Oklahoma Utility Plans Hefty Environmental Spending in 2013 and Beyond

---

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Public Service Company of Oklahoma (PSO) (Tulsa, Oklahoma), a unit of American Electric Power Company (NYSE:AEP) (AEP) (Columbus, Ohio), plans hefty outlays in 2013 and beyond to keep plants in compliance with various regulations from the U.S. Environmental Protection Agency (EPA) (Washington, D.C.).

The utility, which serves about 535,000 customers in eastern and southwestern Oklahoma, will spend about $350 million to install pollution-control equipment at Unit 3 of its Northeastern Power Station, a 450 megawatt (MW), coal-fired unit located in Oologah, Oklahoma. To comply with the EPA's Regional Haze Rule and the Mercury and Air Toxics Standards (MATS), PSO will lower emissions of oxides of nitrogen by installing a dry sorbent injection system, an activated carbon-injection system and a baghouse on Unit 3. That work will be completed by 2016, and that unit will be retired by 2026, company spokesman Stan Whiteford told Industrial Info.

The AEP unit also will retire Unit 4 of the Northeastern station, which is also a 450-MW coal-fired unit, by 2016. To replace some of Unit 4's lost generating capacity, PSO signed a 15-year power-purchase agreement (PPA) with Calpine Corporation (NYSE:CPN) (Houston, Texas) for 260 MW of power. The PPA, which runs from 2016 to 2031, will be fulfilled by electricity from Calpine's Oneta Energy Center in Oneta, Oklahoma.

The $350 million in compliance spending does not include the cost of the PPA, Whiteford said. He would not disclose what PSO will pay for the gas-fired power it will get from Calpine. These steps were announced recently to fulfill a settlement PSO reached earlier this year with the EPA, the Sierra Club and the State of Oklahoma.

Separate from that compliance agreement, PSO also plans to install low-NOx burners on four gas-fired generating stations to meet the requirements of a State Implementation Plan to lower ozone, Whiteford said. The equipment will be installed at a total cost of about $75 million between 2013 and 2016. This $75 million cost is not included in the $350 million cost of the other compliance agreement, Whiteford said. The low-NOx burners will be installed at:

• Unit 2 of the Northeastern Station, a 440 MW unit
• Unit 3 of the Southwestern Power Station, a 310-MW unit, which is located in Washita, Oklahoma
• Units 1 and 2 of the Comanche Power Station in Lawton, Oklahoma. The two units have combined generating capacity of about 150 MW

PSO's regulator, the Oklahoma Corporation Commission (Oklahoma City, Oklahoma), does not need to approve any of these projects before construction starts, Whiteford said.

The Oklahoma Industrial Energy Consumers has criticized PSO's plan to install environmental control equipment. Instead, the group wants PSO to continue litigating the EPA regional haze rule like the state's largest electric utility, Oklahoma Gas & Electric (Oklahoma City, Oklahoma), a unit of OGE Energy Corporation (NYSE:OGE) (Oklahoma City, Oklahoma).

PSO's plans "will cripple the state of Oklahoma's manufacturing sector, which we believe is the backbone of the Oklahoma economy," Tom Schroedter, an attorney for the industrial group, told The Oklahoman newspaper.

But Whiteford told Industrial Info. that PSO is comfortable with its decision to settle litigation and move forward with its environmental plan. "Our plan creates a realistic and manageable timeline for complying with the two most significant environmental requirements facing PSO --the Regional Haze Rule and the Mercury and Air Toxics Standards-- so we can continue to provide our customers with reliable service at a reasonable cost."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.