The United States Environmental Protection Agency (the “EPA”) finalized amendments to the National Emission Standards for Hazardous Air Pollutants (“NESHAP”) for stationary reciprocating internal combustion engines (“RICE”) on January 14, 2013 (the “2013 RICE NESHAP amendments”).¹ To understand the significance of the 2013 RICE NESHAP amendments with respect to participation in demand response programs, background information concerning the EPA’s regulation of stationary RICE is useful.

First, stationary RICE come in two types – spark ignition (“SI”) engines, which are typically fired with natural gas, and compression ignition (“CI”) engines, which run on diesel fuel.  Both types of engine are widely used by various facilities to generate electricity and to power equipment.  In fact, the EPA estimates that there are over one million of these engines in use across the country.  These engines include those used for emergency demand response and system reliability – i.e. emergency generators.²

Second, the EPA amended the RICE NESHAP on a number of occasions in response to litigation and in an effort to widen the scope of the regulation.  For instance, when the EPA initially finalized the RICE NESHAP in 2004, and then amended it in 2008, the agency did not seek to regulate existing emergency engines located at area sources of hazardous air pollutants (“HAPs”) or which generate less than 500 horsepower (“HP”) located at major sources of HAPs.³ Rather, these engines could operate without air emissions controls for an unlimited amount of time.  However, in 2010, the EPA changed course and for the first time established requirements for existing emergency engines.  Pursuant to the 2010 RICE NESHAP, existing emergency engines were required to limit operation to a maximum of 100 hours per year.  This 100 hour annual limit included time spent running the engines for maintenance checks and readiness testing.  The 2010 RICE NESHAP also imposed a 15-hour limit for running the engines to generate power as part of a “demand response program” that was to be subtracted from the 100-hour maintenance limit.⁴ 

Soon after the 2010 RICE NESHAP was finalized, the EPA received a number of petitions for reconsideration of the 15-hour limit for emergency demand response.  Many of these petitioners were concerned that the 15-hour limit would all but prohibit participation in regional demand response programs because those programs contractually required participants to have their emergency generators available to operate for more than 15 hours in order to meet worst-case demand response considerations.

In response to these petitions, the EPA reconsidered the emergency demand response limits.  The EPA’s reconsideration took several years, involved review and consideration of over a thousand comments from various stakeholders, and ultimately resulted in the issuance of the 2013 RICE NESHAP amendments.  Under these amendments, emergency engines may operate up to 50 hours (up from 15) for emergency demand response.  Any use of an engine in this capacity will continue to count against the 100 hours per year allowed for maintenance and testing.  Moreover, the circumstances specified for emergency demand response are limited.  They include periods during which the appropriate body has declared an Energy Emergency Alert Level 2 as defined by the North American Electrical Reliability Corporation (“NERC”).⁵ They also include periods of potential voltage collapse or line overloads that could lead to the interruption of power.

Also of significance is the fact that EPA maintained its restriction on running stationary engines for peak shaving, non-emergency demand response, or to generate income for a facility to supply power to an electric grid or otherwise supply power as part of a financial arrangement with another entity.

On February 28, March 6, March 14, and March 19, 2013, the EPA will host free webinars on the RICE NESHAP as well as the New Source Performance Standards covering these engines. 

¹The final rule was recently published in the Federal Register. See 78 Fed. Reg. 6674 (Jan. 30, 2013).

²The EPA defines an “emergency stationary internal combustion engine” as one operated to provide electrical power or mechanical work during an emergency situation.  40 C.F.R. § 60.4248(1)  The EPA also defines these engines to include those which operate as part of a financial arrangement with another under certain circumstances.  40 C.F.R. § 60.4248(3).

³Area sources” of HAPs generally consist of small facilities that release lesser quantities of toxic pollutants into the air.  An area source is defined as a source that emits less than ten tons per year (“TPY”) of a single HAP, or less than 25 TPY of a combination of HAPs.  On the other hand, a "major source" is defined as a source that emits 10 TPY of any individual listed HAP, or 25 TPY of a mixture of HAPs.

⁴In general, “demand response programs” reward large electricity users for reducing consumption when electricity demand is high.  Electricity users can reduce their demand by running distributed (i.e., on-site) electricity generators (also referred to as behind-the-meter generation).  It has been the policy of the United States to encourage demand response since at least 2005 when the U.S. Energy Policy Act was enacted.  See Pub. L 109-58 (Aug. 8, 2005).

⁵According to NERC, an Alert Level 2 occurs when a Load Serving Entity has exhausted all other options and can no longer provide consumers with expected energy requirements.