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

Sent: Tuesday, June 30, 2015 5:51 PM

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

Cc: Szabo, Aaron

Subject: Summary of Interagency Comments Under EO 12866 and 13563 -- Carbon Pollution

Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units

Attached please find a summary of additional interagency comments under EO 12866 and 13563

on the EPA draft final rule, Carbon Pollution Emission Guidelines for Existing Stationary Sources:

Electric Utility Generating Units.

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

Nathan

<< SummaryofinteragencycommentsunderEO12866_13563_EO 12866_CPP 2060 AR33

Final_6_30.pptx >>

<< Supplement 1 of Summary Of Interagency Comments Under EO12866_13563 EPA .docx >>ConceptsandProposalsforDefining&MinimizingLeakageIntheCleanPowerPlan1***E.O.12866Review– Draft– DoNotCite,QuoteorReleaseDuringReview***•LeakageisanincreaseinemissionsrelativetothebenchmarkoutcomeachievedunderhypotheticalapplicationoftheBestSystemofEmissionsReduction•Leakageoccurswheneither:a) In‐stategenerationincreaseddueto thesetofpoliciesusedtomeettargetemissionsrates(asopposedtoloadgrowthornormalchangesinnetexports),orb) Emissionsreductionscalculatedforcomplianceareallowedtoexceedactualaggregateemissionsreductions•Leakagecanbecausedbythreeprimaryissues:a) Atradablerate‐basedstandardsubsidizesoutputforgeneratorswithemissionsratesbelowthestandardb) Newemittingsourcesareexcludedfromtherateormassstandardc) EmissionsreductioncreditsawardedforsomeactivitiesmayoverrepresenttheactualemissionsreductionsachievedWhatisLeakage?2***E.O.12866Review– Draft– DoNotCite,QuoteorReleaseDuringReview***1) Generationshiftingtosourcesoutside111d2) Changesincross‐statepowerflowsinducedbyimplicitoutputsubsidiesunderatradableratestandard3) Overestimationofenergy‐efficiencysavings4) ERCandredispatch accountingthatisinconsistentwithBSERSpecificTypesofLeakage3***E.O.12866Review– Draft– DoNotCite,QuoteorReleaseDuringReview***1) Generationshiftingtosourcesoutside111d‐Supposean800MWcoalunitretiresinamassstateandisreplacedbyanewsourcethatemitsCO2at800lbs/MWh.Whilethenetemissionsreductionwouldbeabout2.7millionmetrictons(MMT),complianceaccountinginthestatereflectsonlythecoalretirement(4.3MMT)butnotthenewgasgeneration(1.5MMT).‐Alternatively,supposeanuclearunitretires,withgenerationreplacedbyemittingsourcesnotcoveredby111d.Forevery500MWofnuclearcapacitylost,emissionswouldincreasebyabout1.4MMTperyearifreplacedbynewNGCC.2) Changesingenerationinducedbyimplicitoutputsubsidiesunderatradableratestandard‐Forexample:generationshiftingfromsourcesunderamasscaptosourcesunderaratestandard;orgenerationshiftingfromsourcesunderamorestringentratestandardtosourcesunderalessstringentratestandard(withinoracrossstates),drivenbydifferentialmarginalcostsofcomplianceand/oroutputsubsidiesforNGCCunits.‐Supposean800MWcoalunitretiresinamassstateandisreplacedbysparecapacityatexistingNGCCunitsinaneighboringratestate.Themassstatecomplianceaccountingreflectsonlythecoalretirementandtheassociatedemissionsdecrease.Intheneighboringratestate,theNGCCunitshaveincreasedgenerationbuttheiremissionsrateshavenotchanged.Theincreaseinemissionsisnotcapturedincomplianceaccounting.‐Burtrawetal.(2015)estimate40percentleakagebetweenMidwest(targetof1151lb/MWh)andsurroundingregions(820lb/MWh);usingdraftfinalrates;however,otherinternalanalysessuggestroughly20percentleakagebetweenstates.3)Overestimationofenergy‐efficiencysavings‐EveryMWh offabricatedenergyefficiencyduetolaxevaluation,monitoring,andverificationprotocolscouldleakapproximately800‐1,300lbs ofcarbon,dependingonhowenergyefficiencyERCsareused.4) CreditingthatisinconsistentwithBSER(ERC‐specificissuesatendofslidedeck)‐Redispatch accountingissuesarisewhenastateassignsnon‐uniformsteamrateswithoutaccountingforgenerationshiftingbetweensteamunits,andevaluatescomplianceatunit‐levelonly.