California regulators adopted new rules Tuesday that will require power plants to reduce their impact on aquatic wildlife at a potential cost of hundreds of millions, or billions of dollars.

The California regulations are the first in the U.S. to restrict marine water use by existing power plants and comes one month after regulators in New York denied a key water-quality permit that Entergy Corp. (ETR) needs to continue operating a nuclear power plant.

The rules, adopted by the California Water Resources Control Board, require power plants that withdraw and return marine water for cooling to stop the practice and install equipment to reduce their impact on marine life. The regulations affect 19 power plants that use ocean or river water to cool power turbines, then return the water at higher temperatures in a practice called "once-through cooling."

The policy aims to improve conditions for California marine life, but is likely to add substantial costs to some power plant owners that could reach into the hundreds of millions or billions of dollars. Most plants will have to phase out their once-through cooling systems within the next several years, although plant managers can apply for alternatives that would reduce the cost. The agency estimated the upgrades will cost about 1 cent a kilowatt-hour, on average, not including lost revenue while plants are taken offline during construction.

The plants' once-through cooling systems kill 2.6 million fish, 19 billion fish larvae and 57 seals, sea lions and sea turtles each year, Dominic Gregorio, the water board's ocean unit chief, said Tuesday before the board's vote.

Power-plant owner Dynegy Inc. (DYN) criticized the draft regulations, saying they'll force the company to shut down at least two of its plants. Dynegy will likely have to shut its aging South Bay power plant near San Diego by 2013 and its Morro Bay power plant by 2015, when the plants are required to be in compliance with the new rules, a Dynegy representative told the board Tuesday. Dynegy may also have to shut one unit of its Moss Landing power plant, although the company will likely install new equipment at the plant's second unit by 2016, when the plant must be in compliance, he said.

Some of the other older power plants affected by the rules, owned by AES Corp. (AES), PG&E Corp. (PCG) and Mirant Corp. (MIR), are already slated to be shut down or renovated.

AES, of Arlington, Va., plans to replace its Alamitos and Huntington Beach power plants in Southern California or retrofit the plants with alternative cooling systems.

The state's two nuclear power plants, owned by PG&E and Edison International's (EIX) Southern California Edison unit, will have until 2024 and 2022, respectively, to reconfigure their cooling systems to comply with the rules.

In the New York case, Entergy said replacing the once-through cooling system at its 2,000-megawatt Indian Point plant with a "closed-loop" cooling system, as recommended by New York regulators, would cost about $1 billion and take 15 years to complete. Instead, the company has proposed installing "wedge wire screens" to protect fish, at an estimated cost of $100 million.

Charles Hoppin, chairman of the California water board, said he and others on the board are concerned about the reliability of California's grid and that the rules were crafted with help from the state's energy regulators and grid operator to ensure that plants could be retired or renovated on a schedule that would ensure adequate power supplies are available.

-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; cassandra.sweet@dowjones.com
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