1 

## MEMORANDUM

From: U.S. EPA Office of Policy

To: Steam Electric ELG Final Rule Record
Date: September 16, 2015

Subject: Analysis of Potential Effect of Usi ng a Baseline with the CPP Proposal in Lieu of
the CPP Final

The Clean Power Plan (CPP) was finalized on August 3, 2015, a little le ss than two months
before the date on which the final Steam Electric Effluent Limitations Guidelines (ELGs) (steam electric rule) are due to be signed (September 30, 2015). Because of this timing, the final CPP could not be fully incorporated into the “bas eline conditions” (i.e., pre-rule scenario) for purposes of certain analyses completed for the final steam electric rule. Thus, EPA used the proposed CPP in the analytical baseline. As explained in this memorandum, EPA determined that the proposed and final CPP are similar enoug h that using the proposed rather than final CPP in the analytical baseline did not materially impact the final ru le analyses, and EPA’s decisions
on the final steam electric rule would not be altere d if EPA had instead used the final CPP in the
baseline. These conclusions are based on a caref ul evaluation of how the population of steam electricity generating units (EGUs) estimated to incur costs under the final steam electric rule
differs between the final CPP baselin e and the proposed CPP baseline.

To compare the proposed CPP and final CPP, the “parsed files” from their Integrated Planning Model (IPM) outputs can be used. 1 Those files contain data on the post-CPP universe of EGUs,
which form the baseline of the st eam electric rule analysis, su ch as the forecast population of coal steam units in 2025. To identify any releva nt changes in the EGUs that might incur costs under the steam electric rule between the proposed CPP baseline and the final CPP baseline, we therefore compare the 2025 status of EGUs from the IPM model runs for the proposed CPP and final CPP rule analysis. 2 We focus specifically on the status of those EGUs that might be subject to the final steam electric rule. Specifically, IP M represents the behavior of individual plants using model plant representation. Mo deling results for model plants are then “parsed” into their constituent EGUs. These files of the populati on of EGUs included in the IPM modeling are called the parsed files. 3 The analysis compares the 2025 pa rsed file for the proposed CPP

1 http://www.epa.gov/airmarkets/programs/ipm/psmodel515.html

2 The EGUs in represented in the model runs for the proposed and final CPP analyses can be found in the National Electricity Energy Data System (NEEDS) files: USEPA, 2013, National Electric Energy Data System (NEEDS)
v.5.13. http://www.epa.gov/airmarkets/programs/ipm/psmodel.html USEPA, 2015, National Electric Energy Data System (NEEDS) v.5.15. http://www.epa.gov/powersectormodeling/psmodel515.html

3 USEPA. 2015, GUIDE TO IPM Output FILES EPA Base Case. v.5.15 http://www.epa.gov/airmarkets/documents/ipm/EPA% 20Base%20Case%20v515_InputOutputGuide%20August%2 02015.pdf2 Option 1 Regional Illustrative Compliance Scenario with the final CPP Rate-Based Illustrative Plan Approach.

As shown in the RIAs and described in the IPM documentation for the proposed and final CPPs, in addition to regulatory changes between the pr oposed and final rule, there were a number of changes to the baseline for the analysis of the benefits, costs and impacts of the CPP. 4 Therefore, differences in the populations of coal steam E GUs that are forecast to be in operation in 2025 between the proposed and final CPP analysis coul d result from both differe nces in the baselines and differences in the CPP regulation itself betw een proposed and final. The effect of changes
other than those associated with the requirements of the CPP w ould not significantly change the
estimates of the cost of the steam electric rule because, as described in the RIA for the steam electric rule, the final steam electric rule is not fo recast to have a significant impact on the cost of supplying electricity or the generation mix.

The differences in CPP’s effect on the industry a nd in the baseline universe assumptions can be seen clearly in Table 1, which compares the Proposed and Final CPP in terms of capacity, generation, number of units, and number of plants across differe nt segments of the electric industry. The first six columns di fferentiate between active, inac tive, and total for both proposed and final parsed files. Inactive units are those that may have reti red either in the IPM baseline for the CPP in response to economic and regulator y conditions, retired in response to the CPP, or, according to the EGU’s owner or a similar author itative source, are scheduled to retire before 2025. The "Inactive" category also in cludes partial retirements, i.e., plants with at least one unit assessed as retiring are counted in the "inactive” categor y. The last three columns indicate the percent difference between proposed and final for each of the categories.

The first row of table 1 shows that there is a small increase in the projected total capacity between the proposed and final pa rsed files, of 1%. The key por tion of the table for the Steam Electric ELG analyses can be found in Section 2 of the table, “Total Coal Steam Capacity AND To Be Assigned ELG Costs.” This part of the table illustrates the di fferences between the proposed and final parsed files in the EGU’s that are relevant for th e final steam electric rule. For example, the final column of the spreadsheet shows that the difference between proposed and

4 USEPA, 2013, Documentation for EPA Base Case v.5.13 Using the Integrated Planning Model

. http://www.epa.gov/airmarkets/documents/ipm/Documentation.pdf USEPA, 2014, EPA v5.13 Base Case Documentation Supplement to Support EPA’s Proposed Carbon Pollution Guidelines for Existing Electric Generating Units