‐Seepage8forexamples.Examples4***E.O.12866Review– Draft– DoNotCite,QuoteorReleaseDuringReview***•Outputsubsidies(#2)•Leakagetosourcesoutside111dremainsapotentialprobleminmassstates,andespeciallywhereoutside111dsitesinaratestateandexportstoamassstate(#1and#2)•Energyefficiency(#3)•ERCaccountingissues(seeslide8)•LeakageduetoretiringnuclearpersistsandisexacerbatedbyERCaccountingrulesthatallowdisplacinggenerationtocreateERCs(seeslide8)PotentialAreasofLeakage5***E.O.12866Review– Draft– DoNotCite,QuoteorReleaseDuringReview***Basicprinciples:ThesearepotentialrationalesthatEPAcoulduse,ifappropriate,tojustifytheproposedframeworkprovidedonthenextslide.1) Leakageisnotcharacteristicofatraditionalratestandard(i.e.,onethatisachievablebytechnologicalimprovementswithinthe“fenceline”).Rather,thepossibilityofleakageisintroducedwhenaratestandardistradable—whenaunitisallowedtoreduceitseffectiveemissionsratebyshiftinggenerationtolesscarbon‐intensivesources.Eventhen,leakageonlyoccurswhenEGUsareallowedtoclaimagreaterreductionintheireffectiveemissionsratethanhasactuallyoccurred.Leakageisnotinherentinaratestandard;itisendemicinatradableratestandardthatdoesnotinstallsufficientsafeguardsagainstincentivedistortionsandgaming.2) Thereisnoleakageinthebestsystemofemissionsreduction.BSERconsistsoftakingadvantageofemissionsreductionsopportunitiesbutholdingtotalgenerationfixed.Althougharatestandardallowsgeneration(andwithit,emissions)toincrease(e.g.,duetoloadgrowth),applyingBSERdoesnotitselfcausegenerationtoincrease—evenforemissionsreductionsbeyondthefenceline.3) Arithmeticachievementofastate’sratetargetisnotnecessarilyasufficientindicationofequivalencewithBSER.StateshaveflexibilitytodesignstateplanstoachieveafutureemissionsoutcomethatapproximatestheapplicationofBSER.Statescanchoosefromawidevarietyofplandesignelements.Ifastateimplementsaplanthatitselfcausesin‐stategenerationtoincrease,abovewhatcouldbejustifiedbasedonloadgrowthandothernormalfactors,orthatallowsregulatedentitiestoachievenominal“compliance”byshiftinggenerationandengaginginothergamingactivities,thestateclearlyhasnotachievedequivalencewithBSER.Forexample,leakageiscausedbytheincreaseingenerationabovenormalloadgrowththatinturniscausedbytheoutputsubsidiesinatradableratestandard.ThoseoutputsubsidiesarenotafeatureofBSER.Twocriteriaforevaluatingleakage:1) Anincreaseingenerationduetopolicychoices2) SystematicdiscrepanciesbetweenactualandcalculatedemissionsreductionsForastateimplementingoneormultiplerates,thesecondcriteriareferstocreditingtowardscompliancewitharate.Bothcriteriaarenecessaryforratestates.ProposedFramework:DefiningLeakage6***E.O.12866Review– Draft– DoNotCite,QuoteorReleaseDuringReview***Coreapproach:Toaddressremainingleakagerisks,particularlyrelatedtooutputsubsidiesandgenerationshifting:1) Defineleakageinfinalruletoincludetwocriteria—anincreaseingenerationduetopolicychoicesandadiscrepancybetweenactualandcalculatedemissionsreductions2) Describevariousformsofleakageandhowtheymaybeenabledorfacilitatedbyvariouspolicychoicesorspecificcombinationsofplandesignelementsifnotaccompaniedbyanti‐leakagefixes3) Requirethatstateplansincludemechanismstominimizeleakage,subjecttoEPAapproval4) UsetheFederalPlantoillustrateandtakecommentondefinitionofbaselineandadditionalmechanismsforstatestofulfilltherequirementtominimizeleakage5) ConsiderallowingregulatedsourcesharmedbyleakagetopetitionthestateorEPAforacorrectionExampleScenarios:1) ThenumberofERCsusedbysteamunitsin2022todemonstratecompliancesubstantiallyexceedsthenumberofdisplacedsteamMWhs