Environmental Compliance EPA Regulations March 2012 2
Summary of the EPA Regulations 3 Regional Haze July 2005 Regional Haze rule requires that states submit state implementation plans (SIPs) to address regional haze visibility impairment in 156 federally-protected parks and wilderness areas. Among other things, the EPA regulations require states over approximately a 50 year period to eliminate man-made impacts on visibility in federally protected parks and wilderness areas around the United States. OG&E has seven generation units (4 coal-fired and 3 gas-fired units) that are subject to the Best Available Retrofit Technology (BART) requirement of the rule. There are two pollutants that are factors in Regional Haze for OG&E: SO2 and NOx. Oklahoma filed a SIP that found scrubbers (for the control of SO2 emissions) not to be cost-effective under the rule. The SIP concluded that the costs of scrubbers was too high and the benefit too low. Oklahoma concluded that low NOx burners for the control of NOx was appropriate and developed a more flexible solution for the control of SO2 emissions that provided optionality to OG&E, minimized the rate impact on customers and retained increased natural gas usage as an alternative. EPA approved the Oklahoma solution for controlling NOx emissions with low NOx burners, but rejected the portion of the SIP related to SO2 emission controls. The EPA directed OG&E to meet the SO2 emission limits within 5 years. These limits can be met by either installing scrubbers on 4 coal units or switching those units to natural gas. OG&E has filed a petition for reconsideration and a requests for an administrative stay with the EPA. OG&E has also filed a petition for review in the 10 th Circuit Court of Appeals and plans to requests a judicial stay of the FIP this month.
4 Regional Haze Compliance Alternatives Low NOx Burners: 4 coal units and 3 gas units BART eligible for NOx Scrubbers (4): 4 Regional Haze-affected coal units BART eligible for SO2 Other Potential Compliance Options: Dry Sorbent Injection (DSI) 5 coal unit installations Pros – could be significantly less expensive than scrubbers for removal of SO2. Cons – may not fully achieve the Regional Haze SO2 emission limits; further testing needed to fully understand technology and the impact on the units. There is also uncertainty on the effect on PM emissions and fly ash. Convert or Replace with Natural Gas Pros – likely the most politically expedient option Cons – more expensive than scrubbers in the long run and forces us to become completely vulnerable to the price volatility of natural gas.
5 Maximum Achievable Control Technology (MACT)/ Hazardous Air Pollutant Rule On December 16, 2011, the EPA signed the Maximum Achievable Control Technology (MACT) regulations governing emissions of certain hazardous air pollutants from electric generating units. The final rule includes numerical standards for particulate matter (as a surrogate for toxic metals), hydrogen chloride and mercury emissions from coal-fired boilers. Compliance is required within three years after the effective date of the rule (April 16, 2012) with a possibility of a one year extension. HCl (acid gas) emission limits – OG&E has identified three feasible ways to meet the limits: (i) installation of scrubbers on five coal units, (ii) installation of DSI on five coal units; (iii) switching to natural gas. It is possible that only low levels of DSI would be required to meet the acid gas limits. While the capital costs of DSI installation would be the same, lower level of DSI use would mean lower fixed and variable O&M costs. This would create a lower impact on the average residential customer. Mercury emission limits – installation of Activated Carbon Injection (ACI) is the standard technology for meeting the mercury limits. Particulate Matter (PM) emission limits – the need for control technology is uncertain.
6 Cross State Air Pollution Rule (CSAPR) On July 7, 2011, the EPA finalized its Cross-State Air Pollution rule. The final rule requires 27 states to reduce power plant emissions that contribute to ozone and particulate matter pollution in other states. Oklahoma was originally included in an earlier version of the CSAPR rule because of a modeled impact on Texas, but was omitted from the final rule. On December 27, 2011, the EPA published a final supplemental rule which makes six additional states, including Oklahoma, subject to the Cross-State Air Pollution Rule for NOx emissions during the ozone- season from May 1 through September 30. The basis for OG&Es inclusion in the supplemental rule is based on air emission modeling that shows Oklahoma sources impacting a single county in Michigan; a county that actually is currently in attainment with the ambient air quality standards. Under the rule, OG&E would be required to reduce ozone-season NOx emissions from its electrical generating units within the state beginning in 2012. On December 30, 2011, the U.S. Court of Appeals issued a stay of the rule and requested proposals for accelerated briefing to allow the merits of the case to be heard by April 2012. Just recently, EPA has stated that the supplemental rule applicable to Oklahoma is included in the stay of the main CSAPR rule.
