SETTLEMENT AGREEMENT

	This Settlement Agreement (“Agreement”) is entered into by Public
Service Company of Oklahoma (“PSO”), the Secretary of the
Environment on behalf of the State of Oklahoma (“Secretary”), the
Oklahoma Department of Environmental Quality (“ODEQ”), the United
States Environmental Protection Agency (“EPA”), and the Sierra Club.
 PSO, the Secretary, ODEQ, EPA, and the Sierra Club are hereinafter
collectively referred to as “the Parties” for purposes of this
Agreement.

RECITALS

A.	On December 28, 2011, EPA issued a final rule entitled, “Approval
and Promulgation of Implementation Plans; Oklahoma; Federal
Implementation Plan for Interstate Transport of Pollution Affecting
Visibility and Best Available Retrofit Technology Determinations,” 76
Fed. Reg. 81,728 (Dec. 28, 2011) (the “Final Rule”). 

B.	The Final Rule partially approved and partially disapproved
Oklahoma’s state implementation plan (“SIP”) submitted under the
“visibility” and “interstate transport” provisions of the Clean
Air Act (“CAA”), 42 U.S.C. § 7410, 7491, and 7492.  The Final Rule
included a federal implementation plan (“FIP”) establishing Best
Available Retrofit Technology (“BART”) emission limitations on
sulfur dioxide (“SO2”) for Units 3 and 4 of PSO’s Northeastern
plant (“PSO’s Units”) to address the visibility and interstate
transport provisions of the CAA.  

C.	PSO desires to develop and implement a comprehensive strategy to
comply with its obligations with respect to the visibility and
interstate transport provisions of the CAA as well as its other
obligations with respect to the CAA in a coordinated manner. 

D.	PSO intends to install low NOx combustion technologies on both of its
Units, retire one of its Units, and install and operate on its other
Unit a dry sorbent injection system and baghouse in order to achieve
emissions rates that comply with the terms of this Agreement and with
its obligations with respect to the visibility provisions of the CAA. 

E.	PSO intends to retire one of its Units and install and operate on its
other Unit a dry sorbent injection system, a baghouse, and activated
carbon injection to achieve emissions rates that comply with the Mercury
& Air Toxics Standard that became effective April 16, 2012, 40 C.F.R. §
 63.9984 (“the MATS Rule”).  Properly designed and operated air
pollution control systems consisting of dry sorbent injection system,
baghouse, and activated carbon injection can achieve the MATS Rule
emission limits.  An EPA letter to the ODEQ and PSO dated July 18, 2012,
expresses EPA’s support of PSO’s comprehensive strategy to use the
technologies described in the Regional Haze Agreement referenced in
Attachment A to this Agreement to achieve the emission limitations
prescribed by the MATS Rule.  The letter is attached to this Agreement
as Attachment B.    

F.	On February 24, 2011, PSO timely filed a Petition for Review,
challenging the issuance of the Final Rule in Public Service Company of
Oklahoma v. U.S. Environmental Protection Agency, et al., No. 12-9524. 
On March 26, 2012, Sierra Club filed a timely motion to intervene.  The
motion was granted March 27, 2012.

G.	The CAA and EPA’s regulations require States to develop SIPs to
implement the CAA’s provisions, including the CAA’s visibility and
interstate transport provisions.  See 42 U.S.C. §§
7410(a)(2)(D)(i)(II), (J), 7491(b)(2); 40 C.F.R. § 50.300(a).  ODEQ is
the administrative agency in the State of Oklahoma responsible for
developing and proposing such SIPs.  See 27A O.S. §§ 2-5-105(3), (20),
1-3-101(B)(8), 2-3-101(B)(2).  The Secretary, as the Governor’s
designee for the State of Oklahoma, is responsible for submitting SIPs
to EPA for review.  See 40 C.F.R. Part 51, Appendix V, Section 2.1(a);
40 C.F.R. § 51.103(a).  Because this Agreement requires ODEQ to develop
and propose and the Secretary to submit SIP revisions to EPA under the
visibility and interstate transport provisions of the CAA, and ODEQ and
the Secretary prefer to regulate PSO under such SIP revisions rather
than EPA’s FIP, ODEQ and the Secretary have an interest in and are
essential parties to this Settlement Agreement.     