inratestatesrelativeto2012baseline.Rationale?Recourse?2) Generationinaratestateincreasesby50percentby2022whilein‐stateloadremainsconstant.Generationinneighboringmassstatesdeclinesbyacommensurateamount.Recourse?ProposedFramework:FixingLeakage7***E.O.12866Review– Draft– DoNotCite,QuoteorReleaseDuringReview***4) ERCaccountingthatisinconsistentwithBSERa) DoublecountingERCMWhs inthedenominatorofboththepurchasingsteamunitandthesellingNGCCunit‐IntheapplicationofBSER,boththeemissionsandmwhs fromincrementalngcc generationinblock2areappliedtothesteamrate,andnottothegasrate(theyare"cutandpasted").IntheERCdesign,however,incrementalngcc createsdiscountedERCsthatarecountedinthesteamrateandalsointhegasrate(theyare"copyandpasted").Thisdiscountingresultsincalculatedemissionsratesthatarelowerthanactualoutput‐weightedaverageemissionsratesachievedbycoal‐to‐gasredispatch.Thisincentivizescoal‐to‐gasredispatch overrenewablesandalsoloosensthestringencyoftheprogram.b) AwardingERCsforgrossincrementalNGCCgeneration,allowingtwoNGCCunitstocreateERCssimplybyswappinggenerationlevelsratherthanactuallyreducingemissions‐SupposeNGCCunitsinamodeledstatesimplyrearrangeddispatchpatterns,holdingtotalgenerationandemissionsroughlyconstantat2012levels,thoseunitscouldcreateabout13millionERCsunderEPA’sformulaforNGCCERCs.ThisaccountingissuewouldcauseemissionsundertheCPPtoriseby7MMT—about36%oftheemissionsreductionswewouldnormallyexpectforthatstate.c) AllowingNGCCorrenewablegenerationthatreplacesretiringnuclearunitstocreateERCs‐SupposeinadifferentmodeledstatethatanuclearunitstopsgeneratingandreplaceshalfitsgenerationwithsparecapacityatexistingNGCCunitsandhalfwithnewrenewablegeneration.NGCCunitscreate1millionERCsintheprocess,andrenewablegeneratorscreate4millionERCs,eventhoughtotalemissionshaveincreased.ThisERCcreationalonewouldallowemissionsundertheCPPtoriseby6.5MMT.Anadditional1.4MMTisattributabletotheincrementalNGCCgenerationthatcarriesnocomplianceimplicationsinaratestate.Intotal,thisamountstomorethan30%oftheemissionsreductionswewouldexpectfromthatmodeledstateunderBSER.d)Allowingastatetoassignnon‐uniformsteamrateswithoutaccountingforgenerationshiftingbetweensteamunits‐Supposeamodeledstategivesaruralcoop‐ownedcoalunitsahigheremissionsratetargetof1,800lbs/MWh.Otherunitsareassignedlowerratesinordertomaintainthestate‐widerate(holdinggenerationlevelsacrosscoalunitsconstant).Ifallunitshittheirrespectiveratetargets,butgenerationshiftstotheruralcoop‐ownedcoalunitsfromtheothercoalunitssuchthattheruralcoop‐ownedcoalunitsachievea90%capacityfactor,emissionswouldbe1.1MMTgreaterthanifgenerationhadnotshifted.Thisonecaserepresentsabout4%oftheemissionsreductionswewouldexpectforthemodeledstateunderBSER.ERCDesignIssues8***E.O.12866Review– Draft– DoNotCite,QuoteorReleaseDuringReview***ExamplesoffixesforsomeoftheERCdesignissues:ERCDesign(whetherspecifiedinruleorproposedinFederalPlan)1) ReviseERCdesigntotradeintonsratherthanMWhs,orintroducetradingratios2) ReviseERCdesignforNGCCunitssuchthatsteamunitspurchasethefullemissionsandMWh (numeratoranddenominator)fromincrementalNGCC,asisdoneinapplicationofBSER.3) ImplementasystembywhichthenumberofERCsusedbysteamunitscannotexceedthenumberofsteamMWhsactuallydisplacedsince2012(e.g.,bytrackingcumulativedisplacedsteam,allocatingERCscentrally,andconstrainingthesupplyofsteam‐eligibleERCseachyearifneeded).ThiswillensureERCsarenotawardedfordisplacingREornuclearorformeetingloadgrowth,insteadofreducingemissions.4) RevisetheERCdesignsuchthatthetotalproductionofERCsfromNGCCgenerationisbasedoneithertotalNGCCgenerationornetincrementalNGCC—notgrossincrementalNGCC.ThiswouldneutralizetheopportunitytogenerateERCsbysimplyshiftinggeneratingfromoneNGCCunittoanother.(EPAappearstobeconsideringsomeversionofthisfix).ERCDesignIssues9***E.O.12866Review– Draft– DoNotCite,QuoteorReleaseDuringReview***

