Earlier this summer, the United States Court of Appeals for the District of Columbia Circuit issued a decision granting in part and denying in part petitions for review of a final rule promulgated by the United States Environmental Protection Agency (EPA) that set operating parameters for emergency generators. Del. Dep’t of Natural Res. & Envtl. Control v. EPA, 785 F.3d 1 (D.C. Cir. 2015). The rules are titled “National Emissions Standards for Hazardous Pollutants (NESHAP) for Reciprocating Internal Combustion Engines (RICE)” and “New Source Performance Standards for Stationary Internal Combustion Engines.” See 40 C.F.R. Pt. 63, Subpt. ZZZZ (National Emission Standards); 40 C.F.R. Ch. I, Subch. C., Pt. 60, Subpt. IIII & JJJJ (Performance Standards).

In general, the RICE standards permit existing emergency generators to operate without emissions controls, as long as they adhere to certain operational restrictions. For example, generators could operate for 100 hours per year for any combination of the following:

• Maintenance or testing.
• Emergency demand response in situations when a blackout is imminent, meaning that either the reliability coordinator has declared an Energy Emergency Alert Level 2 as defined in the North American Reliability Corporation (NERC) Reliability Standard or there is a deviation of voltage or frequency of 5% or greater below standard voltage or frequency.
• Fifty hours of this 100 hours per year allocation can be used for:
  • Non-emergency situations, as long as there is no financial arrangement calling for the operation.
  • Local reliability as part of a financial arrangement with another entity if specific criteria are met (existing RICE at area sources of HAP only).
  • Peak shaving until May 3, 2014 (existing RICE at area sources of HAP only) if it is part of a peak shaving (load management) program with the local distribution system operator and the power is provided only to the facility or to support the local distribution system.

Soon after the EPA published the final rule, the Delaware Department of Natural Resources and Environmental Control challenged the regulations in United States Court of Appeals for the District of Columbia Circuit. A number of environmental groups and an industry organization intervened in support of Delaware’s challenge, while a number of trade associations and corporations intervened in support of the EPA. Delaware’s principle objection challenged the provisions of the National Emission Standards and the Performance Standards that would allow generators to run for up to 100 hours of “emergency demand-response” in situations where a blackout is imminent. The court agreed and held that the EPA’s modification of these standards “to allow backup generators to operate without emissions controls for up to 100 hours per year as part of an emergency demand-response program” was arbitrary and capricious. 785 F.3d at 10.

In overruling these provisions, the court was persuaded that the EPA’s revisions, which raised emergency demand-response operating times from 15 to 100 hours, were “radical” and unwarranted for three reasons:

1. The court found that the EPA had not adequately addressed concerns raised during the regulatory comment period that the demand-response exemption would negatively impact overall grid reliability. Those comments argued the following points:
   • Backup generators cost considerably less than conventional power plants (known as “load-serving entities”) because they are and would not be subject to the same strict and expensive pollution controls. This competitive advantage would enable these “dirtier” sources to underbid conventional power suppliers in capacity markets.
   • By permitting the increased use of backup generators, the demand for traditional power in capacity markets decreases. This forces traditional power generators to use backup generators themselves to recoup costs and to underinvest in the maintenance of existing units or the construction of new units. This chronic underinvestment would eventually undermine the reliability of the power grid.
   • As the reliability of the grid decreases, power emergencies will increase, requiring the increased use of “dirty” backup generators that will cause greater pollution.

   The court criticized the EPA for failing to adequately consider these comments, for relying on “faulty evidence” to increase the demand-response exemption and for failing to seek the input of the federal agencies responsible for maintaining the reliability of the electricity grid (i.e., FERC and NERC). According to the court, the EPA’s failure to respond to these serious objections was arbitrary and capricious.
    

2. The court criticized the EPA’s reliance on a comment submitted by a regional transmission organization — PJM Interconnection, LLC (PJM) — from a prior rulemaking in 2011. In the prior rulemaking, PJM stated that its demand-response program required engines to be available for a minimum of 60 hours per year and that the EPA’s old 15-hour exemption would not allow generator owners to meet its program requirements. In 2012, PJM submitted additional comments to clarify its position and stated that its 60-hour minimum did not apply to individual engines but allowed for aggregation of engines to meet the availability requirement. The court found the EPA either “intentionally discounted” PJM’s 2012 comments or confused PJM’s later comments with those submitted in 2011. Either way, the court reasoned that the EPA’s actions were arbitrary and capricious.
    
3. The court found that the EPA had not adequately responded to comments that the 100-hour exemption should be limited to areas of the country that were not served by capacity markets. According to the court, the EPA had brushed off these comments and provided only cursory justification dressed as a “vague desire for uniformity.” This manner of addressing this comment “too cavalierly sidestepped its responsibility to address reasonable alternatives” and was again arbitrary and capricious.

After performing this analysis, the court reversed and remanded the rules containing the 100-hour exemption for emergency generators under the National Emission Standards and the Performance Standards. However, the court left the remainder of the 2013 rule in effect.

The saga does not end with the court’s remand. Other provisions of the rule were also challenged — namely, the 50-hour exemption for non-emergency use. The EPA sought from the court and, on August 14, 2015, was granted until May 1, 2016, to conduct an administrative review of the 50-hour exemption. Some estimate that there are more than 12 million emergency generators. Thus, the court’s decision, the impending mandate, and the EPA’s reconsideration of its exemptions will have a far reaching impact on the operation of these units.