OG&E 2009 Annual Report Download - page 57

at these four coal-fired generating units because the Company concluded that, consistent with the EPA’s regulations on BART, the
installation of scrubbers (at an estimated cost of more than $1.0 billion) would not be cost-effective. The original deadline for the
ODEQ to submit a SIP for regional haze that includes final BART determinations was December 17, 2007. The ODEQ did not meet
this deadline. On January 15, 2009, the EPA published a rule that gives the ODEQ two years to complete the SIP. If the ODEQ fails
to meet this deadline, the EPA can issue a Federal implementation plan. The draft SIP was published by the ODEQ for public review
on November 13, 2009. This draft SIP suggested that scrubbers would be needed to comply with the regional haze regulations, but
noted the Company’s cost-effectiveness analysis. Following negotiations with the ODEQ, the Company submitted in February 2010 a
proposed agreement to the ODEQ (the “Proposed Agreement”) which specifies that BART for reducing NOX emissions at all seven
BART-eligible units at the Seminole, Muskogee and Sooner generating stations should be the installation of low NOX burners with
overfire air (and flue gas recirculation on two of the affected units) and accompanying emission rate and annual emission tonnage
limits. Preliminary estimates based on recent industry experience and cost projections estimate the total cost of the NOX-related
equipment at the three affected generating stations at approximately $100 million (plus or minus 30 percent). After the Company
obtains estimates from vendors based on a detailed engineering design, it will have a more firm estimate of the exact cost of the NOX-
related equipment subject to changes in the cost of basic materials. Under the Proposed Agreement, the specified BART for reducing
sulfur dioxide (“SO2”) at the four coal-fired units at the Muskogee and Sooner generating stations would be continued use of low
sulfur coal and emission rate and annual emission tonnage limits consistent with such use of low sulfur coal. Implementation of these
BART requirements would be achieved within five years of the EPA’s approval of Oklahoma’s regional haze SIP.
Under the Proposed Agreement, there also would be an alternative compliance obligation in the event that the EPA
disapproves the aforementioned BART determination and the underlying conclusion that dry flue gas desulfurization units with Spray
Dryer Absorber (“Dry Scrubbers”) are not cost-effective. In such an event, and only after the Company has exhausted all judicial and
administrative appeals of the EPA disapproval, the Company would have two options. First, the Company could choose to install Dry
Scrubbers (or meet the corresponding SO2 emissions limits associated with Dry Scrubbers) by January 1, 2018. Second, the Company
could choose to comply with the regional haze regulations by implementing a fuel switching alternative. This alternative would
require the Company to achieve a combined annual SO2 emission limit by December 31, 2026 that is equivalent to: (i) the SO2
emission limits associated with installing and operating Dry Scrubbers on two of the BART-eligible coal fired units and (ii) being at or
below the SO2 emissions that would result from switching the other two coal-fired units to natural gas. If the Company has elected to
comply with this alternative and if, prior to January 1, 2022, any of these units is required by any environmental law other than the
regional haze rule to install flue gas desulfurization equipment or achieve an SO2 emissions rate lower than 0.10 lbs/MMBtu, and if
the Company proceeds to take all necessary steps to comply with such legal requirement, the enforceable emission limits in the
operating permits for the affected coal units would be adjusted to reflect the installation of that equipment or the emission rates
specified under such legal requirement and the Company would no longer be required to undertake the 2026 emission levels.
The Company expects that the ODEQ will sign the Proposed Agreement and will include the agreement in the final SIP that
is submitted to the EPA for approval. It is anticipated that the EPA will take final action on the SIP for regional haze during the first
quarter of 2011. The Company cannot predict what action the EPA will take.
Until the EPA takes final action on the regional haze SIP, the total cost of compliance, including capital expenditures, cannot
be estimated by the Company with a reasonable degree of certainty. The Company expects that any necessary expenditures for the
installation of emission control equipment will qualify as part of a pre-approval plan to handle state and federally mandated
environmental upgrades which will be recoverable in Oklahoma from the Company’s retail customers under House Bill 1910, which
was enacted into law in May 2005.
Sulfur Dioxide
The 1990 Federal Clean Air Act includes an acid rain program to reduce SO2 emissions. Reductions were obtained through
a program of emission (release) allowances issued by the EPA to power plants covered by the acid rain program. Each allowance is
worth one ton of SO2 released from the chimney. Plants may only release as much SO2 as they have allowances. Allowances may be
banked and traded or sold nationwide. Beginning in 2000, the Company became subject to more stringent SO2 emission requirements
in Phase II of the acid rain program. These lower limits had no significant financial impact due to the Company’s earlier decision to
burn low sulfur coal. In 2009, the Company’s SO2 emissions were below the allowable limits.
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