# Summary of Meeting with EnerNOC

Regarding the Existing St ationary RICE NESHAP

August 25, 2010

Attendees

Penny Lassiter, EPA Mark Foreman, EnerNOC (by phone)

Bob Wayland, EPA (by phone) David Frie dland, Beveridge & Diamond (by phone)

Melanie King, EPA Bruce Campbell, EnergyConnect (by phone)

Michael Horowitz, EPA (by phone)

Don DiCristofaro, Blue Sky Environmental

Rick Counihan, EnerNOC Tom Rutigliano, CPower (by phone)

Howard Feibus, Innoventive Power (by phone)

Herb Healy, EnerNOC (by phone)

Summary of Meeting

EnerNOC requested this meeting with EPA to discuss their petition for reconsideration of

the final national emission standards for haza rdous air polluta nts (NESHAP) for stationary

compression ignition reciprocating internal comb ustion engines. 75 FR 9648 (March 3, 2010).

Rick Counihan and Don DiCristofaro gave a pr esentation to EPA regarding the operation of

emergency engines in demand response programs and the reasons why they believe the

allowance for emergency demand response operati on in the NESHAP should be increased to 60

hours or the minimum hours required by the Indepe ndent System Operator tariff. A copy of the

presentation given by EnerNOC is provided as Attach ment 1. EPA indicated that the next step is

to publish a Federal Register notice indicating th at EPA has granted reco nsideration on the issue

