Changes to EPA regulations will soon prohibit or severely restrict participation in “emergency demand response” programs for owners of standby generators.  The change will take effect on May 1, 2016.  A number of hospitals with significant investment in standby generation participate in these programs, generating substantial revenue.  Most will soon see their participation curtailed.  Demand response participants should consult their legal resources to determine what effect these changes may have on their continued participation.

EPA rules allow emergency generators to operate with limited emission controls, while requiring much tighter controls for non-emergency generators.  The distinction depends on the purposes for which the generator is operated.  An emergency generator may be operated for a limited number of prescribed purposes without extensive emission controls.  Generators operated for any other purposes are classified as “non-emergency” units, and are subject to draconian emission requirements.

Prior to 2010, a backup generator could not operate except when utility power was unavailable, and for up to 100 hours for testing and maintenance – the “zero-hour rule.”  In 2010, the regulations were amended to allow up to fifteen hours of operation for demand response programs during power system emergencies – the “fifteen-hour rule.”  In 2013, the rule was again amended to allow any portion of the allowed 100 hours for testing and maintenance to be used for emergency demand response – the “100-hour rule.”

In 2014, the State of Delaware sued the EPA in the U.S. Court of Appeals for the District of Columbia Circuit, to vacate the 100-hour rule, arguing that most of the air pollution in Delaware wafted in from neighboring states, and that operation of standby generators without emission controls brought it direct harm.  Intervenors included the Electric Power Supply Association, who argued that inexpensive backup generation under the 100-hour rule would supplant online generation, that the headroom between demand and online generation would be narrowed, and that the emergency conditions allowing use of backup generation would consequently become more frequent.

The court “reversed” the 100-hour exemption for operation of emergency engines for purposes of emergency demand response, giving the EPA until May 1, 2016 to promulgate a new rule.  It appears that the EPA will not develop a new rule for demand response.

Some issues remain unresolved:

• It isn’t clear whether the fifteen-hour rule is reinstated, or whether the 100-hour rule is simply abrogated without replacement.  If the fifteen-hour rule doesn’t come back into effect, then the regulations essentially revert to the pre-2010 zero-hour rule for demand response, and emergency generators may not participate in demand response programs.
• Demand response programs often require one or more test runs, calling for operators to activate demand response under normal conditions, with results used to evaluate the response, and to develop compensation amounts for participants.  It’s not clear that the fifteen-hour rule will allow operation for these tests, since they are performed under when the power system is not in emergency conditions.

If the legal hurdles can be surmounted, participants must carefully manage and dispatch their generating units to ensure that none exceed the fifteen-hour limit.  They must also meet substantial record-keeping requirements to attest to the compliance of their operation.

This article is not intended to provide legal advice.  Generation owners wishing to participate in demand response programs should consult their legal resources to determine what effect these changes may have.

Questions on this article should be directed to the author, Tom Divine, PE, at tdivine@ssr-inc.com.