H.	The Parties have negotiated in good faith and have determined that
the settlement reflected in this Agreement is in the public interest. 
If approved and implemented as set forth herein, this Agreement will
resolve PSO’s Petition for Review.

I. 	This Agreement will not impact any other provisions of the Final
Rule, and/or any other applicable federal, state, and local laws and
regulations.  No other claims will be affected by the resolution of the
issues related to PSO’s Units as set forth herein.

AGREEMENT

1.	PSO, Sierra Club, and EPA agree that within ten (10) days after this
Agreement is executed by the Parties (i.e., signed), but before
finalization pursuant to Paragraph 16 of this Agreement, they will
jointly move the Court for an order holding in abeyance PSO’s Petition
for Review pending implementation of the terms of the Agreement.

2. 	Within thirty (30) days of the effective date of this Agreement, PSO
shall submit to ODEQ final and complete versions of all information and
documentation (including technical supporting documentation for PSO’s
Units) necessary for the development of the SIP revisions referenced in
Paragraphs 3 and 4. 

3.  	No later than one hundred-twenty (120) days after PSO provides ODEQ
with the information and documentation required in Paragraph 2, ODEQ
will develop and propose a SIP revision under the visibility provisions
of the CAA, 42 U.S.C. § 7491, and EPA’s regional haze regulations, 40
C.F.R. § 51.308, that addresses PSO’s Units (“Regional Haze SIP
revision”) in accordance with the provisions of Attachment A.

4.	No later than one hundred-twenty (120) days after PSO provides ODEQ
with the information and documentation required in Paragraph 2, ODEQ
will develop and propose a SIP revision under the interstate transport
provisions of the CAA, 42 U.S.C.                  §
7410(a)(2)(D)(i)(II), that addresses PSO’s Units (“Interstate
Transport SIP revision”) in accordance with the provisions of
Attachment A.

5.	No later than one hundred-twenty (120) days after PSO provides ODEQ
with the information and documentation required in Paragraph 2, the
Secretary shall provide the proposed SIP revisions required in
Paragraphs 3 and 4 to EPA and request parallel processing of the SIP
revisions from EPA pursuant to 40 C.F.R. Part 51, App. V, Section 2.3.  

6.	If ODEQ determines, at any time subsequent to PSO’s submittal of
all information and documentation for PSO’s Units as required in
Paragraph 2, that additional information and/or documentation is
necessary in order to develop the SIP revisions referenced in Paragraphs
3 and 4, ODEQ shall provide PSO with a written request for such
additional information and/or documentation with a copy to all Parties. 
The deadlines associated with the obligations under Paragraphs 3-5 of
this Agreement shall be tolled during the period of time between the
issuance of the written request and ODEQ’s receipt of the requested
information and/or documentation.  

7.	After the opportunity for public hearing and the close of
Oklahoma’s notice-and-comment period for the Regional Haze and
Interstate Transport SIP revisions, but no later than ninety (90) days
after the Secretary submits the request for parallel processing
referenced in Paragraph 5, ODEQ will consider and if appropriate adopt
the Regional Haze and Interstate Transport SIP revisions referred to in
Paragraphs 3 and 4.  If adopted, the Secretary will submit to EPA those
SIP revisions.  

8.	The Regional Haze and Interstate Transport SIP revisions adopted and
submitted to EPA under Paragraph 7 will include the provisions described
in Attachment A to this Agreement unless the Parties, by written mutual
agreement, amend the provisions described in Attachment A.  If the
Regional Haze and Interstate Transport SIP revisions adopted and
submitted to EPA by the Secretary do not include the provisions
described in Attachment A to this Agreement, PSO may file a motion to
dissolve the stay of PSO’s petition for review and request that a
briefing schedule be set.  PSO may also pursue any opportunities for
administrative or judicial review of the Regional Haze and Interstate
Transport SIP revisions adopted by ODEQ and submitted by the Secretary.

