In surprising findings, given the state’s often-contentious relationship with the Environmental Protection Agency (EPA), a study released May 11 by the Texas grid operator concludes that a suite of looming EPA rules to reduce conventional and hazardous air pollution from power plants and to tighten power plant cooling water regulations likely would not force the retirement of any Texas coal plants.

The Electric Reliability Council of Texas (ERCOT) study, requested in December by the Public Utility Commission of Texas (PUCT), addresses the potential impacts of four expected EPA rulemakings: a Clean Water Act proposal to tighten requirements for power plant cooling water intake structures; new proposed emission limits for hazardous air pollutants and so-called "criteria" pollutants under the Clean Air Act; and a proposal to strengthen regulations for the disposal of coal combustion residuals.

The study concludes that none of the state’s 18,882 MW of coal-fired generation likely would face retirement under the coming EPA air regulations—primarily because many of the state’s coal plants are relatively young and already have in place at least some of the pollution controls that would be needed to meet the new emission limits.

The study also concluded that only 1,200 MW of coal-fired generation likely would face retirement if EPA issues final regulations to require existing plants to install closed-loop cooling water systems, or cooling towers—a prospect that seems unlikely given that EPA’s March proposed rule would let states decide whether to require existing power plants to install cooling towers to prevent harm to fish and other aquatic organisms.

ERCOT said most of the impact of the EPA rules would fall on older, gas-fired plants in the state, noting that the overwhelming majority of the state’s 42,732 MW of gas generation has been installed since 2000 and thus is unlikely to be adversely affected either by the air or cooling tower rules.

ERCOT identified some 12,600 MW of older gas generation that could be affected by the proposed regulations, noting that within this subset about 22% have modern nitrogen oxides controls installed and about 20% have cooling towers installed, but less than 200 MW have both of these technologies installed.

ERCOT found that if EPA were to demand cooling towers at all existing power plants—again, an unlikely prospect—these requirements "may force the retirement of a significant percentage of the older gas-fired fleet of units."

ERCOT said that with a mandatory cooling tower rule, as much as 8,100 MW of the older gas-fired capacity—roughly two-thirds of the older capacity—could face retirement.

Notably, ERCOT suggested that even if the rules do force the retirement of a few coal units, the remaining coal units would increase in value because they would give utilities a valuable hedge against fluctuating gas prices in a state where gas-fired generation sets the market price for power.

"Given the current prevalence of natural-gas fired generation in ERCOT, coal units represent a hedge against volatile natural gas prices," the study said. "Retirement of some of the existing coal fleet would likely increase the value of the remaining units as a source of fuel diversity. As such, it is unlikely that a significant proportion of the coal units that already have one or more of the potentially necessary environmental controls in ERCOT will be retired as a result of the pending environmental regulations."

ERCOT provided one major caveat to its conclusions: If the state or federal government instituted some form of price on carbon emissions, and if at the same time gas prices remain low, additional coal plant retirements would be much more likely. ERCOT said some 4,400 MW of coal would be retired without a cooling-tower mandate, and 5,600 MW would be retired if cooling towers are required. However, if gas prices increased substantially, a carbon price would not force any coal plant retirements, ERCOT said.

ERCOT did raise flags about potential reliability impacts as utilities retired older gas units and shut down coal units to install required controls.

It said that if sufficient capacity is retired, the generation reserve margin in ERCOT may fall below the current target level of 13.75% absent replacement capacity. However, it added that "a robust wholesale energy market should provide sufficient new sources of generation to replace retired units if there is adequate time for changing market conditions to incent new investment."

Still, the grid operator warned that care will be needed in scheduling unit outages for the installation of controls to avoid adverse reliability impacts.

"If the compliance schedule to implement the required controls is overly restrictive, a significant number of units may be unavailable at the same time, resulting in insufficient remaining capacity being available to serve system demand, even though sufficient capacity will be available once the upgrades are complete," ERCOT said.

In addition, ERCOT said unit retirements could lead to increased congestion in some parts of the Texas grid.

EPA’s regulatory proposals have been the subject of considerable angst among utilities, who warn of a regulatory train wreck that could threaten reliability and drive up power prices for consumers in many regions of the country.

Analyses by the electric and coal industries have suggested that the rules in combination could force the retirement of between 50 and 70 GW of generation capacity nationwide by 2016, while a number of Wall Street research firms have pegged the number of likely retirements at between 50 and 55 GW.

—Chris Holly is a reporter for The Energy Daily, where this article first appeared.