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 >> 

 
Concepts and Proposals for Defining & Minimizing Le

In the Clean Power Plan

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review*** 
• Leakage is an increase in emissions relative to the benchmark outcome achieved under hypo

application of the Best System of Emissions Reduction

• Leakage occurs when either:

a) In‐state generation increased due to the set of policies used to meet target emissions rates (as opposed 

normal changes in net exports), or

b) Emissions reductions calculated for compliance are allowed to exceed actual aggregate emissions redu

• Leakage can be caused by three primary issues:

a) A tradable rate‐based standard subsidizes output for generators with emissions rates below the standab) New emitting sources are excluded from the rate or mass standardc) Emissions reduction credits awarded for some activities may over represent the actual emissions reduc

What is Leakage?

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review*** 
1) Generation shifting to sources outside 111d

2) Changes in cross‐state power flows induced by implicit output subsidies under a tradable r

3) Overestimation of energy‐efficiency savings4) ERC and redispatch accounting that is inconsistent with BSER

Specific Types of Leakage

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review*** 
1) Generation shifting to sources outside 111d

‐ Suppose an 800 MW coal unit retires in a mass state and is replaced by a new source that emits CO2 a

While the net emissions reduction would be about 2.7 million metric tons (MMT), compliance account

reflects only the coal retirement (4.3 MMT) but not the new gas generation (1.5 MMT).

‐ Alternatively, suppose a nuclear unit retires, with generation replaced by emitting sources not covered 

500 MW of nuclear capacity lost, emissions would increase by about 1.4 MMT per year if replaced by n

2) Changes in generation induced by implicit output subsidies under a tradable rate standard

‐ For example: generation shifting from sources under a mass cap to sources under a rate standard; or g

from sources under a more stringent rate standard to sources under a less stringent rate standard (witstates), driven by differential marginal costs of compliance and/or output subsidies for NGCC units.

‐ Suppose an 800 MW coal unit retires in a mass state and is replaced by spare capacity at existing NGCC 

neighboring rate state. The mass state compliance accounting reflects only the coal retirement and the emissions decrease. In the neighboring rate state, the NGCC units have increased generation but their 

have not changed. The increase in emissions is not captured in compliance accounting.

‐ Burtraw et al. (2015) estimate 40 percent leakage between Midwest (target of 1151 lb/MWh) and surr

(820 lb/MWh); using draft final rates; however, other internal analyses suggest roughly 20 percent leakstates.

3) Overestimation of energy‐efficiency savings

‐ Every MWh of fabricated energy efficiency due to lax evaluation, monitoring, and verification protocols 

approximately 800‐1,300 lbs of carbon, depending on how energy efficiency ERCs are used.

4) Crediting that is inconsistent with BSER (ERC‐specific issues at end of slide deck)

‐ Redispatch accounting issues arise when a state assigns non‐uniform steam rates without accounting f

shifting between steam units, and evaluates compliance at unit‐level only.

‐ See page 8 for examples.

Examples

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review*** 
• Output subsidies (#2)

• Leakage to sources outside 111d remains a potential problem in mass states, and especially w

111d sites in a rate state and exports to a mass state (#1 and #2)

• Energy efficiency (#3)• ERC accounting issues (see slide 8)

• Leakage due to retiring nuclear persists and is exacerbated by ERC accounting rules that allow 

generation to create ERCs (see slide 8)

Potential Areas of Leakage

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review*** 
Basic principles: These are potential rationales that EPA could use, if appropriate, to justify the 

framework provided on the next slide.

1) Leakage is not characteristic of a traditional rate standard (i.e., one that is achievable by tec

improvements within the “fence line”). Rather, the possibility of leakage is introduced when 

is tradable—when a unit is allowed to reduce its effective emissions rate by shifting generati

carbon‐intensive sources. Even then, leakage only occurs when EGUs are allowed to claim a g

reduction in their effective emissions rate than has actually occurred. Leakage is not inheren

standard; it is endemic in a tradable rate standard that does not install sufficient safeguards 

incentive distortions and gaming.

