It's Wise To Make Certain That Contracts Properly Allocate Future Environmental Compliance Costs

Last week, the 6^th Circuit Court of Appeals ruled that AEP, which entered into a consent decree requiring it to install certain pollution controls at its Rockport 1 and 2 power plants, could not force the owner of those plants to pay to install the controls.  The case involved the interpretation of specific contractual language under New York law, but it still has lessons for power plant owners and operators everywhere.

AEP built Rockport 1 & 2.  It later entered into a sale-leaseback arrangement, running through 2022.  In 2007, EPA took enforcement action against several AEP facilities, not including Rockport.  Nonetheless, AEP entered into a consent decree in which it agreed to install pollution controls at Rockport by December 31, 2019.  In 2013, the government agreed to extend the time for installation of final controls at Rockport until December 31, 2028.