· 1 · · · · · · U.S. ENVIRONMENTAL PROTECTION AGENCY

· 2 · 3 · 4 · 5 · 6 · 7 · · · · · · · · · · · · Proposed Rule: · 8 · 9 · · · · · National Emission Standards for Hazardous 10 · · · · · Air Pollutants for Reciprocating Internal 11 · · Combustion Engines and New Source Performance Standards 12 · · · · · for Stationary Internal Combustion Engines 13 14 · · · · · · · EPA Docket No. EPA-HQ-OAR-2008-0708 15 16 17 · · · · · · · · 10:09 a.m. through 2:55 p.m. 18 · · · · · · · · · · Tuesday, July 10, 2012 19 20 · · · · · · · · · · · EPA East, Room 1152 21 · · · · · · · · 1201 Constitution Avenue, N.W. 22 · · · · · · · · · · Washington, D.C. · 20460Page 2

· 1 · · EPA PANEL MEMBERS: · 2 · ·ROBERT "Bob" WAYLAND, · · · · Leader, Energy Strategies Group, · 3 · · · Office of Air Quality Planning and Standards, EPA · · ·MICHAEL HOROWITZ, · 4 · · · Office of General Counsel, EPA · · ·MELANIE KING, · 5 · · · Lead Engineer, Energy Strategies Group, · · · · Office of Air Quality Planning and Standards, EPA · 6 · 7 · · · · · · · · · · · · · C O N T E N T S · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · PAGE · 8 · · PUBLIC COMMENTS: · 9 · · JOHN FLUMERFELT, Calpine Corporation· · · · · · · · · · 9 · · · JEFF BREDIGER, American Municipal Power, Inc. · · · · · 14 10 · · JOHN E. SHELK, Electric Power Supply Association· · · · 19 · · ·ALEX HOFMANN, American Public Power Association· · · · 24 11 · · LAURA CHAPPELLE, PJM Power Providers Group · · · · · · · 28 · · ·RASTO BREZNY, Ph.D., 12 · · ·Manufacturers of Emission Controls Association· · · · 33 · · · HOWARD FEIBUS, Innoventive Power · · · · · · · · · · · · 38 13 · · COLIN HANSEN, Kansas Municipal Utilities · · · · · · · · 43 · · ·ROBERT JAGUSCH, 14 · · ·Minnesota Municipal Utilities Association· · · · · · 49 · · · FLOYD GILZOW, 15 · · ·Missouri Joint Municipal Electric Utility Commission 52 · · · STEVE ROSENSTOCK, Edison Electric Institute · · · · · · 58 16 · ·ALI MIRZAKHALILI, P.E., Delaware Department of · · · · Environment and Natural Resources · · · · · · · · · · 62 17 · · T. TED CROMWELL, National Rural Electric · · · · Cooperative Association· · · · · · · · · · · · · · · 66 18 · · CHRISTINA E. SIMEONE, PennFuture Energy Center · · · · · 73 · · · SHANNON MAHER BANAGA, PSEG· · · · · · · · · · · · · · · 81 19 · · DON DiCRISTOFARO, CCM, Blue Sky Environmental, LLC · · · 89 · · ·RICK COUNIHAN, EnerNOC, Inc. · · · · · · · · · · · · · · 94 20 · · BRUCE CAMPBELL, EnergyConnect · · · · · · · · · · · · · 100 21 · · JESSE TREMAINE, American Lung Association· · · · · · · 104 22 · · JOSEPH BOWRING, Monitoring Analytics · · · · · · · · · 110Page 3

· 1 · · · · · · · · · · · P R O C E E D I N G S · 2 · · · · · · ·MR. WAYLAND: · Good morning, and thank you for · 3 · · attending this public hearing. · My name is Bob Wayland, · 4 · · and I am the leader of the Energy Strategies Group in the · 5 · · EPA's Office of Air Quality Planning and Standards in · 6 · ·Research Triangle Park, North Carolina. · I will be · 7 · · chairing today's hearing. · 8 · · · · · · · Joining me here at the front table on our panel · 9 · · are Michael Horowitz from the Office of General Counsel 10 · · and Melanie King, the lead engineer on this rulemaking 11 · · today. 12 · · · · · · ·We are here today to listen to your comments on 13 · · EPA's proposed amendments to the National Standards for 14 · · Hazardous Air Pollutants for Reciprocating Internal 15 · · Combustion and New Source Performance Standards for 16 · · Stationary Internal Combustion Engines. 17 · · · · · · · The EPA published these proposed amendments in 18 · · the Federal Register on June 7, 2012. · In this proposal, 19 · · EPA is addressing several petitions for reconsideration, 20 · · legal challenges, and new technical information that had 21 · ·not been brought to our attention during the rulemaking. 22 · · The proposed amendments would ensure that the standardsPage 4

· 1 · · are achievable, practical, and protective of public · 2 · ·health. · 3 · · · · · · · The proposed amendments generally apply to · 4 · · engines used in demand response programs to assure a · 5 · · stable, cost-effective source of electricity; engines in · 6 · · remote areas of Alaska, engines typically used in · 7 · · sparsely populated areas for oil and gas production, · 8 · · engines scheduled to be replaced in the next few years · 9 · · due to State or local requirements and certain engines 10 · · installed in 2006, and engine testing requirements for 11 · · formaldehyde emissions. 12 · · · · · · · First, to address emergency demand response and 13 · ·peak shaving, we are proposing to allow emergency engines 14 · · to operate for 100 hours per year without meeting 15 · · emission limits for monitoring and testing, demand 16 · · response for Emergency Alert Level 2 situations, and 17 · · responding to situations when there is at least a 5 18 · ·percent or greater voltage change. 19 · · · · · · · Second, for existing area source stationary 20 · · spark ignition 4-stroke engines greater than 500 21 · ·horsepower that are located in populated areas, we are 22 · ·proposing to replace emission limits with requirements toPage 5

