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Memorandum

To: Clean Power Plan Docket

Subject: Stranded assets analysis

Date: July 2015

The EPA performed a stranded assets analysis for purposes of responding to comments on the proposed 

Clean Power Plan. Some commenters said that the proposed state goals were so stringent that states 

would have no choice but to adopt requirements that would result in retirements of coal-fired capacity 

that had been built relatively recently or had recently made pollution control investments, resulting in 

stranded assets. For the final rule, the EPA revised the goal-setting methodology. The analysis in this 

memo demonstrates that the final performance rates provide sufficient flexibility to states to address 

stranded asset concerns. The final rule’s goal-setting approach (now referred to as “emission 

performance rate calculation”) represents a level of generation and emissions across each 

interconnection that is consistent with the ability to operate affected EGUs through the end of their 

book life, considering both the age of each facility and recently installed capital-intensive pollution 

control retrofits. This memo describes the analysis assumptions, methodology and findings.

Assumptions

In this context, the EPA is considering a potential “stranded asset” to be a coal-fired EGU that retires 

before it (or a capital-intensive pollution control that it has installed) is fully depreciated. We use “book 

life” to represent the period of time over which investment in a coal-fired EGU is fully depreciated. 

The EPA estimated the book life of coal-fired EGUs to be 40 years, and conservatively assumed a book 

life of pollution control retrofits at 20 years. Note that the book life of coal-fired EGU (coal steam and 

IGCC) is twice as long as the debt life and the depreciation schedule used for federal tax purposes. The 

book life was estimated based on researching financial statements of utility and merchant generation 

companies in filings to the Security and Exchange Commission. 1

 These statements typically list the 

period over which long-lived assets are depreciated for financial reporting purposes. Additionally, note 

that while the book life for environmental retrofits is often 15 years, this analysis conservatively 

assumes 20 years.

While coal steam facilities have been retrofitted with various pollution controls, this analysis focuses on 

wet and dry scrubbers, as well as SCRs, since these are the most capital-intensive controls, and as such 

represent longer-term investments.

Methodology

This analysis compares the amount of coal generation included in the final rule’s national emission 

performance rate calculation2 in each interconnection to the amount of coal generation from coal-fired 

EGUs that we assume are not fully depreciated in 2025 and/or 2030. If the amount of coal generation 

remaining after the BSER calculation is greater than the amount of generation from EGUs that we 

 1 IPM Documentation Chapter 8, available at: http://www.epa.gov/powersectormodeling/ 2 For more information on how the national emission performance rates were determined, please see the final 

rule preamble.
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assume are not fully depreciated in a given year, it demonstrates that the final rule allows the flexibility 

for sates to preserve these units as part of their plans. 

The emission performance rate calculation described in the final rule preamble applies all three building 

blocks to their full potential in the region that sets the national rate (the region where the emission 

performance rate calculation results in the highest emissions rate for each subcategory). In the other 

regions, full application of the building blocks would result in a rate much lower than the national 

emission performance rate. For these regions, this analysis assumes that building blocks two and three 

are not applied at their full potential such that the regional rate is equal to the national emissions 

performance rate for each category. This makes the analysis consistent with the emission performance 

rate calculation approach in the final rule.

The analysis identifies the coal-fired EGUs included in the emission performance rate calculation that 

will be less than 40 years old in 2025 and/or 2030. The analysis also identifies the coal-fired EGUs

included in the emission performance rate calculation that have pollution control retrofits that will be 

less than 15 years old in 2025 and/or 2030, including retrofits projected in the base case.

This analysis includes all coal-fired capacity that is included in the emission performance rate 

calculation. The analysis does not reduce that capacity to account for recent retirement 

announcements or future projected closures.

The analysis is conducted using the three regions that were used in the emission performance rate 

calculation: The Eastern, Western, and Texas Interconnections.

Results

In both 2025 and 2030, the amount of 2012 coal generation remaining in the final guidelines’ emission 

performance rate calculation after the BSER calculation is greater than the amount of 2012 coal 

generation that, under the book life assumptions in this analysis, is not fully depreciated in 2025 or 

2030. The analysis results are provided below.

Table 1. 2012 Coal-Fired Generation Assumed in National Emission Performance Rate Calculation (TWh)

2025 2030

From All 

Coal

From 

Undepreciated 

Coal From All Coal

From 

Undepreciated 

Coal

Eastern

Interconnection 762 750 578 431

Western

Interconnection 158 130 116 103

Texas 

Interconnection 70 61 70 38
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As explained above, for the region that sets the national emission performance rate for steam in the 

given year (which for fossil steam is the Eastern Interconnection in 2025 and in 2030), the coal-fired 

generation included in this table represents all coal fired generation that is included in that emissions 

performance rate calculation. In the other regions that did not set that rate in that year, the coal-fired 

generation in this table is higher than the level shown for that region’s emissions performance rate 

calculation; the difference represents the building block potential in those regions that was not captured 

in establishing the national emission performance rate. As a result, the national emission performance 

rates for steam do not assume that steam generation would be reduced below the levels shown in this 

table. 

The total amount of coal generation shown in this table decreases between 2025 and 2030 consistent 

with how the emission performance rate calculation captures the gradual phasing-in of building blocks 

two and three. For more information on how the national emission performance rates were 

determined, please see the final rule preamble.

Conclusion

The EPA’s role is to set emissions guidelines that meet the statutory requirements, which includes 

consideration of cost in identifying the best system of emission reduction, as EPA has done in these 

guidelines. States have a broad degree of flexibility to design plans to achieve the rates in the emissions 

guidelines in a manner that meets their policy priorities, including ensuring cost-effective compliance. 

Although not a required component of EPA’s consideration of cost, this analysis shows that the national 

EGU performance rates in the final guidelines can be met without the retirement of affected EGUs 

before the end of their book life, and without the retirement of affected EGUs before the end of the 

book life of capital-intensive pollution control retrofits installed on those EGUs. The EPA recognizes that 

power plant economics are determined by many aspects of markets that are outside of EPA’s control 

such as wholesale power prices and capacity prices and that the compliance path of least cost may 

involve retiring assets that have not fully depreciated. Nonetheless, this analysis further demonstrates 

the extent of flexibility available to states in designing their plans to best serve the policy priorities of 

the state.