OG&E 2015 Annual Report Download - page 17

OGE Energy Corp. 31
In฀2014,฀the฀Company฀enrolled฀in฀the฀Western฀Association฀of฀Fish฀
and฀Wildlife฀Agencies฀range-wide฀conservation฀plan฀which฀consists฀of฀
industry-specific฀conse vation฀practices฀that฀apply฀to฀projects฀and฀
activities฀in฀the฀impacted฀area.฀The฀range-wide฀conservation฀plan฀was฀
approved฀by฀the฀U.S.฀Fish฀and฀Wildlife฀Service฀and฀incorporated฀as฀
part฀of฀the฀agency’s฀final฀decision฀on฀March฀27,฀2014฀to฀list฀the฀lesser
prairie฀chicken฀as฀a฀threatened฀species.฀On฀September฀1,฀2015,฀the฀
U.S.฀District฀Court฀Western฀District฀of฀Texas฀vacated฀federal฀protections฀
for฀the฀lesser฀prairie฀chicken฀based฀on฀the฀U.S.฀Fish฀and฀Wildlife฀
Service’s฀failure฀to฀thoroughly฀consider฀the฀active฀conservation฀efforts฀
in฀making฀the฀listing฀decision.฀
Air฀Quality฀Control฀System฀
On฀September฀10,฀2014,฀OG&E฀executed฀a฀contract฀for฀the฀design,฀
engineering฀and฀fabrication฀of฀two฀circulating฀dry฀scrubber฀systems฀฀
to฀be฀installed฀at฀Sooner฀Units฀1฀and฀2.฀OG&E฀entered฀into฀an฀
agreement฀on฀February฀9,฀2015,฀to฀install฀the฀dry฀scrubber฀systems.฀
The฀dry฀scrubbers฀are฀part฀of฀OG&E’s฀ECP฀and฀scheduled฀to฀be฀
completed฀by฀2019.฀More฀detail฀regarding฀the฀ECP฀can฀be฀found฀
under฀the฀“Pending฀Regulatory฀Matters”฀section฀of฀Notes฀to฀
Consolidated฀Financial฀Statements.฀
Waste
OG&E’s฀operations฀generate฀wastes฀that฀are฀subject฀to฀the฀Federal฀
Resource฀Conservation฀and฀Recovery฀Act฀of฀1976฀as฀well฀as฀
comparable฀state฀laws฀which฀impose฀detailed฀requirements฀for฀฀
the฀handling,฀storage,฀treatment฀and฀disposal฀of฀waste.฀
On฀December฀19,฀2014,฀the฀EPA฀finali ed฀a฀rule฀under฀the฀Federal฀
Resource฀Conservation฀and฀Recovery฀Act฀for฀the฀handling฀and฀
disposal฀of฀coal฀combustion฀residuals฀or฀coal฀ash.฀The฀final฀ ule฀
regulates฀coal฀ash฀as฀a฀solid฀waste฀rather฀than฀a฀hazardous฀waste,฀
which฀would฀have฀made฀the฀management฀of฀coal฀ash฀more฀costly.฀
OG&E฀has฀evaluated฀the฀potential฀impacts฀of฀the฀final฀ ule฀on฀our฀ash฀
ponds฀and฀has฀set฀up฀a฀reserve฀based฀on฀a฀reasonable฀estimate.฀
The฀Company฀has฀sought฀and฀will฀continue฀to฀seek฀pollution฀
prevention฀opportunities฀and฀to฀evaluate฀the฀effectiveness฀of฀its฀waste฀
reduction,฀reuse฀and฀recycling฀efforts.฀In฀2015,฀the฀Company฀obtained฀
refunds฀of฀$2.3฀million฀from฀the฀recycling฀of฀scrap฀metal,฀salvaged฀
transformers฀and฀used฀transformer฀oil.฀This฀figure฀does฀not฀include฀th ฀
additional฀savings฀gained฀through฀the฀reduction฀and/or฀avoidance฀of฀
disposal฀costs฀and฀the฀reduction฀in฀material฀purchases฀due฀to฀the฀reuse฀
of฀existing฀materials.฀Similar฀savings฀are฀anticipated฀in฀future฀years.