· 1 · · install catalytic controls and conduct an initial test · 2 · · and annual performance checks to the catalyst and equip · 3 · · the engine with a high-temperature shutdown device or · 4 · ·monitor the catalyst inlet temperature continuously. · 5 · · · · · · · Third, we are proposing to expand the · 6 · · definition of "remote areas of Alaska," beyond those not · 7 · · on the Federal Aid Highway System. · 8 · · · · · · · Fourth, we are proposing to allow Tier 1 and · 9 · · Tier 2 certified stationary compression ignition engines 10 · · or diesels that are scheduled to be replaced due to State 11 · · or local rules to meet management practices until January 12 · · 1, 2015, or 12 years after the installation date, but not 13 · · later than June 1st of 2018. · We are also specifying that 14 · · existing stationary area source Tier 3 certified 15 · · compression ignition engines installed before June 12, 16 · · 2006, are in compliance with the NESHAP regulations. 17 · · · · · · · Lastly, based on evidence presented to the 18 · ·Agency by the Engine Manufacturers Association, the EPA 19 · · is proposing to add an option for demonstrating that 20 · · engines can meet the formaldehyde emission standards. 21 · · · · · · · Today, we will be accepting your oral comments 22 · · on all aspects of this proposal, and we will prepare aPage 6

· 1 · ·written transcript of the hearing. · The transcript will · 2 · ·be available as part of the official record for this · 3 · · rule. · 4 · · · · · · ·We are also accepting written comments on these · 5 · ·proposed amendments until August 9, 2012. · At the · 6 · · registration desk outside, which is located in the · 7 · ·hallway, there are handouts with detailed information for · 8 · · submitting written comments by mail, fax, or · 9 · · electronically. · The EPA will consider your comments as 10 · ·we move forward to complete a Final Rule. 11 · · · · · · ·Now a little bit of housekeeping. · I know it 12 · ·was kind of a trouble to get in here today. · You all had 13 · · to go through security, but now that you're in here, this 14 · · is how we're going to operate today. 15 · · · · · · · This is a relatively small hearing, so I'm 16 · · going to call you one at a time. · Some of the larger 17 · ·hearings, you get called two or three at a time, and you 18 · · go in sequence, but today I will call you each one at a 19 · · time. · When it's your turn to speak, please state your 20 · ·name and your affiliation before you begin your 21 · · testimony. · It would also be a great help to the court 22 · · reporter here today if you could spell your name afterPage 7

· 1 · ·you pronounce it. · 2 · · · · · · · In order to be fair to everyone, we are going · 3 · · to limit your testimony to 5 minutes each. · After you · 4 · · finish your testimony, members of the panel may ask · 5 · · clarifying questions. · If in addition to the transcript · 6 · · of your testimony, you would also like us to put the full · 7 · · text of your written testimony and comments into the · 8 · · docket, please be sure to give a copy of any written · 9 · · comments to our staff at the registration table, or you 10 · ·may leave it here with us at the front table, and we will 11 · · get that to them. 12 · · · · · · ·We have a standard timekeeping system here 13 · · today consisting of a green, yellow, and red light to 14 · ·help you track your 5 minutes to speak. · When you begin 15 · · speaking, the green light will come on. · The yellow light 16 · ·will signal that you have approximately 1 minute left to 17 · · speak. · When the red light comes on, 5 minutes has past, 18 · · and I, unfortunately, will have to ask you to stop in 19 · · fairness to other people, so that no one group or entity 20 · · dominates today's hearing. 21 · · · · · · · Today's hearing is scheduled from 10 a.m. and 22 · ·will continue until 4 p.m. or later if necessary,Page 8

· 1 · · depending on the number of speakers. · The hearing will go · 2 · · on recess during the scheduled lunch break from 12 p.m. · 3 · · until 1 p.m. · We will reconvene promptly at 1 p.m. to · 4 · · reconvene the hearing. · If you would like to testify but · 5 · ·have not yet registered to do so, please sign up with one · 6 · · of the folks outside at the registration table in the · 7 · ·hallway, and we will be happy to add you to the list. · 8 · · · · · · · For those of you who have already registered to · 9 · · speak, we have tried to accommodate your request for a 10 · · specific time slot. · We ask for your patience as we 11 · ·proceed through the list of speakers. · We may need to 12 · ·make some minor adjustments during the day. · As people 13 · ·may be late getting here or arrive early and need to 14 · · switch, we'll do our dead-level best to accommodate 15 · · everybody's request. 16 · · · · · · · If you have any questions throughout the day, 17 · ·please see a staff member at the registration table for 18 · · assistance or ask one of us here, and we'll do our best 19 · · to take care of that. 20 · · · · · · · Thank you all again for taking the time and the 21 · · effort to come here today to give us your comments, and 22 · ·with that, we will start the official hearing. · ThankPage 9

· 1 · ·you. · 2 · · · · · · ·And this is where you come to speak, by the · 3 · ·way. · I didn't make that clear. · 4 · · · · · · · The audio system is not working, but we have · 5 · · speakers for the court reporting, so that he can catch · 6 · · everything. · So, when you're speaking, please try to · 7 · · speak loudly. · 8 · · · · · · · The first speaker this morning will be John · 9 · · Flumerfelt of Calpine Corporation. 10 · · · · · · ·MR. FLUMERFELT: · I will try to set a good 11 · · example here by leading us off with very brief remarks. 12 · · · · · · · Good morning. · I am John Flumerfelt with 13 · · Calpine Corporation. 14 · · · · · · ·As you may know, Calpine is a longtime 15 · · supporter of Federal clean air efforts. · We supported GHG 16 · · regulation in Massachusetts versus EPA, and we are 17 · · supporting EPA in the CSAPR and MATS litigation. · These 18 · · important rules are long overdue. · Unfortunately, we 19 · · think the proposed RICE NESHAP's amendments move the 20 · ·needle in the wrong direction. 21 · · · · · · ·We are working on detailed written comments, 22 · ·but today I will focus on three reasons why EPA shouldPage 10

