Washington (Platts)--10Nov2008

The early retirement of existing coal-fired power plants as a way of
combating climate-change efforts is a serious concern for utilities and
independent system operators as they consider the potential reliability
effects of greenhouse gas emission reduction plans, officials from the North
American Electric Reliability Corp. said Monday.

NERC held a media call Monday after it issued a report -- based
on industry comments -- that said carbon-reduction policies in the US raise
serious concerns about the continued reliability of the country's power grid
given that a price on carbon would reduce coal-fired generation and increase
use of renewable energy resources that could strain transmission systems.

"We are concerned with early retirements" of coal-fired generation
facilities and the "dash to gas" as use of gas-fired generation use increases
in a carbon constrained environment, said Mark Lauby, manager of reliability
assessments for NERC.

The NERC report is the result of the organization's June call for
industry comments and escalating concerns that the reliability of the power
system may be threatened by carbon policies that could force coal-fired
capacity offline earlier than planned. In addition, cancellations of
coal-fired plants can have a reliability impact in regions where coal is the
dominant generating fuel, the report said.

"Perhaps the most pervasive concern" about reliability NERC said it
obtained from industry comments is the massive switch to gas-fired generation
and the reliance on such a fuel in areas where storage or pipeline capacity
may be limited, Lauby said. In Florida, about 50% of the generation mix is
fueled by natural gas, he said.

"Increased demand for natural gas will put a severe strain on the gas
supply infrastructure, which could lead to serious reliability problems," the
municipal utility in Springfield, Illinois, told NERC. Similarly in the west,
where gas storage capacity is limited, "an increased dependence on natural
gas-fired generation may create gas supply deficiencies," said Bradley
Nickell, renewable integration director at the Western Electricity
Coordinating Council.

Climate-change initiatives can result in improved reliability if
implemented effectively, particularly if new high-voltage transmission is
added to move power from renewable resources in remote regions to population
centers, Rick Sergel, president and CEO at NERC, said during the call. Rather
than having a state or regional focus to implement climate change initiatives,
NERC believes more inter-regional and international system planning will be
needed, Sergel said.
--Tom Tiernan, tom_tiernan@platts.com