EPA rules could shut 13,000 megawatts of Midwest coal plants

(Reuters) - Proposed federal environmental regulations could shut about 13,000 megawatts of coal fired generation, boost power prices, threaten electric reliability and cost billions to retrofit or replace most of the region's existing coal fleet, according to U.S. power grid operator Midwest Independent System Operator (MISO).

Over the past few years, the U.S. Environmental Protection Agency (EPA) has proposed four regulations to clean the air and water that will affect the nation's coal-fired power plants.

The proposed rules have divided the power industry and the nation between those that produce much of their electricity by burning coal and those that rely on cleaner sources of energy like nuclear, natural gas and renewables.

More than half of MISO generating capacity consists of coal-fired units. MISO operates the grid in parts of 12 U.S. Midwest states and Manitoba in Canada.

To remain compliant with the proposed EPA rules, MISO generators may have to invest up to $33 billion to retrofit or replace about 62,000 MW of the grid's 70,000 MW of coal-fired generation, Clair Moeller, MISO Vice President of Transmission Asset Management, told Reuters.

He said the MISO had joined with other regional grid operators to ask the EPA for some flexibility to give generators more time to comply with the rules to keep some key units available to help maintain power system reliability.

The four EPA regulations concern proposals related to cooling water, coal residuals and mercury and other air toxics, and the already finalized Cross State Air Pollution Rule (CSAPR), which requires significant reductions in sulfur dioxide and nitrogen oxide emissions that cross state lines.

MERCURY HITS HARDEST

In a draft transmission planning report, the MISO forecast the EPA's proposed mercury rule, known as the Electric Generating Unit (EGU) Maximum Achievable Control Technology (MACT) rule, would hit the system hardest because it will require a great deal of work in the 2014/2015 timeframe.

"That is not enough time. It takes three or four years to retrofit or replace a power plant. We are worried about the nightmare of 62,000 MW going out at the same time," Moeller said, noting most of the coal units would not retire but would still need to be shut for months to install environmental control equipment.

Just under 10,000 MW of coal generation is already compliant with the proposed EPA rules, Moeller said, noting that about 28,000 MW will require fabric air filters, called bag houses, which cost about $150 per kilowatt, and another 21,000 MW will require scrubbers, which remove sulfur and other pollutants, at an estimated cost of about $480 per kilowatt.

The remaining 13,000 MW could retire, Moeller said, because it would likely cost more to upgrade those units to make them compliant with the proposed regulations than to build new natural gas-fired power plants.

But the new gas plants will need a steady supply of fuel.

Moeller said the MISO was investigating whether there was enough capacity on the natural gas pipelines to fuel the expected new gas-fired plants.

"The gas pipeline system in the Midwest was built for winter heating use. We will likely need to expand the capacity of the pipelines if we plan to use more gas to run a lot more gas plants in the winter," Moeller said.

Some of the biggest power companies in MISO, which produce at least some of their energy from coal, include units of DTE of Michigan, CMS of Michigan, Ameren of Missouri, Xcel of Minnesota, Wisconsin Energy of Wisconsin and Duke Energy of North Carolina.

(Reporting by Scott DiSavino in New York; Editing by Alden Bentley)