· 1 · ·not waive NESHAP's requirements for diesel DR that · 2 · · receives capacity payments in markets such as PJM. · 3 · · · · · · · First, it's a for-profit activity. · EnerNOC has · 4 · · a marketing brochure on its website that tells · 5 · ·prospective customers, "If your business has a generator · 6 · · set, you may qualify for a simple and lucrative · 7 · · opportunity to be paid to run your generator." · I think a · 8 · · typical facilities manager would have a hard time saying · 9 · ·no to a lucrative financial opportunity that simply 10 · · requires them to repurpose an existing generator as a 11 · ·profitable DR asset. 12 · · · · · · · This is the low-hanging fruit in the DR world. 13 · · It requires little, if any, capital investment, 14 · · especially compared to the cost of building a new power 15 · ·plant, and it causes little inconvenience to the 16 · · customer, unlike DR that is based on actual energy 17 · · conservation. 18 · · · · · · · The second reason is that it would subsidize 19 · · the continued growth of dirty DR and the displacement of 20 · · cleaner and higher value capacity resources. · In its 21 · · annual report, EnerNOC admits that they "compete with 22 · · traditional supply-side resources such as natural gas-Page 11

· 1 · · fired peaking plants." · Its marketing brochure entices · 2 · · customers to "join the world's largest virtual power · 3 · ·plant" and states that, "Demand response programs pay · 4 · ·businesses to switch to on-site generation when the · 5 · · electrical grid experiences spikes in demand or shortages · 6 · · of supply." · 7 · · · · · · · DR providers aggregate engines that operate as · 8 · ·virtual power plants, which compete directly with other · 9 · · resources for the right to earn capacity revenues, just 10 · · like the power plants that we own and operate, all of 11 · ·which, of course, remain subject to emission control 12 · · requirements. · But because dirty DR is so cheap, it can 13 · · easily underbid other resources in the capacity auction. 14 · · So the sad irony is that we're replacing retiring coal15 · · fired capacity with diesels instead of cleaner 16 · · generation. 17 · · · · · · · The Proposed Rule would actually subsidize some 18 · · of the dirtiest generation in the market by giving engine 19 · · owners and aggregators a free pass on NESHAPs, but they 20 · · don't deserve a free pass. 21 · · · · · · · The third reason, EPA shouldn't provide a 22 · ·waiver for dirty DR is because it's not needed forPage 12

· 1 · · reliability. · 2 · · · · · · · In its most recent capacity auction, PJM easily · 3 · ·met its reliability requirements with a 20-percent · 4 · · reserve margin and with 14,000 megawatts of excess · 5 · · capacity that wasn't even needed, and this occurred · 6 · · despite an historic amount of announced retirements, · 7 · ·partly driven, of course, by MATS. · 8 · · · · · · · PJM has said on the record in this proceeding · 9 · · that it "takes no position on the appropriate level of 10 · · environmental controls imposed on RICE units." · PJM 11 · · apparently doesn't seem to think the lights will go out 12 · · if engine owners have to comply with the NESHAPs, and, in 13 · · any case, this year's auction proved that PJM has more 14 · · than enough high-quality resources at its disposal 15 · ·without having to rely on thousands of backup generators 16 · · that had been repurposed to take advantage of a lucrative 17 · ·market opportunity. 18 · · · · · · · Engine owners claim they will be forced out of 19 · · DR programs if they have to install controls. · However, 20 · · this ignores the fact that they can adjust their bid 21 · ·prices to reflect compliance cost. · If the market truly 22 · ·needs those resources, their bids will clear, and theyPage 13

· 1 · ·will recover the cost associated with any required · 2 · · retrofits. · 3 · · · · · · ·Also, DR companies seem to be finding plenty of · 4 · · growth opportunities, despite the pending NESHAP's · 5 · · compliance deadline. · An all-time record of nearly 20,000 · 6 · ·megawatts of DR bid into this PJM auction. · It's not · 7 · · clear why they need a waiver. · Either they assume they · 8 · · can find enough opportunities without NESHAP's · 9 · ·vulnerability, or they're taking a business risk. 10 · · · · · · · In closing, there's one area in which we agree 11 · ·with EnerNOC and the other litigants. · We agree that the 12 · · record does not support the 15-hour waiver, but the right 13 · ·number is zero. · There is no support for any NESHAP 14 · ·waiver for diesel DR that participates in organized 15 · · capacity markets, nor is there any valid reason to extend 16 · · the compliance deadline for those engines. 17 · · · · · · · EPA is being asked to consider this issue in a 18 · ·vacuum because we don't have good data on how many 19 · · engines are out there, where they are located, or what 20 · · type of technology they are using, but what we do know is 21 · · the so-called "emergency DR" is a substantially different 22 · · activity than the traditional emergency uses for thosePage 14

· 1 · · engines. · 2 · · · · · · · In PJM, DR is a for-profit business that · 3 · · operates in direct competition with generators and which · 4 · ·provide no unique value to reliability. · It should be · 5 · · designated as a non-emergency use under the RICE NESHAPs. · 6 · · · · · · · EnerNOC says its demand response customers have · 7 · · "earned millions of dollars of payments – revenue they · 8 · ·have reinvested into their operations." · The bottom line · 9 · · is that there is no reason why some of those millions of 10 · · dollars shouldn't be reinvested in emission controls. 11 · · · · · · · Thank you. 12 · · · · · · ·MR. WAYLAND: · To Melanie or Michael, do either 13 · · of you have any clarifying questions for John? 14 · · · · · · · [No audible response.] 15 · · · · · · ·MR. WAYLAND: · Thank you very much. 16 · · · · · · ·MR. FLUMERFELT: · Thank you. 17 · · · · · · · Our next speaker will be Jeff Brediger of 18 · ·American Municipal Power. 19 · · · · · · ·MR. BREDIGER: Good morning. · My name is Jeff 20 · · Brediger, and I am the Director of Utilities for Orrville 21 · ·Utilities in Orrville, Ohio, and a member of AMP Board of 22 · · Trustees. · I am testifying today on behalf of AMP, aPage 15

