OG&E 2011 Annual Report Download - page 41

OGE Energy Corp. 39
Air
Federal Clean Air Act Overview
OG&E’s and Enogex’s operations are subject to the Federal Clean Air
Act, as amended, and comparable state laws and regulations. These
laws and regulations regulate emissions of air pollutants from various
industrial sources, including electric generating units, natural gas pro-
cessing plants and compressor stations, and also impose various
monitoring and reporting requirements. Such laws and regulations may
require that OG&E and Enogex obtain pre-approval for the construction
or modification of certain projects or facilities expected to produce air
emissions or result in the increase of existing air emissions, obtain and
strictly comply with air permits containing various emissions and opera-
tional limitations or install emission control equipment. OG&E and Enogex
likely will be required to incur certain capital expenditures in the future for
air pollution control equipment and technology in connection with obtain-
ing and maintaining operating permits and approvals for air emissions.
Regional Haze Control Measures
On June 15, 2005, the EPA issued final amendments to its 1999 regional
haze rule. Regional haze is visibility impairment caused by the cumulative
air pollutant emissions from numerous sources over a wide geographic
area. These regulations are intended to protect visibility in certain national
parks and wilderness areas throughout the United States. In Oklahoma, the
Wichita Mountains are the only area covered under the regulation. However,
Oklahoma’s impact on parks in other states must also be evaluated.
As required by the Federal regional haze rule, the state of Oklahoma
evaluated the installation of Best Available Retrofit Technology (“BART”)
to reduce emissions that cause or contribute to regional haze from certain
sources within the state that were built between 1962 and 1977. Certain
of OG&E’s units at the Horseshoe Lake, Seminole, Muskogee and Sooner
generating stations were evaluated for BART. On February 18, 2010,
Oklahoma submitted its state implementation plan (“SIP”) to the EPA,
which set forth the state’s plan for compliance with the Federal regional
haze rule. The SIP was subject to the EPA’s review and approval.
The Oklahoma SIP included requirements for reducing emissions of
NOX and SO2 from OG&E’s seven BART-eligible units at the Seminole,
Muskogee and Sooner generating stations. The SIP also included a
waiver from BART requirements for all eligible units at the Horseshoe
Lake generating station based on air modeling that showed no signifi-
cant impact on visibility in nearby national parks and wilderness areas.
The SIP concluded that BART for reducing NOX emissions at all of the
subject units should be the installation of low NOX burners (overfire air
and flue gas recirculation was also required on two of the units) and
set forth associated NOX emission rates and limits. OG&E preliminarily
estimates that the total cost of installing and operating these NOX con-
trols on all covered units, based on recent industry experience and past
projects, will be between $70 million and $130 million. With respect to
SO2 emissions, the SIP included an agreement between the Oklahoma
Department of Environmental Quality (“ODEQ”) and OG&E that estab-
lished BART for SO2 control at four coal-fired units located at OG&E’s
Sooner and Muskogee generating stations as the continued use of low
sulfur coal (along with associated emission rates and limits). The SIP
specifically rejected the installation and operation of Dry Scrubbers as
BART for SO2 control from these units because the state determined
that Dry Scrubbers were not cost effective on these units.
On December 28, 2011, the EPA rejected portions of the Oklahoma
SIP and issued a Federal implementation plan. While the EPA accepted
Oklahoma’s BART determination for NOX in the SIP, it rejected the SO2
BART determination with respect to the four coal-fired units at the Sooner
and Muskogee generating stations. In its place, the EPA is requiring that
OG&E meet an SO2 emission rate of 0.06 pounds per MMBtu within five
years. OG&E could meet the proposed standard by either installing and
operating Dry Scrubbers or fuel switching at the four affected units. OG&E
estimates that installing Dry Scrubbers on these units would cost OG&E
more than $1.0 billion. OG&E and the state of Oklahoma expect to file
an administrative stay request with the EPA. OG&E and the state of
Oklahoma have also announced that they intend to petition for review
of this determination in the U.S. Court of Appeals for the Tenth Circuit.
Neither the outcome of the appeal nor the timing and amount of any
required expenditures for pollution control equipment can be predicted
with any certainty at this time.
Cross-State Air Pollution Rule
On July 7, 2011, the EPA finalized its Cross-State Air Pollution Rule to
replace the former Clean Air Interstate Rule that was remanded by a
Federal court as a result of legal challenges. The final rule requires 27
states to reduce power plant emissions that contribute to ozone and
particulate matter pollution in other states. On December 27, 2011, the
EPA published a supplemental rule which makes six additional states,
including Oklahoma, subject to the Cross-State Air Pollution Rule for NOX
emissions during the ozone-season from May 1 through September 30.
Under the rule, OG&E is required to reduce ozone-season NOX emissions
from its electrical generating units within the state beginning in 2012.
The Cross-State Air Pollution Rule is currently being challenged in court
by numerous states and power generators. On December 30, 2011, the
U.S. Court of Appeals issued a stay of the rule and requested proposals
for accelerated briefing to allow the merits of the case to be heard by
April 2012. On February 6, 2012, the EPA issued a notice indicating that
the supplemental rule is also included in the stay discussed above. OG&E
cannot predict the outcome of such challenges and is evaluating what
emission controls would be necessary to meet the standards, its ability
to comply with the standards in the timeframe proposed by the EPA
and the associated costs, which could be significant.