From: Szabo, Aaron <Aaron_L_Szabo@omb.eop.gov>

Sent: Wednesday, July 29, 2015 7:58 PM

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

Cc: Frey, Nathan J.; Grossman, Andrea Subject: Summary of Interagency Comments Under EO 12866 and 13563 -- Clean Power Plan -- Stranded Assets

Attached please find a summary of interagency comments under EO 12866 and 13563 on preamble language within the Clean Power Plan that relates to previous interagency comments provided on the stranded assets memo.

Thank you and please let know if you have any questions.

<< SummaryofInteragencyCommentsUnder_EO12866_EO13563_CPP_StrandedAssets.docx >>

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

EPA’s Clean Power Plan

1. Reviewer recommends modifying the following section of the CPP starting on page 1083 of

the most recent CPP clean version. The reviewer recommends the text be modified to state the following to be consistent with recommende d modifications of the stranded assets memo:

a. As explained in the Legal Memorandum accompanying this rule, the EPA believes that Congress intended the re maining useful life provision to provide a mechanism for states to avoid the imposition of unreasonabl e retrofit costs on existing sources with relatively short remaining useful lives, a scenario that could result in stranded assets. However, commenters on the proposed rule ra ised a different stranded assets concern not primarily related to retrofit costs -- a concern that the proposed rule would require individual coal plants to retire could cause changes in economic competitiveness of particular EGUs that would prompt their retirement before the end of their economically useful lives. These commenters said 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. In response to these comments, the EPA has conducted a stranded as sets analysis which demonstrates that that the EGU performance rates and state goals in the final guidelines need not result

in stranded assets. The EPA shares the goal of minimizing stranded assets. Although nothing in section 111(d ) explicitly bars a guideline that results in some facilities becoming uneconomic before the end of their useful lives, the EPA nonetheless has striven to design the guidelines so as to gi ve states flexibility to develop plans that include, for example, differen tial treatment of affected E GUs or opportunities to rely on emissions trading, to allow power comp anies to recover their investments in generation units.

For purposes of the stranded assets analysis, the EPA defined a “stranded asset” as an

investment in a coal-fired EGU that retire s before it is fully depreciated. Book life is the period over which long-lived assets are depreciated for financial reporting purposes. The agency estimated typical book li fe by researching financial statements of utility and merchant generation companies in filings to the Security and Exchange Commission. The agency estimated the book life of coal-fired EGUs to be 40 years, and assumed a 20-year book life for pollution control retrofits. The book life of coalfired EGU (coal steam and IGCC) is twice as long as the debt life and the depreciation schedule used for federal tax purposes. Although the book life for environmental retrofits is often 15 years, the agency conservatively assumed 20 years in this analysis.

The analysis examined coal generation in th e three large regional interconnections of the United States. The analysis found th at in both 2025 and 2030, for each region, the amount of 2012 coal generation included in the final guidelines’ emission

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

performance rate calculation -- after application of the build ing blocks -- is greater than the amount of 2012 generation from coal-fired EGUs that are not fully depreciated in those year s under the book life assumptions described above. This shows that full application of the build ing blocks does not necessitate shifting generation away from these units

. 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 pr ices and that the compliance path of least cost may involve retiring asse ts that have not fully depreciated.

However, compliance with the national EGU performance rates in the final guidelines does not necessitate the retire ment of affected EGUs before the end of their book life, or the retirement of affected EGUs before the end of the book life of capital-intensive pollution control retrof its installed on those EGUs. Thus, meeting the final EGU performance rates and stat e goals need not cause stranded assets.

Details are available in a memo to the docket.