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Released December 23, 2013 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Oklahoma Gas & Electric Company (OG&E) (Oklahoma City, Oklahoma) plans to make significant environmental compliance investments, but it's not clear yet if the utility will spend $1 billion, $1.5 billion or some other sum to bring its coal-fired power plants into compliance with federal laws.
The utility, a unit of OGE Energy Corporation (NYSE:OGE) (Oklahoma City), expects greater clarity about compliance costs and timelines in the first quarter of 2014. About 40% of the utility's 7,000 megawatts (MW) of generating capacity is unscrubbed coal, chairman, president and chief executive Peter Delaney told the keynote session at Power-Gen International's 25th annual conference, held in mid-November.
At the end of October, the U.S. Court of Appeals for the 10th Circuit (Denver, Colorado) denied OG&E's request to rehear a case involving plans to improve visibility in nearby protected federal areas. Several years ago, OG&E and the state of Oklahoma had reached an agreement to improve visibility, but the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) rejected that plan. OG&E sued in federal court, lost, then sought a rehearing, which it also lost.
That rejected state implementation plan would have allowed OG&E to comply with regional haze rules by switching to a different grade of coal at some of its unscrubbed units. In rejecting that plan, the EPA insisted on installing scrubbers at two large generators--the Muskogee Generating Station and the Sooner Lake Power Station.
Muskogee units 4 and 5, each with generating capacities of 572 MW, and Sooner units 1 and 2, each rated at 568 MW, are the four affected units under the federal regional haze rule. In his third-quarter earnings call with investors, Delaney estimated the utility's regional haze compliance costs at between $1 billion and $1.5 billion. The utility is considering installing dry scrubbers at the affected units or switching to natural gas.
"Fuel diversity remains very important, an important element of protecting our customers over the long run, and we have been taking these necessary steps to move forward with our plans to be able to scrub some or all of our coal units," Delaney told investors. He added the utility expects to be able to recover the costs of mandated compliance spending in its electric rates.
The utility said it has done much of the analytic work to meet federal regional haze standards. In his Power-Gen remarks, CEO Delaney had some sharp words for the EPA: The agency's projected cost to install scrubbers is "about half of what we think it is, they won't fit (on the plants' footprints)--and from a technical perspective, they don't even work."
Those words echoed charges OG&E leveled against the EPA when it unsuccessfully sought a rehearing in the 10th Circuit: "OG&E believes that EPA's analysis were frequently based on assumptions unsupported by the record, contrary to basic engineering or economic realities, or based on materials or analysis that EPA did not provide to Oklahoma during the state's lengthy process for making its BART determination."
BART is an acronym for Best Available Retrofit Technology, the technology standard contained in the regional haze provision of the Clean Air Act. The regional haze provision is designed to preserve visibility at national parks and wilderness areas. OG&E, which provides electricity to more than 800,000 customers, has around 50 months to comply with the EPA's regional haze plan.
Beyond its regional haze exposure, OG&E also faces additional costs to comply with the EPA's Cross-State Air Pollution Rule (CSAPR) and Mercury and Air Toxics Standards (MATS) regulation. In its third-quarter 10-Q report filed at the Securities and Exchange Commission (SEC) (Washington, D.C.), OG&E estimated its MATS compliance costs at between $50 million and $100 million. Those costs would be in addition to the $1 billion to $1.5 billion cost to comply with regional haze rules.
The U.S. Supreme Court heard a challenge to CSAPR this month, and a decision is expected by mid-2014. OG&E did not provide an estimate of its potential CSAPR compliance costs in its 10-Q filing.
And that's all before OG&E calculates the cost of bringing its coal-fired units into compliance with an expected rule from EPA on reducing carbon dioxide (CO2) emissions from operating coal-fired power plants. Given the mid-2014 due date for that draft rule, Delaney told investors the utility plans to "back-end our compliance investments to get better information" about the implications of that forthcoming CO2 regulation.
All of these planned and potential environmental outlays come as OG&E also is investing heavily in its transmission and distribution network. The utility plans to invest more than $700 million for transmission projects, and an additional $875 million in distribution projects, over the 2013-2017 timeframe, according to its SEC filing.
To shrink its risk profile during such uncertain times, OG&E has invested in advanced digital meters, innovative pricing options and customer demand response (DR) programs to reduce the amount of electricity it has to supply to its customers. CEO Delaney told Power-Gen attendees that the utility's various initiatives will save between 300 MW and 400 MW by 2016. Through two years, the utility has reduced electric demand by about 200 MW. To the extent that these DR programs reduce the utility's need to generate electricity from coal-fired units, they could constitute an important element of OG&E's environmental compliance strategy.
"Our customers love the Smart Hours (DR) program," Delaney told Power-Gen last month. "Our customer satisfaction scores have never been higher, and complaints to our regulator (the Oklahoma Corporation Commission) have fallen by 50%." For more on OG&E's strategic risk-management investments, see December 10, 2013, article - Utilities See 'Optionality' as Key to Success as Business Environment Shifts.
"OG&E's strategic dilemmas about compliance spending and differing deadlines are widely shared by other U.S. electric utilities, but that utility is unusual in the degree to which it is using advanced digital meters and DR programs to reduce its environmental exposure," said Brock Ramey, Industrial Info's North American Power Manager. "Significant investments on the customer side of the meter are gradually changing traditional thinking about utility resource planning portfolios, and that fresh thinking will have an impact on equipment suppliers and engineering, construction & procurement (EPC) firms."
