OG&E 2012 Annual Report Download - page 38

Hazardous Air Pollutants Emission Standards
On April 16, 2012, regulations governing emissions of certain hazardous
air pollutants from electric generating units were published as the final
MATS rule. This rule includes numerical standards for particulate matter
(as a surrogate for toxic metals), hydrogen chloride and mercury emis-
sions from coal-fired boilers. In addition, the regulations include work
practice standards for dioxins and furans. Compliance is required within
three years after the effective date of the rule with the possibility of a
one-year extension. To comply with this rule, OG&E is currently planning
to utilize activated carbon injection and low levels of dry sorbent injec-
tion at each of its five coal-fired units. Due to various uncertainties about
the final design, the potential use of this technology relating to regional
haze measures and the specifications for the control equipment, the
resulting cost estimates currently range from $34 million to $72 million
per unit. OG&E is evaluating the results of field testing to finalize cost
estimates and implementation schedules. The final MATS rule has been
appealed by several parties. OG&E is not a party to the appeals and
cannot predict the outcome of any such appeals.
Notice of Violation
In July 2008, OG&E received a request for information from the EPA
regarding Federal Clean Air Act compliance at OG&E’s Muskogee and
Sooner generating plants. In recent years, the EPA has issued similar
requests to numerous other electric utilities seeking to determine
whether various maintenance, repair and replacement projects should
have required permits under the Federal Clean Air Act’s new source
review process. In January 2012, OG&E received a supplemental
request for an update of the previously provided information and for
some additional information not previously requested. On May 1, 2012,
OG&E responded to the EPA’s supplemental request for information.
OG&E believes it has acted in full compliance with the Federal Clean
Air Act and new source review process and is cooperating with the EPA.
On April 26, 2011, the EPA issued a notice of violation alleging that 13
projects occurred at OG&E’s Muskogee and Sooner generating plants
between 1993 and 2006 without the required new source review permits.
The notice of violation also alleges that OG&E’s visible emissions at its
Muskogee and Sooner generating plants are not in accordance with
applicable new source performance standards. OG&E has met with the
EPA regarding the notice but cannot predict at this time what, if any, fur-
ther actions may be necessary as a result of the notice. The EPA could
seek to require OG&E to install additional pollution control equipment and
pay fines and significant penalties as a result of the allegations in the
notice of violation. Section 113 of the Federal Clean Air Act (along with
the Federal Civil Penalties Inflation Adjustment Act of 1996) provides for
civil penalties as much as $37,500 per day for each violation. The cost
of any required pollution control equipment could also be significant.
National Ambient Air Quality Standards
The EPA is required to set National Ambient Air Quality Standards
(“NAAQS”) for certain pollutants considered to be harmful to public
health or the environment. The Clean Air Act requires the EPA to review
each NAAQS every five years. As a result of these reviews, the EPA
periodically has taken action to adopt more stringent NAAQS for those
pollutants. If any areas of Oklahoma were to be designated as not
attaining the NAAQS for a particular pollutant, the Company could be
required to install additional emission controls on its facilities to help
the state achieve attainment with the NAAQS. As of the end of 2012,
no areas of Oklahoma had been designated as non-attainment for
pollutants that are likely to affect the Company’s operations. Several
processes are under way to designate areas in Oklahoma as attaining
or not attaining revised NAAQS. The Company is monitoring those
processes and their possible impact on its operations but, at this time,
cannot determine with any certainty whether they will cause a material
impact to the Company’s financial results.
Acid Rain Program
The Federal Clean Air Act includes an Acid Rain Program. The goal of
the Acid Rain Program is to achieve environmental and public health
benefits through reductions in SO2 and NOX emissions, which are the
primary causes of acid rain. To achieve this goal, the program employs
both traditional and market-based approaches for controlling air pollution.
The Acid Rain Program introduces an allowance trading system that
uses the free market to reduce pollution. Under this system, affected utility
units are allocated allowances based on their historic fuel consumption
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 reduc-
tion requirements, the NOX program was implemented in two phases,
beginning 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.
36 OGE Energy Corp.