Claims that one of the state's largest power stations used the partial monitoring of its units to manipulate pollution estimates have prompted the environment watchdog to investigate all plants in NSW.

The Bayswater power station in the Hunter Valley was only required to report pollution from one of its four generation units. Staff were instructed to supply lower sulphur coal to the unit being monitored while dirtier coal was burnt in the other three, according to participants attending a public meeting held with current plant owners AGL in Muswellbrook in March.

AGL does not deny the station, which it bought from state-run Macquarie Generation in 2014, deliberately blended coal to mask the true emissions of nitrous oxides, sulphur dioxide and other pollutants. The company says it can't comment on operations prior to its takeover and has since introduced monitoring of all four units.

"Blending of coal can be done, at the coal mine or power station, to meet supply agreement conditions, and ensure compliance with air quality protection guidelines and [Environment Protection Authority] licence requirements," Rob Cooper, an AGL spokesman said. "This is common practice in the industry."