# Summary	of	Interagency	Working	Com ments	on	Draft	Language	under

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

- 1 - ENVIRONMENTAL PROTECTION AGENCY (EPA): Final Rule

Carbon Pollution Emission Guidelines for Existing Stationary Sources:

Electric Utility Generating Units

RIN 2060-AR33

General Comments

1) Related to General Comment 20 in the initial Summary of Interagency Comments.

Reviewer recommends editing the text to ensure that vehicle electrification is recognized

as a means to reduce economy-wide emissions and can support broader strategic energy

planning, while eliminating the existing refere nce to vehicle electr ification on page 960:

“ Examples of measure that may not be counted toward meeting a CO 2 

# emission

performance level for affected EGUs or a state CO 2 

# goal include GHG offset projects

representing emission reductions that occur in th e forestry and agriculture sectors, direct

air capture, and crediting of CO 2 

# emission reductions that oc cur in the transportation

sector as a result of vehicle electrification

. ”

Trading

1) Reviewer recommends providing additional contex t regarding how “trading is within the

BSER as well” (page 202).

2) Reviewer suggests removing the option for states to select a rate-bas ed policy and instead

only be able to choose a mass-based policy.

3) Reviewer recommends that only technology spec ific rates or a single statewide blended

rate be applied to EGUs. Reviewer reco mmends not allowing EGUs of the same

technology type in a given state to operate under different rates.

4) Reviewer recommends not allowing entities of the same technol ogy type but operating

under different rates to trade ERCs whether they are in the same stat e or different states.

5) Reviewer recommends that EPA adopt a strict st andard for state plans to demonstrate that

they have accounted for all potential emissions increases and will not exceed their state

rate, even if all EGUs within the state achieve their assigned target rates.

6) Reviewer recommends changing the discussi on on page 981-983 about how incremental

NGCC generates ERCs such that only net incremental generation from NGCC relative to

2012 generates ERCs. One way to implement that is for EPA to state that if generation

from an NGCC EGU falls below 2012 levels, th at EGU would accrue an ERC liability in

the same way that an NGCC EGU that incr eases generation above 2012 levels generates

an ERC credit.

Start Date/ Compliance Path/ Interim Goals

1) Related to Start Date Comment 5 in the Summary of Interagency comments.

Alternatively, EPA could ramp BSER starti ng in 2020 with modest reductions between

# Summary	of	Interagency	Working	Com ments	on	Draft	Language	under

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

- 2 - 2020 and 2022, which would maintain the reliabil ity assurance and othe r provisions of the

program.

