Oklahoma commission rejects OG&E air compliance plan

The Sierra Club said on Dec. 2 that a two to one decision earlier that day by the Oklahoma Corporation Commission (OCC) to deny Oklahoma Gas & Electric’s proposed environmental compliance plan (ECP) is a victory for clean air.

Neither the commission nor the utility had issued a statement as of mid-day on Dec. 2, but Generation Hub has obtained the final commission order, which confirms the club’s contention.

The utility had been seeking this approval related to the U.S. Environmental Protection Agency’s requirement that OG&E develop a plan to reduce emissions from the Sooner coal-fired power plant. The club said that the company’s proposal sought to collect half a billion dollars from ratepayers to recover the costs of upgrades to this “outdated plant” instead of looking at other lower-cost options, like investment in wind power or other Oklahoma energy.

Laurie Williams, an attorney for Sierra Club, said: “The commissioners’ decision today is a huge victory – not only for OG&E customers, but for all Oklahomans. Spending $500 million to keep an old, inefficient coal plant running would have been simply wasteful and shortsighted. And pre-approval of the company’s so-called environmental compliance plan would have exposed OG&E’s customers to a significant risk – they would be paying for these retrofits for decades after the plant retires. Today’s decision recognizes that there are better options for Oklahoma – a good plan should take advantage of Oklahoma’s low cost and local renewable resources. But OG&E refused to consider these resources in its proposed plan.”

Utility parent OGE Energy (NYSE: OGE) said about this case in its Nov. 5 quarterly Form 10-Q report: “On August 6, 2014, OG&E filed an application with the OCC for approval of its plan to comply with the EPA’s [Mercury and Air Toxics Standards] and Regional Haze [Federal Implementation Plan] while serving the best long-term interests of customers in light of future environmental uncertainties. The application seeks approval of the environmental compliance plan and for a recovery mechanism for the associated costs.

“The environmental compliance plan includes installing dry scrubbers at Sooner Units 1 and 2 and the conversion of Muskogee Units 4 and 5 to natural gas. The application also asks the OCC to predetermine the prudence of replacing OG&E’s soon-to-be retired Mustang steam turbines in late 2017 (approximately 460 MW) 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 and Mustang Modernization Plan included in this application to be approximately $1.1 billion. The OCC hearing on OG&E’s application before an ALJ began on March 3, 2015 and concluded on April 8, 2015. Multiple parties advocating a variety of positions intervened in the proceeding.

“As previously reported, on June 8, 2015 the ALJ issued his report on OG&E’s application. While the ALJ in his report agrees that the installation of dry scrubbers at Sooner Units 1 and 2 and the conversion of Muskogee Units 4 and 5 to natural gas pursuant to OG&E’s environmental compliance plan is the best approach, the ALJ makes various recommendations including, among others, that: (i) the OCC should not raise rates at this time; (ii) with respect to OG&E’s environmental compliance plan, the OCC should grant pre-approval of the estimated costs for new equipment as set by contract, including installation costs covered by a contract, but pre-approval of other equipment and installation costs that were still being negotiated at the end of the evidentiary hearing on April 8, 2015 should be deferred and may be considered in the next general rate case; (iii) the foregoing pre-approval is subject to the condition that the OCC should direct OG&E to issue requests for information for at least 200 MWs of wind power within thirty days of a final order; (iv) the OCC should postpone consideration of all other cost recovery issues until the next general rate case; (v) the OCC should direct the PUD Director to commence a general rate case; and (vi) the OCC should deny the Mustang Modernization Plan.

“OG&E filed exceptions to the ALJ’s report in which OG&E set forth the various findings and recommendations that OG&E believes to be erroneous, including the ALJ’s refusal to recommend a recovery rider for OG&E environmental compliance plan and the ALJ’s recommendation that the OCC should deny the Mustang Modernization Plan. The OCC heard oral arguments on June 25, 2015 and took the case under advisement. On July 21, 2015, Commissioner Bob Anthony (one of the three commissioners on the OCC) issued his deliberation statement that was consistent with many parts of the ALJ Report, including the ALJ’s support of OG&E’s environmental compliance plan, the ALJ’s recommendation, as described above, to pre-approve certain estimated costs of the environmental recovery plan, and the ALJ’s recommendation to defer all other costs recovery issues until the next general rate case. OG&E cannot predict the outcome of this proceeding.