· 1 · · Columbus, Ohio-based nonprofit wholesale power supply and · 2 · · services provider for 129 members in 7 States. · 3 · · · · · · ·AMP's member municipal electric systems are · 4 · · owned by their customers, and the majority of AMP's · 5 · ·members are communities with fewer than 5,000 residents. · 6 · · In the interest of time, I will not go into the issues · 7 · · that AMP previously identified to the EPA regarding · 8 · ·needed improvements to the RICE NECHAP rule. · We will be · 9 · · submitting additional comments later. 10 · · · · · · ·AMP appreciates the EPA's responsiveness to the 11 · · somewhat unique operational characteristics of small 12 · ·municipal electric RICE units raised by AMP and others 13 · · through this reconsideration process. · AMP is supportive 14 · · of the proposed amendments related to the allowable hours 15 · · for use for emergency demand response. · AMP is also 16 · · supportive of the proposed temporary allowance of up to 17 · · 50 hours annually for non-emergency uses for area sources 18 · · only, including peak shaving. · In addition, AMP supports 19 · · and seeks clarification on a few key aspects of the 20 · ·proposed amendments. 21 · · · · · · · First, emergency demand response, EDR. · AMP 22 · · fully supports EPA's acknowledgement of the importance ofPage 16

· 1 · · ensuring grid reliability and the need to align the · 2 · · rule's provisions with the EDR requirements of RTOs. · We · 3 · · specifically support the provision allowing RICE units to · 4 · ·participate in EDR programs as part of the 100 hours · 5 · · currently allowable for unit maintenance and testing. · 6 · · · · · · · Importantly, EPA acknowledges and AMP concurs · 7 · · that the emissions are not expected to increase under · 8 · · this proposal, since the total amount of allowable hours · 9 · · remains at 100. · Further, by being able to rely on these 10 · · smaller, more localized units in these EDR situations, 11 · ·RTOs and other balancing authorities should be able to 12 · · reduce the reliance on more remote central station units 13 · ·where line losses could further impact reliability. 14 · · · · · · · Second, AMP applauds EPA for proposing the use 15 · · of voltage variances, an appropriate alternative of the 16 · · Level 2 trigger allowance EDR, a suggestion offered by 17 · ·AMP and others during this process. 18 · · · · · · ·AMP does have a concern that in some cases 19 · · allowing the use of EDR in a response to a 5-percent-or20 · · greater voltage variance would not be sufficient to allow 21 · · the avoidance or the ability to isolate the system, 22 · · especially for very small systems which could cascadePage 17

· 1 · · into neighboring systems. · AMP also is requesting from · 2 · · EPA as to what type of recordkeeping would be required · 3 · ·when the trigger is used. · 4 · · · · · · · Third, AMP supports EPA's proposal to allow at · 5 · · least until April 16, 2017, up to 50 hours annually for · 6 · ·peak shaving and other non-emergency use. · This proposal · 7 · · recognizes that RICE units could prove to be an · 8 · · invaluable reliability resource as other larger · 9 · · generating units are working to meet compliance 10 · · obligations under tight time frames for other EPA rules, 11 · · especially in our region of the country where the vast 12 · ·majority of generation is coal-fired and subject to many 13 · ·new EPA rules. 14 · · · · · · · Fourth, the Proposed Rule requires that peak 15 · · shaving must be done as part of a program with the local 16 · · system operator. · This section sh8ould be clarified to 17 · · allow peak shaving that might be coordinated through an 18 · · energy control center that operates over more than one 19 · · local distribution system. · The extensive benefits that 20 · · come from peak shaving should not be forsaken based 21 · · solely upon the type of entity that ends up operating the 22 · ·peak-shaving program.Page 18

· 1 · · · · · · ·AMP is also concerned that the use of the term · 2 · · "remote" in the preamble may be misconstrued to imply · 3 · · that there is a geographical restriction on the ability · 4 · · of the existing RICE units in areas to engage in · 5 · · temporary peak-shaving allowance. · AMP does not believe · 6 · · that this is EPA's intent and strongly encourages the · 7 · ·Agency to remove the term "remote" from the preamble in · 8 · · this content. · 9 · · · · · · · Fifth, in light of the expected equipment and 10 · ·vendor delays and expected large volumes of units that 11 · ·have not yet made modification, AMP proposes that both 12 · · the CI and SI compliance dates be aligned, so that the 13 · · current date for SI compliance, October 19th, 2013, as 14 · · the same date for the CI compliance. · This would extend 15 · · the compliance date for the CI units only by about 5 16 · ·months and should reduce the need for the EPA to evaluate 17 · · case-by-case extension requests. 18 · · · · · · ·An extension is needed because there is still a 19 · · lack of clear direction as to where the rule's 20 · · requirements are. · Even the improvements outlined in the 21 · ·proposed amendments cannot yet be embraced with 22 · · confidence by the regulated community, because they arePage 19

· 1 · ·not final, nor is the regulated community likely to know · 2 · ·what is final until the rule is issued by December 14, · 3 · · 2012. · Impacted units cannot commit these kind of · 4 · · investment dollars towards compliance that may not be · 5 · · required. · 6 · · · · · · · Finally, AMP supports EPA's proposed additional · 7 · · 1-year extension for the units needing additional time to · 8 · · install controls requested on a case-by-case basis. · 9 · · · · · · · In conclusion, AMP appreciates the opportunity 10 · · to present these remarks and thanks the Agency for the 11 · · direction of the proposed amendments, which balances 12 · · electric reliability and health considerations. 13 · · · · · · · I'd be happy to answer any questions. · Thank 14 · ·you. 15 · · · · · · ·MR. WAYLAND: · Thank you, Jeff. 16 · · · · · · ·Melanie? · Michael? 17 · · · · · · ·MR. HOROWITZ: · No. 18 · · · · · · ·MR. WAYLAND: · Thank you very much. 19 · · · · · · ·MR. BREDIGER: · Thank you. 20 · · · · · · · Our next speaker will be John Shelk from the 21 · · Electric Power Supply Association. 22 · · · · · · ·MR. SHELK: · Good morning. · I'm John Shelk. · ThePage 20

