Changing All the Rules

 

 New York Times Sunday Magazine, April 4, 2004

 

By BRUCE BARCOTT

 

     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.

 

Many more wish lists arrived at the Energy Department, and many of them led with the same idea: gutting

new‑source review. In case the administration didn't get the message, a consortium of energy companies hired

Haley Barbour, former chairman of the Republican National Committee, to press their cause in a face‑to‑face

meeting with Vice President Cheney. According to a recent article by Christopher Drew and Richard A. Oppel

Jr. in The New York Times, Barbour was accompanied in that meeting by Bush's friend Marc Racicot, who is

now chairman of the president's re‑election campaign.

 

Over at E.P.A., Whitman and other top officials tried to resist the policy changes coming out of the Energy

Department. When a draft of the National Energy Policy circulated in late April 2001, Tom Gibson, an associate

E.P.A. administrator appointed under President Bush, sent a memo to the task force director arguing that one of

the president's, and the policy's, fundamental assumptions ‑‑ that environmental regulations had hamstrung

American domestic energy production ‑‑ was flat wrong. ''Costs of compliance with environmental regulations

are overstated, several inaccurate statements and opinions are presented as factual and no citations are provided

for many of these statements,'' Gibson wrote. He and other E.P.A. officials, he continued, ''are very concerned

that this language is inaccurate and inappropriately implicates environmental programs as a major cause of supply

constraints. . . . Such a conclusion, in our opinion, is overly simplistic and not supported by the facts.''

 

Whitman, who was a member of Cheney's task force, often found herself and Treasury Secretary Paul O'Neill

acting as the panel's only defenders of environmental protections. In Ron Suskind's recent book ''The Price of

Loyalty,'' O'Neill recalls Whitman saying after one meeting: ''This is a slaughter. It's 10 on 2, not counting White

House people and all the advisers to the group from the various industries.'' (Whitman, who is co‑chairman of

President Bush's re‑election campaign in New Jersey, declined to comment for this article. According to her

spokesman, she has criticized O'Neill's book as inaccurate in many of its details.)

 

Whitman was in an especially tough position with respect to new‑source review. Thirteen months before she was

named to the Bush cabinet, when she was governor of New Jersey, Whitman joined a lawsuit to force

Ohio‑based American Electric Power to clean up its coal‑fired plants, and now that she was head of the E.P.A.,

American Electric was one of the seven utilities the agency was suing for new‑source review violations. In the

spring of 2001, as the energy task force was completing its work and preparing its report, Whitman understood

that new‑source review faced effective elimination under industry pressure, and she worried about the

environmental and political implications of such a move. In May 2001, less than two weeks before the final

energy report was released, Whitman sent a memo to Cheney. ''As we discussed, the real issue for industry is

the enforcement cases,'' she wrote. ''We will pay a terrible political price if we undercut or walk away from the

enforcement cases; it will be hard to refute the charge that we are deciding not to enforce the Clean Air Act.''

 

President Bush's final National Energy Policy (N.E.P.) was published on May 16, 2001. In its 170 well‑designed,

color‑illustrated pages lay the administration's vision of the environmental future of the United States. The policy's

defining notion was simple: environmental regulations have constrained America's domestic energy supply. In

broad strokes, the N.E.P. laid out the next three years of the Bush administration's energy and environmental

agenda: roll back wilderness and wildlife protections to open up more public land to oil and gas development;

establish fast‑track hydropower permits; expand offshore oil and gas drilling; and replace tough Clean Air Act

rules, including new‑source review, with an industry‑friendly market‑based pollution trading system. These

weren't items on a wish list. They were marching orders. Among the first to be carried out was the mandate to

overhaul new‑source review.

 

To that end, the White House directed the Justice Department to review its cases against the Southern Company,

American Electric and others to see if any of the suits might be dropped outright. According to a senior E.P.A.

adviser supportive of the administration's policies, who spoke on condition of anonymity, ''The administration

believed some of those cases were brought'' ‑‑ by the Clinton Justice Department ‑‑ ''without regard to whether

they were really egregious violations of the Clean Air Act worthy of enforcement.'' Certain lawsuits, he said,

''were regarded as more punitive than designed to achieve environmental goals.''

