicated," Donald said. "We're talking almost 30 years of policy review."

JOEL BERG is a freelance journalist and college professor. He can be reached at riskletters@lrp.com.

June 1, 2012

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