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February 29, 2012 

Michael Horowitz 

Office of the General Counsel 

Air and Radiation Law Office 

U.S Environmental Protection Agency 

Ariel Rios Building 

1200 Pennsylvania Avenue, N.W. – Mail Code 2344A 

Washington, D.C. 20460 

RE: EnerNOC et al Review of Comments Filed on Proposed Settlement Agreement 

Dear Mr. Horowitz: 

EnergyConnect, Inc., EnerNOC, Inc., and Innoventive Power, LLC (collectively the 

“Companies”) signed a Settlement Agreement with the U.S. Environmental Protection Agency 

(“EPA” or the “Agency”), resolving the Companies’ lawsuit against the Agency challenging the 

National Emissions Standards for Hazardous Air Pollutants for Reciprocating Internal 

Combustion Engines (the “RICE NESHAP”) in the United States Court of Appeals for the 

District of Columbia Circuit: EnerNOC, et al v. EPA, No. 10-1090 (DC Cir.) and EnerNOC, et 

al v. EPA, No. 10-1336 (DC Cir.). As required by Section 113(g) of the Clean Air Act, EPA 

solicited public comment on the Settlement Agreement by notice in the Federal Register on 

January 4, 2012. Under the terms of the proposed Settlement Agreement, by April 20, 2012 

EPA will sign a notice of proposed rulemaking that includes a proposal to revise the RICE 

NESHAP and the stationary internal combustion engine new source performance standards 

(“ICE NSPS”) to allow owners and operators of emergency stationary internal combustion 

engines (“ICE” or “Engines”) to operate emergency stationary ICE in emergency conditions, as 

defined in those regulations, as part of an emergency demand response (“DR”) program for 60 

hours per year or the minimum hours required by Independent System Operator tariff, whichever 

is less. The notice of proposed rulemaking may also allow for more hours of operation. 

The Companies appreciate the time EPA has taken to understand the importance of 

emergency DR to the integrity of the electric grid in the United States. The Companies fully 

support the entire proposed Settlement Agreement and urge EPA to finalize it. The Companies 

further look forward to the proposed rulemaking by EPA in April, 2012. The Companies have 

also reviewed all of the comments submitted in favor and against the proposed Settlement 

Agreement, and offer this analysis of those comments. 
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Commenters Supporting the Settlement Agreement 

Forty-two entities submitted comments on the Settlement Agreement. Thirty-one of 

these support the Settlement Agreement, with many commenters asking for more flexibility than 

what is in the Agreement. 

 Twenty three Electric Cooperatives support the Settlement Agreement with many 

asking for 100 hours per year for emergency DR, testing/maintenance, and also 

they would like to expand the settlement beyond emergency DR to include peak 

shaving; 

 Progress Energy and Florida Power and Light (“FPL”) support the Settlement 

Agreement, but request that emergency DR operation be considered emergency 

operation with no annual hour limits; 

 The Midwest Independent System Operator (“MISO”) confirms that the current 

15 hour per year limit is not sufficient and supports the proposed Settlement 

Agreement terms; 

 The State of Maryland Department of the Environment (“MDE”) notes that 

emergency DR programs protect public health and safety and supports the 

Settlement Agreement; 

 Four trade Associations, the Edison Electric Institute (“EEI”), American Public 

Power Association (“APPA”), the National Rural Electric Cooperative 

Association (“NRECA”), and the American Coatings Association (“ACA”) 

support the Settlement Agreement and in some cases request even more 

flexibility. For example, NRECA requests up to 100 hours per year and requests 

that peak shaving be allowed within that 100 hours and EEI believes the 

minimum should be 100 or even 120 hours per year. 

Commenters Opposing the Settlement Agreement 

Eleven entities did not support the Settlement Agreement. Of these eleven, five are from 

generators (PSEG, Calpine, GenON Energy) and their trade associations (EPSA, and PJM Power 

Providers) (“the generators and their trade associations”). The other six are from two states 

(Delaware and New Jersey), the American Lung Association (both the National Headquarters 

and the Mid Atlantic Office), the Clean Air Council, and the Independent Market Monitor 

(“IMM”) for PJM (collectively, the “Adverse Commenters”). 

The generators and their trade associations, along with IMM, claim that the settlement 

agreement does nothing to promote the reliability of the electric grid; will distort competition in 

the nation’s energy markets; will result in adverse environmental impacts; and will stifle the 
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development of cleaner generation sources. Delaware and its supporters claim the settlement 

agreement will result in adverse environmental impacts. As discussed below, none of these 

arguments has any merit. Accordingly, EPA should reject these comments and finalize the 

settlement agreement. 