· 1 · · last name is spelled S-h-e-l-k, and I am the President · 2 · · and CEO of the Electric Power Supply Association. · We · 3 · ·want to commend the Agency for holding the hearing this · 4 · ·morning, particularly because it's so important to get · 5 · · the facts out and for the public to learn as much as · 6 · ·possible. · 7 · · · · · · · The focus of our comments is on that aspect of · 8 · · the pending proposal relating to emergency demand · 9 · · response and peak shaving and more specifically as it 10 · · relates to organized wholesale power markets, and we 11 · ·would like to share three critical points today. 12 · · · · · · · First, this is a very, very significant 13 · ·proceeding for three reasons. · Two are obvious. · The 14 · · first is the very fact that the proposal would exempt 15 · · some, indeed a few in the power business, from 16 · · requirements imposed by this Agency as to hazardous air 17 · ·pollutants imposed on all others with whom they compete 18 · · in the power business, and, most importantly, combined 19 · · secondly, with the resent finding by the World Health 20 · · Organization within days, indeed after the publication of 21 · · this proposal in the Federal Register, finding that 22 · · diesel exhaust should be elevated to the status of aPage 21

· 1 · · known carcinogen. · 2 · · · · · · · The opening sentence of the New York Times · 3 · · article of June 12th is instructive. · It reads, "Diesel · 4 · · fumes cause lung cancer, the World Health Organization · 5 · · declared Tuesday, and experts said they were more · 6 · · carcinogenic than secondhand cigarette smoke," end of · 7 · · quote. · 8 · · · · · · · Less obvious is how exempting some market · 9 · ·participants would continuously and corrosively interact 10 · ·with how regional power markets operate to permanently 11 · · displace actual power generation from plants dramatically 12 · · cleaner than the backup diesel generators favored by this 13 · ·proposal. 14 · · · · · · · Secondly, drilling down, it reads -- if you 15 · · simply read the proposal in its Federal Register 16 · · iteration -- as if we're talking about some isolated set 17 · · of engines held on standby that otherwise wouldn't impact 18 · · the ongoing operation of regulation wholesale power 19 · ·markets on which the country and the economy relies on a 20 · · daily basis, and after the suffering heat here in 21 · ·Washington and elsewhere of the past few weeks, who could 22 · · argue? · Except pulling back the curtain reveals a deeper,Page 22

· 1 · · darker secret. · This proposal would allow a few firms to · 2 · · concoct and connect a network of exempt diesel generators · 3 · · that will become a series of virtual power plants. · Even · 4 · ·worse, they and their customers, those being the · 5 · · customers of the demand response providers, get paid by · 6 · · the very regular ratepayers the system is supposed to · 7 · · serve under the guise of reducing demand that is actually · 8 · · only shifted behind the meter and under the environmental · 9 · · radar. 10 · · · · · · · But here is the rub. · They have persuaded the 11 · · Federal Energy Regulatory Commission that they are not 12 · · jurisdictional and they are not wholesale power 13 · · suppliers, so they are exempt from Federal regulation to 14 · ·which the rest of us must comply. · Yet, under those FERC 15 · ·policies, they are to be paid the same without the same 16 · · financial requirements and legal obligations. · At the 17 · · same time, in States like Maryland, they have failed to 18 · ·meet the commitments expected of them to perform in those 19 · · State programs. 20 · · · · · · ·And third and perhaps most relevant to this 21 · ·proceeding, they are seeking to persuade the North 22 · ·American Electric Reliability Corporation that they arePage 23

· 1 · ·not needed for reliability, so should not comply with the · 2 · ·NERC rules, to which the rest of us must comply. · Yet, in · 3 · · this proceeding and in the settlement that we are · 4 · · discussing today, they are seeking to persuade this · 5 · ·Agency and the American public of just the opposite. · 6 · · · · · · · Third, the legal Achilles' heel is the admitted · 7 · · -- and I want to underscore the "admitted lack of · 8 · · sufficient relevant data" to know the first set of · 9 · · dynamic environmental and economic impacts should the 10 · ·Agency proceed as proposed. · The proposal's very comments 11 · · at the back of the proposal on environmental justice 12 · · under the relevant executive order confirmed that EPA 13 · · lacks specific information on the location of backup 14 · · engines. 15 · · · · · · · The Agency's staff's comments at the June 8, 16 · · 2012, MADRI conference were broader and more direct. · EPA 17 · · does not know how many engines would be impacted and how 18 · · often they run. 19 · · · · · · · In sum, this proposal is asking average 20 · · ratepayers to pay more money to a relative few for those 21 · · so subsidized to pollute more at the expense of average 22 · · ratepayers' health and their pocketbooks. · "DR" isPage 24

· 1 · · supposed to stand for demand response. · Under this · 2 · ·proposal, it stands for "diesel renaissance." · It isn't · 3 · · right. · It isn't good policy. · The proposal, as it · 4 · · applies to organized wholesale power markets, in our view · 5 · · should be rejected, and we thank the Agency for holding · 6 · · this important hearing. · And I would welcome any · 7 · · questions. · 8 · · · · · · ·MR. WAYLAND: · Thank you. · 9 · · · · · · ·Any questions? 10 · · · · · · · [No audible response.] 11 · · · · · · ·MR. SHELK: · Thank you very much. 12 · · · · · · ·MR. WAYLAND: · Thank you very much. 13 · · · · · · · Our next speaker will be Alex Hofmann from the 14 · ·American Public Power Association. 15 · · · · · · ·MR. HOFMANN: · Hi. · I am Alex Hofmann, A-l-e-x, 16 · · H-o-f-m-a-n-n, and I am here today on behalf of the 17 · ·American Public Power Association. 18 · · · · · · ·We represent small, municipally owned, not-for19 · ·profit utilities, and I will just say thank you for 20 · ·holding this hearing and allowing APPA to testify. · Today 21 · ·we are joined by several APPA member utilities. 22 · · · · · · · EPA has done the right thing by proposingPage 25