 

During the same period, Bush appointees at the E.P.A. disbanded Robert Perciasepe's N.S.R. working group

and, led by Jeffrey Holmstead, the former industry lobbyist who had become an assistant administrator at the

E.P.A., started to rewrite the rules. Publicly, the president ordered the agency to conduct a 90‑day review of its

new‑source rules, and officials dutifully sat through four public hearings during the summer of 2001 and took note

of the hundreds of comments regarding the policy. Privately, though, the E.P.A. and the Energy Department

were already moving to undo new‑source review. At a Senate hearing that July, Whitman outlined a plan to

replace the E.P.A.'s toughest clean‑air programs with a more flexible, industry‑friendly regimen. ''New‑source

review is certainly one of those regulatory aspects that would no longer be necessary,'' she said.

 

The Energy Department took an unusually active role in drawing up the proposed new‑source review changes. In

November 2001, D.O.E. officials circulated their proposed changes among the E.P.A. staff for feedback.

Officials at the E.P.A.'s air‑enforcement division were appalled. ''The current draft report is highly biased and

loaded with emotionally charged code words,'' E.P.A. officials wrote in an internal memo. ''It is drafted as a

prelude to recommendations to vitiate the N.S.R. program.'' The agency's memo noted that the report ''contains

only comments by industry and ignores the comments of all other stakeholders.''

 

In January 2002, the White House suffered a setback. The Justice Department delivered its report on the legality

of the E.P.A.'s lawsuit against the Southern Company and other N.S.R. violators. The department found that

contrary to the administration's hopes, all of the lawsuits were legal and warranted. In fact, Justice's lawyers said

they intended to prosecute the cases ''vigorously.''

 

Shortly thereafter, White House officials decided it was time to try the Congressional track. On Feb. 14, 2002,

President Bush unveiled his Clear Skies Initiative. The president declared that his proposed legislation ''sets tough

new standards to dramatically reduce the three most significant forms of pollution from power plants ‑‑ sulfur

dioxide, nitrogen oxides and mercury.''

 

It was true that the new standards, if enforced, would reduce emissions from their current rate ‑‑ but the

president's formulation was somewhat misleading. Clear Skies was to replace Clean Air Act regulations with a

cap‑and‑trade market system. On its face, that was not an unreasonable proposition. Many Republicans and

some moderate Democrats embrace the general concept of cap‑and‑trade, in which Washington sets pollution

standards for the entire country (the ''cap'') and then allows companies that manage to reduce their emissions

below the standard to sell their extra pollution ''allowance'' to companies that haven't met the standard (the

''trade''). The key to cap‑and‑trade lies in the standard ‑‑ how low it is set and how quickly it shrinks. And when

President Bush announced Clear Skies, the E.P.A. was already on track to require deeper reductions in air

pollution than his cap‑and‑trade proposal would produce. So the air would actually be dirtier under Clear Skies

than if the president allowed the E.P.A. to enforce the existing law. Clear Skies allowed 50 percent more sulfur

dioxide, nearly 40 percent more nitrogen oxides and three times as much mercury as the Clean Air Act ‑‑

rigorously enforced ‑‑ called for.

 

Because of this discrepancy, the legislation was not greeted with much enthusiasm in Congress. Clear Skies

wasn't helped by the fact that a former top E.P.A. official went on ABC's ''This Week'' to denounce the proposal

two weeks after it was introduced. ''We can do better under current law than what they're putting on the table,''

Eric Schaeffer told George Stephanopoulos. Schaeffer, the E.P.A.'s head of civil enforcement from 1997 to

2002, had worked on the new‑source review lawsuits since their inception. He left the E.P.A. in early 2002, tired,

as he said in his letter of resignation, of ''fighting a White House that seems determined to weaken the rules we

are trying to enforce.''

 

Schaeffer's frustration stemmed from the collapse of talks that had been leading, in his estimation, to the

elimination of more than four million tons of air pollution annually. Officials at the power companies named in the

new‑source review lawsuits, who had been negotiating with E.P.A. officials, were well aware that White House

appointees were drafting new rules that would all but scuttle N.S.R., and they lost their incentive to cut deals.

