OG&E 2013 Annual Report Download - page 77

Enable Gas Transportation and Storage Agreement
OG&E contracts with Enable for gas transportation and storage services.
The stated term of this contract expired April 30, 2009, but remained in
effect from year-to-year thereafter. On January 31, 2014, in anticipation
of entering into a new, five-year contract, OG&E provided written notice
of termination of the contract, effective April 30, 2014. Negotiations
regarding the new contract are ongoing, and there can be no assurance
that the new contract will be agreed upon, or if agreed upon, that the terms
of the new contract will be as favorable to us as the expiring contract.
Environmental Laws and Regulations
The activities of OG&E are subject to stringent and complex Federal,
state and local laws and regulations governing environmental protection
relating to air quality, water quality, waste management, wildlife conser-
vation and natural resources. These laws and regulations can restrict
or impact business activities in many ways, such as restricting the
way it can handle or dispose of its wastes, requiring remedial action
to mitigate environmental issues that may be caused by its operations
or that are attributable to former operators, requiring changes in opera-
tions and requiring the installation and operation of pollution control
equipment. Failure to comply with these laws and regulations could
result in the assessment of administrative, civil and criminal penalties,
the imposition of remedial requirements and the issuance of orders
enjoining future operations.
Environmental regulation can increase the cost of planning, design,
initial installation and operation of OG&E’s facilities. Historically, OG&E’s
total expenditures for environmental control facilities and for remediation
have not been significant in relation to its consolidated financial position
or results of operations. The Company believes, however, that it is rea-
sonably likely that the trend in environmental legislation and regulations
will continue towards more restrictive standards. Compliance with these
standards is expected to increase the cost of conducting business.
Management continues to evaluate its compliance with existing and
proposed environmental legislation and regulations and implement
appropriate environmental programs in a competitive market.
OG&E is managing several significant uncertainties about the scope
and timing for the acquisition, installation and operation of additional
pollution control equipment and compliance costs for a variety of the
EPA rules that are being challenged in court. OG&E is unable to predict
the financial impact of these matters with certainty at this time. See
“Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Environmental Laws and Regulations” for
a discussion of the Company’s environmental matters.
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
seeking to determine whether various maintenance, repair and replace-
ment 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 informa-
tion and for some additional information not previously requested. On
May 1, 2012, OG&E responded to the EPA’s supplemental request for
information. 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 declara-
tory 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 significant emissions
increase, the EPA and the Sierra Club could seek to require OG&E to
install additional pollution control equipment, including scrubbers, bag-
houses 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.
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