2) There is no leakage in the best system of emissions reduction. BSER consists of taking advan

emissions reductions opportunities but holding total generation fixed. Although a rate stand

generation (and with it, emissions) to increase (e.g., due to load growth), applying BSER does 

generation to increase—even for emissions reductions beyond the fenceline.

3) Arithmetic achievement of a state’s rate target is not necessarily a sufficient indication of e

BSER. States have flexibility to design state plans to achieve a future emissions outcome that 

the application of BSER. States can choose from a wide variety of plan design elements. If a s

a plan that itself causes in‐state generation to increase, above what could be justified based 

and other normal factors, or that allows regulated entities to achieve nominal “compliance” 

generation and engaging in other gaming activities, the state clearly has not achieved equiva

BSER. For example, leakage is caused by the increase in generation above normal load growt

caused by the output subsidies in a tradable rate standard. Those output subsidies are not a 

Two criteria for evaluating leakage:

1) An increase in generation due to policy choices

2) Systematic discrepancies between actual and calculated emissions reductions

For a state implementing one or multiple rates, the second criteria refers to crediting towards com

rate. Both criteria are necessary for rate states.

Proposed Framework: Defining Leakage

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review*** 
Core approach:

To address remaining leakage risks, particularly related to output subsidies and generation shiftin

1) Define leakage in final rule to include two criteria—an increase in generation due to p

and a discrepancy between actual and calculated emissions reductions

2) Describe various forms of leakage and how they may be enabled or facilitated by vario

choices or specific combinations of plan design elements if not accompanied by anti‐le

3) Require that state plans include mechanisms to minimize leakage, subject to EPA app

4) Use the Federal Plan to illustrate and take comment on definition of baseline and add

mechanisms for states to fulfill the requirement to minimize leakage

5) Consider allowing regulated sources harmed by leakage to petition the state or EPA f

Example Scenarios:1) The number of ERCs used by steam units in 2022 to demonstrate compliance substantially ex

number of displaced steam MWhs in rate states relative to 2012 baseline. Rationale? Recour

2) Generation in a rate state increases by 50 percent by 2022 while in‐state load remains consta

in neighboring mass states declines by a commensurate amount. Recourse?

Proposed Framework: Fixing Leakage

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review*** 
4) ERC accounting that is inconsistent with BSER

a) Double counting ERC MWhs in the denominator of both the purchasing steam unit and the selling NG

‐ In the application of BSER, both the emissions and mwhs from incremental ngcc generation in block 2 

steam rate, and not to the gas rate (they are "cut and pasted"). In the ERC design, however, incrementa

discounted ERCs that are counted in the steam rate and also in the gas rate (they are "copy and pasted

results in calculated emissions rates that are lower than actual output‐weighted average emissions ratecoal‐to‐gas redispatch. This incentivizes coal‐to‐gas redispatch over renewables and also loosens the st

program.

b) Awarding ERCs for gross incremental NGCC generation, allowing two NGCC units to create ERCs simply 

generation levels rather than actually reducing emissions

‐ Suppose NGCC units in a modeled state simply rearranged dispatch patterns, holding total generation a

roughly constant at 2012 levels, those units could create about 13 million ERCs under EPA’s formula for 

accounting issue would cause emissions under the CPP to rise by 7 MMT—about 36% of the emissions would normally expect for that state.

c) Allowing NGCC or renewable generation that replaces retiring nuclear units to create ERCs

‐ Suppose in a different modeled state that a nuclear unit stops generating and replaces half its generati

capacity at existing NGCC units and half with new renewable generation. NGCC units create 1 million Eand renewable generators create 4 million ERCs, even though total emissions have increased. This ERC would allow emissions under the CPP to rise by 6.5 MMT. An additional 1.4 MMT is attributable to the 

generation that carries no compliance implications in a rate state. In total, this amounts to more than 3

emissions reductions we would expect from that modeled state under BSER.

d) Allowing a state to assign non‐uniform steam rates without accounting for generation shifting betwee

‐ Suppose a modeled state gives a rural coop‐owned coal units a higher emissions rate target of 1,800 lb

units are assigned lower rates in order to maintain the state‐wide rate (holding generation levels acros

constant). If all units hit their respective rate targets, but generation shifts to the rural coop‐owned coa

other coal units such that the rural coop‐owned coal units achieve a 90% capacity factor, emissions wo

greater than if generation had not shifted. This one case represents about 4% of the emissions reductiexpect for the modeled state under BSER.