Beginning in 2001, soon after Bush took office, negotiations began to break down. ''We were 80 percent of the

way done with seven or eight companies, and one by one they just walked away,'' said Bruce Buckheit, who

conducted many of the negotiations himself. Even done deals fell apart. In late 2000, E.P.A. officials reached an

agreement in principle with Cinergy that was designed to cut nearly 500,000 tons of the company's annual

emissions. By 2002, Cinergy had backed out.

 

Christie Whitman did little to help the negotiations. In her testimony before the Senate Committee on Government

Affairs in March 2002, she described new‑source review as ''a program that needs to be fixed,'' but assured the

committee that the E.P.A. would not eviscerate the program. Later in her testimony, though, Whitman offered

unsolicited advice to the companies her agency was suing for N.S.R. violations. At the time, the Tennessee

Valley Authority, which had refused to settle with the Justice Department, had gone to court to challenge the

E.P.A. over new‑source review. ''If I were a plaintiff's attorney,'' Whitman said, ''I would not settle anything until

I knew what happened'' with the T.V.A. case. The message to the power industry, critics charged, was clear:

don't settle the cases; change is coming.

 

V.

 

Meanwhile, Bush appointees at the E.P.A. and the Energy Department continued to undo the longstanding

N.S.R. rules. There was one technical question that was very important to both sides: where would the line be

drawn between ''routine maintenance'' of plants, meaning changes that did not trigger N.S.R. pollution upgrades,

and significant overhauls that did. In the spring of 2002, Jeffrey Holmstead, the E.P.A.'s assistant administrator,

asked Sylvia Lowrance, the E.P.A.'s deputy assistant administrator for enforcement, to suggest a financial

threshold ‑‑ a percentage of the total value of each generator that a utility would be permitted to spend on

renovations and still define them as routine. Lowrance, a 24‑year veteran of the agency, had officials in her

office study years of data, looking at figures that came from actual power plants, and on June 3, 2002, she wrote

a memo to Holmstead indicating that her office thought 0.75 percent was a reasonable figure. (The memo was

later released to reporters by a former E.P.A. official critical of the administration's policies.) In other words, if

the total value of a generating unit was $1 billion, a power company should be able to legitimately spend up to

$7.5 million a year on routine repair and maintenance without being required to install new pollution controls.

 

In a separate memo, Lowrance, Buckheit and Schaeffer warned Holmstead that the proposed changes in

new‑source review could seriously undermine the E.P.A.'s lawsuits against N.S.R. violators. There were several

proposed changes, they wrote, ''that, if included in the final version of the recommendations, could undercut

ongoing enforcement activities, including efforts to reach environmentally beneficial settlements.'' Holmstead

does not appear to have worried much about the warning from his colleagues. A few weeks later, on July 16,

2002, he went before Congress and testified that officials at the E.P.A. ''do not believe these changes'' ‑‑ to

new‑source review ‑‑ ''will have a negative impact on the enforcement cases.''

 

Holmstead did not seem to believe in the very notion of new‑source review. Speaking at an energy‑industry

conference in Washington in September 2002, Holmstead noted that N.S.R. had spawned thousands of pages of

guidance documents, and, he said, ''we can't even say we've gotten any emissions reductions from existing

sources.'' The E.P.A.'s own documents, however, show that from 1997 to 1999 alone, the program reduced

emissions nationwide by a total of more than four million tons. Holmstead's statement also ignored the fact that

the main reason the new‑source review law hadn't brought greater across‑the‑board pollution reductions was that

many power companies had systematically violated it for 20 years. (Holmstead declined to be interviewed for this

article.)

 

Through the spring and into the summer of 2002, President Bush's Clear Skies Initiative was stalled in Congress.

The bill's principal sponsor, Representative Joe Barton, a Texas Republican, formally introduced it on the last

Friday in July 2002, just before the House adjourned for summer vacation. That fall, an internal E.P.A. analysis,

later leaked to the media, found that a rival bill sponsored by Senator Tom Carper, a Democrat from Delaware,

would reduce more emissions, on an earlier schedule and at a comparable cost to consumers, than the president's

Clear Skies plan. If the Bush administration was going to bring about changes, it was becoming clear that they

would have to be done administratively.

