Comment of Sierra Club under CP13-483, et. al..

 (OS _ CORP _ TAX _ RATE OS _ PLANT _ INVEST / OS _ PRJ _ LIFE) (5-19) U.S. Energy Information Administration/Oil and Gas Supply Module Documentation 5-10 The above depreciation tax credit calculation assumes straight-line depreciation over the operating life of the investment (OS_PRJ_LIFE). Discount Rate Financial Parameters The discounted cash flow algorithm uses the following financial parameters to determine the discount rate used in calculating the net present value of the discounted cash flow. Table 5-3. Discount Rate Financial Parameters Financial Parameters OSSS Variable Name Parameter Value Corporate income tax rate OS_CORP_TAX_RATE 38 percent Equity share of total facility capital OS_EQUITY_SHARE 60 percent Facility equity beta OS_EQUITY_VOL 1.8 Expected market risk premium OS_EQUITY_PREMIUM 6.5 percent Facility debt risk premium OS_DEBT_PREMIUM 0.5 percent The corporate equity beta (OS_EQUITY_VOL) is the project risk beta, not a firms volatility of stock returns relative to the stock markets volatility. Because of the technology and construction uncertainties associated with oil shale plants, the projects equity holders risk is expected to be somewhat greater than the average industry firm beta. The median beta for oil and gas field exploration service firms is about 1.65. Because a projects equity holders investment risk level is higher, the facility equity beta assumed for oil shale projects is 1.8. The expected market risk premium (OS_EQUITY_PREMIUM), which is 6.5 percent, is the expected return on market (S&P 500) over the rate of 10-year Treasury note (risk-free rate). A Monte Carlo simulation methodology was used to estimate the expected market return. Oil shale project bond ratings are expected to be in the Ba-rating range. Since the NEMS macroeconomic module endogenously determines the industrial Baa bond rates for the forecasting period, the cost of debt rates are different in each year. The debt premium (OS_DEBT_PREMIUM) adjusts the bond rating for the project from the Baa to the Ba range, which is assumed to be constant at the average historical differential over the forecasting period. Discount Rate Calculation A seminal parameter used in the calculation of the net present value of the cash flow is the discount rate. The calculation of the discount rate used in the oil shale submodule is consistent with the way the discount rate is calculated through the National Energy Modeling System. The discount rate equals the post-tax weighted average cost of capital, which is calculated in the OSSS as follows: U....