of emergency demand response and requesting public comment on the issue.Emergency Demand Response callout discussionRick Counihan, Don DiCristofaro representing the co-petitionersAugust 25, 2010Confidential Settlement CommunicationAgenda• Problem statement•Our recommended solutionOurrecommendedsolution• Timeline for this proceeding• Overview of arguments for increasing the 15 hour limitationR t dt•ecentupdates– Comments regarding Delaware’s position– Emergency Demand Response events in 2010O i f J l 7 2010 t PJM t–Overview ofJuly7,2010easternPJMevent– Emergency emissions due to July PJM event• Review of our recommended solution and next stepsQ ti /Di i•Questions/DiscussionConfidential Settlement Communication 2Problem statementThe 15 hour limit maypreclude emergencyengines from emergencydemand responseparticipationp g y g g y p p p•The NESHAPS as written mayprevent emergencyengines fromp g y gparticipating in emergency Demand Response (DR) programssincethese engines will not be able to meet tariff requirements that specifyminimum hours of availability for participation• Engines then would have to be treated as non-emergency engines in theNESHAPS in order to meet tariff requirements• Sites committed to last-resort emergency operation will drop out of theif th i d t f d d d it t t tiprogramifthey are requiredtofundupgrades andcommittotestingEmergency DR should not be confused with other forms of on-sitedistributed generation including economic DR, peak shaving, or otherforms of non-emergency operation3Confidential Settlement CommunicationOur recommended solutionThe callout works if it’adjusted to address program requirementsThecalloutworksifit sadjustedtoaddressprogramrequirements•Maintain the existing calloutfor emergency DR•Set the hours limitationas the lesser of:M i f 60 h–Maximum of60hours per year–Minimum hours requiredby Independent System Operator tariffConfidential Settlement Communication 4Timeline for this proceedingWe’re continuing to work towards a resolution• Last met with EPA March 30, 2010; discussed in detail NERC Standards andISO Tariffs• Subsequent phone call, EPA made clear Agency would not make decision byMay 3, therefore a lawsuit had to be filed• CPower, Inc., EnergyConnect, Inc., EnerNOC, Inc., and Innoventive Power,LLC (Companies) filed Petition for Review on May 3 to preserve our rights• Companies filed Petition for Reconsideration on May 27• Court ordered abeyance of Petition for Review on June 4; required 90 daystatus reports• EPA approved reconsideration on August 2The Companies are looking to arrive at a mutually acceptable resolutionConfidential Settlement Communication 5Arguments for increasing the 15 hour limitationReconsideration of callout terms isjustified and reasonableE DR b fit th i t•EmergencyDRbenefitsthe environment•ISOs must follow North American Electric Reliability Council Standardswhen dispatching DR for Capacity and Energy Emergencies•Emergency DR Programs are rarely dispatched, therefore the risk thatthey will be dispatched to their maximum hours is minimal,but they mustmeet tariff requirementsthat specify minimum hours of availability forparticipation• EPA’s justification for the 15 hour limit reflects amisinterpretation ofcommentssupporting DR•Numerous states allow emergency engines to participatein emergencyNumerousstatesallowemergencyenginestoparticipateinemergencyDR; no state limits participation to 15 hours•EPA set a precedentfor the use of emergency engines in emergency DRprogramsin the Mandatory Greenhouse Gas Reporting Final RuleintheMandatoryGreenhouseGasReportingFinalRuleConfidential Settlement Communication 6Emergency DR benefits the environmentInfrequent emergency DR dispatches prevent larger environmental issues•Record peak demand does not always result in an emergency demandresponse event; grid abnormalities tend to drive event dispatchesresponseevent;gridabnormalitiestendtodriveeventdispatches•If the grid fails,every emergency generator in the area will operatefor anextended period of time–The existing emergency generator fleet includes many poorly maintained nonTheexistingemergencygeneratorfleetincludesmanypoorlymaintained,nonpermitted generators–Demand Response programs only utilize curtailment or properly permittedgeneration•After a grid failure it can take days to restore conditions to normaloperating levels,affecting public health and safety–During the August 2003 eastern blackout many millions of gallons of untreatedsewage from NYC was dumped into rivers due to power failure•Study prepared for EPA1shows that DR programsin New Englandbenefit air quality1Study by Synapse Energy Economicsincluded as Attachment 1 of ourPetition for Reconsideration7Confidential Settlement CommunicationGrid operators must follow NERC standardsEmergency DR dispatches are governed byrigorous procedures and reporting•North American Electric Reliability Council (NERC) requires formalplans for Capacity and Energy Emergenciesto be executed whenplansforCapacityandEnergyEmergenciestobeexecutedwhendispatching Emergency DR• When facing an