9.	Within sixty (60) days of EPA’s receipt of the final Regional Haze
and Interstate Transport SIP revisions EPA will determine whether the
revisions meet the requirements of the CAA consistent with 42 U.S.C. §
7410(k)(1)(B) (“completeness finding”).

10.	EPA will take final action on the Regional Haze and the Interstate
Transport SIP revisions as soon as possible, but no later than six (6)
months from the date of the completeness finding referred to in
Paragraph 9 consistent with 42 U.S.C. § 7410(k)(2). 

11.	If EPA promulgates a final action approving the provisions of the
Regional Haze and Interstate Transport SIP revisions included in
Attachment A, as adopted and submitted to EPA by Oklahoma, PSO, the
Sierra Club, and EPA will promptly file a joint stipulation of dismissal
of PSO’s Petition for Review.  The Parties agree that they will not
challenge that portion of any final action issued by EPA that fully
approves the Regional Haze and Interstate Transport SIP revisions as
adopted and submitted to EPA by the Secretary that contain the
provisions in Attachment A affecting PSO’s Units.

12.	Separately from the SIP process, PSO will report biannually to EPA
(beginning in 2017 for the period 2015-2016, and every second year
thereafter through the end of 2025 or 2026, whenever the last
Northeastern unit is retired) on the energy produced by PSO’s units
and the sources of energy secured under PSO’s long-term purchased
power contracts.  The initial report will include similar information
for calendar years 2013-2014.  Requests for proposals (“RFPs”) for
long-term purchase power contracts issued between 2013 and the date the
reporting obligation ends will specifically seek bids for energy
supplied by natural gas and renewable resources.  The biannual reports
will include copies of any RFPs issued during the reporting period, and
a summary of the capacity or energy secured through any long-term power
purchase agreements executed during the reporting period, including the
unit(s) providing the purchased power, the amount of capacity or energy
secured under the agreement, and the term of each agreement.

13.	The Parties may, by written mutual agreement, extend the dates in
Paragraphs 2-5, 7, and 9-10 by which actions must be taken to fulfill
the Parties’ respective obligations under this Agreement.

14.	Nothing in the Regional Haze and Interstate Transport SIP revisions
as adopted and submitted to EPA by Oklahoma or in this Agreement shall
relieve PSO from its obligations to comply with all applicable federal,
state, and local laws and regulations, including laws, regulations, and
compliance deadlines that become applicable after the date of any
revisions to Oklahoma’s Regional Haze SIP that may be approved by EPA.
 Such laws and regulations include, but are not limited to, any EPA rule
imposing requirements relevant to interstate transport under 42 U.S.C.
§ 7410(a)(2)(D) and the MATS Rule.  Nothing in Oklahoma’s Regional
Haze SIP revision, including the BART determination for PSO’s Units,
should be construed to provide any relief from the emissions limits or
deadlines specified in such regulations, including, but not limited to,
deadlines for the installation of pollution controls required by any
such regulations. 

15.	If EPA does not take final action approving those aspects of the
Regional Haze and Interstate Transport SIP revisions that contain the
provisions of Attachment A, as adopted and submitted to EPA by Oklahoma,
PSO may file a motion to dissolve the stay of PSO’s Petition for
Review, and to request that a briefing schedule be set.  EPA does not
waive or limit any defense relating to such litigation.  This shall be
the only remedy for EPA’s failure to fulfill its obligations under
this Agreement.  PSO and Sierra Club agree that contempt of court is not
an available remedy under this Agreement.

16.	The Parties agree and acknowledge that before this Agreement is
final, EPA must provide notice in the Federal Register and an
opportunity for public comment pursuant to CAA section 113(g), 42 U.S.C.
§ 7413(g).  EPA shall promptly submit said notice of this Agreement to
the Federal Register after this Agreement is executed by the Parties
(i.e., signed).  After this Agreement has undergone an opportunity for
notice and comment, the Administrator or the Attorney General, as
appropriate, shall promptly consider any such written comments in
determining whether to withdraw or withhold their consent to the
Agreement, in accordance with section 113(g) of the CAA. 