“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 scrubber systems. The scrubbers are part of OG&E’s Environmental Compliance Plan and are scheduled to be completed by 2019.”

Commission rejects the plan for several reasons

The Dec. 2 final commission order describes many of the same case details as outlined in the Form 10-Q, and says in part: “The Commission declines to grant OG&E’s ECP for several reasons. First, the Commission has not been provided with sufficient certainty or specificity as to the costs of the plan, leaving the Commission unable to determine whether the costs to be recoverable are reasonable. Second, OG&E’s proposal does not limit its recovery to 24 months or include a commitment to file a [statutory] request for a comprehensive review of all of its rates within 24 months of any temporary recovery. And third, OG&E’s proposal includes recovery through temporary rates of costs in addition to those incurred for capital expenditures for equipment and facilities.”

The decision says about the Mustang repower project: “OG&E is seeking approval of its $400 million MMIP pursuant to 17 O.S. § 286(C). Subsection 286(C). Subsection (C) pertains to pre-approval for construction of new generating facilities, the purchase of an existing electric generation facility, and long-term contracts for purchased power. To the extent the MMP is considered a new generation facility, to receive preapproval OG&E must also prove there is a need for new generation and must provide sufficient evidence by which the Commission could consider reasonable alternatives to the company’s proposal, as required by the statute. Neither the Company’s [integrated resource plan] nor testimony demonstrates there is any need for new generation at this time. In addition, OG&E has failed to provide sufficient evidence regarding reasonable alternatives.

“As to generation that may be needed in the future, the Commission adopted competitive procurement rules at OAC 165:35-34. Competitive procurement provides open, fair and transparent rules for utilities to secure new generation supplies and assist in assuring acquisition of the most cost-effective resources for customers. In OG&E’ s request to retire and replace the Mustang Plant, OG&E failed to seek any competitive solicitations to meet future generation needs. It did not conduct a competitive procurement process for capacity or energy requirements resulting from Mustang unit retirements.

“It is undisputed that OG&E did not seek a waiver of all or part of the Commission’s competitive bidding procedures in connection with the MMP. This leaves only the subsequent Commission review in which OG&E must show the Commission that its decision to self-build new generation capacity was reached in ‘an open, transparent, fair and nondiscriminatory’ process comparable to competitive bidding. No such showing was made in this case.”

A brief dissent from Commissioner Dana Murphy said: “I respectfully dissent from the Commission majority. While many differing opinions and preferences were presented by a variety of parties on the manner in which OG&E should comply with federal environmental mandates, I believe substantial competent evidence exists to preapprove OG&E’s choice of a scrub/convert option. I also believe, and all parties appeared to agree, that the Commission has the authority to order a conditional, or partial, approval of the company’s plan to make capital expenditures for facilities and equipment, and this is what I proposed.”

In response to regulations promulgated by EPA addressing regional haze and MATS, OG&E developed this ECP:

  • To meet SO2 standards for regional haze, OG&E would install dry scrubbers on both coal units at the Sooner site and convert two of three coal units at the Muskogee site to gas-fired units by Jan. 4, 2019;
  • To meet NOx standards for regional haze, OG&E would install low-NOx burners on coal units affected by the haze requirements at the Sooner and Muskogee sites and three gas-fired units at the Seminole site, beginning in spring 2013 in order to meet the Jan. 22, 2017, deadline; and
  • To meet mercury standards for MATS, OG&E would install Activated Carbon Injection (ACI) on all coal units by April 2016.

The EPA requirements for regional haze and MATS affect approximately 4,000 MW, or 63%, of OG&E’s electric generation fleet and have compliance deadlines within five years. OG&E’s evidence was that the estimated impact of OG&E’s ECP and Mustang repower project on Oklahoma ratepayers will be an annual rate increase (excluding fuel) of $192.2 million by 2019, the Dec. 2 order noted.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.