energy shortfall agrid operator must declare anEnergyEmergencyAlert Level 2(EEA Alert 2);measures at this stepg y); pcan include:– Public appeals– Voltage reduction– Interruption of non-firm load– Demand response– Utility-side load conservation• Following an EEA Alert 2 declaration, thegrid operator must reportback to the NERCon causes, measures taken to address the shortfall,and post-event mitigationConfidential Settlement Communication 8Emergency DR Programs Are Rarely DispatchedThe risk of dispatch to maximum hours is lowLocation Total eventscalled,2003-CumulativeeventNotes2009 duration(hours)ERCOT 0 NoneISO-NE 3 26• Southwest Connecticut only dispatched in 2003 (16hours) following 2003 blackout• Connecticut only dispatched in 2005 (6 hours)• All of New England dispatched in 2006 (4 hours)NYISO1080• No events called in 2004,2008or 2009,• 2 events (total 22 hours)of events dispatchedimmediately following 2003 blackout• 5 events (total 35 hours) in2006; majority of eventsresponded to distribution system failure in NYCPJM 5 20• All events called in eastern PJM zones only; westernzone have not been calledConfidential Settlement Communication 9EPA’s justification for 15 hour limitThe EPA’s limit rationale is not supported by the record• The Demand Response Service Providers (DRSP) Coalition providedcomments on the initialproceeding,includinga historyof NYISO demandg, g yresponse dispatches• EPA’s response to DRSP’s comment letter and hour limit justificationnoted that:“As discussed in the response to comment 6.1.1, EPA believes that it would be appropriate toallow engines to retain their status as emergency engines under subpart ZZZZ if they operate aspart of demand response programs for 15 hours ofoperation per year or less in situations wheregrid failure and a blackout are imminent.The commenter’s information indicates that noengine has needed more than 15 hours ofoperation per year to meet their requirementsunder their demand response programs. Thisalleviates the concerns expressed by thecommenter.” [emphasis added] (Responses to Comments Section 13.5.2, at page 309)Nothing in the DRSP’s letter supports the EPA’s justification10Confidential Settlement CommunicationEPA misinterpreted DRSP’s commentsThe 15 hour limit isbased on an averagenot a reasonable upper limit, pp•The DRSP did not endorse a 15 hour limit; the letter stated thatTheDRSPdidnotendorsea15hourlimit;theletterstatedthatemergency demand response was dispatched in New York between 0 and40 hours per year over an 8 year history to address system emergencies,with an average of 16 hours/per year• Data presented by the DRSP Coalition shows that a15 hour limit wouldhave been exceeded in three of the past seven years•The DRSP Coalition concurs that their comments were misinterpreted(see Attachment 17 in Petition to EPA)11Confidential Settlement CommunicationRegulators recognize the value of DRMost permitting agencies allow the operation of emergency engines for emergency DRRegions that currently support emergency DR in air regulations• Connecticut*• Massachusetts*• Vermont*•Rhode Island*• Maryland*• Virginia*• West Virginia•Illinois•RhodeIsland• Maine• New York• Pennsylvania(all but Philadelphia County)•Ohio*•Illinois• Indiana• Michigan• Texas•OhioRegions that do not currently support emergency DR in air regulationsD lPhil d l hi C t PASt t t d ith * i d l t h t f ilit tDR•Delaware• New Jersey•PhiladelphiaCounty,PA• Washington, DCStates notedwith*requiredregulatory changetofacilitate emergencyDRparticipation by emergency enginesConfidential Settlement Communication 12EPA set a precedent in GHG reporting regulationThe EPA included emergency DR in the emergency generator definition in theGreenhouse Gas reporting standardsThe EPA carved out emergency DR,without an hours limitation, in theemergency generator definition in Final Rule of the GHG reportingregulation:An emergency generator operates only during emergency situations for training ofAnemergencygeneratoroperatesonlyduringemergencysituations,fortrainingofpersonnel under simulated emergency conditions,as part of emergency demandresponse procedures,or for standard performance testing procedures as required bylaw or by the generator manufacturer. A generator that serves as a back-up powersource under conditions of load shedding, peakshaving, power interruptions pursuantto an interruptible power service agreement, orscheduled facility maintenance shall notbe considered an emergency generator.Source: 40 CFR 98.6• Emergency engines participating in emergency DRare emergency generators andthus exemptfrom the GHG reporting regulation• Enginesparticipatingin non-emergencyDRare not considered emergency13Confidential Settlement Communicationg p pgg yg ygenerators and are not exemptfrom the GHG reporting regulationRecent updates on engines in emergency DRCorrespondence and actual event dispatchave brought clarity to this issueCorrespondenceandactualeventdispatcheshavebroughtclaritytothisissue•Filings by Delawareon the NESHAPShave clarified their