ERC Design Issues

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review*** 
Examples of fixes for some of the ERC design issues:

ERC Design (whether specified in rule or proposed in Federal Plan)

1) Revise ERC design to trade in tons rather than MWhs, or introduce trading ratios

2) Revise ERC design for NGCC units such that steam units purchase the full emissions and MWh (nume

denominator) from incremental NGCC, as is done in application of BSER.

3) Implement a system by which the number of ERCs used by steam units cannot exceed the number o

actually displaced since 2012 (e.g., by tracking cumulative displaced steam, allocating ERCs centrally

the supply of steam‐eligible ERCs each year if needed). This will ensure ERCs are not awarded for disnuclear or for meeting load growth, instead of reducing emissions.

4) Revise the ERC design such that the total production of ERCs from NGCC generation is based on either 

generation or net incremental NGCC—not gross incremental NGCC. This would neutralize the opportunERCs by simply shifting generating from one NGCC unit to another. (EPA appears to be considering som

fix).

ERC Design Issues

***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review*** 
Summary	of	Interagency	Working	Comments	on	Draft	Language	under

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

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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 reference to vehicle electrification on page 960: 

“Examples of measure that may not be counted toward meeting a CO2 emission 

performance level for affected EGUs or a state CO2 goal include GHG offset projects 

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

air capture, and crediting of CO2 emission reductions that occur in the transportation 

sector as a result of vehicle electrification.” 

Trading

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

BSER as well” (page 202). 

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

only be able to choose a mass-based policy. 

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

rate be applied to EGUs. Reviewer recommends 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 technology type but operating 

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

5) Reviewer recommends that EPA adopt a strict standard 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 discussion 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, that EGU would accrue an ERC liability in 

the same way that an NGCC EGU that increases 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 starting in 2020 with modest reductions between 
Summary	of	Interagency	Working	Comments	on	Draft	Language	under

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

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2020 and 2022, which would maintain the reliability assurance and other provisions of the 

program. 

2) Reviewer requests clarification on page 926 about 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 draft final rule in 2022-

2029. 

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

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

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

State Plans 

1) Reviewer recommends clarifying the difference 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 consistent 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 its carbon emission reduction 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 Summary 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 the circumstances are different 

for NSPS. 

Technical Comments 

1) Reviewer recommends including the following references 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). Eastern Renewable Generation Integration 

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

b. Brinkman, G. (2015). Renewable Electricity Futures: Operational Analysis of the 

Western Interconnection at Very High Renewable 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 Wind and Solar Integration Study Phase 
Summary	of	Interagency	Working	Comments	on	Draft	Language	under

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

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

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

2) Reviewer recommends clarifying the values listed in Table 8 (page 627) as either total or 

incremental generation and remove the discrepancy between the table title and the 

description in the text. 

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

acceptable options that states can use in order to help them prepare 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 greenhouse emissions, especially if the EGU 

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

Typographical Comments 

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

strategy” to avoid the inference that the “memorandum” 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 agencies that have provided resources or 

staff to develop the recorded presentations (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 preamble text that electricity 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 revising references to “interconnections” 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	Comments	on	Draft	Language	under

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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 following phrase (in red and underlined) on page 

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

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

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

... 

 State and local government building energy code and compliance programs, 

and other building energy programs” 

9) Reviewer recommends recognizing other environmental 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 list 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 concurrence from the reliability coordinator on 

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

system operation perspective to inform this required element with respect to an event 

triggering the reliability safety valve. 

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

consistency) of planning authority/planning coordinator 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 the following typographical comments: 

1) Typographical Comment 17. Reviewer recommends correcting the comment to suggest using 

the term “reliable system operation” (emphasis 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 entity (planning authority and/or reliability 

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

term planning horizon and that reliability coordinators 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 “intermittent” with “variable”, and the second a list of references to 

demonstrate the economic competitiveness of RE. 

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

follows: 
Summary	of	Interagency	Working	Comments	on	Draft	Language	under

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

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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-incorporate-variable-renewable-energy