Summary of Responses to Arguments Made by Adverse Commenters 

As set forth below, the Parties offer the following responses to the arguments made by the 

Adverse Commenters: 

The Proposed Settlement Promotes Reliability

o ISOs and Utilities Responsible for Grid Reliability Support the Settlement and 

Demonstrate that the Existing 15 Hour Emergency DR Limit is not Sufficient 

o Emergency Generators Can ONLY be Dispatched by the Grid Operator, and 

Strict Sequencing of Dispatch Rules Must be Followed

Emergency DR Programs Benefit the Environment

o Emergency DR is Rarely Used and That is Likely to be the Case in the Future as 

Well

o There is No Correlation Between High Ozone Days and Emergency DR 

o States Support the Use of Engines for Emergency DR Primarily Because 

Occasional Use of Emergency DR is Superior to Having All Emergency 

Generators Run in the Event of a Blackout

o Emergency Engines Have Environmental Benefits Compared to Central Station 

Generation

o The Proposed Settlement is Not a Departure from EPA Policy

The Proposed Settlement Does Not Stifle the Development of Cleaner Generation Sources

o Most of the Generator Complaints are About Market Structure Issues in PJM, and 

are thus in the Jurisdiction of PJM and FERC – EPA Should Disregard Them 

o This Settlement Cannot Affect Wholesale Energy Markets 

o Emergency DR Has Contributed to Lower Prices in Capacity Markets But that is 

a Good Thing and Should Not Prevent EPA from Going Forward with the 

Settlement 

o Emergency DR Has Not Prevented the Growth of Renewable Energy 

Discussion 

The Proposed Settlement Promotes Reliability
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ISOs and Utilities Responsible for Grid Reliability Support the Settlement and 

Demonstrate that the Existing 15 Hour Emergency DR Limit is not Sufficient 

The generators and their trade associations claim that the current 15 hour limit for 

emergency DR in the NESHAP is sufficient and that there is no justification for the increase 

proposed in the Settlement Agreement1

. This claim has no foundation. As noted by PJM 

Interconnection, L.L.C. (“PJM”) in their February, 2011 letter to the NESHAP docket (see 

Attachment 1 for EPA-HQ-OAR-2008-0708-813.1): 

The proposed EPA 15-hour limit on RICE units runs contrary to the minimum 

PJM requirement that demand response resources must be available to reduce 

load a minimum of 60 hours per year. The 60 hour minimum, which is 

incorporated into the PJM tariff, recognizes that for a resource to be useful to PJM 

in emergency conditions over a year, a minimum of 60 hours of availability is 

essential. This does not mean that a CSP could not put together a combination of 

RICE units to meet the 60 hour requirement. That alternative, however, creates 

management and administrative challenges for the CSP and complicates 

compliance for the CSP and measurement and verifications for both PJM and the 

EPA. This outcome in turn frustrates the intent of the EPA’s regulation, which is 

to recognize that running such units in emergencies is justified as an exception to 

the emissions control requirements otherwise directed by the RICE rules. 

In addition, Craig Glazer, Vice President – Federal Government Policy for PJM --

testified at the EPA Public Meeting on the RICE NESHAP reconsideration (see Attachment 2 

for EPA-HQ-OAR-2008-0708-0699 ). EPA summarized his comments as follows: 

The 15-hour limit is insufficient and precludes engines from being considered 

emergency generators under PJM, which requires a unit to be available to 

operate for at least 60 hours; and regarding what role these RICE units play in 

emergency demand response from PJM’s perspective, Mr. Glazer explained 

that these units are “behind the meter” and that the RTO simply expects that 

the system can deliver a certain voltage. As such, the RICE units should 

remain in the system’s demand response portfolio. 

According to Mr. Glazer, the 15 hours limit in the rule knocks out engines to 

be able to be used because 60 hours per year is the minimum number of hours 

required to be considered an emergency resource for purposes of PJM. 

According to Mr. Glazier, if any engine is restricted to operate for a maximum 

                                                           

1 PSEG Comments, p. 4
5

of 15 hours, PJM would not even recognize the engines as having any value, 

because planning and dispatch is complicated and time-consuming, and it is 

not worth counting an engine as an emergency resource unless that engine can 

operate for a certain number of hours. The engine could not be utilized and 

furthermore the 15 hours does not match with the Independent System 

Operator-New England (ISO-NE) requirements or PJM requirements. Thus 

the engine could not qualify for an emergency and Mr. Glazer underscored 

that the allowed number of hours is too short. Mr. Glazer pointed out, 

however, that the number of times emergencies are declared is very few. 

In addition, the Midwest Independent Transmission System Operator, Inc. (“MISO”) also 

agreed that 15 hours is insufficient to maintain reliability, and MISO therefore supports the 

Settlement Agreement. (see Attachment 3 for EPA-HQ-OGC-2011-1030-012) MISO stated: 

[I]nternal combustion engines that seek to be qualified as Demand Resources 

within the Midwest ISO Region must be capable of being operated for a total of at 

least 20 hours per Planning Year. Other RTO/ISOs have similar operational 

requirements for emergency capacity resources.... MISO respectfully requests 

that EPA also recognize the importance of balancing environmental concerns with 

the need to maintain electric grid system reliability during emergency conditions 

by using appropriate and consistent reliability standards for emergency stationary 

internal combustion engines. 

