Four of U.S. EPA's proposed power-plant regulations pose threats to the nation's electric reliability under utilities' current generation plans, according to a report released today by the overseer of electric grid operators.

The North American Electric Reliability Corp. report says the United States could lose about 7 percent of its electric capacity if EPA implements regulations on cooling water intake, coal ash disposal, clean air transport and utilizing maximum achievable control technology (MACT) for air pollutants.

The report adds fuel to a fierce battle over EPA regulatory authority that is being fought on the midterm campaign trail and is likely to rage through Congress, the states and the courts next year.

Electric utilities would need to retire or retrofit 33 to 70 gigawatts of capacity by 2015 under the proposed EPA regulatory timeline, with most units predicted to be retired rather than retrofitted, the report says.

The loss of capacity would threaten planning reserve margins in NERC-designated regions that make up more than half of the United States by 2015, NERC says. Planning reserve margins would lose up to 19 percent of fossil fuel-fired steam capacity by 2018, the report says.

The report analyzes the potential impact of the rules under current plans and assumes the power industry takes no near-term action to address upcoming regulations through construction of additional generation or other solutions.

EPA's cooling water intake rule -- which would regulate existing power plants' and manufacturing facilities' cooling water intake to mitigate heat impacts on aquatic life -- would have the greatest impact of the four rules, the report says. It could apply to 252 gigawatts of coal, oil steam and gas steam generation units and about 60 gigawatts of nuclear power plants, NERC says.

The MACT air-pollution rule could affect up to 753 power units, including up to 15 gigawatts of coal capacity that would need to be retired, the report says. The air-transport rule could require about 7 gigawatts of retirement and the coal ash rule could result in about 2 gigawatts retired, NERC says. The numbers consider the plants by regulation and may count them several times if they need to be shut down for multiple regulations.

The NERC report recommends that EPA, the Department of Energy and the White House allow sufficient time for industry to comply with the new regulations without endangering reliability, including allowing the use of legal waivers and exceptions to regulations if necessary. The report also recommends that industry address issues by accelerating future resource in-service dates or propose additional new resources.

"To ensure bulk power system reliability, the proposed rules should provide sufficient time to acquire replacement resources, offsetting the reductions in capacity from unit retirements and deratings from environmental control retrofits," the report says.

NERC is an industry-funded group overseen by the Federal Energy Regulatory Commission, which appointed the group to oversee the nation's grid reliability, as mandated by the 2005 energy bill.

EPA spokesman Brendan Gilfillan said NERC's report analyzes EPA regulations that are not final yet.

"Despite the fact that the substance of those rules remains open to a range of possible outcomes, this report only assumes the worst-case scenarios," Gilfillan said in an e-mail. "In reality, EPA has some discretion and will be more sensitive to reliability than NERC gives us credit for."

Gilfillan added, "In the meantime, it would be helpful if NERC and the industry it represents could focus on the steps that they need to take to ensure reliability at a time when a number of extremely old, inefficient power plants will naturally be retiring. There are cost-effective ways to protect public health and maintain reliability -- maintaining reliability should not be used as an excuse for blocking reasonable, Congressionally-mandated efforts to protect the air we breathe and the water we drink."

Mark Lauby, director of reliability assessment and performance analysis at NERC, said the report presses the need for EPA to consider reliability impacts when finishing the proposed rules.

"We are not saying the megawatts are going away; we are just saying alternative resources are going to be needed, and we just need sufficient time to do it," Lauby said. "The timeline needs to consider potential reliability impacts."

Lauby added also that "industry needs to take prompt action."

Reactions

Rep. Henry Waxman (D-Calif.), chairman of the House Energy and Commerce Committee, issued a sharp rebuke to the NERC study, calling it "deeply flawed." Waxman will be the first defense against GOP attacks on EPA's authority if Republicans take the majority in the House in the November elections.

"This study was clearly designed to find problems instead of solutions -- the same approach industry always takes," Waxman said in a statement. "Instead of assuming that industry will adopt solutions like improving energy efficiency and building new, clean generation to meet these important public health rules, this deeply flawed study assumes that companies won't act promptly and sensibly to maintain power system reliability."

But the report could be fodder for critics of EPA's regulations, including many congressional Republicans and some investor-owned utilities. Republicans have vowed to tighten scrutiny of EPA activity if the GOP controls the House after the midterm elections next week.

American Electric Power Co. Inc., which has the largest portfolio of coal-fired generation in the United States, several times in the past year has raised the alarm about the potential "train wreck" of regulations coming down the pipeline (Greenwire, Oct. 18).

The "basketful" of EPA regulations is also a top concern for the Edison Electric Institute during this next session, a utility lobbyist said.

Rep. Fred Upton (R-Mich.), expected to take the top GOP post of the Energy and Commerce Committee and currently ranking member of the Energy and Environment Subcommittee, has already said EPA has "overstepped" its authority (Greenwire, Oct. 19).

Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission, said the NERC report also failed to consider an interagency task force among FERC, EPA and the White House Council on Environmental Quality that has been meeting for months to consider and model solutions to address the impact of the regulations.

"We are aware of the potential problems, and we are working in an interagency way to solve them," Wellinghoff said. "It doesn't raise any concerns that I wasn't already aware were there."

Suggestions that there may be a need to delay EPA regulations "is premature and an uninformed view," he said. "We are looking at solutions. Yes, there is no question when you reduce the total generation fleet by 50 to 70 gigawatts, if that does happen, that mitigating measures need to be put in place."

He added, "But the sky isn't falling, and it is clear there are ways to address these issues," both through non-infrastructure -- demand response, efficiency, operation modifications -- and infrastructure, including transmission and generation.

Industry 'well-positioned'

A study released in August by M.J. Bradley & Associates LLC and the Analysis Group found the electric industry "well-positioned" to meet the upcoming air regulations, given current lower forecasts for demand, excess capacity, demand resource initiatives and industry's track record in adapting to regulations.

That report did not consider the cooling-water intake or waste issues, which EPA has more flexibility in terms of the time for implementation, the study says.

"The industry has a strong track record of dealing with upcoming changes in ways that avoid reliability issues," said Sue Tierney, a former Massachusetts state regulator and U.S. DOE official and a lead author of the Bradley-Analysis Group report. "Such proactive steps, including vibrant market responses, are not baked into the NERC outlook and can do the job in avoiding the concerns that NERC identifies," she said.

Tierney said the NERC report should not fuel critics' rhetoric but rather should push industry, regulators and the markets to investigate the places where the report says there could be issues and move to find solutions.

"People have to address these issues responsibly," she said. "We could not either ignore the health benefits that EPA is trying to accomplish, nor could we ignore reliability. We don't need to have a collision course on this."

Click here to read the NERC report.