Water
OG&E’s฀operations฀are฀subject฀to฀the฀Federal฀Clean฀Water฀Act,฀and฀
comparable฀state฀laws฀and฀regulations.฀These฀laws฀and฀regulations฀
impose฀detailed฀requirements฀and฀strict฀controls฀regarding฀the฀
discharge฀of฀pollutants฀into฀state฀and฀Federal฀waters.
The฀EPA฀issued฀a฀final฀ ule฀on฀May฀19,฀2014฀to฀implement฀
Section฀316(b)฀of฀the฀Federal฀Clean฀Water฀Act,฀which฀requires฀that฀
power฀plant฀cooling฀water฀intake฀structure฀location,฀design,฀
construction฀and฀capacity฀reflect฀the฀best฀ vailable฀technology฀for฀
minimizing฀their฀adverse฀environmental฀impact฀via฀the฀impingement฀
and฀entrainment฀of฀aquatic฀organisms.฀The฀EPA฀issued฀a฀final฀ ule฀฀
on฀May฀19,฀2014.฀OG&E฀submitted฀compliance฀plans฀to฀the฀state฀in฀
April฀2015.฀OG&E฀expects฀to฀be฀able฀to฀provide฀a฀reasonable฀estimate฀
of฀any฀material฀costs฀associated฀with฀the฀rule’s฀implementation.฀
Site Remediation
The฀Comprehensive฀Environmental฀Response,฀Compensation฀and฀
Liability฀Act฀of฀1980฀and฀comparable฀state฀laws฀impose฀liability,฀without฀
regard฀to฀the฀legality฀of฀the฀original฀conduct,฀on฀certain฀classes฀of฀
persons฀responsible฀for฀the฀release฀of฀hazardous฀substances฀into฀the฀
environment.฀Because฀OG&E฀utilizes฀various฀products฀and฀generate฀
wastes฀that฀are฀considered฀hazardous฀substances฀for฀purposes฀of฀the฀
Comprehensive฀Environmental฀Response,฀Compensation฀and฀Liability฀
Act฀of฀1980,฀OG&E฀could฀be฀subject฀to฀liability฀for฀the฀costs฀of฀cleaning฀
up฀and฀restoring฀sites฀where฀those฀substances฀have฀been฀released฀to฀
the฀environment.฀At฀this฀time,฀it฀is฀not฀anticipated฀that฀any฀associated฀
liability฀will฀cause฀a฀significant฀impact฀to฀OG&E
For฀a฀further฀discussion฀regarding฀contingencies฀relating฀to฀
environmental฀laws฀and฀regulations,฀see฀Note฀14฀of฀Notes฀to฀
Consolidated฀Financial฀Statements.
30 OGE Energy Corp.
an฀extension฀request฀for฀up฀to฀two฀years.฀The฀compliance฀period฀was฀to฀
begin฀in฀2022,฀and฀emission฀reductions฀were฀to฀be฀phased฀in฀by฀2030.฀
The฀EPA฀also฀proposed฀a฀federal฀compliance฀plan฀to฀implement฀the฀
Clean฀Power฀Plan฀in฀the฀event฀that฀an฀approvable฀state฀plan฀was฀not฀
submitted฀to฀the฀EPA฀by฀the฀required฀deadline.฀
A฀number฀of฀states฀have฀filed฀l wsuits฀against฀the฀Clean฀Power฀
Plan.฀On฀February฀9,฀2016,฀the฀U.S.฀Supreme฀Court฀issued฀orders฀
staying฀implementation฀of฀the฀Clean฀Power฀Plan฀pending฀resolution฀
of฀challenges฀to฀the฀rule.฀The฀Company฀is฀unable฀to฀determine฀what฀
impact฀the฀lawsuits฀will฀ultimately฀have฀on฀the฀Clean฀Power฀Plan฀
or฀what฀impact฀the฀stay฀in฀implementation฀will฀have;฀however฀if฀the฀
Clean฀Power฀Plan฀survives฀judicial฀review฀and฀is฀implemented฀as฀
written,฀it฀could฀result฀in฀significant฀additional฀compliance฀costs฀that
would฀affect฀our฀future฀consolidated฀financial฀position,฀results฀of
operations฀and฀cash฀fl ws฀if฀such฀costs฀are฀not฀recovered฀through฀
regulated฀rates.฀Significant฀unce tainties฀would฀remain฀with฀regards฀
to฀potential฀implementation฀in฀Oklahoma฀(and฀the฀federal฀plan฀that฀
would฀be฀imposed฀by฀the฀EPA฀for฀states฀that฀do฀not฀submit฀approvable฀
plans),฀including฀whether฀states฀would฀elect฀an฀emissions฀standards฀
approach฀versus฀a฀state฀measures฀approach,฀whether฀and฀what฀type฀
of฀emissions฀trading฀would฀be฀allowed,฀and฀available฀cost฀mitigation฀
options.฀Due฀to฀the฀pending฀litigation฀and฀the฀uncertainties฀in฀the฀state฀
approaches,฀the฀ultimate฀timing฀and฀impact฀of฀these฀standards฀on฀our฀
operations฀cannot฀be฀determined฀with฀certainty฀at฀this฀time.