Outside of the parts of the country that are covered by organized wholesale 

markets such as PJM and MISO, vertically integrated utilities have the responsibility for 

maintaining voltage, frequency and preventing outages. Two such utilities, Progress 

Energy and FPL both support this Settlement, and both request even more hours beyond 

the 60 hours contemplated in the Settlement. 

FPL states: 

It is critical that utilities be permitted to use emergency DR resources to maintain 

grid reliability under any conditions.2

Progress Energy states: 

The Standby Generator Program (SBG) is activated to reduce the load on the bulk 

electric system to a level that can be safely maintained until either system load 

diminishes or additional resources can be made available. The program supports 

                                                           

2 FPL comments, p. 1.
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our compliance with the North American Reliability Corporation’s (NERC) 

Emergency Operations Planning standards (EOP) (NERC Standard EOP-002)3. 

What is telling about the support of companies like FPL and Progress Energy is that like 

the generators who oppose the settlement, they too own and operate fleets of large, 

central station power plants. However, unlike the generators who oppose the settlement 

these utilities also have responsibility for maintaining system reliability and they 

recognize that emergency generators used in an emergency DR program are an important 

tool to maintaining reliability. For all of these reasons, EPA should reject the claims 

made by the generators and their trade associations regarding the alleged sufficiency of 

15 hours of emergency DR. 

Emergency Generators Can ONLY be Dispatched by the Grid Operator, and Strict 

Sequencing of Dispatch Rules Must be Followed

A critical flaw in the arguments raised by the Adverse Commenters is that they fail to 

understand or admit that the EPA Settlement Agreement applies only to engines operating in 

emergency DR programs. Many of the concerns they raise or allegations they make conflate 

emergency DR with other forms of DR based on the price of energy. The RICE NESHAP 

defines emergency DR as when “the regional transmission organization or equivalent balancing 

authority and transmission operator has determined there are emergency conditions that could 

lead to a potential electrical blackout, such as unusually low frequency, equipment overload, 

capacity or energy deficiency, or unacceptable voltage level.” 40 C.F.R. §63.6640(f)(4); 75 Fed. 

Reg. at 9677. The Adverse Commenters label this generator use as behind the meter (“BTM”) 

and then make unfounded comments that the use of emergency DR does not provide any 

reliability benefits to the grid. The comments of utilities and system operators, above, clearly 

refute this notion. 

The Adverse Commenters refuse to acknowledge that only ISOs, or utilities with 

responsibility for maintaining the grid (also known as “Balancing Authorities”), may activate 

emergency DR, typically using North American Electric Reliability Council (“NERC”) 

procedures under Energy Emergency Alert Level 2 (EEA Alert 2) procedures. EEA Alert 2 

includes demand-side management along with public appeals to reduce demand, voltage 

reductions, interruption of non-firm end-use loads in accordance with applicable contracts, and 

utility load conservation measures. Emergency DR is only called when a Balancing Authority 

determines that projected energy from generation is, or is expected to be, insufficient to meet 

demand plus prudent operating reserves; the next step is brownouts and blackouts (in fact, ISO 

New England dispatches emergency DR using emergency generators concurrently with the start 

of voltage reductions). The key feature here is that neither the emergency generator owner, nor 

                                                           

3 Progress Energy comments, p. 1.
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its agents, can decide when to operate emergency DR. Only the entity responsible for 

maintaining system reliability and integrity can make the decision. For example, Attachment 4 

from the PJM Manual 13 Emergency Operations; shows graphically the emergency operations 

sequence. 

One of the generators erroneously claims that a “Maximum Generation” emergency event 

was never called in PJM on July 22, 2011; implying that emergency DR is preventing generators 

from operating4

. This is incorrect. As shown in Attachment 5 which is from the PJM’s 

Emergency Message records, a Maximum Generation Action was called for PJM’s Mid-Atlantic 

Region, Duquesne and BGE on July 22, 2011 at 1151, 1153 and 1147 respectively. This 

preceded the requested Emergency DR loading time of 1200 (Emergency DR is known in PJM 

as Emergency Load Management Program or ELRP). We also note that a NERC Emergency 

Action Level 2 (EEA 2) was called at 1007. 

Emergency DR Programs Benefit the Environment

Emergency DR is Rarely Used and That is Likely to be the Case in the Future as Well

For the reasons stated in the section above, emergency DR is rarely dispatched. Some of 

the generators claim that emergency DR dispatches will become more common in the future. 

