OG&E 2013 Annual Report Download - page 35

OGE Energy Corp. 29
uncertainty as to whether or not dry sorbent injection is necessary, such
costs are not included in the capital expenditures table in “Future Capital
Requirements and Financing Activities” above. OG&E is evaluating the
results of field testing to finalize its plans and cost estimates. 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.
Federal Clean Air Act New Source Review Litigation
As previously reported, 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 seek-
ing 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 supple-
mental 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 informa-
tion. 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.
In March 2013, the DOJ informed OG&E that it was prepared to
initiate enforcement litigation concerning the matters identified in the
notice of violation. OG&E subsequently met with EPA and DOJ repre-
sentatives regarding the notice of violation and proposals for resolving
the matter without litigation. On July 8, 2013, the United States, at the
request of the EPA, filed a complaint for declaratory relief against OG&E in
United States District Court for the Western District of Oklahoma (Case
No. CIV-13-690-D) alleging that OG&E did not follow the Federal Clean
Air Act procedures for projecting emission increases attributable to eight
projects that occurred between 2003 and 2006. This complaint seeks
to have OG&E submit a new assessment of whether the projects were
likely to result in a significant emissions increase. The Sierra Club has
intervened in this proceeding and has asserted claims for declaratory
relief that are similar to those requested by the United States. OG&E
expects to vigorously defend against these claims, but OG&E cannot
predict the outcome of such litigation. On August 12, 2013, the Sierra
Club filed a complaint against OG&E in the United States District Court
for the Eastern District of Oklahoma (Case No. 13-CV-00356) alleging
that OG&E modifications made at Unit 6 of the Muskogee generating
plant in 2008 were made without obtaining a prevention of significant
deterioration permit and that the plant has exceeded emissions limits
for opacity and particulate matter. The Sierra Club seeks a permanent
injunction preventing OG&E from operating the Muskogee generating
plant. At this time, OG&E continues to believe that it has acted in
compliance with the Federal Clean Air Act.
If OG&E does not prevail in these proceedings and if a new
assessment of the projects were to conclude that they caused a signifi-
cant emissions increase, the EPA and the Sierra Club could seek to
require OG&E to install additional pollution control equipment, including
scrubbers, baghouses and selective catalytic reduction systems with
capital costs in excess of $1.0 billion 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. OG&E cannot predict at this
time whether it will be legally required to incur any of these costs.
National Ambient Air Quality Standards
The EPA is required to set 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 2013, 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 reducing emissions.
The Acid Rain Program introduces an allowance trading system that
uses the free market to reduce emissions. Under this system, affected
utility units are allocated allowances based on their historic fuel consump-
tion and a specific emissions rate. Each allowance permits a unit to emit
one ton of SO2 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.