2) Reviewer requests clarification on page 926 ab out early action such that the “level of

emissions reductions” is defined to mean that the cumulative emission reductions must be

equal to or more stringent than would have been achieved by the draf t final rule in 2022-

2029.

3) Reviewer requests clarification in the text th at allowances can be traded for compliance

between approved mass based programs of both th e emissions standard and state measures

type, with appropriate demonstration that respective compliance can be achieved.

State Plans

1) Reviewer recommends clarifying the differen ce between what qualifies as an emergency

under 111(b) and an event that triggers the “reliability safety valve” under 111(d), noting

that the answer to this will be based on how EPA defines “emergency” in 111(b).

a. Reviewer recommends that EPA be consis tent throughout with respect to how an

event triggering the reliability safety valve is described.

2) Reviewer recommends that EPA clarify that international RE must be included in a

tracking system to avoid double-counting it s carbon emission reduc tion benefits (page

937).

a. Reviewer recommends that state plans account for enforcement of these

requirements because these generators are outside federal authority.

3) Related to State Plan Comment 18 in the Su mmary of Interagency Comments. Reviewer

recommends that EPA maintain the requirement that “states must still make up for any

emissions reductions” under this rule but only clarify why th e circumstances are different

for NSPS.

Technical Comments

1) Reviewer recommends including the following re ferences on the ability to integrate

variable renewable energy on page 626:

a. Bloom, A., Townsend, A., Palchak, D ., King, J., Ibanez, E., Barrows, C.,

Hummon, M., Draxl, C., (2015). Easter n Renewable Generation Integration

Study. NREL/TP-6A20-64472. Golden, CO. In press.

b. Brinkman, G. (2015). Renewabl e Electricity Futures: Op erational Analysis of the

Western Interconnection at Very High Re newable Penetrations. NREL/TP-6A20-

64467. Golden, CO. In press.

c. Cochran, J., Denholm, P., Speer, B., and Miller, M. Grid Integration and the

Carrying Capacity of the U.S. Grid to Incorporate Variable Renewable Energy.

NREL/TP-6A20-62607, 2015. (http://www .nrel.gov/docs/fy15osti/62607.pdf)

d. Lew, D., Brinkman, G., Ibanez, E., Florita, A., Heaney, M., Hodge, B.-M.,

Hummon, M., Stark, G., King, J ., Lefton, S.A., Kumar, N., Agan, D., Jordan, G.,

Venkataraman, S., (2013). The Western Wi nd and Solar Integration Study Phase

# Summary	of	Interagency	Working	Com ments	on	Draft	Language	under

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

- 3 - 2. NREL/TP-5500-55588. Golden, CO.

(http://www.nrel.gov/d ocs/fy13osti/55588.pdf)

e. Miller, N.W., Shao, M., Pajic, S., D’Aquila, R., (2014). Western Wind and Solar

Integration Study Phase 3 – Frequency Response and Transient Stability.

NREL/SR-5D00-62906. Golden, CO.

(http://www.nrel.gov/d ocs/fy15osti/62906.pdf)

f. PJM Renewable Integration Study. 2014. http://www.pjm.com/committees-andgroups/subcommittees/irs/pris.aspx

2) Reviewer recommends clarifying th e values listed in Table 8 (p age 627) as either total or

incremental generation and remove the disc repancy between the table title and the

description in the text.

3) Reviewer recommends outlining on page 909 a nd possibly elsewhere a potential list of

acceptable options that states can use in or der to help them pr epare their technical

assessment for their state plans.

4) Reviewer recommends clarifying how an EGU that chooses to repower using a primary

qualifying biomass would account for its gree nhouse emissions, especially if the EGU

goes over 90% biomass co -firing (page 913).

Typographical Comments

1) Reviewer recommends referring to the thre e agency “memorandum” as a “coordination

strategy” to avoid the inference that the “m emorandum” is an MOU as this is not the

intent of the strategy (page 70).