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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, 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.
The utility, a unit of OGE Energy Corporation (NYSE:OGE) (Oklahoma City), expects greater clarity about compliance costs and timelines in the first quarter of 2014. About 40% of the utility's 7,000 megawatts (MW) of generating capacity is unscrubbed coal, chairman, president and chief executive Peter Delaney told the keynote session at Power-Gen International's 25th annual conference, held in mid-November.
At the end of October, the U.S. Court of Appeals for the 10th Circuit (Denver, Colorado) denied OG&E's request to rehear a case involving plans to improve visibility in nearby protected federal areas. Several years ago, OG&E and the state of Oklahoma had reached an agreement to improve visibility, but the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) rejected that plan. OG&E sued in federal court, lost, then sought a rehearing, which it also lost.
That rejected state implementation plan would have allowed OG&E to comply with regional haze rules by switching to a different grade of coal at some of its unscrubbed units. In rejecting that plan, the EPA insisted on installing scrubbers at two large generators--the Muskogee Generating Station and the Sooner Lake Power Station.
Muskogee units 4 and 5, each with generating capacities of 572 MW, and Sooner units 1 and 2, each rated at 568 MW, are the four affected units under the federal regional haze rule. In his third-quarter earnings call with investors, Delaney estimated the utility's regional haze compliance costs at between $1 billion and $1.5 billion. The utility is considering installing dry scrubbers at the affected units or switching to natural gas.
"Fuel diversity remains very important, an important element of protecting our customers over the long run, and we have been taking these necessary steps to move forward with our plans to be able to scrub some or all of our coal units," Delaney told investors. He added the utility expects to be able to recover the costs of mandated compliance spending in its electric rates.
The utility said it has done much of the analytic work to meet federal regional haze standards. In his Power-Gen remarks, CEO Delaney had some sharp words for the EPA: The agency's projected cost to install scrubbers is "about half of what we think it is, they won't fit (on the plants' footprints)--and from a technical perspective, they don't even work."
Those words echoed charges OG&E leveled against the EPA when it unsuccessfully sought a rehearing in the 10th Circuit: "OG&E believes that EPA's analysis were frequently based on assumptions unsupported by the record, contrary to basic engineering or economic realities, or based on materials or analysis that EPA did not provide to Oklahoma during the state's lengthy process for making its BART determination."
BART is an acronym for Best Available Retrofit Technology, the technology standard contained in the regional haze provision of the Clean Air Act. The regional haze provision is designed to preserve visibility at national parks and wilderness areas. OG&E, which provides electricity to more than 800,000 customers, has around 50 months to comply with the EPA's regional haze plan.
Beyond its regional haze exposure, OG&E also faces additional costs to comply with the EPA's Cross-State Air Pollution Rule (CSAPR) and Mercury and Air Toxics Standards (MATS) regulation. In its third-quarter 10-Q report filed at the Securities and Exchange Commission (SEC) (Washington, D.C.), OG&E estimated its MATS compliance costs at between $50 million and $100 million. Those costs would be in addition to the $1 billion to $1.5 billion cost to comply with regional haze rules.
The U.S. Supreme Court heard a challenge to CSAPR this month, and a decision is expected by mid-2014. OG&E did not provide an estimate of its potential CSAPR compliance costs in its 10-Q filing.
And that's all before OG&E calculates the cost of bringing its coal-fired units into compliance with an expected rule from EPA on reducing carbon dioxide (CO2) emissions from operating coal-fired power plants. Given the mid-2014 due date for that draft rule, Delaney told investors the utility plans to "back-end our compliance investments to get better information" about the implications of that forthcoming CO2 regulation.
All of these planned and potential environmental outlays come as OG&E also is investing heavily in its transmission and distribution network. The utility plans to invest more than $700 million for transmission projects, and an additional $875 million in distribution projects, over the 2013-2017 timeframe, according to its SEC filing.
To shrink its risk profile during such uncertain times, OG&E has invested in advanced digital meters, innovative pricing options and customer demand response (DR) programs to reduce the amount of electricity it has to supply to its customers. CEO Delaney told Power-Gen attendees that the utility's various initiatives will save between 300 MW and 400 MW by 2016. Through two years, the utility has reduced electric demand by about 200 MW. To the extent that these DR programs reduce the utility's need to generate electricity from coal-fired units, they could constitute an important element of OG&E's environmental compliance strategy.
"Our customers love the Smart Hours (DR) program," Delaney told Power-Gen last month. "Our customer satisfaction scores have never been higher, and complaints to our regulator (the Oklahoma Corporation Commission) have fallen by 50%." For more on OG&E's strategic risk-management investments, see December 10, 2013, article - Utilities See 'Optionality' as Key to Success as Business Environment Shifts.
"OG&E's strategic dilemmas about compliance spending and differing deadlines are widely shared by other U.S. electric utilities, but that utility is unusual in the degree to which it is using advanced digital meters and DR programs to reduce its environmental exposure," said Brock Ramey, Industrial Info's North American Power Manager. "Significant investments on the customer side of the meter are gradually changing traditional thinking about utility resource planning portfolios, and that fresh thinking will have an impact on equipment suppliers and engineering, construction & procurement (EPC) firms."
View Plant Profile - 1013000 1009116 1009138
View Project Report - 8001203 8001099 8001187 300137107 8001020 300085222 300024988 8001731 300061644 300085264 8001730 300127426
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, 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.