Climate฀Change฀and฀Greenhouse฀Gas฀Emissions
There฀is฀continuing฀discussion฀and฀evaluation฀of฀possible฀global฀
climate฀change฀in฀certain฀regulatory฀and฀legislative฀arenas.฀The฀focus฀
is฀generally฀on฀emissions฀of฀greenhouse฀gases,฀including฀CO2,฀sulfur฀
hexafluo ide฀and฀methane,฀and฀whether฀these฀emissions฀are฀
contributing฀to฀the฀warming฀of฀the฀earth’s฀atmosphere.฀In฀December฀
2015,฀as฀part฀of฀the฀21st฀Conference฀of฀the฀Parties฀to฀the฀United฀
Nations฀Framework฀Convention฀on฀Climate฀Change,฀the฀United฀States฀
committed฀to฀reduce฀economy฀wide฀emissions฀by฀26฀percent฀to฀
28฀percent฀below฀2005฀emission฀levels.฀This฀multinational฀agreement฀
will฀be฀open฀for฀signing฀on฀April฀22,฀2016฀and฀will฀require฀countries฀to฀
review฀and฀“represent฀a฀progression”฀every฀fi e฀years฀beginning฀in฀
2020.฀The฀agreement฀could฀result฀in฀future฀additional฀emissions฀
reductions฀in฀the฀United฀States,฀however,฀it฀is฀not฀possible฀to฀determine฀
what฀the฀international฀legal฀standards฀for฀greenhouse฀gas฀emissions฀
will฀be฀in฀the฀future฀and฀the฀extent฀to฀which฀commitments฀under฀the฀
December฀2015฀Paris฀Agreement฀will฀be฀implemented฀through฀the฀
Clean฀Air฀Act,฀other฀than฀existing฀statutes฀and฀new฀legislation.฀
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.
If฀legislation฀or฀regulations฀are฀passed฀at฀the฀Federal฀or฀state฀levels฀
in฀the฀future฀requiring฀mandatory฀reductions฀of฀CO2฀and฀other฀
greenhouse฀gases฀on฀the฀Company’s฀facilities,฀this฀could฀result฀in฀
significant฀additional฀compliance฀costs฀that฀ ould฀affect฀the฀Company’s฀
future฀financial฀position,฀results฀of฀ope ations฀and฀cash฀fl ws฀if฀such฀
costs฀are฀not฀recovered฀through฀regulated฀rates.
