OG&E 2011 Annual Report Download - page 85

The Company believes, however, that it is reasonably likely that the
trend in environmental legislation and regulations will continue towards
more restrictive standards. Compliance with these standards is expected
to increase the cost of conducting business.
On May 17, 2011, OG&E entered into a Consent Order with the ODEQ
related to alleged violations of Federal and state opacity standards from
2005 to May 2011 at OG&E’s Muskogee and Sooner generating stations.
The Consent Order requires OG&E to reach certain milestones with regard
to the overall amount of time when opacity exceeds certain amounts.
Beginning January 1, 2015, the Consent Order requires each unit at
OG&E’s Muskogee and Sooner generating stations to have a rolling
annual average of the time that opacity emissions are in excess of
20 percent to a level equal to or below one percent of the total time in a
measurement period. OG&E agreed to implement two specific projects
and other measures as necessary to achieve the milestones established
in the Consent Order. These projects and other measures are not
expected to involve significant capital or ongoing operating expenses.
OG&E also agreed to pay a stipulated cash penalty of $150,000 and
agreed to contribute another $150,000 to an ODEQ environmental fund
for assisting small Oklahoma communities with their drinking water and
wastewater treatment systems. OG&E entered into the Consent Order
without admitting or denying the allegations made by the ODEQ. In
order to facilitate the court approval of the Consent Order, the ODEQ
initiated the necessary legal action against OG&E in state court on
May 17, 2011. On June 2, 2011, the Consent Order was approved and
entered by the District Court of Oklahoma County, Oklahoma. Subject
to the ongoing compliance obligations described above pursuant to
the Consent Order, OG&E considers this matter closed.
OG&E and Enogex are managing several significant uncertainties
about the scope and timing for the acquisition, installation and opera-
tion of additional pollution control equipment and compliance costs for
a variety of the EPA rules that are being challenged in court. OG&E and
Enogex are unable to predict the financial impact of these matters with
certainty at this time. See "Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Environmental Laws and
Regulations" for a discussion of the Company’s environmental matters.
Pipeline Safety Legislation
On December 13, 2011, Congress passed the Pipeline Safety, Regulatory
Certainty, and Job Creation Act of 2011, which the President signed
into law on January 3, 2012. Among other things, the law requires addi-
tional verification of pipeline infrastructure records by Enogex and other
intrastate and interstate pipeline owners and operators to confirm the
maximum allowable operating pressure of lines located in high conse-
quence areas or more-densely populated areas. Where records are
inadequate to confirm the maximum allowable operating pressure, the
U.S. Department of Transportation, Pipeline and Hazardous Materials
Safety Administration (“PHMSA”) will require the operator to re-confirm
the maximum allowable operating pressure, a process that could cause
temporary or permanent limitations on throughput for affected pipelines.
This law requires PHMSA to direct pipeline operators to verify the maxi-
mum allowable operating pressure of their pipelines by July 3, 2012, and
to submit documentation to PHMSA by July 3, 2013. This law also raises
the maximum penalty for violating pipeline safety rules to $0.2 million
per violation per day up to $2.0 million for a related series of violations.
In addition, this law requires PHMSA to issue reports and/or, if
appropriate, develop new regulations, addressing a variety of subjects,
including: (1) requiring pipeline owners and operators to install excess-
flow valves in certain circumstances; (2) requiring pipeline owners and
operators to use automatic or remote-controlled shut-off valves in cer-
tain circumstances; (3) requiring pipeline owners and operators to test
to confirm the strength of previously untested transmission lines located
within high consequence areas and operating at a pressure greater than
30 percent of specified minimum yield stress; (4) requiring pipeline owners
and operators to notify the National Response Center of an accident or
incident at the earliest practicable moment (but not later than one hour)
after confirming that an accident or incident has occurred; (5) expanding
integrity management requirements beyond high consequence areas; and
(6) applying the Federal pipeline safety regulations to onshore gathering
lines that are not currently subject to the Federal pipeline safety regulations.
This law prescribes various deadlines for PHMSA to act on these issues.
At this time, the Company is not able to estimate the capital,
operating or other costs that may be required to comply with this law
and any related PHMSA regulations that may be promulgated, but such
costs could be significant.
Other
In the normal course of business, the Company is confronted with issues
or events that may result in a contingent liability. These generally relate
to lawsuits, claims made by third parties, environmental actions or the
action of various regulatory agencies. When appropriate, management
consults with legal counsel and other appropriate experts to assess
the claim. If, in management’s opinion, the Company has incurred a
probable loss as set forth by GAAP, an estimate is made of the loss
and the appropriate accounting entries are reflected in the Company’s
Consolidated Financial Statements. Except as otherwise stated above,
in Note 17 below and in Item 3 of the Company’s Form 10-K, manage-
ment, after consultation with legal counsel, does not currently anticipate
that lia bilities arising out of these pending or threatened lawsuits, claims
and contingencies will have a material adverse effect on the Company’s
consolidated financial position, results of operations or cash flows.
OGE Energy Corp. 83