If the United States elects not to withdraw or withhold its consent to
this Agreement, EPA shall provide written notice to the Parties as
expeditiously as possible.  This Agreement shall become final and
effective on the date that EPA provides such written notice to the
Parties.  If EPA does not provide such written notice within sixty (60)
days after the notice of the Agreement is published in the Federal
Register, the sole remedy shall be the right to file a motion to
dissolve the stay of the Petition for Review, and to request that a
briefing schedule be set.  EPA does not waive or limit any defense
relating to such litigation.  PSO and Sierra Club agree that contempt of
court is not an available remedy under this Agreement.

17.	No provision of this Agreement shall be interpreted as or constitute
a commitment or requirement that the United States or any of its
departments or agencies obligate or pay funds in contravention of the
Anti-Deficiency Act, 31 U.S.C. § 1341 et seq., or in violation of any
other statue, law, or regulation.

18.	Nothing in this Agreement shall be construed to limit or modify the
discretion accorded to EPA, ODEQ, or the Secretary by statute, or by
general principles of administrative law.

19.	Nothing in this Agreement shall be construed to limit or modify the
rights of PSO or Sierra Club to seek reconsideration or judicial review
of any altered, amended or revised provisions of any final action that
ODEQ or EPA may take that differ in any material respect from the
provisions described in Attachment A (or as amended by mutual written
agreement of the Parties pursuant to Paragraph 8).

20.	The undersigned hereby certify that they are duly authorized to bind
the Party on whose behalf this Agreement is executed to the terms of
this Agreement.

21.	The provisions of this Agreement shall apply to and be binding on
the Parties, their successors and assigns.

22.	This Agreement may be signed in counterparts, and such counterpart
signatures shall be given full force and effect.



						FOR PETITIONER PSO:

Dated:__________				__________________________________________

						



FOR STATE OF OKLAHOMA:

SECRETARY OF THE ENVIRONMENT FOR THE STATE OF OKLAHOMA

Dated:__________				__________________________________________

FOR OKLAHOMA DEPARTMENT OF ENVIRONMENTAL QUALITY:

Dated:___________				__________________________________________



						FOR U.S. ENVIRONMENTAL PROTECTION AGENCY:

		

						IGNACIA S. MORENO

						Assistant Attorney General

						Environment and Natural Resources Division

			

Dated:__________			By:	__________________________________________

						STEPHANIE J. TALBERT

						Environmental Defense Section

						Environment and Natural Resources Division

						U.S. Department of Justice

						P.O. BOX 7611

						Washington, DC 20044										(202) 514-2617

						Fax: (202) 514-8865

						Stephanie.Talbert@usdoj.gov		



						FOR INTERVENOR SIERRA CLUB:

Dated:__________				__________________________________________



ATTACHMENT A

	Oklahoma, through the Secretary, will submit to EPA a Regional Haze SIP
revision that addresses PSO’s Units and includes, among other things,
the following elements:

Oklahoma’s SIP revision will include a Regional Haze Agreement
(“RHA”) entered into by ODEQ and PSO to effectuate the BART
determination.

The RHA will require that by no later than December 31, 2013, PSO will
complete installation of low NOx combustion technologies and achieve a
nitrogen oxide (“NOx”) emission rate of 0.23 lb/MMBtu on a 30-day
rolling average at each of PSO’s Units.

The RHA will require that beginning on January 31, 2014, PSO will comply
with a new SO2 emission rate at each of PSO’s Units of 0.65 lb/MMBtu
on a 30-day rolling average, and beginning on December 31, 2014, PSO
will comply with a new SO2 emission rate of 0.60 lb/MMBtu on a 12-month
rolling average at each of PSO’s Units.  PSO will maintain those
emission rates until controls are installed at one unit as provided in
subparagraph (e), and the other unit is retired as provided in
subparagraph (d).  The RHA will include an alternative operating
scenario that addresses potential service disruption of coal supplies
during the time period between January 31, 2014 through April 16, 2016.

