Coal is far from dead in Oklahoma, but its long-term prospects as a fuel for electricity generation are dwindling due to environmental constraints, competition from natural gas and wind and an aging coal-generation fleet.
The state's two largest electric utilities are charting different paths with their coal plants. Public Service Co. of Oklahoma wants to retire the last of its two coal units at Northeastern Station near Oologah by 2026.
Oklahoma Gas and Electric Co. wants to keep its two coal plants going, but the next power plant it builds likely will be fueled by natural gas. OG&E plans to put off building a new fossil-fueled plant until at least 2020, largely through energy efficiency and projects to reduce demand.
Oklahoma has six coal plants producing electricity, with five of the six dating to the 1970s and 1980s. The average useful life of a coal plant is about 48 years, according to a recent market report for the Southwest Power Pool, a regional transmission organization that covers Oklahoma and eight other states.
Coal to continue
Jay Albert, Oklahoma's interim secretary of energy, said coal will remain an important fuel for electricity customers, even at diminished levels.
“We'll continue to see coal as part of the resource mix for the foreseeable future,” Albert said. “The mix will begin to shuffle. Fuel diversity is an important part of keeping electricity rates low for customers.”
Albert said a new integrated marketplace run by the Southwest Power Pool will start in 2014. It means customers will benefit from lower prices from other generating sources throughout the nine-state SPP region, not just those in and near Oklahoma.
About 37 percent of Oklahoma's electricity capacity came from coal-fired generators in 2000, according to the Energy Information Administration. That fell to 25 percent by 2010, as independent power producers went on a building spree for natural gas plants in Oklahoma. Natural gas capacity grew to 62 percent by 2010, up from 54 percent a decade earlier.
Wind also made significant gains during that time, although it can't be relied on for baseload generation, the type of electricity generation that is available all the time.
When it comes to actual generation, though, coal remains a strong — and cheap — choice for utilities, cooperatives and other power generators. As well as coal plants owned by OG&E and PSO, the Grand River Dam Authority (GRDA) in Chouteau and Western Farmers Electric Cooperative in Hugo generate electricity from coal. Independent producer AES Shady Point has two coal units in Le Flore County and sells power to OG&E under a long-term contract.
Faced with upcoming environmental regulations at its coal plant in Chouteau, GRDA is exploring options to install emissions-control technology on one coal unit. It also is looking at either converting the older coal unit to natural gas or shutting it down and buying power from another generator. The total costs could be up to $380 million, which would come from revenue bonds paid back by GRDA customers. The bonds for such projects would count against the state's indebtedness at a time when many in the Legislature are leery of adding new state debt.
GRDA's board delayed action on the coal projects in July after criticism from Gov. Mary Fallin's representatives that more study was needed. Fallin then separately announced she would appoint a 15-member task force to study the future of GRDA, including splitting its utility and lake management functions or privatizing it.
How to deal with Environmental Protection Agency rules for regional haze has been a contentious issue for utilities, environmental groups and politicians in Oklahoma.
Regional haze rules to improve visibility at national parks and wilderness areas were updated in 2005 and included new limits on sulfur dioxide emissions from power plants. States had until 2007 to present plans to deal with regional haze, but Oklahoma and 36 other states missed the deadline.
In 2009, the EPA began to formulate a federal plan to deal with regional haze in Oklahoma. Before EPA could finalize its federal plan, Oklahoma submitted its own plan, which let PSO and OG&E continue to burn low-sulfur coal and install some basic pollution controls. The EPA approved parts of it, but still wanted PSO and OG&E to install expensive emissions-control technology called scrubbers on their coal plants.
The utilities appealed the EPA's action in court, arguing the agency overstepped its authority.
PSO set aside its lawsuit after reaching a settlement last year with EPA, the former Oklahoma environment secretary's office and the Sierra Club to retire its last two coal units at Northeastern Station by 2026.
OG&E, joined by Oklahoma Attorney General Scott Pruitt, took its regional haze lawsuit to a federal appeals court in Denver. On July 19, a three-judge panel ruled 2-1 in favor of the EPA, saying it had the authority to impose its own plan for regional haze.
OG&E and Pruitt have 45 days from the date of ruling to ask for a full hearing from the 10th U.S. Circuit Court of Appeals. Or they can ask the U.S. Supreme Court to review the case within 90 days of the ruling, said Pruitt spokeswoman Diane Clay.
As part of its settlement, PSO wants to retire one of its Northeastern coal units in 2016 and install emissions-control technology on the other unit. The utility will incrementally step down the operating capacity of the remaining coal unit over five years until its retirement by 2026. It plans to make up for the lost power by buying natural gas generation from Calpine Corp.'s Oneta Energy Center in Coweta.
PSO, a unit of Ohio-based utility giant American Electric Power Co. Inc., said its plan could cost $350 million and raise customer rates by at least 11 percent beginning in 2016.
“Our environmental compliance plan is geared toward making sure we have reliable power for our customers while making sure we're doing so in the most economical way possible,” said PSO spokesman Stan Whiteford.
AEP has announced coal retirements at its utilities in several other states, including Indiana, Ohio, Texas, Virginia and West Virginia. Many of those older coal plants were at the end of their useful lives, Whiteford said.
Rules get ‘tighter and tighter'
Western Farmers' coal plant in Hugo started operations in the early 1980s and is just young enough to escape the most recent updates to the regional haze rules, said Chris Meyers, general manager with the Oklahoma Association of Electric Cooperatives.
“We're watching it very closely, because whatever happens we'll have to deal with it at some point,” Meyers said. “These (EPA) rules keep getting tighter and tighter, and there comes a point where you have to decide if you want to keep spending money on upgrades or just start over with a new plant.”
In the meantime, the Hugo plant is going ahead with upgrades to meet other EPA rules, Meyers said.
Jenna Garland, a spokeswoman for the Sierra Club, said utilities should phase out their coal plants as soon as practically possible. Current EPA rules, as well as future ones involving carbon dioxide emissions, will make continual upgrades to coal plants less appealing to utilities.
“The best option is to put these plants on a reasonable path to retirement and instead use wind energy and energy efficiency measures,” Garland said. “There is simply too much uncertainty to be betting 30 years of money on something like that.”
In the long term, OG&E wants to move toward a generating portfolio that will be majority natural gas by 2027. By 2042, the utility expects natural gas to provide almost two-thirds of its generation, according to an integrated resource plan it filed last year with regulators at the Oklahoma Corporation Commission.
In the meantime, OG&E is installing emissions-control equipment on its two coal plants and a natural gas unit in Seminole to meet EPA deadlines governing several other emissions rules, including those for mercury and air toxics standards and nitrogen oxides.
OG&E spokesman Brian Alford said the utility has seen some early successes in its efforts to promote energy efficiency and give customers the tools and technology to better control their electricity usage. He said OG&E has to be mindful of the environment, but it also has to worry about affordability, reliability and safety.
“We continue to believe a balanced mix of fuels — coal, natural gas and wind — are important,” Alford said.
“The message is not just about environmental compliance; we will comply. It's more about how you comply. We think there are lower-cost alternatives for our customers that will achieve the same ends.”