2) Reviewer recommends including weblinks to any referenced tools, reports, or resources,

where such links are available (or will be available at the time of the final rule’s

publication) (e.g., pages 26, 72, 1063).

3) Reviewer recommends clarifying “can or must use” to be either “can” or “must use” on

page 43 to avoid confusion.

4) Reviewer recommends revising “demand management” to “demand-side management” on

page 58 to match common industry terminology.

5) Reviewer recommends including explicitly all ag encies that have provided resources or

staff to develop the recorded pr esentations (page 71) or, alternatively, revise text to read

“EPA and other federal entities” so as not to implicitly exclude other agencies.

6) Reviewer recommends, on page 312, in the discussion of flexibility across

interconnections, that EPA recognizes in the pr eamble text that el ectricity flow across

interconnection boundaries is limited given system and jurisdictional constraints/limits,

especially with ERCOT (e.g., intra-state, non-synchronously interconnected system where

electricity transmission is not FERC-jurisdictional). 1 

# Alternatively, for this and related

text, the reviewer suggests re vising references to “inter connections” to “regions”.

7) Reviewer recommends the following change to the text on page 628:

1 

# See http://www.ferc.gov/industries/electric/indus

‐ act/rto/ercot.asp.

# Summary	of	Interagency	Working	Com ments	on	Draft	Language	under

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

- 4 - a. “The DOE NREL avoided cost methodology applies a reduced cost of building

new hydropower generating capacity of approximately $35 per metric ton.”

8) Reviewer recommends that EPA add the followi ng phrase (in red and underlined) on page

1010 to clarify that city building energy disc losure policies, which have already been

enacted in 12 cities across the country, al so qualify as a potential compliance tool:

“ Common demand-side EE programs and project types include:

...

 State and local government building en ergy code and compliance programs

, and other building energy programs ”

9) Reviewer recommends recognizing other environm ental regulations affecting the electric

power sector, e.g., 316(b), Coal Ash, on page 1042.

10) Reviewer recommends changing “would not cause” to “are not expected to cause” on page

1053 because the system outcome cannot be guaranteed.

11) Reviewer recommends considering whether the National Conference of State Legislatures

(NCSL) should be included on the lis t of state organizations on page 1062.

12) Reviewer recommends changing “electrical grid ” to “electricity system” to reflect more

common industry terminology (on page 1198).

13) Reviewer recommends requiring written concur rence from the reliab ility coordinator on

page 1215 (the reg text) because the reliabi lity coordinators would have the near-term

system operation perspective to inform this required elemen t with respect to an event

triggering the reliability safety valve.

14) Reviewer recommends including definiti ons (e.g., adopting NERC’s for industry

consistency) of planning authority/planning coor dinator and reliability coordinator in the

definitions (page 1264).

Based on a review of the initial Summary of Interagency Comments, reviewers are providing

additional clarifying information on th e following typographical comments:

1) Typographical Comment 17

. Reviewer recommends correcting the comment to suggest using

the term “reliable system operation” (empha sis added) rather than “reliable system

operating” in place of “reliability assurance” on page 18 to match common industry

terminology.

2) Typographical Comment 19

. Reviewer recommends clarifying the comment such that it is

suggested that EPA use the appropriate ent ity (planning authority and/or reliability

coordinator) throughout the document to reflect that planning authorities work on a longer

term planning horizon and that reliability coor dinators work on a near-term (e.g., day-to-day,

emergency event) horizon.

3) Typographical Comment 26. Reviewer recommends dividing comment into two comments,

the first on replacing “intermitte nt” with “variable”, and the s econd a list of references to

demonstrate the economic competitiveness of RE.

4) Typographical Comment 31. Cochran et al is a se parate reference, and should be listed as

follows:

# Summary	of	Interagency	Working	Com ments	on	Draft	Language	under

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

- 5 - a. Cochran et al. 2015. Grid Integration and the Carrying Capacity of the U.S. Grid to

Incorporate Variable Renewable Energy. http://energy.gov/epsa/downloads/gridintegration-and-carrying-capacity-us-grid-i ncorporate-variable -renewable-energy