Oklahoma Gas & Electric is or will be seeking approvals at two state commissions for a clean-air plan that includes the coal-to-gas conversion of 990 MW of capacity, said parent OGE Energy (NYSE: OGE) in its Feb. 26 annual Form 10-K report filing with the SEC.
In August 2014, Oklahoma Gas & Electric (OG&E) filed an application with the Oklahoma Corporation Commission (OCC) for approval of its plan to comply with U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS) and Regional Haze Federal Implementation Plan (FIP). The environmental compliance plan (ECP) includes installing dry scrubbers at the coal-fired Sooner Units 1 and 2 (total of 1,041 MW) and the conversion of Muskogee Units 4 and 5 (total of 990 MW) from coal to natural gas. The application also asks the commission to predetermine the prudence of replacing OG&E’s soon-to-be retired Mustang steam turbines in late 2017 (which is approximately 460 MW of gas-fired capacity) with 400 MW of new, efficient combustion turbines at the Mustang site in 2018 and 2019 and approval for a recovery mechanism for the associated costs.
OG&E estimates the total capital cost associated with its environmental compliance plan included in this application to be approximately $1.1 billion. The OCC hearing on OG&E’s application is scheduled to commence on March 3. Multiple parties advocating a variety of positions have intervened. OG&E expects a ruling from the OCC in the second quarter of 2015. At this time, OG&E cannot predict the outcome of the proceeding. OG&E said it also plans to file applications in the first quarter of 2015 seeking related approvals from the Arkansas Public Service Commission (APSC).
It is estimated that OG&E’s total expenditures to comply with environmental laws, regulations and requirements for 2015 will be approximately $136.0 million, of which $116.0 million is for capital expenditures. OG&E’s total estimated expenditures to comply with environmental laws, regulations and requirements for 2016 will be approximately $159.0 million, of which $139.0 million is for capital expenditures. These amounts include capital expenditures for low NOX burners, activated carbon injection and scrubbers.
In September 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 Feb. 9 to install the scrubber systems. The scrubbers are scheduled to be completed by 2019.
In 2014, 61% of the OG&E-generated energy was produced by coal-fired units, 32% by natural gas-fired units and 7% by wind-powered units. Of OG&E’s 6,845 total MW capability, 3,880 MW (57%) are from natural gas generation, 2,516 MW (37%) are from coal generation and 449 MW (6%) are from wind generation.
All of OG&E’s coal-fired units, with an aggregate capability of 2,516 MW, are designed to burn low-sulfur western sub-bituminous coal. OG&E has contracted for approximately 82% of its forecasted annual coal usage via multi-year contracts that expire in 2016. Approximately 10% of 2015’s usage will be contracted, but undelivered coal from 2014. The remainder of the forecast needs will be procured via the spot market if necessary. In 2014, OG&E purchased 8.2 million tons of coal from various Wyoming suppliers. The combination of all coal has a weighted average sulfur content of 0.23%. 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.
Utility runs into various critics during Oklahoma Corporation Commission proceeding
An example of what is going on in the air case at the Oklahoma commission is Feb. 20 testimony from Scott Norwood, President of Norwood Energy Consulting LLC, who was testifying on behalf of Oklahoma Industrial Energy Consumers (OIEC). He said the utility’s preferred plan appears reasonable. “OG&E’s proposed Scrub/Convert environmental compliance plan would reduce the Company’s existing owned coal-fired generating capability by 39%, from the existing level of 37% to a level of approximately 21% of total installed capacity by 2020, and would thereby greatly diminish the existing fuel diversity of OG&E’s system,” he added.
Norwood had more issues with the Mustang gas capacity replacement plan, writing: “OG&E has not demonstrated that its proposal to accelerate the retirement of Mustang Units 3 and 4 by 4 to 8 years is reasonable or necessary. The Company also has not demonstrated that its proposal to replace the retired Mustang generating units with new gas-fired simple cycle combustion turbine (‘CT’) units represents the lowest reasonable cost alternative, and did not evaluate deferral or market purchase alternatives to these new CT units.”
Oklahoma Cogeneration LLC on Feb. 20 submitted follow-up testimony from its witness, Daniel Peaco, President of La Capra Associates: “In this Cause, Mr. Peaco’s December 16, 2014, responsive testimony addressed the Mustang Modernization Plan proposed by Oklahoma Gas & Electric (OG&E) which proposes retirement of the existing Mustang steam generating units by 2017 and the installation of 280 MW of new combustion turbines at that site in 2018 and 120 MW in 2019. Specifically, he addresses the company’s requests for determinations from the Commission for pre-approval of the Mustang CTs and for the recovery of costs of those facilities. Mr. Peaco concludes that OG&E has bypassed the Commission’s competitive procurement requirements and recommend that the Commission deny OG&E’s application for preapproval of the Mustang CTs and deny the de facto waiver of the Commission’s competitive procurement rules that underlies the Company’s application.”
Said Feb. 24 testimony from Rachel Wilson, Senior Associate with Synapse Energy Economics, testifying on behalf of the Sierra Club: “Based on my review, I conclude that OG&E has not shown that its choice to install scrubbers at the Sooner units and convert the Muskogee units to burn natural gas – the ‘Scrub/Convert portfolio’ – represents the portfolio that is the lowest cost to ratepayers under conditions reasonably expected to occur.”
Among other things, Wilson said that OG&E has not modeled retrofits that will likely be necessary to control NOx emissions at Sooner 1 and 2. Wilson added on that point: “In the first part of my modeling analysis, I assumed that the Company’s sensitivity case that contains a price per ton of CO2 beginning in 2020 represents a realistic base case. I then examined two different scenarios, using the OG&E CO2 scenario as my starting point. The first scenario that I evaluated incorporates costs associated with the installation of SCR technology at Sooner 1 and 2. My modeling results show that inclusion of costs to install selective catalytic reduction (‘SCR’) technologies at the Sooner units would place an additional operating penalty on these units and negatively affect their profitability in the [Southwest Power Pool market]. With SCR at each Sooner unit, the production cost associated with the Scrub/Convert portfolio (Sooner units are scrubbed and the Muskogee units are converted) rises from $19.590 billion to $19.612 billion.”
Craig Roach of the commission staff wrote in Feb. 20 testimony: “My recommendation as to OG&E’s request regarding its ECP is that the Commission place specific conditions on OG&E’s cost recovery. That is, the Commission should substantially approve the ECP with a number of conditions to limit ratepayer risk. These conditions stem from the fact that OG&E did not vet its ECP against the market by conducting [request for proposals] or by fully analyzing all risks, as discussed in the remainder of this summary.”