· 1 · · changes that provide a small amount of relief for · 2 · · disproportionately impacted government or municipal users · 3 · · of emergency RICE engines. · The role these engines play · 4 · · in preventing blackouts as well as providing cost- · 5 · · efficient system functionality is essential. · Utilities · 6 · ·have an obligation to serve users, especially municipal · 7 · · utilities, and in transmission-limited areas, they should · 8 · ·not be constrained in providing reliable electric service · 9 · ·when circumstances outside their control threaten their 10 · ·power supplies, such as extreme weather events which the 11 · · Super Derecho showed us last week. 12 · · · · · · ·And I want to make a point reiterating that 13 · · these engines typically operate for minimal hours per 14 · ·year unless there is a local need as determined by the 15 · · expert operator, the utility, for emergency power. 16 · · · · · · ·APPA agrees with the EPA's assessment that its 17 · ·proposed changes will have minimal impact on the 18 · · environment. · In addition, APPA can confirm that the 19 · · EPA's proposed changes, which will help provide badly 20 · ·needed flexibility to many small communities struggling 21 · · to deal with the high cost of compliance with the 22 · · Proposed Rule, is a good move. · This move by EPA helps itPage 26

· 1 · · to conform to the intent of the Regulatory Flexibility · 2 · ·Act and Executive Order 13272. · 3 · · · · · · · It should also be noted that in some cases, the · 4 · · use of RICE engines results in either negligible or lower · 5 · · overall emissions from the electric system that would · 6 · ·have otherwise been emitted. · Both EnerNOC and ISO New · 7 · · England have published studies with results to this · 8 · · effect. · 9 · · · · · · · So the 100 hours proposed for emergency demand 10 · · response with local authority to declare emergency is a 11 · ·necessary change, because it provides some of the needed 12 · · relief while also being a 99-percent reduction in the 13 · ·possible RICE -- running time for certain RICE engines. 14 · · · · · · · This means the EPA is proposing the engine 15 · · speed limited to a maximum use of just over 4 days a 16 · ·year. · This regulatory relief is consistent with the 17 · · intent of the Clean Air Act. · I mean, we think it's 18 · · really stringent, but we understand that there's a legal 19 · ·precedent that supports the EPA's decision to create 20 · · regulatory relief by providing flexibility in how the 100 21 · ·hours are used that they have proposed. 22 · · · · · · ·We would also argue that all the 100 hours setPage 27

· 1 · · aside should be available for peak shaving during the · 2 · · interim period, as identified by the EPA and as other · 3 · · environmental -- because other environmental rules · 4 · · impacting the utility industry will take effect. · This · 5 · ·will provide some relief from the higher electricity · 6 · ·prices that will be experienced by many cities. · 7 · ·Ratepayers will benefit from these proposed changes. · 8 · · · · · · · Due to the uncertainty caused by EPA's proposed · 9 · · changes, more time is needed to comply with the rule. 10 · · December is far too near to the compliance date from the 11 · · original rule of May 2013, and since this rule is 12 · · economically significant, municipalities will need time 13 · · to figure this out, especially how to comply with the 14 · ·proposed changes. · Also, peak-shaving hours should not 15 · · sunset in 2017. · We would recommend that that be sort of 16 · ·pushed back with the rule being -- its compliance date 17 · ·being pushed back. · They are needed for the industry 18 · · transition due to other environmental rules. 19 · · · · · · · Emergency demand response, that is, demand 20 · · response as part of a capacity arrangement, is still 21 · · emergency demand response and should be treated 22 · · differently than peak shaving.Page 28

· 1 · · · · · · · I just want to make a final set of points here · 2 · · that the EPA is right and justified in giving local · 3 · · distribution system operators the authority to use · 4 · · emergency demand response hours based on system voltage · 5 · · condition of 5 percent or greater below nominal voltage. · 6 · · The EPA is right and justified in increasing peak-shaving · 7 · · and non-emergency hours for area sources within the 100 · 8 · ·hours per year already permitted for maintenance and · 9 · · testing of the engines, and the EPA is right and 10 · · justified in giving flexibility to utilities in remote 11 · · locations. 12 · · · · · · ·And I want to thank you for your time. 13 · · · · · · ·MR. WAYLAND: · Thank you very much. 14 · · · · · · ·Any questions? 15 · · · · · · · [No audible response.] 16 · · · · · · ·MR. WAYLAND: · Thank you very much, Alex. 17 · · · · · · · Our next speaker will be Laura Chappelle from 18 · · the PJM Providers Group. 19 · · · · · · ·And I apologize to everybody if I mispronounce 20 · ·names. 21 · · · · · · ·MS. CHAPPELLE: · That's perfect. 22 · · · · · · · I'm going to do my best to speak up with a sorePage 29

· 1 · · throat. · Laura Chappelle with the PJM Power Providers · 2 · · Group, or P3. · I did give my card, since the spelling of · 3 · ·my last name is rather long. · 4 · · · · · · ·We appreciate the opportunity to provide · 5 · · comments to you today. · P3 has been actively involved in · 6 · · this matter. · We want to take this opportunity to · 7 · · reiterate our concerns with the Proposed Rules, which we · 8 · ·believe amounts to neither a necessity for emergency · 9 · · conditions within the PJM interconnection nor results in 10 · · any fair balance or treatment to other similarly situated 11 · ·parties in this proceeding. · We urge the Agency not to 12 · ·move forward in finalizing rules that establish this 100- 13 · ·hour standard exemption for RICE owners and operators in 14 · · alleged emergency conditions. 15 · · · · · · ·As we've stated on prior occasions, we 16 · · certainly acknowledge that DR has an important role in 17 · · energy-related services within the energy markets. 18 · · However, the 100-hour exemption amounts to an unjustified 19 · ·preference for behind-the-meter, or BTM generators, that 20 · · is not equally available for generating units located in 21 · · front of the meter, which as you know are obligated to 22 · ·meet all Federal and State air regulations.Page 30