 

The E.P.A. revealed its overhaul of new‑source review on Friday, Nov. 22, 2002. For all the buildup, it was a

conspicuously low‑key debut. President Bush issued no statement about the new guidelines. Christie Whitman

declined to attend the news conference, which was run by Jeffrey Holmstead. Cameras were not allowed at the

event, which seemed timed to hit the weekly news cycle at its Friday night nadir.

 

''There will be emissions reductions as a result of the final rules that we are adopting today,'' Holmstead said. The

new rules gave utilities much more maneuverability under N.S.R. The E.P.A. adopted Carol Browner's old

''micro‑cap'' idea ‑‑ but abandoned its critical component, the gradual tightening of the cap. Utilities that installed

new pollution‑control equipment were given 10‑year exemptions from further upgrades. An official with the

National Association of Manufacturers called the new rules ''a refreshingly flexible approach to regulation.'' The

usually staid American Lung Association, in a report issued with a coalition of environmental groups, called the

rule changes ''the most harmful and unlawful air‑pollution initiative ever undertaken by the federal government.''

 

VI.

 

Bush's E.P.A. appointees left one crucial detail out of the final report. They said they were still working on a final

revision of N.S.R. having to do with the often contested definition of ''routine maintenance.'' The agency

published its proposed rule in the Federal Register but left the crucial percentage ‑‑ the one Sylvia Lowrance and

the E.P.A.'s enforcement office had suggested setting at 0.75 percent ‑‑ unspecified.

 

In early 2003 ‑‑ before that important percentage was arrived at ‑‑ the Bush changes were being challenged. The

attorneys general of nine states filed suit to stop the new rules from taking effect. Attorney General Eliot Spitzer

of New York and his colleagues, almost all of whom were from states in the Northeast, charged that the changes

were so sweeping and damaging that the E.P.A. could not make them without Congressional approval. The

lawsuit argued, in effect, that the Bush administration's entire administrative approach to undoing new‑source

review was against the law. Administration officials brushed off the suit as a political maneuver, noting that most

of the attorneys general were Democrats.

 

On Aug. 27, 2003, two days before Labor Day weekend, the other N.S.R. shoe dropped. By then, Whitman was

gone, having announced her resignation in May. She said she was tired of making the New Jersey‑to‑Washington

commute and wanted to spend more time with her husband. ''I'm not leaving because of clashes with the White

House,'' she said in a television interview. ''In fact, I haven't had any.'' A number of career E.P.A. officials told

me they suspected that she'd had enough of the White House's dictating policies with which she disagreed, but, if

true, Whitman never let on.

 

So it was Marianne Horinko, acting E.P.A. administrator, who announced in August that the agency had finalized

its rule on routine maintenance. The new formula would not adopt Lowrance's suggested threshold of 0.75

percent. Instead, Horinko said, utilities would be allowed to spend up to 20 percent of a generating unit's

replacement cost, per year, without tripping the N.S.R. threshold.

 

In other words, a company that operated a coal‑fired power plant could do just about anything it wanted to a $1

billion generating unit as long as the company didn't spend more than $200 million a year on the unit. To E.P.A.

officials who had worked on N.S.R. enforcement, who had pored over documents and knew what it cost to

repair a generator, the new threshold was absurd. ''What I don't understand is why they were so greedy,'' said

Eric Schaeffer, the former E.P.A. official. ''Five percent would have been too high, but 20? I don't think the

industry expected that in its wildest dreams.''

 

The framework of new‑source review would remain, but the new rules set thresholds so high that

pollution‑control requirements would almost never come into effect. ''It's a moron test for power companies,'' said

Frank O'Donnell, executive director of the Clean Air Trust, a nonprofit watchdog group. ''It's such a huge

loophole that only a moron would trip over it and become subject to N.S.R. requirements.''

 

The report from the American Lung Association and various environmental groups estimated that compared with