This claim is entirely speculative and is refuted by the record. In fact, as noted by PJM’s 

February, 2011 comment letter to EPA (see Attachment 1): 

PJM planners model contingency conditions when developing the mandatory Load 

Management requirements in order to ensure compliance with the loss of load probability 

planning standard of 1 day in 10 years. As a result, the number of such emergency calls 

has been limited. Load Management resources (formerly known as Active Load 

Management or ALM) have only been called by PJM 35 times since the inception of 

ALM in 1991. It is important to note that many of these Load Management calls 

involved only a part of the PJM region and/or lasted for fewer than 6 hours. As a result, 

should EPA tie the definition of emergency to the system operator protocols, based on a 

large number of historical data it should not be concerned that the occurrences will be 

frequent or long-lasting. 

In Texas, there have only been two emergency DR events under the Emergency 

Interruptible Load Service (“EILS”) Program since program inception in 2008. In New England, 

since the emergency DR Program has been implemented, the use of emergency engines in 

emergency DR has only been called three times in all of New England. The only system wide 

call was on August 2, 2006 for a total of 3.75 hours5

. 

                                                           

4 PSEG Comments, p. 7 PSEG apparently failed to properly filter the Message Types for their screen shot and

omitted the “Max Emerg Gen Action Trans” message 5 http://www.iso‐ne.com/sys_ops/op4_action_archiv/2006/index.html
8

 

The first and most important responsibility of a Balancing Authority, to which all other 

considerations must defer, is the continuing reliability of the electric system. NERC emergencies 

are to be avoided at all costs. The notion that PJM, or any other Balancing Authority is going to 

allow emergencies to become more frequent, in effect, abdicating its responsibility to maintain 

reliability, is highly speculative and does such entities a disservice. EPA should not base its 

policy decisions on the assumptions that Balancing Authorities will be derelict in the fulfillment 

of their duties. 

Even though these resources have historically been rarely called, and even though the 

grid operators are the only ones who can dispatch them and they are constrained by reliability 

rules, the generators continue to claim that the settlement agreement will increase the incidence 

of these emergency DR dispatches. As mentioned above, it is unlikely that such dispatches will 

increase in the future, but this proposed settlement, which reduces the number of hours 

emergency generators can operate from the current unlimited level to a maximum of 60 hours 

cannot possibly be the cause of such an increase. Emergency events may increase due to factors 

outside the control of Balancing Authorities, such as excessive, unplanned generator outages and 

failures like those that imperiled the Texas grid last year, but far from worsening the situation, 

the settlement agreement will assure that system operators will have more resources to help 

correct the system than would otherwise be the case. 

One factor that contributes to the fallacious logic of the generators is that they believe 

that the Settlement Agreement is a 300 percent increase in operating hours from the existing 

regulation’s 15 hours.6

 This is wrong on two counts. First, the Settlement Agreement 

judiciously allows for the lesser of 60 hours or the minimum number of hours required by the 

Independent System Operator tariff. MISO indicates in its comments that it requires a minimum 

of 20 hours for reliability purposes.7

 ERCOT, the ISO for Texas, requires an emergency DR 

resource to be available for 8 hours in a 4 month period or a total of 24 hours per year. The 

generators conveniently ignore this part of the settlement and their rhetoric only references the 

60 hour maximum. 

Second, the current status quo is no nationwide restriction on hours of operation for 

emergency DR purposes. The new hour restrictions, whether 15 or up to 60 hours, would not go 

into effect until mid-2013. Therefore, the allegations of increased use of emergency DR due to 

increased hours contained in the settlement agreement are logically false. In actuality, if the 

settlement agreement is approved, it would still represent a reduction in permissible hours 

compared to the status quo ante. As the companies have repeatedly demonstrated, the use of 

emergency DR has been exceedingly rare in the past with no restrictions on hourly usage. There 

                                                           

6 PSEG Comments, p. 9 7 MISO Comments, p. 2
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is no reason to assume that adding restrictions on annual operations will lead to increased 

dispatch of emergency DR by system operators. 

There is No Correlation Between High Ozone Days and Emergency DR 

In their comments on the settlement numerous Adverse Commenters allege that 

emergency DR is dispatched by the ISOs on days of high ozone, thereby implying that the use of 

emergency generators will increase the number of ozone exceedance days8

. However, in its 

comments submitted to EPA in February, 2011, the Companies submitted a detailed analysis 

entitled “Analysis of Emergency DR and Ozone Concentrations,” in which we demonstrated that 

there is no correlation between emergency DR and ozone exceedance days. Although some 

emergency DR events are called during high ozone days, many DR events occur on non-ozone 

exceedance days and many more days have ozone alerts but no DR events. The data does not 

show that the use of emergency engines during the DR events causes high ozone, particularly 

since in many instances the ozone concentrations are as high or higher on the days preceding an 

event. For the 2010 PJM ozone analysis, preliminary ozone data were used for monitoring 

stations in Maryland. That data base has now been finalized so an addendum to the original 

analysis is attached (see Attachment 6). In addition, corrections to some of the 2010 PJM 

emergency DR dates have been made. The results have not changed from the original analysis. 

