Corporation Commission approves OG&E’s $500M coal scrubber plan

Persistence paid off for Oklahoma Gas and Electric Co. as regulators gave approval Thursday to the utility’s third attempt for a $500 million coal scrubber project to deal with tougher emissions regulations.

The Oklahoma Corporation Commission voted 2-0 that the project was “reasonable,” with Commissioners Bob Anthony and Todd Hiett voting for the order. Commissioner Dana Murphy didn’t sign the order but said she concurred with the result. Murphy didn’t agree with some of the legal interpretations in the order.

The final order tried to thread the needle on costs, which will come back to the commission in a future rate case once the scrubber project is put in service by fall 2018. OG&E faces a January 2019 deadline to comply with federal regional haze regulations.

“Granting such request is simply a determination that the decision to scrub the Sooner plant is — no more or no less — reasonable,” the order said. “As a result, the commission finds the recovery of related costs in a future proceeding will allow the commission to examine the prudency of the company’s decision to scrub the Sooner plant, in the context of determining the appropriate level of cost recovery.”

Murphy said in a statement the scrubber plan was the direct result of a “questionable federal mandate” on regional haze. She said the Sooner scrubbers will promote fuel diversity. Wind and solar are an important part of the mix but as intermittent sources can’t provide consistent electricity supply, she said.

“Oklahoma should not depend on other states for diverse power generation sources,” Murphy said. “OG&E customers have already made a huge investment in the Sooner plant. It would not be wise to lose that dependable resource or the insurance it provides.”

In a concurring opinion, Commission Chairman Bob Anthony said the order “promotes fuel diversity and power reliability while giving assurance to investors.”

Regional haze compliance

The scrubber project at OG&E’s Sooner coal plant is part of OG&E’s “scrub/ convert” plan to deal with regional haze. The utility also plans to convert two of its three coal units at the Muskogee plant to burn natural gas.

After the Environmental Protection Agency rejected Oklahoma’s plan for regional haze, it imposed a federal plan. OG&E fought the federal plan in court, along with Oklahoma Attorney General Scott Pruitt and Oklahoma Industrial

Energy Consumers (OIEC). The U.S. Supreme Court declined to take up an appeal in May 2014.

The Corporation Commission last year rejected two previous attempts by OG&E to get preapproval for the scrubbers and other environmental and replacement generation projects. The first case, a $1.1 billion request, would have meant bill increases of up to 19 percent by 2019. A narrowed, second request for preapproval without cost recovery was voted down in December.

The utility negotiated a pause in scrubber engineering and construction contracts for one last try for regulatory approval. It planned to convert the Sooner coal units to natural gas if regulators didn’t approve the scrubbers.

OG&E’s latest request for scrubber approval was supported by the commission’s public utility division, the attorney general’s office and OIEC. They argued the scrubbers would preserve fuel diversity and allow OG&E to comply with environmental regulations.

The Sierra Club, AARP Oklahoma and Oklahoma Energy Results LLC, which has independent power producers among its members, were among the parties opposing OG&E’s scrubber request. They said OG&E’s analysis failed to account for the possibility of future environmental regulations and didn’t take into account changes to the natural gas market that have resulted in historically low prices for the fuel.

OG&E touts diversity

OG&E spokesman Randy Swanson said the utility was pleased commissioners saw the value in fuel diversity.

“We’re pleased the commission rejected the arguments of Sierra Club and others, and agreed with us and others that preserving fuel diversity is in the longterm interest of our state,” Swanson said. “We’re going to comply with regional haze and put the scrubber process back on track.”

In case filings, OG&E said its latest estimate for the scrubber project was about $470 million, although utility-requested delays in engineering and construction contracts would likely put the estimate back up to about $490 million. OG&E said it’s already spent about $130 million on the scrubber project.

With low natural gas prices, OG&E has taken the Sooner coal plant offline and isn’t offering it into a day-ahead wholesale electricity market operated by the Southwest Power Pool. The utility has said it expects the plant to run during the peak summer months.

AARP Oklahoma said it was disappointed with the decision that “sets a poor precedent for future preapproval cases.” The group filed comments from hundreds of members and supporters against the scrubber project.

“We’ll be monitoring and ensuring that any cost recovery that OG&E attempts is reasonable and fair to customers,” the group said in a statement.

The Sierra Club said the commission’s order didn’t include any safeguards to protect OG&E customers from future costs if the Sooner plant failed to run or if new environmental rules affected the plant.

“Today’s decision by the commission is an unfortunate example of a captured state regulatory body putting the interests of lobbyists and CEOs ahead of those of Oklahoma families,” said Johnson Bridgwater, director of the Oklahoma Sierra Club.

Commission, OGE CEO visit

The Sierra Club and others said they were concerned by recent reports of OGE Energy Corp. CEO Sean Trauschke meeting with commissioners last week.

The Corporation Commission is a quasijudicial body. Part of the legal wrangling in the case has been over whether OG&E’s third scrubber request was before the Corporation Commission in its judicial capacity or its legislative capacity. Issues involving rates are legislative in nature, according to the Oklahoma Supreme Court.

Commissioners and commission staff are free to meet with parties and interested groups in ratemaking cases. In judicial proceedings, ex parte communications are frowned upon.

Concerns called ‘red herring’

In an interview, Murphy said she met with Trauschke but did not discuss the scrubber case. Murphy said she meets with different groups all the time but warns them her office policy is not to discuss pending cases. She called concerns over those meetings “a red herring.”

“I meet with everybody, but I don’t meet about matters in the case; that’s just been the best practice for me,” Murphy said. “Although they’re legislative, I find it’s best not to.”

Swanson, who confirmed the Trauschke meetings, said OG&E understood the scrubber case to be within the commission’s legislative process and not judicial in nature.

“Any implication that anything untoward happened is firmly rejected,” Swanson said.