OG&E 2010 Annual Report Download - page 50

Regional Haze Control Measures
On June 15, 2005, the EPA issued final amendments to its 1999 regional haze rule. 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. Sulfates and
nitrate aerosols can lead to the degradation of visibility.
As required by the Federal regional haze rule, the State of Oklahoma evaluated the installation of 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 the
Company’s units at the Horseshoe Lake, Seminole, Muskogee and Sooner generating stations were evaluated for BART. On February
18, 2010, Oklahoma submitted its SIP to the EPA, which set forth the state’s plan for compliance with the Federal regional haze
rule. The SIP is subject to the EPA’s review and approval. If the EPA does not approve Oklahoma’s SIP, the EPA can issue a Federal
implementation plan.
The Oklahoma SIP included a waiver from BART requirements for all eligible units at the Horseshoe Lake generating
station based on air modeling that showed no significant impact on visibility in nearby national parks and wilderness areas. The SIP
also included requirements for reducing emissions of NOX and SO2 from the Company’s seven BART-eligible units at the Seminole,
Muskogee and Sooner generating stations. 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. The Company preliminarily estimates that the total cost of installing and operating
these NOX controls 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 and the Company that established BART for SO2 control at four coal-fired units located at the Company’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. An alternative obligation was also included in the agreement
that would apply in the event that the EPA does not approve Oklahoma’s SIP. Under the alternative obligation, the Company would
have two options for reducing SO2 emission rates from subject units. First, the Company could choose to meet the SO2 emissions
limits associated with Dry Scrubbers by January 1, 2018. Second, the Company could implement a fuel switching alternative whereby
the Company would have 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 EPA approves
Oklahoma’s SIP, implementation of the BART requirements set forth in the SIP would be required within five years of approval.
The prospect for the EPA approval of Oklahoma’s SIP are uncertain. The EPA is expected to propose its action during the
first quarter of 2011. The EPA has indicated that it may issue a Federal implementation plan requiring that the Company install and
operate Dry Scrubbers to control SO2 emissions from the four coal-fired generating units at the Company’s Muskogee and Sooner
generating stations. The Company estimates that installing Dry Scrubbers on these units would cost the Company more than $1.0
billion. The EPA’s proposal will be subject to the normal administrative process that includes public notice and comment and the
availability of judicial review.
Until the EPA takes final action on the Oklahoma 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.
Acid Rain and Sulfur Dioxide Air Quality Standards
The 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
permits one ton of SO2 to be 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 2010, the Company’s SO2 emissions were below the allowable limits.
On June 2, 2010, the EPA released its final rule strengthening its NAAQS for SO2. The final rule revokes the existing 24-
hour and annual standards and establishes a new lower one-hour standard at a level of 75 parts per billion. The EPA intends to
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