No data has been introduced into the record that refutes this analysis. 

 Finally, Delaware in its comments references a technical paper entitled “Using Backup 

Generators for meeting Peak Electricity Demand: A Sensitivity Analysis for Emission Controls, 

Location and Health Endpoints” (Gilmore, Adams & Lave, 2010)9

. Unfortunately, Delaware 

once again does not differentiate between emergency and non-emergency DR. The referenced 

paper analyzes the use of generators for non-emergency DR e.g., economic peak shaving. Such 

operation would not be permitted under the settlement agreement. 

States Support the Use of Engines for Emergency DR Primarily Because Occasional 

Use of Emergency DR is Superior to Having All Emergency Generators Run in the 

Event of a Blackout

Delaware and its supporters claim that emergency DR is bad for the environment. 

Numerous states disagree with this assertion. The following states either amended their existing 

regulations (denoted by an *) to allow emergency engines to participate in emergency DR 

programs or allow its use under existing air regulations: Maryland*, Virginia*, Pennsylvania, 

Ohio*, West Virginia, Indiana, Illinois, New York, Texas, Florida, Connecticut*, 

Massachusetts*, New Hampshire*, Vermont*, and Maine. None of these states would have gone 

through the extensive effort required to amend their regulations or allowed use under existing 

                                                           

8 American Lung Association, p. 4; American Lung Association Mid Atlantic, p. 1 9 Delaware Comments, p. 8‐9
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regulations if the use of engines in emergency DR was found harmful to the environment. These 

states, unlike Delaware, understand the importance of having a subset of generators available for 

a short time to avoid losing the electric grid rather than waiting for the electric grid to be lost, 

thereby causing enormous environmental and health and safety damage, to say nothing of the 

operation of every emergency engine in the affected region. There are other states that endorse 

the use of emergency engines for emergency DR, but the Parties do not operate emergency 

engines in emergency DR programs in those other states. 

The Maryland Department of the Environment (“MDE”) summarized the position of the 

majority of states in its comment letter to the settlement docket (see Attachment 7 EPA-HQOGC-2011-1030-0020): 

The Department supports the emergency demand response restriction increase to 

60 hours per year contained in the Proposed Settlement Agreement. This is a 

welcome change to the 15 hour restriction in the current Final Rule, which may 

prevent emergency engines from participating in emergency demand response 

(DR) programs. .... Specifically, the Department believes that emergency DR 

programs protect public health and safety by calling into action emergency 

generators to help meet energy demands when the main electrical grid is disrupted 

or when brown outs are imminent. The Final Rule, as codified in 40 CFR Part 63, 

§§63.6580 to 63.6675, appropriately explains emergency DR as necessary when 

“the regional transmission organization or equivalent balancing authority and 

transmission operator has determined there are emergency conditions that could 

lead to a potential electrical blackout, such as unusually low frequency, 

equipment overload, capacity or energy deficiency, or unacceptable voltage 

level.” The current 15 hours per year maximum on emergency DR use in the 

Final Rule, however, may prevent emergency engines from participating in 

emergency DR programs since the engines may not be able to meet RTO tariff 

requirements that specify minimum hours of availability to participate. 

The Florida Department of Environmental Protection (“FDEP”) in its comments to EPA 

filed in the NESHAP docket dated February 9, 2011 (see Attachment 8 EPA-HQ-OAR-2008-

0708.0719.1) fully supports the increase of hours for emergency DR: 

[t]he FDEP feels that the use of emergency RICE under the oversight of a demand 

response program is a beneficial use that should be allowed without additional 

constraints. 

Under the demand response program, these emergency RICE are only allowed to 

be called upon when the regional transmission organization or equivalent 
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balancing authority and transmission operator have determined there are 

emergency conditions that could lead to a potential electrical blackout, such as 

unusually low frequency, equipment overload, capacity or energy deficiency, or 

unacceptable voltage level. If the grid fails, every emergency generator in the 

area will likely operate for many hours or days until the electric grid is restored, 

while those without an emergency generator are left completely without power. 

Allowing some of these emergency RICE to be called upon in order to stabilize 

the grid and prevent a massive outage would result in much less environmental 

impact than if all emergency engines were operated in response to the loss of the 

grid. 