· 1 · · · · · · · The rule also does not amount to a practical or · 2 · · a real understanding of how BTM-related DR units operate · 3 · ·within organized markets or certainly the PJM market · 4 · · today. · 5 · · · · · · ·We'll be providing fuller comments to the · 6 · ·Agency by August 9th, but for today's purposes, we would · 7 · · like to address three main concerns that we have with the · 8 · · Proposed Rule changes. · Namely, that they do not promote · 9 · · reliability, they harm the environment, and, again, they 10 · · amount to an unwarranted preferential treatment of 11 · · generation resource in the organized markets. 12 · · · · · · · First, by loosely defining "emergency 13 · · conditions," this Agency, in effect, will be encouraging 14 · · diesel-fired units to more actively participate in the 15 · · PJM wholesale capacity market, albeit in a discriminatory 16 · ·manner, under the auspices of emergency providers. 17 · · · · · · ·Although the apparent intent of the Agency is 18 · · to limit the operation of BTM-related DR to true 19 · · emergencies in which transmission system operations may 20 · ·be threatened, expanding the exemption for BTM resources 21 · · to 100 hours can be expected to result in dispatch of BTM 22 · · resources before or at the same time as other types ofPage 31

· 1 · · generators. · 2 · · · · · · ·Under the PJM dispatch procedures, 60-hour DR · 3 · · capacity resources are typically deployed before maximum · 4 · · generation events. · In other words, 60-hour BTM resources · 5 · ·would be expected to be deployed when unused generation · 6 · · capacity from traditional generator resources that meet · 7 · · environmental standards is still available to operate. · 8 · · If these resources are truly interested in supporting · 9 · · grid operations as a last defense to measures such as 10 · · load shedding, it would be more appropriate for them to 11 · · offer into the PJM dispatch as emergency, voluntary, 12 · · energy-only demand response. · That's designed to be 13 · · deployed after a maximum generation event, and that type 14 · · of resource does not have to have the capability to run 15 · · for 100 hours a year. 16 · · · · · · · It's being claimed that these resources are 17 · ·needed for grid reliability. · P3 hopes that this Agency 18 · · takes into account the fact that the independent market 19 · ·monitor for PJM does, in fact, not believe that these 20 · · units are needed for reliability purposes. 21 · · · · · · · Second, this Agency's acceptance in the growth 22 · · of diesel-fired units displaces cleaner supply resources,Page 32

· 1 · · even though those same diesel units tend to exhibit far · 2 · ·higher air emission rates. · These environmental concerns · 3 · ·have been extensively expressed by many commentators, · 4 · · including the American Lung Association and the Delaware · 5 · · Department of Natural Resources and Environmental · 6 · · Control. · 7 · · · · · · ·And, finally, allowing a new significant · 8 · · exemption for behind-the-meter units, which allegedly · 9 · · operate as traditional DR resources but, in actuality, 10 · · directly compete with other generation resources in the 11 · · same capacity market, certainly amounts to a preferential 12 · · treatment not otherwise recognized by State or Federal 13 · · rules or law. · P3 strongly disagrees with recent 14 · · assertions put forward by EnerNOC that, "DR will not 15 · · compete against generation in the PJM capacity markets 16 · · and, therefore, will not be reducing the prices of 17 · · generation capacity." 18 · · · · · · ·As was just explained, expanding the exemption 19 · · for these resources can be expected to result in dispatch 20 · · of BTM resources before or at the same time as other 21 · · types of generators. · To allege that DR will not complete 22 · · in other generation -- with other generation in the PJMPage 33

· 1 · · capacity market shows a very clear misunderstanding of · 2 · ·how the markets operate within the PJM interconnection · 3 · · today. · 4 · · · · · · · The fact of the matter is EPA's proposed · 5 · · expansion of the permissible hours for behind-the-meter · 6 · · operation will have a direct impact on competition within · 7 · · the PJM market. · It will serve to increase the number of · 8 · · BTM resources that can undercut the offers of a mission- · 9 · · controlled resources in the capacity auction. 10 · · · · · · · In conclusion, based on the above statements, 11 · ·we respectfully urge the Agency to do the right thing for 12 · · the environment and the Interstate Grid and reject the 13 · ·RICE NESHAP proposed rule. 14 · · · · · · · Thank you. 15 · · · · · · ·MR. WAYLAND: · Thank you very much. 16 · · · · · · ·Any questions? 17 · · · · · · · [No audible response.] 18 · · · · · · ·MR. WAYLAND: · Thank you very much. 19 · · · · · · · Our next speaker will be Rasto Brezny of the 20 · ·Manufacturers of Emission Controls Association. 21 · · · · · · · DR. BREZNY: · Good morning. · I am Rasto Brezny 22 · ·with the Manufacturers of Emission Controls Association.Page 34

· 1 · · I want to thank the EPA for this opportunity to speak · 2 · · today. · 3 · · · · · · ·MECA supports many of the amendments being · 4 · ·proposed to streamline this rule; however, we have · 5 · · concerns about several provisions because they represent · 6 · · a significant rollback of the regulation and will lead to · 7 · · increased emissions that are not reflected in EPA's · 8 · ·Regulatory Impact Analysis. · 9 · · · · · · · The original NESHAP rules governing spark10 · · ignited and compression-ignited RICE engines presented a 11 · ·balanced and cost-effective approach for controlling 12 · ·hazardous air pollutants. · The use of control 13 · · technologies, such as oxidation catalysts for diesel 14 · · engines and three-way NSCR catalysts for spark-ignited, 15 · · rich-burn engines are among the most durable, reliable, 16 · · and cost-effective controls for reducing HAPs. · In 17 · · addition to HAPs, both technologies offer important co18 · ·benefits of reducing other criteria pollutants from their 19 · · respective engine classes. 20 · · · · · · ·My comments today focus on three primary 21 · · aspects of the proposal: · the allowance for emergency 22 · · standby engines to operate for up to 100 demand responsePage 35

· 1 · ·hours without the use of exhaust controls, the allowance · 2 · · for existing area source four-stroke rich-burn engines in · 3 · · unpopulated areas to only follow management practices, · 4 · · and the use of 30-percent total hydrocarbon reduction as · 5 · · a surrogate for a 76-percent formaldehyde reduction from · 6 · · four-stroke rich-burn engines. · 7 · · · · · · · EPA is proposing to allow emergency standby · 8 · · engines up to 100 hours of demand response operation, · 9 · · including up to 50 hours of peak shaving without the use 10 · · of controls. · MECA members' experience shows that most 11 · · demand response engines operate in the range of 25 to 100 12 · ·hours per year. · The current 15-hour allowance would 13 · · require that those wanting to participate in such 14 · ·programs would have to install controls that would reduce 15 · · emissions at all times that the engines operate. 16 · · · · · · · The proposed 100-hour demand response allowance 17 · ·will result in an increase in emissions, because no 18 · · controls will be required. · Demand response programs are 19 · · generously subsidized making it beneficial for owners of 20 · · emergency engines to participate in such programs. 21 · · Because these engines can't guarantee to stay within an 22 · · annual operating hour limit, many States consider anyPage 36

