Learning from a Rejected Environmental Compliance Program

February 5, 2016

This January, a 17-month battle between Oklahoma Gas and Electric (OG&E) and the Oklahoma Corporation Commission (OCC) came to a head when the OCC reaffirmed its decision not to preapprove the utility’s environmental compliance plan. The OCC rejected OG&E’s $1.1 billion environmental compliance plan in December 2015, prompting an appeal by the utility company earlier this month. Now OG&E must bear the burden of funding requisite upgrades in order to meet regulatory requirements.

OG&E’s plan proposed $700 million of facility upgrades in order to satisfy federal environmental standards, as well as an additional $400 million to replace an aging natural gas facility in Oklahoma City.

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A 2005 Oklahoma law, HB1910, states that public utilities may recover certain costs related to upgrades necessary to comply with the Federal Clean Air Act, but that these costs must be preapproved by the Corporation Commission. Securing preapproval would have enabled the utility to raise customer rates to cover the costs of the capital improvements before the projects were complete, thereby easing the utility’s financial burden. This is different from the standard regulatory recovery process, where utilities must finance the improvements themselves, then seek commission approval to recover the costs from customers upon completion.

The preapproval process is ideal for utilities considering costly compliance programs in the face of fast approaching deadlines, as they are able to implement plans quickly with the assurance that the capital will be available. In this case, OG&E was facing 2016 and 2019 deadlines for the Environmental Protection Agency’s mercury and regional haze regulations, which affect almost two-thirds of OG&E’s fossil fuel generating capacity.

“Preapproval cases require an extra level of scrutiny.”

As beneficial as it can be for utilities, winning preapproval requires a full understanding of the regulation and meticulous attention to detail. Jim Roth, a former Corporation Commissioner who represented The Wind Coalition in the case, explains preapproval cases require careful review.

“If a utility wants to raise rates from customer money through preapproval, the burden is really high, and they have to establish enough evidence to confirm prudence,” Roth told NewsOK after the utility’s request was denied. “This commission said today [OG&E] failed that test.”

In order to meet the demand of this burden, a preapproval request must adhere to all appropriate federal and state guidelines, as well as prove the pending environmental compliance program will use customer funds at maximum efficiency.

During the hearing, those opposed to OG&E’s plan scrutinized it for failing to account for pending carbon dioxide emissions limits outlined in the Clean Power Plan. Detractors also challenged OG&E’s plan because it neglected to include additional wind power as an environmental compliance option, a strategy they said would increase savings for customers.

Working with environmental consultants like PPM can help companies ensure their compliance programs are airtight. Leveraging PPM’s experience, utilities can develop comprehensive plans that not only consider federal and local agency recommendations, but also maximize efficiency and overall spending.  To learn more about how environmental companies can assist your business in achieving swift and cost-effective compliance, contact us today.