The Texas Commission on Environmental Quality (“TCEQ”) proposed unlimited hours 

for emergency DR in its comments to EPA filed in the NESHAP docket (see Attachment 9 EPAHQ-OAR-2008-0708.0764.2): 

The TCEQ also agrees with the petitioners’ assertion that emergency demand 

response programs provide an environmental benefit. Selected and limited 

operation of emergency generators to avert a blackout is preferable to the possible 

operation of thousands of generators if a blackout occurs. The 15 hours allowed 

by the final rule may not provide adequate flexibility for emergency demand 

response programs. 

The TCEQ considers the operation of engines in response to an officially declared 

emergency by the regional transmission authority to be emergency operation. .... 

While the 60 hours proposed by the petitioners may appear reasonable based on 

historical operation, future demand operation for emergency purposes may not be 

reliably predicted. Therefore, TCEQ suggests that the EPA revise the rule to 

specify that operation of an engine under an emergency demand response 

program is considered emergency operation and not subject to hourly limitations 

as provided by 40 CFR §63.6640(f)(1)(i) provided that the operation is in direct 

response to an official energy emergency declared by the regional transmission or 

balancing authority. 

Emergency Engines Have Environmental Benefits Compared to Central Station 

Generation

In an EPA sponsored study entitled “Modeling Demand Response and Air Emissions in 

New England” prepared by Synapse Energy Economics, Inc. (the “EPA DR Study”), the authors 

found that by having available quick-start capacity to handle emergency conditions on the 

electric grid, there would be less reliance on old, dirty power plants that have to run at 50% load 
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or higher all the time so that they can be available when needed (e.g., these are called spinning 

reserves in New England). The EPA DR Study found that even if one assumes that all DR is 

from diesel-fired generators, there is a net benefit in air quality because having quick start 

resources available, such as emergency DR, whether or not those resources are ever called, 

causes less reliance on spinning reserves. This is a huge benefit to air quality. The best analogy 

we can think of is this – relying solely on spinning reserves is like having a taxi running outside 

your house 24/7 for the one or two times a week you need it. 

PSEG in its comments criticizes this report for several spurious reasons.10 First, PSEG 

criticizes the report for only modeling the use of emergency generators for limited hours (90 

hours per year) despite the fact that this regulation will limit such generators to 60 hours or less. 

The criticism then alleges that the study does not take into account an increase in allowable hours 

by “a multiple of four”. In fact, as described above, this settlement, if approved, would actually 

reduce the number of hours that are allowable compared to when the study was done because 

previously there were no national level limit on hours of operation. The study is not perfect, but 

it is the best one available and it correctly modeled a limited number of hours that is similar to 

what is proposed in this settlement. 

Emergency generators have other environmental and economic benefits that are not available to 

central station power plants. They already exist. Virtually all generators that participate in 

emergency DR previously existed because their owners needed a way to ensure electric supply in 

the event of a grid emergency. In the experience of the Companies, commercial and industrial 

customers do not go out and install generators so they can participate in emergency DR. They 

participate in emergency DR if they already have an emergency generator. The alternative of 

building new central station power plants raises siting problems, habitat disruption and 

environmental impacts from major construction. 

The Proposed Settlement is Not a Departure from EPA Policy

The proposed settlement agreement is not a departure from EPA policy. Indeed, in the 

existing rule, EPA crafted the following flexibility for emergency generators – there is no time 

limit on the use of emergency generators in emergency situations; emergency generators may be 

used for up to 100 hours for maintenance checks and readiness testing, provided the tests are 

recommended by the government or the manufacturer or insurer; and emergency generators may 

be used for up to 50 hours in non-emergency situations. 40 CFR 63.6640(f). In addition, the 

Settlement Agreement will bring the RICE NESHAP and ICE NSPS in line with another final 

EPA regulation that allows for the use of emergency engines in emergency DR programs. In 

EPA’s Mandatory Reporting of Greenhouse Gases; Final Rule (40 CFR Part 86 et seq.), 

emergency generator is defined as “[a]n emergency generator operates only during emergency 

                                                           

10 PSEG Comments, pp.8‐9.
13

situations, for training of personnel under simulated emergency conditions, as part of emergency 

DR procedures, or for standard performance testing procedures as required by law or by the 

generator manufacturer.” 40 CFR § 98.6, published in the Federal Register at 74 Fed. Reg. 

56,387 (October 30, 2009) (emphasis added). In fact, this final regulation does not even restrict 

the number of hours that generators can participate in emergency DR programs as the Settlement 

Agreement does. 

