An agreement reached on Tuesday by Public Service Co. of Oklahoma (PSO) and the Environmental Protection Agency, Oklahoma State, and the Sierra Club will force the American Electric Power (AEP) subsidiary to eventually retire two coal-fired generating units at its Northeastern Station in Oologah, Okla.

The agreement addresses “PSO’s future obligations” under the EPA’s Regional Haze Regulations and Mercury and Air Toxics Standards (MATS), the company said in a statement on Tuesday. It requires that PSO meet specified emissions rates at both units, install certain emissions control equipment on one of the Northeastern coal units in 2015, and retire the other unit in 2016. The coal unit with the emissions controls would be retired in the 2025–26 timeframe.

AEP also agreed to withdraw a lawsuit against the EPA regarding the Regional Haze Regulations. AsPOWERnews reported earlier this month, Oklahoma is challenging the EPA’s regional haze rule in federal court on behalf of Oklahoma’s largest generator, Oklahoma Gas & Electric (OG&E). The EPA’s December-promulgated federal implementation plan imposes stricter sulfur dioxide limits on six Oklahoma emission sources, including three coal-fired plants: two owned by OG&E and PSO’s Northeastern Station.

"This landmark agreement outlines a clear and cost-effective path for compliance by PSO’s Oklahoma coal-fired generating units with the EPA’s new rules," Stuart Solomon, PSO’s president and chief operating officer, said in a statement. "It allows PSO to implement a compliance plan that resolves the Company’s most significant environmental issues, provides a manageable transition for our generation fleet, and assures continued reliability for our customers."

PSO, the EPA, the state, and the Sierra Club will now work together to develop definitive settlement documents in the next 30 to 60 days. The settlement will then be subject to public review and comment. PSO will file with the Oklahoma Corporation Commission (OCC) an environmental compliance plan that reflects the agreement. The OCC must approve costs associated with the plan before PSO can recover those costs from customers.

AEP says it has spent $5 billion since 2004 to reduce carbon emissions at coal-fired plants across its service region, and it plans to spend another $7 billion on retrofitting or replacing generation capacity to meet federal air standards in the future.

A leadership message from newly installed AEP CEO Nicholas Atkins on Tuesday issued as the utility was conducting its annual meeting in Tulsa, Okla., suggests that AEP may reposition its assets for a "more sustainable fuel mix."

"Several factors are driving us in this direction, including new environmental regulations; the economics of coal versus natural gas; the operating cost, age and efficiency of some coal units; increased competition; and grid reliability," Akins wrote. "We will retire more than 5,100 megawatts of coal-fired generation and retrofit nearly 11,000 megawatts with new, advanced pollution controls or upgrade existing control equipment," he wrote. "Additional coal-fired generation may be refueled with natural gas."

By 2020, gas could make up 27% of AEP’s generating capacity, up from the current 24%. Its coal capacity could see a dramatic drop, however, to 50% in 2020 from 67% in 2011. Atkins said the gap would be filled with nuclear, renewables, hydro and pumped storage, and energy efficiency.

Sources: POWERnews, AEP,