Re: 

Ron Evans to: Lutter, Randall W. 12/01/2009 08:22 AM

Cc: "King, Heidi R.", Tricia Crabtree, Kathy Kaufman, Lydia Wegman, 

Amy Lamson, Larry Sorrels

Randy, this has been a long standing issue for our analyses. We can only estimate the 3% value for the 

non-EGU sector, we only have 7% data for the other sectors. I have abstracted the explanation from the 

2008 ozone NAAQS RIA below. Thus, net benefits at 3% are simply the benefits at 3% minus the costs at 

7%. This produces an underestimate of the net benefits at 3%, but it is less of an underestimate than 

presenting net benefits only at 7%. 

Let me know if you have other questions.

Ron

See footnote d on Table 5.1 on page 5-7 in the 2008 RIA. 

"d Total annualized costs were calculated using a 3% discount rate for controls which had a capital

component and where equipment life values were available. For this modeled control strategy, data for

calculating annualized costs at a 3% discount was only available for NonEGU point sources. Therefore,

the total annualized cost value presented in this referenced cell is an aggregation of engineering costs at

3% and 7% discount rate."

Excerpts from page 5-8:

"Total annualized costs were calculated using a 3% discount rate for controls which had a capital

component and where equipment life values were available. In this RIA, the nonEGU point

source sector was the only sector with available data to perform a sensitivity analysis of our

annualized control costs to the choice of interest rate. Sufficient information on annualized

capital calculations was not available for area source and mobile controls to provide a reliable 3

percent discount rate estimate. As such, the 3% value in Table 5.1 is representative of the sum of

the nonEGU Point Source sector at a 3% discount rate, and the EGU, mobile, and Area Source

sector at a 7% discount rate. It is expected that the 3% discount rate value is overestimated due 

to

the addition of cost sectors at a higher discount rate. With the exception of the 3 % Total

Annualized Cost estimate on Table 5.1, engineering cost estimates presented throughout this and

subsequent chapters are based on a 7% discount rate."

"One of these limitations is that we do not have sufficient information for all of our known 

control

measures to calculate cost estimates that vary with an interest rate. We are able to calculate

annualized costs at an interest rate other than 7% (e.g., 3% interest rate) where there is sufficient

information—available capital cost data, and equipment life—to annualize the costs for

individual control measures. For the vast majority of nonEGU point source control measures, we

do have sufficient capital cost and equipment life data for individual control measures to prepare

annualized capital costs using the standard capital recovery factor. Hence, we are able to provide

annualized cost estimates at different interest rates for these point source control measures as we
have done for the proposed ozone RIA and the PM2.5 RIA last year."

Lutter, Randall W.

Lutter, Randall W. to: Ron Evans 11/23/2009 04:01 PM

Cc: "King, Heidi R."

Hi Ron:  On slide 12 there is a footnote saying that EPA is not presenting the total costs at a 3 percent

discount rate because cost estimates at 3 percent were not available for all sectors.   Yet the same table

presents net benefits at a 3 % rate.  How do you calculate net benefits at 3 percent if you do not have

costs at 3%?  Can’t I just calculate the costs at 3 percent by using NB=B‐C (and B‐NB=C)?  

I would appreciate a clarification.

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