Don Foreman writes:

Could a regulator delivering a couple of HP worth of air be
dissipating a significant fraction of an HP as heat?

It has to. You can regulate any flow down to arbitrarily close to 0 psig,
like a big sintered diffuser. All the energy is spent.

Remember, besides delivering work to the tool or heat to the regulator (or
regulator output if you like), expanding air also does work against the
atmosphere. When you compress free air, you shrink the Earth's atmosphere
(!) by that much, and blow it up again when you expand.