From: Frey, Nathan J. <Nathan_J._Frey@omb.eop.gov> 

Sent: Friday, July 31, 2015 6:45 PM 

To: Culligan, Kevin; Vasu, Amy; Harvey, Reid 

Cc: Szabo, Aaron; Grossman, Andrea 

Subject: Summary of interagency comments under EO 12866 and 13563 -- RIA for the Clean 

Power Plan draft final rule 

Kevin -- 

As discussed, please find a summary of interagency comments under EO 12866 and 13563 on the 

RIA for the Clean Power Plan draft final rule. 

 

Thanks and please let me know if you have any questions. 

Nathan 

<< SummaryofInteragencyCommentsUnderEO12866_13563_CPP_ RIA_7 31 2015.docx >> 

  
Summary	of	Interagency	Working	Comments	on	Draft	Language	under

EO12866/13563	Interagency	Review.		Subject	to	Further	Policy	Review.

1

3.9.2 Projected Compliance Costs 

The power industry’s “compliance costs” are represented in this analysis as the change in 

electric power generation costs between the base case and illustrative CPP scenarios, including 

the cost of demand-side energy efficiency programs and measures and monitoring, reporting, and 

recordkeeping (MR&R) costs. The system costs reflect the least cost power system outcome in 

which the sector employs all the flexibilities assumed in the modeling, as discussed above, and 

pursues the most cost-effective emission reduction opportunities in order to meet the rate- and 

mass-based goals, as represented in the illustrative plan scenarios. In simple terms, these costs 

are an estimate of the increased power industry expenditures required to meet demand 

projections while complying with state goals, including the total demand-side energy efficiency 

costs. 1 The compliance costs for the final emissions guidelines for EGUs in the contiguous U.S. 

states is forecast using IPM. The cost of demand-side energy efficiency programs assumed in the 

IPM analysis are reported in section 3.7.2. 

EPA projects that the annual compliance cost of the rate-based illustrative plan scenario 

are $2.4 billion in 2020, $1.1 billion in 2025, and $8.5 billion in 2030 (Table 3-8). The annual 

compliance cost of the mass-based illustrative plan approach are estimated to be $1.4 billion in 

2020, $3.0 billion in 2025, and $5.1 billion in 2030. The different patterns of incremental cost in 

each of these scenarios over 2020-2030 are consistent with the differences in the projected 

pattern of gas use and price in these scenarios. The annual compliance cost is the projected 

additional cost of complying with the rule in the year analyzed and is the sum of the includes the 

net change in annualized cost of capital investment in new generating sources and heat rate 

improvements at coal steam facilities,2 the change in the ongoing costs of operating pollution 

controls, the change in expenditures on various fuels (inclusive of changes in the price of these 

fuels), demand-side energy efficiency measures, and other actions associated with compliance. 

We expect that the electric utility system wide will experience a decrease in cost to produce 

                                                            

1 The compliance costs also capture the effect of changes in equilibrium fuel prices on the expenditures of the

electricity sector to serve demand.   2 See Chapter 2 of the GHG Mitigation Measures TSD and EPA’s Base Case using IPM (v5.15) documentation,

available at: http://www.epa.gov/powersectormodeling
Summary	of	Interagency	Working	Comments	on	Draft	Language	under

EO12866/13563	Interagency	Review.		Subject	to	Further	Policy	Review.

2

electricity due to early retirements and other cost saving events, but incur costs due to demandside energy efficiency measures, resulting in net cost estimates of $8.4 billion in 2030 for the 

rate-based scenario and $5.1 billion for the mass-based scenario.

Table 3-8. Annualized Compliance Costs Including Monitoring, Reporting and 

Recordkeeping Costs Requirements (billions of 2011$) 

 2020 2025 2030 

Rate-based $2.5 $1.0 $8.4 

Mass-based $1.4 $3.0 $5.1 

Source: Integrated Planning Model run by EPA, 2015, with post-processing to account for exogenous demand-side 

energy efficiency costs and monitoring, reporting, and recordkeeping costs. 

In order to contextualize EPA’s projection of the additional costs in 2030 across the two 

illustrative plan approaches evaluated in this RIA, it is useful to compare these incremental cost 

estimates to total projected power sector expenditures. The power sector is expected in the base 

case to expend over $201 billion in 2030 to generate, transmit, and distribute electricity to enduse consumers. In 2014, according to EIA, the power sector generated $389 billion in revenue 

from retail sales of electricity. For context, the projected costs of compliance with the final rule 

amount to a 4 percent increase in the cost of meeting electricity demand, while securing public 

health and welfare benefits that are several times greater (as described in Chapters 4 and 8). 

The following example uses projected results for the year 2030 to illustrate how different 

components of estimated expenditures are combined to form the full compliance costs presented 

in Table 3-8. In Table 3-9, we present the IPM modeling results for the two illustrative plan 

scenarios in 2030 (as well as 2020 and 2025). The results show that annualized expenditures 

required to supply enough electricity to meet demand decline by $18 billion (rate) and $21 

billion (mass) from the base case in 2030. This incremental decline is a net outcome of two 

simultaneous effects that move in opposite directions. First, imposing the CO2 constraints 

represented by each illustrative plan scenario on electric generators would, other things equal, 

result in an incremental increase in expenditures to supply any given level of electricity. 

However, once electricity demand is reduced to reflect demand-side energy efficiency 

improvements, there is a substantial reduction in the expenditures needed to supply a 

correspondingly lower amount of electricity demand.