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	Comments	on	Draft	Language	under

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

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 recommended modifications of the stranded assets memo: 

a. As explained in the Legal Memorandum accompanying this rule, the EPA believes 

that Congress intended the remaining useful life provision to provide a mechanism for 

states to avoid the imposition of unreasonable 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 raised 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 assets 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 give states flexibility to develop plans that 

include, for example, differential treatment of affected EGUs or opportunities to rely 

on emissions trading, to allow power companies 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 retires 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 life 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 the three large regional interconnections of 

the United States. The analysis found that in both 2025 and 2030, for each region, the 

amount of 2012 coal generation included in the final guidelines’ emission 
Summary	of	Interagency	Working	Comments	on	Draft	Language	under

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

performance rate calculation -- after application of the building blocks -- is greater 

than the amount of 2012 generation from coal-fired EGUs that are not fully 

depreciated in those years under the book life assumptions described above. This 

shows that full application of the building 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 prices and that the compliance path of 

least cost may involve retiring assets that have not fully depreciated. 

However, compliance with the national EGU performance rates in the final 

guidelines does not necessitate the retirement 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 retrofits installed on those EGUs. Thus, meeting 

the final EGU performance rates and state goals need not cause stranded assets. 

Details are available in a memo to the docket.