OG&E 2013 Annual Report Download - page 34

28 OGE Energy Corp.
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. On February 18, 2010, Oklahoma
submitted its SIP to the EPA, which set forth the state’s plan for compli-
ance 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 with overfire
air (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 capital cost of installing and operating these
NOX controls on all covered units, based on recent industry experience
and past projects, will be approximately $80 million. With respect to
SO2 emissions, the SIP included an agreement between the Oklahoma
Department of Environmental Quality and OG&E that established BART
for SO2 control at the four affected 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 issued a final rule in which it
rejected portions of the Oklahoma SIP and issued a FIP in their place.
While the EPA accepted Oklahoma’s BART determination for NOX in the
final rule, it rejected Oklahoma’s SO2 BART determination with respect
to the four coal-fired units at the Sooner and Muskogee generating sta-
tions. The EPA is instead 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 include capital costs to OG&E of
more than $1.0 billion. OG&E and the state of Oklahoma filed an admin-
istrative stay request with the EPA on February 24, 2012. The EPA has
not yet responded to this request. OG&E and other parties also filed a
petition for review of the FIP in the U.S. Court of Appeals for the Tenth
Circuit on February 24, 2012 and a stay request on April 4, 2012. On
June 22, 2012, the U.S. Court of Appeals for the Tenth Circuit granted
the stay request. On July 19, 2013, the U.S. Court of Appeals for the
Tenth Circuit by a 2 to 1 vote denied the petition for review and affirmed
the EPA’s issuance of the FIP. On January 2, 2014, the Tenth Circuit con-
firmed that the stay of the FIP has remained in place and continues until
the Tenth Circuit issues the mandate. A Petition for Certiorari was filed
by the State of Oklahoma, the Industrial Consumers and OG&E with the
United States Supreme Court on January 29, 2014. The mandate from
the Tenth Circuit has been stayed until the Supreme Court acts on the
petition. If the Supreme Court elects not to hear the case, OG&E will have
approximately 55 months from the effective date of the lifting of the stay
to achieve compliance with the FIP.
Cross-State Air Pollution Rule
As previously reported, 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 would require 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 would
make 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 would have
been required to reduce ozone-season NOX emissions from its electrical
generating units within the state beginning in 2012. The Cross-State Air
Pollution Rule was 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, which includes the supplemental rule, pending a deci-
sion on the merits. By order dated August 21, 2012, the U.S. Court of
Appeals vacated the Cross-State Air Pollution Rule and ordered the EPA
to promulgate a replacement rule. On June 24, 2013, the U.S. Supreme
Court agreed to review the decision by the U.S. Court of Appeals, with a
decision expected during the first half of 2014. OG&E cannot predict the
outcome of such challenges.
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 with the MATS
rule is required within three years after the effective date of the rule with
the possibility of a one-year extension. OG&E requested and was granted
by the Oklahoma Department of Environmental Quality resulting in a
compliance date of April 16, 2016 for OG&E. To comply with this rule,
OG&E is currently planning to utilize activated carbon injection for the
removal of mercury at each of its five coal-fired units, the capital costs
of which are estimated to be approximately $20 million over a three year
period and are included in the capital expenditures table in “Future
Capital Requirements and Financing Activities” above. OG&E continues
to review whether additional controls such as dry sorbent injection are
needed for compliance with MATS. Current capital costs for installing the
necessary control equipment for dry sorbent injection are estimated to
be approximately $45 million over a three year period, but due to the