Oklahoma Corporation Commission Denies OG&E Request for Retrofits at Sooner Coal Plant

The Oklahoma Corporation Commission denied last week the application of Oklahoma Gas and Electric (OG&E) to spend $1.1 billion on new capital projects—primarily coal plant retrofits to comply with federal environmental standards. The Commission’s decision casts the future of the 1,100 megawatt Sooner Generating Station into doubt.

Sierra Club retained Synapse to assess OG&E’s petition in depth. Tyler Comings testified on the assumptions about the resources that could replace the coal plants, how the economics stacked up in light of different assumptions, and how long it would take for ratepayers to recoup their losses on the plant—even in the best of circumstances. Jeremy Fisher testified on how EPA’s emerging Clean Power Plan could impact OG&E’s decision. Rachel Wilson testified on the results of running OG&E’s model with different assumptions about environmental regulatory risk. The witnesses’ analyses showed that OG&E’s preferred option only advantaged ratepayers in fringe cases, and not at all under reasonable expectations about the future. Indeed, it was hard to find circumstances in which the decision to invest hundreds of millions in Sooner could provide a short- or long-term benefit to ratepayers.

Synapse concluded that the OG&E’s plan to install emission controls was not economically justified. We argued that OG&E contrived an unrealistic analysis that relied on future outcomes that favored the operation of the plant, ignored a myriad of cost-effective alternatives, and downplayed known risks and costs for the coal industry. Ultimately, the Commission agreed with Synapse that OG&E had not made its case.

The Commission’s denial was still unexpected, however. Oklahoma is ranked 16th in the nation by Forbes for a supportive regulatory environment and was one of the first states to sue EPA over its Clean Power Plan. Fitch Ratings, which claims the denial raises credit concerns due to looming compliance deadlines, noted that the Commission’s denial “set a negative tone in a jurisdiction Fitch has long considered as supportive.” This surprising outcome sends OG&E either back to the drawing board, into a new petition for approval, or onto a rate case, where the utility would have to prove that its decision to install the controls was prudent—despite the Commission’s findings.

While the Commission’s decision does not close the door on Sooner altogether, the utility would clearly be taking a significant risk in moving forward with retrofits given the finding. OG&E is required to either install the scrubbers by January 2019 or shut down the units if it is to comply with Regional Haze and Mercury and Air Toxics Standards. The process of installing the necessary equipment can take upwards of two years from the time a contractor is identified, so the clock is now running down. If OG&E does not submit a revised application expediently, we might expect this to signal intent to shutter or convert the units.