OG&E 2011 Annual Report Download - page 43

and a specific emissions rate. Each allowance permits a unit to emit one
ton of SO2 from the chimney during or after a specified year. For each
ton of SO2 emitted in a given year, one allowance is retired, that is, it
can no longer be used. Allowances may be bought, sold or banked.
During Phase II of the program (now in effect), the Federal Clean Air
Act set a permanent ceiling (or cap) of 8.95 million total annual allowances
allocated to utilities. This cap firmly restricts emissions and ensures that
environmental benefits will be achieved and maintained. Due to OG&E’s
earlier decision to burn low sulfur coal, these restrictions have had no
significant financial impact.
The Acid Rain Program also focuses on one set of sources that emit
NOX, coal-fired electric utility boilers. As with the SO2 emission reduction
requirements, the NOX program was implemented in two phases, begin-
ning in 1996 and 2000. The NOX program embodies many of the same
principles of the SO2 trading program. However, it does not cap NOX
emissions as the SO2 program does, nor does it utilize an allowance
trading system.
Emission limitations for NOX focus on the emission rate to be
achieved (expressed in pounds of NOX per MMBtu of heat input). In
general, two options for compliance with the emission limitations are
provided: compliance with an individual emission rate for a boiler; or
averaging of emission rates over two or more units to meet an overall
emission rate limitation.
Since becoming subject to the Acid Rain Program, OG&E has met
all obligations and limitations requirements.
Climate Change and Greenhouse Gas Emissions
Emissions of greenhouse gases, including carbon dioxide, sulfur
hexafluoride and methane, may be contributing to warming of the Earth’s
atmosphere. There are various international agreements that restrict
greenhouse gas emissions, but none of them have a binding effect on
sources located in the United States. The U.S. Congress has not passed
legislation to reduce emissions of greenhouse gases and the future
prospects for any such legislation are uncertain. Several states have
passed laws, adopted regulations or undertaken regulatory initiatives to
reduce the emission of greenhouse gases, primarily through the planned
development of greenhouse gas emission inventories and/or regional
greenhouse gas cap and trade programs. Oklahoma, Arkansas and
Texas are not among them.
In the absence of new Federal legislation, the EPA is regulating
greenhouse gas emissions from stationary sources using its existing
legal authority. On September 22, 2009, the EPA announced the adop-
tion of the first comprehensive national system for reporting emissions
of carbon dioxide and other greenhouse gases produced by major sources
in the United States. The reporting requirements apply to large direct
emitters of greenhouse gases with emissions equal to or greater than a
threshold of 25,000 metric tons per year, which includes certain OG&E
and Enogex facilities. Pursuant to the rule, the Company began collecting
data on January 1, 2010 and submitted its first annual report to the
EPA by the September 30, 2011 deadline. For petroleum and natural gas
facilities, data collection began on January 1, 2011, with the first annual
report due to the EPA on September 28, 2012. OG&E already reports
quarterly its carbon dioxide emissions from generating units subject
to the Federal Acid Rain Program.
On June 3, 2010, the EPA issued a final rule that makes certain sources
subject to permitting requirements for greenhouse gas emissions. This
rule now requires sources that emit greater than 100,000 tons per year
of greenhouse gases to obtain a permit for those emissions, even if they
are not otherwise required to obtain a new or modified permit. Such
sources may have to install best available control technology to control
greenhouse gas emissions pursuant to this rule. Also, in December 2010,
the EPA entered into an agreement to settle litigation brought by states
and environmental groups whereby the EPA agreed to issue New Source
Performance Standards for greenhouse gas emissions from certain new
and modified electric generating units and emissions guidelines for exist-
ing units over the next two years. Pursuant to this settlement agreement,
the EPA agreed to issue proposed rules during the fourth quarter of 2011
and final rules by mid-2012. The EPA has not yet issued proposed rules
and has sought to extend the deadlines for issuing the rules.
Another impetus for addressing climate change is litigation relating
to greenhouse gas emissions and pressure for greenhouse gas emission
reductions from investor organizations and the international community.
In at least three Federal court cases, nuisance-type claims have been
asserted against emitters of carbon dioxide, including several utility
companies, alleging that such emissions contribute to global warming.
On June 20, 2011, the U.S. Supreme Court issued a decision that bars
state and private parties from bringing Federal common law nuisance
actions against electrical utility companies based on their alleged contri-
bution to climate change. The Supreme Court’s decision, which did not
address state law claims, is expected to affect other pending Federal
climate change litigation. Although OG&E is not a defendant in any of
these proceedings, additional litigation in Federal and state courts over
climate change issues is continuing.
OG&E is continuing to evaluate various options for reducing, avoiding,
offsetting or sequestering its carbon dioxide emissions. OG&E is a partner
in the EPA Sulfur Hexafluoride Voluntary Reduction Program, and Enogex
is a partner in the EPA Natural Gas STAR Program, a voluntary program
to reduce methane emissions.
If legislation or regulations are passed at the Federal or state levels
in the future requiring mandatory reductions of carbon dioxide and other
greenhouse gases on facilities to address climate change, this could
result in significant additional compliance costs that would affect the
Company’s future consolidated financial position, results of operations
and cash flows if such costs are not recovered through regulated rates.
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