7 Cross State Air Pollution Rule Compliance If the rules stand, OG&E believes that compliance would be difficult within the timelines proposed by EPA. Compliance would likely require accelerating the installation of low NOx burners. There are signs that the EPA may relax some of the compliance deadlines for this rule. If that is the case, it may be possible to achieve compliance through the installation of low NOx burners without having to engage in non-economic dispatch of our units or purchasing power and allowances. If EPA does not relax the compliance deadlines, OG&E may be faced with altering the economic dispatch of our generating units during peak periods and/or purchasing large volumes of purchased power or purchased allowances (assuming that allowances are available for purchase) until those low NOx burners are installed and operating. Also, because all other generating units in Oklahoma and in the region are grappling with this rule and other rules, the availability of purchased power and allowances has not been ascertained and the potential cost of this option has not been identified.
8 Other Environmental Regulations Air – Potential changes to the National Ambient Air Quality Standards (NAAQS) There are currently no areas of Oklahoma that are in nonattainment with any of the existing NAAQS for criteria pollutants. Revised NAAQS could cause parts of Oklahoma to be redesignated as non-attainment. If an area is redesignated as nonattainment for a NAAQS, existing sources could be required to reduce emissions of NOx, volatile organic compounds and/or SO2 by approximately 2017 or later. The reductions required for existing facilities could create a need for OG&E to install scrubbers, SCRs, and/or baghouses. Water – Proposed Cooling Water Intake Structure Rules (Section 316b of the Clean Water Act) Section 316(b) of the Federal Clean Water Act requires that their location, design, construction and capacity reflect the "best available technology" for minimizing their adverse environmental impact via the impingement and entrainment of aquatic organisms. In March 2011, the EPA proposed rules to implement Section 316(b) and, on August 18, 2011, OG&E filed comments with the EPA on the proposed rules. OG&E anticipates that the proposed rules will be finalized in mid to late 2012. Once the EPA promulgates the final rules, OG&E may incur additional capital and/or operating costs to comply with them. The costs of complying with the final water intake standards are not currently determinable, but, if the more stringent requirements are finalized, the costs could be significant. When these rules are finalized, OG&E will again have to choose whether to invest new capital in existing units whose lives and continued use could be significantly affected by other rules.
9 Other Environmental Regulations continued Waste – Coal Ash Proposed Rules EPA is seeking to establish federal regulations designed specifically for the management of Coal Combustion Residuals (CCRs). The two primary regulatory options that EPA is considering include (i) the regulation of CCRs under the hazardous waste regulations of Subtitle C of the Resource Conservation and Recovery Act (RCRA); and (ii) the regulation of CCRs as a non-hazardous solid waste under Subtitle D of RCRA. If EPA decides to regulate CCRs under its hazardous waste regulations, there could be overwhelming compliance problems at OG&Es coal-fired generating stations. It could potentially affect OG&E ash handling systems, storage areas and surface impoundments. Such a final rule could also lead to an inability to market the fly ash for beneficial uses and more disposal in landfills. On November 19, 2010, OG&E submitted comments on the proposed rule. OG&E is currently evaluating how this proposed rule, if finalized, would impact OG&Es existing and future units. These potential other air, water and waste rules complicate the decision-making process for Regional Haze, MACT and CSPAR, as the uncertainty of these rules and their potential costs could change OG&Es level of investment in certain existing units.
RuleProposed Rule Date Comment DeadlineFinal Rule Issued/Expected Compliance Deadline Regional HazeMarch 22, 2011May 23, 2011December 28, 20115 years from effective date of the final rule Utility MACTMay 3, 2011August 4, 2011December 16, 20113 years from effective date of final rule (possible 1 year extension) CSAPRAugust 2, 2010September 6, 2010August 8, 2011Beginning in January 2012 **STAYED** Supplemental CSAPR July 11, 2011August 22, 2011December 27, 2011Beginning in May 1, 2012 **STAYED** Cooling Water Intake Structures April 20, 2011August 18, 2011July 27, 2012 (consent decree) As soon as practical, but within 8 years Coal Ash RuleJune 21, 2010November 19, 2010Mid-2012Varies depending on option and applicability Various NAAQSVaries Deadlines for emission reductions vary depending on pollutant and designation. Generally after SIP review and approval: ~2017 EPA Rulemaking Schedule