The Oklahoma Gas and Electric unit of OGE Energy (NYSE: OGE) is moving forward with plans for low-NOx burners, dry sorbent injection and activated carbon injection systems on several coal units, which are needed to comply with clean-air rules, said OGE Energy Chairman, President and CEO Pete Delaney during a May 3 earnings call.
This compliance plan will require approximately $450m to be invested by the year 2017, Delaney added. The timing of these projects, though, is dependent on ultimate resolution of various legal proceedings. If no changes are granted by the courts associated with current appeals, OG&E will have until May 2013 to be in compliance with the Cross-State Air Pollution Rule (CSAPR), he said. The U.S. Environmental Protection Agency’s new Mercury and Air Toxics Standards (MATS) rule requires compliance in three years with a possible one-year extension, Delaney said. Activated carbon injection and dry sorbent injection on a limited basis are expected to allow the utility to comply with MATS, he said.
But bigger than all that is EPA’s regional haze rule. Meeting EPA’s five-year federal implementation plan with new SO2 scrubbers would require more than a $1bn of investment as opposed to the Oklahoma state implementation plan, which found low-sulfur coal to be the Best Available Retrofit Technology (BART) for regional haze compliance, Delaney said. On April 4, the Oklahoma Attorney General and OG&E requested a stay with the U.S. Tenth Circuit Court of Appeals. Based on previous timelines for similar issues, OGE Energy would expect a decision this summer. If there is a temporary stay, then the case itself might not be decided until 2013, Delaney pointed out. The company is in the meantime proceeding with initial engineering design plans for scrubbers.
Regional haze dispute boils down to four coal units
In February 2010, Oklahoma submitted its proposed SIP to the EPA, which set forth the state’s plan for compliance with the federal regional haze rule. The Oklahoma SIP included requirements for reducing emissions of NOX and SO2 from OG&E’s seven BART-eligible units at the Seminole, Muskogee and Sooner plants. The SIP also included a waiver from BART requirements for all eligible units at the Horseshoe Lake plant based on air modeling that showed no significant impact on visibility in nearby national parks and wilderness areas. The SIP concluded that BART for reducing NOX emissions at all of the subject units should be the installation of low NOX burners with overfire air (flue gas recirculation was also required on two of the units) and set forth associated NOX emission rates and limits, OGE Energy noted in its May 3 Form 10-Q filing.
“OG&E preliminarily estimates that the total capital cost of installing and operating these NOX controls on all covered units, based on recent industry experience and past projects, will be approximately $120 million, but the timing of the installation of such burners is uncertain,” said the Form 10-Q. “With respect to SO2 emissions, the SIP included an agreement between the Oklahoma Department of Environmental Quality and OG&E that established BART for SO2 control at four coal-fired units located at OG&E’s Sooner and Muskogee generating stations as the continued use of low sulfur coal (along with associated emission rates and limits). The SIP specifically rejected the installation and operation of Dry Scrubbers as BART for SO2 control from these units because the state determined that Dry Scrubbers were not cost effective on these units.”
In December 2011, the EPA rejected portions of the Oklahoma SIP and issued a federal implementation plan. While the EPA accepted Oklahoma’s BART determination for NOX, it rejected the SO2 BART determination with respect to the four coal-fired units at Sooner and Muskogee. In its place, the EPA is requiring that OG&E meet an SO2 emission rate of 0.06 pounds per MMBtu within five years. OG&E could meet the proposed standard by either installing and operating dry scrubbers or fuel switching at the four affected units. OG&E estimates that installing dry scrubbers on these units would include capital costs to OG&E of more than $1bn. OG&E and the state of Oklahoma filed an administrative stay request with the EPA on Feb. 24. OG&E and other parties also filed a petition for review of this determination in the Tenth Circuit Circuit on Feb. 24. OG&E and the state of Oklahoma filed a stay request with the appeals court on April 4.
For MATS compliance, OG&E plans to utilize dry sorbent injection with activated carbon injection at up to five coal-fired units at an estimated capital cost of $310m, but the timing of such expenditures is uncertain, the Form 10-Q said. The final MATS rule has been appealed by several parties, though OG&E is not a party to these appeals.
OG&E slams EPA plan as a ‘nothing but scrubbers’ approach
“The results-oriented review conducted by EPA – culminating in a Final Rule that will force OG&E to install scrubbers – was fatally flawed substantively and procedurally, and Petitioners meet all of the requirements for the issuance of a stay,” said the April 4 stay request filed at the appeals court. “The administrative record shows that Petitioners are likely to succeed on the merits because EPA’s ‘nothing but scrubbers’ approach led it to reject a final regional haze state implementation plan (‘SIP’) that Oklahoma sent to EPA over a year before EPA proposed to adopt the FIP. In substituting its judgment for the judgment of the State, EPA illegally usurps the broad authority given by Congress to the States to make best available retrofit technology (‘BART’) determinations for regional haze.”
The Oklahoma SIP included a state-specific balancing of BART factors that considered state’s unique energy and economic needs; a balancing act that EPA is neither equipped nor authorized to conduct, the request said. Instead, EPA improperly mandated its desired outcome in place of Oklahoma’s judgment as to the appropriate BART for facilities in the state. “For EPA to accomplish this objective, it had to ignore its own policies and procedures for making these determinations and, in the Final Rule, use new approaches regarding cost effectiveness and visibility improvement that it had not identified in the proposed rule,” the stay request said.
OG&E’s two affected Muskogee units are about 500-MW each and are fired by coal, said the stay request. The two affected Sooner units are also each about 500-MW and fired by coal. “For more than a decade, OG&E has voluntarily burned very low sulfur coal at the electrical generating units (‘EGUs’) at the Muskogee (Units 4 and 5) and Sooner (Units 1 and 2) Generating Stations (the ‘OG&E Units’) in order to limit SO2 emissions,” the stay request said.
OG&E’s plants, by the way, burn primarily Powder River Basin coal out of Wyoming. “All of OG&E’s coal-fired units, with an aggregate capability of 2,548 MWs, are designed to burn low sulfur western sub-bituminous coal,” said OGE Energy’s Feb. 16 annual Form 10-K report. “OG&E purchases coal primarily under contracts expiring in years 2012 and 2015. In 2011, OG&E purchased 7.5 million tons of coal from various Wyoming suppliers. The combination of all coal has a weighted average sulfur content of 0.26 percent. Based upon the average sulfur content and EPA certified emission data, OG&E’s coal units have an approximate emission rate of 0.5 lbs. of SO2 per MMBtu.”
U.S. Energy Information Administration data shows coal going to Sooner and Muskogee in January from Wyoming PRB mines of Arch Coal (NYSE: ACI), Peabody Energy (NYSE: BTU), Alpha Natural Resources (NYSE: ANR) and Cloud Peak Energy (NYSE: CLD).