  

The RHA will require that PSO seek all necessary regulatory approvals,
and will retire one of the coal-fired generating units at Northeastern
Station by April 16, 2016.

The RHA will require that PSO seek all necessary regulatory approvals,
and install and operate a dry-sorbent injection system, activated carbon
injection system, and a fabric filter baghouse, and secure further NOx
emission reductions by April 16, 2016 on the coal-fired generating unit
at Northeastern Station that will continue to operate.  After completion
of the installation of the pollution controls required by this
subparagraph, PSO will achieve a 0.15 lb/MMBtu emission rate for NOx on
a 30-day rolling average basis, and a 0.40 lb/MMBtu emission rate for
SO2 on a 30-day rolling average basis.

The RHA will require that during the first year of operation of the
controls required under the RHA, PSO will develop and propose a
monitoring program to test various operating profiles and other
measures, to determine whether increased SO2 removal efficiencies can be
achieved during normal operations.  Pursuant to the terms of the RHA,
PSO will submit the monitoring program to EPA and ODEQ for review and
will implement the monitoring program during the second and third years
of operation of the dry sorbent injection system.  PSO will evaluate and
report the results of the monitoring program to EPA and ODEQ, and if
that evaluation demonstrates that the technology is capable of
sustainably achieving an emission rate of less than 0.37 lbs/MMBtu on a
30-day rolling average basis without (i) altering the unit’s fuel
supply, (ii) incurring additional capital costs, (iii) increasing
operating expenses by more than a negligible amount, and/or (iv)
adversely impacting overall unit operations, ODEQ will propose to revise
the  emission rate in the RHA by 60 percent of the difference between
0.40 and the demonstrated emission rate.  Upon adoption after notice and
opportunity for hearing, Oklahoma, through the Secretary, will submit a
Regional Haze SIP revision to EPA for approval.  If the demonstrated
emission rate is 0.37 lbs/MMBtu or greater, no adjustment will be made
to the RHA, and the emission rate from the operating Northeastern
coal-fired generating unit in the RHA will remain 0.40 lbs/MMBtu.  

The RHA will require that beginning in calendar year 2021, the Annual
Capacity Factor (calculated for each calendar year as a percentage of
MWH based on a rated capacity of 470 MW times 8760 hours) for the
operating coal-fired generating unit at Northeastern Station will be
reduced as follows:

to no more than 70 percent in calendar years 2021 and 2022;

to no more than 60 percent in calendar years 2023 and 2024; and

to no more than 50 percent in calendar years 2025 and 2026.

The RHA will require that no later than December 31, 2026, PSO will
retire the remaining operating coal-fired generating unit at
Northeastern Station.  However, in calendar year 2021, the RHA will
require PSO to evaluate whether the projected generation from that unit
can be replaced at lower or equal total projected costs from natural gas
or renewable resources.  Pursuant to the RHA, PSO will provide a copy of
the evaluation to EPA and ODEQ.  If power is available from such
resources at a lower projected total cost (including consideration of
PSO’s need to recover its remaining investment in the units), then the
operating unit will retire no later than December 31, 2025.

2.	Oklahoma, through the Secretary, will submit to EPA an Interstate
Transport SIP revision that addresses PSO’s Units and includes, among
other things, the following elements:

An enforceable mechanism that addresses SO2 reductions from sources
other than those operated by PSO, to the extent necessary to achieve the
anticipated visibility benefits from the 2018 regional modeling; and  

A provision requiring that the enforceable mechanism referred to in
Paragraph 2(a) of this Attachment A be implemented if the SO2 emission
rate for the controlled unit at Northeastern is not reduced to 0.30
lbs/MMBtu or less as a result of the Paragraph 1(f) of this Attachment
A.  

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