OKLAHOMA CITY - The State of Oklahoma has reached an agreement with Public Service Company of Oklahoma and the Environmental Protection Agency that settles compliance challenges with federal air quality rules relating to PSO's two coal-fired power plants in Oologah.

In May 2011, the Attorney General's Office filed a lawsuit against the EPA to allow more time for Oklahoma stakeholders to craft a state solution.

In a news release on Tuesday, Governor Mary Fallin says the agreement permits PSO to comply with EPA rules, including the Regional Haze Rule and the Mercury and Air Toxics Rule, while simultaneously protecting Oklahoma consumers and ratepayers.

PSO's Bud Ground says it's a good agreement where PSO can continue to meet new federal air quality guidelines that are becoming more stringent.

"We've been negotiating for about a year to come to a conclusion for what is a better way to reduce emissions for Oklahoma, that's good for our customers, that's good for our company.  And it's good for Oklahoma," Ground said.

Under the terms of the settlement, PSO agrees to meet specified emission rates at both coal units at PSO's Northeastern Plant in Oologah, retire one unit in 2017, install certain emissions control equipment on one Northeastern unit in 2015 and retire the second unit in 2025 or 2026.

"It has to be gradual because of the money involved, and the time for engineering, procurement and construction of equipment," Ground said.

The EPA says the agreement is a win-win for both Oklahoma and the federal government.

"By working together, Oklahoma, PSO and EPA have developed a practical plan which meets both our shared environmental goals and Oklahoma's energy needs for the future. When completed, this plan will help PSO expand its use of natural gas and other renewable sources of power. Oklahoma has lead the way in creating a win-win solution for us all," said Al Armendariz, EPA Regional Administrator.

The plant uses about 3-million tons of coal each year. That's five, 110 car trains full of coal each week. Under the agreement, PSO would likely use more natural gas to generate electricity instead.

A more gradual shift away from coal would avoid a significant and more immediate price jump on all of our electrical bills.

But since coal is much cheaper to use, PSO estimates our bills will go up about 10 percent, but that will happen gradually over a longer time span as coal use is phased out.

The settlement agreement is still subject to public review by the Oklahoma Corporation Commission.