After fighting federal rules on regional haze all the way to the U.S. Supreme Court, Oklahoma Gas and Electric Co. said it’s out of options and must comply with the law.
The utility faces a 2019 deadline for the regional haze rules, which were designed to restore visibility at federal parks and wilderness areas by 2064. OG&E also must meet emissions rules on mercury and air toxics standards, or MATS, by 2016.
OG&E wants to begin recovering $1.1 billion from ratepayers starting next year for its environmental compliance plan, an effort that could increase the typical residential customer’s monthly bill 15 percent by 2019. The utility wants the Oklahoma Corporation Commission to approve its plan by February.
Utility representatives said the higher charges would be phased in over the next five years as a separate rider on monthly bills. Other costs would come from higher fuel charges, because OG&E’s plan calls for more natural gas and less coal generation. Natural gas is about twice as expensive as coal at current prices.
The utility also plans to file a rate case in 2015, which could further affect customer bills.
Sean Voskuhl, Oklahoma director for the AARP, said the increases would be hard to take for ratepayers.
“AARP is deeply concerned about OG&E’s request for cost recovery and the burden to residential customers and small businesses,” Voskuhl said. “A projected 15 percent rate increase will be extremely hard on Oklahoma ratepayers.
“Since OG&E also plans to file a rate case, AARP believes it would be more efficient and cost effective to examine both issues at the same time.”
Businesses also will be closely watching OG&E’s case as it makes its way through the Corporation Commission. For most commercial customers, the compliance plan could increase their monthly bills 15 percent by 2019, while large industrial customers could see monthly bills rise 19 percent.
In testimony filed in the case, Sheri Richard, OG&E’s director of revenue requirement, said bill increases would be limited to no more than 3.5 percent each of the first five years.
“The (environmental and generation plan) rider benefits both customers and the company by providing a smooth transition to full cost recovery over a period of years, mitigating rate shock, while still fairly compensating shareholders,” Richard said.
In a conference call with analysts last week, executives at OGE Energy Corp. said the company would be able to fund OG&E’s compliance plan without having to issue more shares. The utility filed its plan under a 2005 Oklahoma law that allows it to recover from ratepayers the expenditures related to environmental mandates.
Utility representatives said they evaluated five options to comply with the environmental rules. They included converting affected coal units to natural gas; replacing coal units with new natural gas units; installing scrubbers on affected coal units; or some combination of those options.
OG&E decided the lowest-cost option was to install scrubbers on coal units at its Sooner plant near Red Rock. It wants to convert two of its three coal units at Muskogee to natural gas. OG&E will install new burners on natural gas units at its Seminole plant. In addition, the utility wants to replace 1950s-era steam units at its Mustang natural gas plant with quick-start combustion turbines.
OG&E presented the broad outlines of its compliance plan when it submitted a draft of its updated integrated resource plan with the Corporation Commission in June. In meetings with interested parties, including environmental groups and representatives from the natural gas and wind industries, the utility heard from critics and supporters.
Where’s the wind?
The Sierra Club, which has carried on a Beyond Coal campaign seeking to phase out coal plants, questioned why OG&E didn’t include wind generation. Others wondered why the utility wanted to install some emissions-control equipment on coal units in Muskogee that it later planned to convert to natural gas.
OG&E said additional wind generation wasn’t a practical option to deal with environmental compliance.
The regional haze and MATS rules together affect more than 60 percent of its fossil-fuel generating capacity. The utility said it wanted to wait until additional transmission lines are finished before adding more wind power.
Executives acknowledged that all options for environmental compliance meant an increase in customer bills.
“I think it’s our job to figure out what’s the best way to comply with this for benefit of our customers and shareholders for the long term,” said Sean Trauschke, OG&E president and chief financial officer, in a conference call Thursday with analysts.
“I will tell you that there certainly will be a lot of opinions. The (Environmental Protection Agency) has their views about certain fuel types. There is a view that you could have more (natural) gas, and you could have more renewables. I can assure you that we’ve looked at all those different permutations, risked those under different assumptions for gas and future regulations, and this is the right plan.”
Residential customer costs
Oklahoma Gas and Electric Co. said the average monthly bill for residential customers is $108.51. The utility’s plan for environmental compliance and replacement of its Mustang plant would increase residential customer bills by the following amounts each month from 2015 to 2019. The additional charges are based on monthly electricity consumption of 1,100 kilowatt hours and include higher fuel costs.
2015: 80 cents per month
2016: $2.74 per month
2017: $1.63 per month
2018: $3.88 per month
2019: $7.26 per month