The Proposed Settlement Does Not Stifle the Development of Cleaner Generation Resources

Most of the Generator Complaints are About Market Structure Issues in PJM, and 

are thus in the Jurisdiction of PJM and FERC – EPA Should Disregard Them 

The generators, their trade associations and the IMM make various claims that by 

implementing this settlement EPA will distort both energy and capacity markets and thereby 

stifle the construction of new, cleaner generation. However, upon closer examination, most of 

these claims stem from policy disagreements with the structure of these markets, policy 

determinations that are within the purview of the organized wholesale markets (i.e. the 

ISO/RTOs that cover a portion of the country) and the Federal Energy Regulatory Commission 

(“FERC”) which regulates the ISO/RTOs. These disagreements range from how DR resources 

should be compensated for providing energy (the subject of FERC Order 745 which has been 

upheld by FERC multiple times), the types of capacity products that one can bid on in PJM (the 

subject of PJM tariffs approved by FERC11 ) and what terms and requirements demand side 

resources generally must be able to meet in order to participate in organized markets. 

A clear example of this attempt to re-litigate settled issues is contained in the comments 

of the PJM IMM. They state, 

The result of the increased role played by limited DR product is to suppress the price in 

the PJM capacity markets below the competitive level, which, among other things, 

reduces the ability of other generating units to pay for environmental upgrades based on 

EPA requirements. The limited DR product would also displace generating units that are 

required to be available every day of the year. The Market Monitor has recommended 

that the limited DR product be eliminated from the capacity market.12 (italics added) 

The “limited DR product” referenced by the IMM is a new innovation that PJM created and 

FERC approved. Instead of having only one capacity product in their market they have created 

three. The limited DR product is much like the traditional DR product in the past which requires 

a resource to be available up to 60 hours during the summer months. However, in order to create 

a higher value product that represents the unique value that generators can provide year round, 

                                                           

11 ER11-2288, 134 FERC ¶ 61,066 12 PJM IMM Comments, p. 3.
14

PJM also created an unlimited product that presumably will be priced higher because of its wider 

availability. This new product structure is supposed to provide higher pricing signals to 

incentivize generators to enter the market. Despite this shift in PJM toward differential 

incentives for generators, the IMM had recommended that the limited DR product be eliminated 

altogether, as stated in their comments above. PJM and FERC did not agree with the IMM and 

instead kept the limited DR product, presumably because they felt it had value in reliability 

and/or market structure. The point is not to debate the wisdom of these outcomes but rather to 

point out that the IMM lost in its attempt to get PJM and FERC to accept its view. Now the IMM 

is trying to get EPA to overturn those other agencies in a matter that is rightly within the purview 

of those agencies. 

EPA should let the ISO/RTOs and FERC make the determinations as to what is needed 

both for reliability and for economic efficiency in their markets and not let the generators relitigate those issues here. In addition, the proposed Settlement would affect generators 

throughout the country, not just in the organized wholesale markets, so EPA should consider the 

bigger picture, not just the views of disgruntled market participants in the organized markets. 

Conceivably, EPA might wish to enmesh itself in the intricacies of wholesale market 

design if PJM’s and FERC’s actions were imperiling the environment, but fortunately they are 

not. While it is true that the emissions from emergency generators are typically higher than those 

of the new and existing facilities operated by the generators, it is also true that emergency 

generators providing capacity as emergency DR resources can be expected to operate for far less 

than 60 hours per year while the generators are likely to run for thousands of hours per year. 

This Settlement Cannot Affect Wholesale Energy Markets 

The generators claim that approving this Settlement will do harm to both the energy and 

capacity markets by reducing prices, thereby reducing their profits and incentive to build new 

generation. However, this Settlement cannot affect prices in energy markets. 

Economic DR is a miniscule portion of the energy marketplace. In PJM, widely 

considered the ISO with the most robust DR activity, economic DR delivered just 17,388 MWh 

of response in all of 2011.13 This represents just 2.2 one thousandths of a percent (0.0022%) of 

the 794,000,000 MWh of energy demand in PJM last year14. It is almost laughable that this 

amount of DR, or 10 times this amount of DR, could distort energy prices. 

                                                           

13 http://www.pjm.com/markets‐and‐operations/demand‐response/~/media/markets‐ops/dsr/2011‐dsr‐activity‐

report‐updated‐20120209.ashx 14 PJM fact sheet.  http://www.pjm.com/documents/~/media/about‐pjm/newsroom/fact‐sheets/pjm‐

statistics.ashx
15

Even in limited hours where, due to high demand and scarce resources, small amounts of 

supply or curtailment can have significant impact on energy prices, the FERC in Order 719, has 

directed organized markets to implement “scarcity pricing” rules to minimize price distortions. 

These rules are intended to insure that energy prices remain high in the face of increasing 

demand – even demand met by voluntary (or mandatory) load curtailments. 

Finally, this settlement only applies to emergency generators participating in emergency 

DR capacity programs or markets. By participating in an energy market, the DR participant 

would be participating in an economic DR activity and, as such, would be subject to installing 

the non-emergency controls required by the NESHAP, and not subject to the limited exemption 

contemplated by this settlement. 