position; weFilingsbyDelawareontheNESHAPShaveclarifiedtheirpositionwill continue to advocate our position on the merits of emergency engines inemergency DR programs•Several emergencyDRprograms have been called this summerwithy pgsuccessful outcomes•Eastern PJM was calledon July 7, 2010to mitigate a significant gridissueon the I-95 corridor•Estimates of emissionsduring the July 7, 2010 eastern PJM eventarebeing miscalculated14Confidential Settlement CommunicationComments regarding Delaware’s positionWe appreciate Delaware’s concerns but believe theyare unfoundedy•Met in May with OTC Chair and Ali Mirzakhalili (DNREC Division of Air QualityDirector) to discuss and understand Delaware’s concerns•DNREC confuses peak shaving with emergency DR; in their August 5, 2010 NSPScomment letter to EPA, DNREC refers to engines at poultry farms being used:“to achieve lower electric rates in exchange for operating the emergency generators as a block duringpeak demand scenarios Delaware believes that the change in the definition of emergency stationarypeakdemandscenarios....DelawarebelievesthatthechangeinthedefinitionofemergencystationaryICE explicitly provides for this type use”•DNREC’s comment letter further noted that their current air regulations preventengines from participating in emergency DR unless engines meet strict emission limitsDNREC’s overarching concern that emergency DR will be used on worst airquality days is unfounded based on actual program use dataYear # ozone exceedence days # ELRP events2008 14 02009 3 02010 4 1 (eastern PJM only)Confidential Settlement Communication 15Emergency DR events with generation in 2010Events dispatched this summer were driven bylocalizedgrid instabilityyg yGrid Operator EventDEventZDuration (hrs) NotesateoneERCOT None• Record peak demand set 3 timesthis summer, yet no eventsdispatchedISONENSi ifi t ti t-one•Significantgeneration outage onJune 24 with curtailment onlyemergency DR dispatched for 3hours• Highest summer demand (5thhighest all time) occurred on 7/6highestalltime)occurredon7/6NYISO June 28July 6July 7SubzonesNYCNYC766• Localized grid instability in Brooklyn;peak load• Supply constraintsPJM May 26June 11July 7Aug 12PepcoPepcoMid AtlanticPepco444 – 5(varied by zone)6• Unplanned transmission/• Generation outages• Consecutive days with high peaksConfidential Settlement Communication 16July 7, 2010 eastern PJM DR event - overviewOnly part of PJM was dispatched to address grid issues in that specific areaConfidential Settlement Communication 17Other PJM zones not called for this emergency DR eventEmergency engine emissions due to July PJM eventDelaware’s comment letter grossly overestimates emissions•Emergency DR dispatchedfor5.3 hours in Dominionand3.9 hours inMid Atl tiMidAtlantic zones• PJM estimates12,500 MWh of demand response realizedin the event• Onlyabout 46 tons NOxwas emitted by diesel generators• Thisvalue is contrary to the estimatepresented in Delaware’s commentletter:If one erroneously assumes all of this camefrom emergency engines (NOT a correctassumption) and uses AP-42 for emissionsNOx= 217 tonsassumption)andusesAP42foremissions,=217tonsHOWEVER,only about 25% of emergencyDR came from backup generators; 75%came from curtailment (e.g., turning downlights, air conditioning, manufacturingprocesses, etc.)Assuming 65% non tier rated 25% tier 1 rated and 10% tier 2 ratedNOxestimated toAssuming65%nontierrated,25%tier1rated,and10%tier2rated,estimatedtobe 46 tons25% engine assumption is probably too highsince emergency engine use not allowedin DC, Philadelphia County, NJ, and Delaware (some coops exempt)The 46 ton estimate does NOT net out emissions from other generation sources not runThe46tonestimatedoesNOTnetoutemissionsfromothergenerationsourcesnotrundue to total emergency DR of 12,500 MWhConfidential Settlement Communication 18Review of our recommendation and next stepsHow do we move forward from here?Our recommendation:•Maintain the existingcalloutfor emergencyDRy•Set the hours limitationas the lesser of:–Maximum of 60 hoursper year–Minimum hours requiredbyIndependent System Operator tariffp y p• This change will meet PJM (60 hours) and ERCOT (24 hours) tariff requirements• This change should allow emergency engines to maintain eligibility in ISO-NEand NYISOQuestions:•How else can we help you with this issue?Howelsecanwehelpyouwiththisissue?• Can we provide additional information?• What are your next steps?• The hours limit is turning up in other regulations and thus timely resolution iswarranted; what is your timeline?Confidential Settlement Communication 19Contact InformationRick Counihan – Vice President Regulatory AffairsEnerNOC, Inc. | 400 8th St., NW, Suite 804 | Washington, DC 20004415.517.1861rcounihan@enernoc.comDon DiCristofaro – Air Quality MeteorologistConsultant to EnerNOC, Inc. | 101 Federal Street, Suite 1100 | Boston, MA 02110617 834 8408617.834.8408ddicristofaro@enernoc.comDavid Friedland – AttorneyBeveridge & Diamond, PC | 1300 I Street, NW, Suite 700 | Washington, DC 20005202.789.6190dfriedland@bdlaw.comConfidential Settlement Communication 20