POWER September 2014 - 51

WATER
and wildlife refuges is a negative externality.
Additional negative externalities arise from
the installation and operation of cooling towers,
including viewshed impacts from tower
and plume, as well as the effects of additional
water and fuel consumption. Social costing of
cooling towers requires identifying and valuing
these negative externalities.
The EPA describes social costs as monetized
versions of opportunity costs. Opportunity
costs represent forgone opportunities
and are most reliably measured at economic
equilibriums. The EPA Guidelines describe
the partial and general equilibrium modeling
paradigms for identifying opportunity
costs. Partial and general equilibrium models
consist of equations and data that represent
components of an economy; they simulate
economic decision-making to allow measuring
opportunity costs across outcomes. Without
delving into the inner workings of these
approaches, their conceptual foundations can
be used to explain the important role of equilibrium
in identifying opportunity costs.
Implications of Compliance via
Plant Closure
To begin, we'll consider a facility valued at
$100 million and facing a $300 million closedcycle
cooling conversion. In this case, rather
than incurring the $300 million expense, the
facility owner would close the unit. This means
that at the post-closure equilibrium, the opportunity
cost arises from the loss of the facility
rather than the cost of the closed-cycle cooling
conversion. Instead of increased economic
activity from cooling tower expenditures, jobs
and tax revenue are lost with the closure.
Because a cooling tower isn't installed and
operated, the negative noise, viewshed, water
and fuel consumption effects associated with
installing and operating cooling towers are
not experienced. However, at the equilibrium
the plant is shut down, which means that entrainment
is eliminated and environmental
services related to thermal flow are lost.
When units that provide system reliability
services are closed, expenditures on compensating
measures, such as transmission system
enhancements are required. Also, if the
closed unit is a fossil unit, a source of stack
emissions is eliminated.
As generating capacity is lost with the closure,
other units make up the lost generation
and there is a new equilibrium in the affected
electricity market. This process is depicted in
Figures 1 and 2 using the baseline and withregulation
structure recommended in EPA
(1991) " Guidelines for Conducting Regulatory
Impact Analysis. " Each bar represents a
generating unit. Capacity is represented by
width and cost by height. To depict merit-order
(least cost) dispatch, the units are sorted by
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51
cost with the least expensive units to the left.
The green line represents electricity demand
or load. Units that are operating when
demand is at this level are shaded and the
total cost of meeting load is the sum of these
shaded areas. As load increases, the green
curve moves to the right, and as load decreases,
the curve moves to the left, causing
plant output and system production costs to
fluctuate. As Figure 1 illustrates, in this time
period, all units that can produce electricity
at costs of below about $47/MWh are operating.
The capacity that will be removed
from service produces electricity at below
$47/MWh and would be operating in this
time period under baseline conditions.
Figure 2 depicts re-dispatch to create a
simulated " with-regulation " market by removing
the unit and moving other units left
to replace the capacity removed. Because
these units are more expensive to operate, the
cost curve shifts upward at all points to the
right of the now removed unit.
As Figure 2 indicates, other generating
units provide the electricity that would otherwise
have been generated more cheaply. At
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