Emergency DR Has Contributed to Lower Prices in Capacity Markets But that is a 

Good Thing and Should Not Prevent EPA from Going Forward with the Settlement 

EPSA claims that the settlement will distort the “Nation’s Energy Markets” but cites only 

PJM’s capacity market. EPSA expresses concern that the settlement would “allow BTM (behind 

the meter) generators to squeeze traditional generators out of the market, and could also result in 

suppressed prices.” This statement shows clearly that the generators and their trade associations 

are primarily interested in higher capacity prices at the expense of consumers. Whether lower 

capacity prices resulting from emergency generators participating in PJM capacity auctions are 

“suppressed” or simply “reasonable” is, of course, a matter of perspective. The PJM Capacity 

Market model, and similar mechanisms elsewhere, were designed to encourage reliability from a 

number of sources, including emergency DR. It cannot be concluded that DR participation, even 

through use of emergency generators, somehow “distorts the market” merely by participating. 

Capacity prices are unquestionably lower than would have been the case without such 

participation, but it is unclear why anyone would term this a “distortion.” 

The final arbiter on that question is the FERC, and they have repeatedly supported greater 

participation of DR in capacity markets in different proceedings precisely because of this benefit 

to consumers. And, if the balance swings too far in one direction or the other, FERC also has the 

authority to redress that imbalance. 

Going forward in PJM, emergency DR will no longer compete with generation in 

capacity markets because, as noted above, PJM has created three capacity products. Emergency 

DR will only be able to bid into the Limited Capacity product while generation can bid into the 

Unlimited Capacity product. So, going forward emergency DR will not compete against 

generation in the PJM capacity markets and therefore will not be reducing the price for 

generation capacity. 
16

Also, it is important to remember that the proposed Settlement represents a reduction in 

allowed hours of operation in emergency operation from the status quo ante of unlimited hours 

to 60 hours per year or far less in most circumstances. Therefore, this settlement by itself will 

not lead to an increase of DR in capacity markets and therefore will not further reduce capacity 

prices.

 

Emergency DR Has Not Prevented the Growth of Renewable Energy 

Many factors have the potential to drive or inhibit the growth of renewable energy, 

including’ but not limited to state renewable portfolio standards, investment and production tax 

credits, and natural gas prices that reduce the costs of competing energy. The claim that 

emergency DR engines will somehow stunt the growth of renewable resources is unfounded. 

For example, in PJM, where DR has grown faster than anywhere else, renewable energy 

resources are growing at an equally furious pace. Figure 1 below illustrates the amount of MW 

of demand response and renewable capacity that has cleared in the last three Base Residual 

Auctions for the PJM Capacity Market. While we are not arguing causation between the two, 

judging by this graph and these numbers, it is difficult to conclude that renewable energy growth 

in PJM has been slowed by demand response. 

Over the last two auctions in PJM, 1341 MW of renewable resources were offered into 

the auction, and all 1341 MW cleared the auction. It is not our intent to scrutinize the specifics of 

PJM auction rules or results, but clearly neither demand response nor any other resource for that 

matter have prevented renewable energy from securing a commitment in the PJM Capacity 

Market. If states or utilities wished to build renewable energy as part of their Renewable 

Portfolio Standard (“RPS”) goals, as several states have, it would clear the auction regardless of 

demand response participation. Also, as long as it is available, renewable energy will always be 

dispatched by system operators before emergency DR engines.15 

Nationally, the trend is the same. According to the EIA, renewable energy production 

soared from 5 Billion BTUs in 2001 to 8 billion BTUs in 2010, a 56% increase over the same 

time period in which demand response participation has also dramatically increased.16 Again, no 

causation can be argued, but there is certainly no evidence of DR suppressing the growth of 

renewable generation outside of PJM either. 

                                                           

15 PJM Base Residual Auction Results: 2012‐2015

16 http://www.eia.gov/energy_in_brief/renewable_energy.cfm  
17

 Figure 1. 

Additional detailed backup for the Companies’ position may be found in the original 

Petition for Reconsideration submitted to EPA on May 10, 2010. The petition and all 

attachments are found in this docket under EPA-HQ-OGC-2011-003 through 005 

Thank you for allowing us to provide comments. The Companies urge EPA to reject the 

comments of the Adverse Commenters and promulgate the proposed changes to the NESHAP in 

the Federal Register as provided for in the settlement agreement. 

Respectfully submitted, 

Richard H. Counihan, 

V.P. Government Affairs 

EnerNOC Inc., on behalf of 

EnergyConnect, Inc. 

EnerNOC, Inc. 

Innoventive Power, LLC 

cc Peter Tsirigotis 

Melanie King 

0

100

200

300

400

500

600

700

800

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00

2012‐2013 2013‐2014 2014‐2015

MW Cleared of DR and Renewable Energy in PJM Auctions

Demand Response

Renewable Energy

1582870v3  Washington 014384