. http://www.epa.gov/airmarkets/documents/ipm/EPA% 20Base%20Case%20v5%2013%20Documentation%20Suppl ement%20for%20CPP_6_12_14.pdf USEPA, 2014, Regulatory Impact Analysis for the Proposed Carbon Pollution Guidelines for Existing Power Plants and Emission Standards for Modified and Reconstructed Power Plants. http://www2.epa.gov/sites/production/files/2014-0 6/documents/20140602ria-clean-power-plan.pdf USEPA. 2015, EPA Base Case v.5.15 Using IPM Incremental Documentation. http://www.epa.gov/airmarkets/documents/ipm/EPA%20B ase%20Case%20v.5.15%20Incremental%20Documentati on%20August%202015.pdf USEPA, 2015. EPA v5.15 Base Case Documentation Suppleme nt to Support EPA’s Clean Power Plan. http://www.epa.gov/airmarkets/documents/ipm/EPA% 20Base%20Case%20v515%20Documentation%20Supplemen t%20for%20Final%20CPP.pdf USEPA, 2015, Regulatory Impact Analysis for the Clean Power Plan Final Rule. http://www2.epa.gov/sites/production/files/ 2015-08/documents/cpp-final-rule-ria.pdf3 final CPP for steam EGU’s that will be affected by the steam electric rule is a -1% decrease in GW capacity. This means that the proposed CPP file s contained a larger amount of capacity than the final CPP files. Also, there was a 6% decreas e in generation, a 2% decr ease in the number of units, and a 2% increase in the num ber of unique plants. These re latively small changes strongly demonstrate that using a baseline that reflects the proposed CPP in lie u of a baseline that uses the final CPP would only result in small differences in terms of overall analytical results.

Table 1: Comparison of Proposed and Final CPP projections

A second way to evaluate the similarities and difference between the proposed and final CPP options is to look at the predicte d behavior of individual coal st eam EGU’s under both scenarios. There are four possible outcomes for an E GU between the IPM proposed CPP and final CPP runs: Active in both; Inactive in both; Inactiv e in Proposal CPP and Ac tive in Final CPP; and Active in Proposal CPP and Inactive in Final CPP. Active EGUs include those that produce power for sale in 2025 or are available to produ ce power for sale. EGUs that are active but not producing in 2025 are often supplyi ng reserve capacity and/or may be supplying power in the
model after 2025. Inactive units are t hose that may have retired eith er in the IPM baseline for the CPP in response to economic and regulatory cond itions, retired in response to the CPP, or, according to the EGU’s owner or a similar author itative source, are scheduled to retire before
2025.

As shown below in Table 2, the population of coal steam electric units that are expected to incur costs for complying with the final steam electric rule by the time it takes full effect, represented by 2025, does not differ significantly between the propos ed CPP and final CPP. The first row of
the table shows that the total number of coal stea m EGUs that have the same status in both the proposed CPP and the final CPP model run is a la rge percentage of the total number of EGUs. All units projected to incur costs under the steam el ectric rule that are in both the proposed and
final CPP model runs are active. Therefore, the outcome is the same for these units in the two model runs in that they would incur the same co sts for complying with the final steam electric rule whether the proposed or fina l CPP baseline is used. Active Inactive Total Active Inactive Total Active Inactive Total

Capacity (GW) 995 121 1,116 1,015 107 1,122 2%

‐ 11% 1%

Generation (Thousand GWh) 4,062 ‐ 4,062 4,128 ‐ 4,128 2% 2%

Number of units (#) 16,111 729 16,840 17,154 950 18,104 6% 30% 8%

Number of plants (#) 6,042 396 6,438 5,261 341 5,602

‐ 13%

‐ 14%

‐ 13%

Capacity (GW) 132 44 176 128 47 174

‐ 3% 5%

‐ 1%

Generation (Thousand GWh) 829 ‐ 829 779 ‐ 779

‐ 6%

‐ 6%

Number of units (#) 305 158 463 287 165 452

‐ 6% 4%

‐ 2%

Number of unique plants (#) 97 76 173 109 68 177 12%

‐ 11% 2% Proposed CPP Final CPP (rate

‐ based)

1. Total Generating Capacity

2. Total Coal Steam Capacity AND To Be Assigned ELG Costs National

‐ level Totals [Final ‐ Proposed]/[Proposed] (in %) Projected Status as of 2025 Run Year4 Table 2: Comparison of Coal Steam EGU’s under the Proposed and Final CPP

Universe Inactive in Proposal CPP
but Active in
Final CPP (A) Active in Proposal CPP
but Inactive
in Final CPP (B) Net Inactive EGUs (Final
CPP less Proposal CPP) (B-A) Total EGUs
that match
between the
two CPP IPM runs, by
universe Net Inactive
EGUs as percentage of
Total EGUs
that match

Matching
coal steam
electric units
with steam
electric ELG

costs 41 52 11 458 2.4

Matching
coal steam
electric units 108 109 1 917 0.1

Matching
steam electric
units 159 184 25 1,498 1.7

The number of EGUs that are inactive in the pr oposed CPP baseline and active in the final CPP
baseline and vice-versa are similar. These units have similar capacities. Therefore, the net number of inactive EGUs, the second column of th e table below, is another important indicator
that it was reasonable to use the proposed CPP rather than the final CPP in the baseline for the steam electric rule analyses, in lieu of conducting a separate IPM run for th e final steam electric
rule that uses the final CPP in the baseline. As the table shows, the pe rcentage of coal steam
EGUs with different outcomes between these two possible baselines, rela tive to the number of EGUs that are present in both base lines, is less than 2.5 percent.

In sum, EPA concluded that usi ng the proposed CPP baseline in lieu of the final CPP in certain analyses for the final steam electric rule is r easonable because (1) the number of EGUs that
would incur costs under the final steam electric rule is very similar when comparing baseline conditions represented by the proposed CPP to ba seline conditions represented by the final CPP, and (2) where the populations do differ, the net numb er of EGUs that are in one baseline and not
another is small relative to th e total population of EGUs that would incur costs under the final
steam electric rule in either baseline.