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	Com ments	on	Draft	Language	under EO12866/13563	Interagency	Review.		Subject	to	Further	Policy	Re view.

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### 3.9.2 Projected Compliance Costs

The power industry’s “compliance costs” are repr esented 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 pr ograms and measures and monitoring, reporting, and recordkeeping (MR&R) costs. The system costs re flect the least cost power system outcome in which the sector employs all th e flexibilities assume d 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 indus try expenditures required to meet demand projections while complying with state goals, in cluding 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 dema nd-side energy efficiency programs assumed in the IPM analysis are repor ted 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 consiste nt with the differences in the projected pattern of gas use and price in these scenarios. The annual co mpliance cost is the projected additional cost of complying with th e 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 expenditu res on various fuels (inclusive of changes in the price of these fuels), demand-side energy efficien cy measures, and other actions associated with compliance. We expect that the electric utility system wide will experience a decrea se 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	Com ments	on	Draft	Language	under EO12866/13563	Interagency	Review.		Subject	to	Further	Policy	Re view.

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### electricity due to early retirements and other co st saving events, but in cur costs due to demandside energy efficiency measures , resulting in net cost estimate s 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 an d 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 project ed power sector expenditures. The powe r 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 pow er sector generated $389 billion in revenue from retail sales of electricity. For context, the projected costs of complia nce with the final rule amount to a 4 percent increase in the cost of meeting electrici ty demand, while securing public

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

The following example uses projected results fo r the year 2030 to illu strate 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 IP M 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 m eet 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 oppos ite directions. First, imposing the CO 2 

### constraints represented by each illustrative plan scenario on electric generators would, other things equal, result in an incremental increase in expenditu res to supply any given level of electricity. However, once electricity demand is reduced to reflect demand-side energy efficiency improvements, there is a substantial reducti on in the expenditures needed to supply a correspondingly lower amount of electricity demand.