In฀2009,฀the฀EPA฀adopted฀a฀comprehensive฀national฀system฀for฀
reporting฀emissions฀of฀CO2฀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฀facilities.฀OG&E฀also฀reports฀quarterly฀its฀CO2฀emissions฀
from฀generating฀units฀subject฀to฀the฀Federal฀Acid฀Rain฀Program.฀OG&E฀
has฀submitted฀the฀reports฀required฀by฀the฀applicable฀reporting฀rules.฀
Nonetheless,฀OG&E’s฀current฀business฀strategy฀will฀result฀in฀a฀
reduced฀carbon฀emissions฀rate฀compared฀to฀current฀levels.฀As฀
discussed฀in฀“Pending฀Regulatory฀Matters”,฀OG&E฀has฀filed฀an
application฀with฀the฀OCC฀for฀approval฀of฀its฀plan฀to฀comply฀with฀the฀
EPA’s฀MATS฀and฀Regional฀Haze฀FIP฀by฀converting฀two฀coal-fired
generating฀units฀at฀Muskogee฀Station฀to฀natural฀gas,฀among฀other฀
measures.฀OG&E’s฀deployment฀of฀Smart฀Grid฀technology฀helps฀to฀
reduce฀the฀peak฀load฀demand.฀OG&E฀also฀seeks฀to฀utilize฀renewable฀
energy฀sources฀that฀do฀not฀emit฀greenhouse฀gases.฀OG&E’s฀service฀
territory฀borders฀one฀of฀the฀nation’s฀best฀wind฀resource฀areas.฀OG&E฀
has฀leveraged฀its฀geographic฀position฀to฀develop฀renewable฀energy฀
resources฀and฀completed฀transmission฀investments฀to฀deliver฀the฀
renewable฀energy.฀The฀SPP฀has฀begun฀to฀authorize฀the฀construction฀฀
of฀transmission฀lines฀capable฀of฀bringing฀renewable฀energy฀out฀of฀the฀
wind฀resource฀area฀in฀western฀Oklahoma,฀the฀Texas฀Panhandle฀and฀
western฀Kansas฀to฀load฀centers฀by฀planning฀for฀more฀transmission฀to฀
be฀built฀in฀the฀area.฀In฀addition฀to฀increasing฀overall฀system฀reliability,฀
these฀new฀transmission฀resources฀should฀provide฀greater฀access฀to฀
additional฀wind฀resources฀that฀are฀currently฀constrained฀due฀to฀existing฀
transmission฀delivery฀limitations.
EPA฀Startup,฀Shutdown฀and฀Malfunction฀Policy
On฀May฀22,฀2015,฀the฀EPA฀issued฀a฀final฀ ule฀to฀address฀the฀outdated฀
provisions฀in฀the฀SIP฀of฀36฀states,฀including฀Oklahoma,฀regarding฀the฀
treatment฀of฀emissions฀that฀occur฀during฀startup,฀shutdown฀and฀
malfunction฀operations.฀The฀final฀ ule฀clarifies฀the฀E A’s฀Startup,฀
Shutdown฀and฀Malfunction฀Policy฀to฀assure฀consistency฀with฀the฀Clean฀
Air฀Act฀and฀other฀recent฀court฀decisions.฀The฀Oklahoma฀Department฀of฀
Environmental฀Quality฀is฀in฀the฀process฀of฀developing฀a฀SIP฀to฀comply฀
with฀this฀rule,฀which฀is฀to฀be฀submitted฀to฀the฀EPA฀before฀November฀
2016.฀Although฀the฀extent฀of฀impact฀is฀not฀known,฀this฀rule฀will฀impact฀
certain฀OG&E฀units.฀
Endangered฀Species
Certain฀Federal฀laws,฀including฀the฀Bald฀and฀Golden฀Eagle฀Protection฀
Act,฀the฀Migratory฀Bird฀Treaty฀Act฀and฀the฀Endangered฀Species฀Act,฀
provide฀special฀protection฀to฀certain฀designated฀species.฀These฀laws฀
and฀any฀state฀equivalents฀provide฀for฀significant฀civil฀and฀c iminal฀
penalties฀for฀unpermitted฀activities฀that฀result฀in฀harm฀to฀or฀harassment฀
of฀certain฀protected฀animals฀and฀plants,฀including฀damage฀to฀their฀
habitats.฀If฀such฀species฀are฀located฀in฀an฀area฀in฀which฀the฀Company฀
conducts฀operations,฀or฀if฀additional฀species฀in฀those฀areas฀become฀
subject฀to฀protection,฀the฀Company’s฀operations฀and฀development฀
projects,฀particularly฀transmission,฀wind฀or฀pipeline฀projects,฀could฀be฀
restricted฀or฀delayed,฀or฀the฀Company฀could฀be฀required฀to฀implement฀
expensive฀mitigation฀measures.฀