· 1 · · demand response engine not an emergency engine. · The · 2 · ·bottom line is that if engines are emitting HAPs under a · 3 · · subsidized program, then a portion of that compensation · 4 · · should be reinvested and pollution controls to minimize · 5 · · the resulting emissions. · 6 · · · · · · · The other proposed amendment that we believe · 7 · ·will have a significant impact on emissions involve large · 8 · · four-stroke, rich-burn engines in unpopulated areas. · 9 · · Today's commercial NSCR technology, combined with state10 · · of-the-art air fuel controllers, can achieve over 99- 11 · ·percent reduction of all three criteria pollutants 12 · · simultaneously. 13 · · · · · · ·NSCR is a robust, passively operated technology 14 · · that requires very little maintenance. · When EPA adopted 15 · · the original rule, they concluded that the use of NSCR 16 · · controls on these engines is a cost-effective, feasible, 17 · · and readily available control strategy, regardless of 18 · · location, and MECA supports this original conclusion. 19 · · · · · · The over 100,000 tons per year and NOx, VOC, and 20 · · HAPs submitted by these engines represent a significant 21 · · rollback of the rule as these pollutants are transported 22 · · to regions far from their origin. · MECA supports the usePage 37

· 1 · · of a low-cost, easy-to-measure surrogate for · 2 · · demonstrating a formaldehyde reduction consistent with · 3 · · the requirements of this regulation. · However, any · 4 · · reliable surrogate should have similar light-off · 5 · · characteristics. · Carbon monoxide, formaldehyde, and most · 6 · · HAPs represent such compounds. · 7 · · · · · · · In natural gas-fired engines, over 90 percent · 8 · · of the total hydrocarbons are methane, which has a much · 9 · ·higher light-off temperature. · Although we believe that 10 · · the potential use of THC as a worst-case surrogate has 11 · ·merit, the Waukesha test report provided in the docket 12 · · failed to consider several important variables that would 13 · · impact THC conversion, and these include exhaust 14 · · temperature, exhaust composition, the level of 15 · · degradation of the catalyst, the setting of the air/fuel 16 · · control, and the position of the catalyst in the exhaust. 17 · ·MECA will provide further details on this topic in our 18 · ·written comments. 19 · · · · · · ·And, finally, we thank EPA for this opportunity 20 · · to comment on this proposal, and we look forward to 21 · ·working with the Agency and other stakeholders in 22 · · finalizing the appropriate changes to this regulation.Page 38

· 1 · · · · · · · I'll be happy to answer any questions you might · 2 · ·have. · 3 · · · · · · ·MR. WAYLAND: · Thank you, sir. · 4 · · · · · · ·Any questions? · 5 · · · · · · · [No audible response.] · 6 · · · · · · ·MR. WAYLAND: · Thank you. · 7 · · · · · · · DR. BREZNY: · Thanks. · 8 · · · · · · ·MR. WAYLAND: · Our next speaker will be Howard · 9 · · Feibus from Innoventive Power. 10 · · · · · · ·MR. FEIBUS: · Well, we are pleased to 11 · ·participate in this hearing, which is in response to the 12 · · EPA proposed amendments to the NESHAP regulations for 13 · · stationary reciprocating internal combustion engines. 14 · · · · · · · This hearing provides the public with an 15 · · opportunity to comment upon the amendments being 16 · ·proposed. · The amendments proposed by EPA follow a very 17 · · thorough and transparent process, which was conducted to 18 · · enable the public to comment upon the proposed NESHAP for 19 · · reciprocating internal combustion engines. 20 · · · · · · · The proposed revisions are in response to 21 · · issues raised by various stakeholders, which have been 22 · · under consideration since 2010 and were published on JunePage 39

· 1 · · 7, 2012. · 2 · · · · · · ·My name is Howard Feibus. · I am Vice President · 3 · · for Business Development of Innoventive Power, a demand · 4 · · response service provider which aggregates retail · 5 · · electric customers that are capable of reducing their · 6 · · electric demand in order to support the reliability of · 7 · · the electric power system. · 8 · · · · · · · I would like to mention that we are engaged in · 9 · · demand response for customers throughout the Northeast in 10 · ·many different jurisdictions, and I would especially like 11 · · to mention that we provide services in New York, and most 12 · · importantly in Southwest New York where we are managing 13 · · for Con Edison, a smart grid project to increase the use 14 · · of demand response to improve the reliability of their 15 · ·power system. · And we're doing it in conjunction with 16 · · techniques to improve the reliability of the transmission 17 · · grid throughout New York State, and I would like to 18 · ·mention that New York State does have a very vibrant 19 · · demand response program, and it demonstrates how you can 20 · ·bring in highly efficient new capacity at the same time 21 · · as you can make use of demand response resources. · And it 22 · ·has been documented in New York that the impact ofPage 40

· 1 · · opening the market, the capacity market, to demand · 2 · · response resources lowers the cost of electricity for all · 3 · · ratepayers, all electric ratepayers. · 4 · · · · · · · Innoventive Power has followed and participated · 5 · · in the very thorough process of review, which has been · 6 · · conducted by EPA of the proposed NESHAP regulations. · We · 7 · · share the conclusion of EPA that the proposed NESHAP · 8 · · amendments are consistent with the numerous public · 9 · · comments provided to EPA on the various issues raised by 10 · · stakeholders. 11 · · · · · · ·We welcome this opportunity to speak and to 12 · · ensure the change proposed in the use of hours allowed 13 · · for the operation of stationary emergency engine 14 · · generators. 15 · · · · · · · The changes being proposed to the use of 16 · · allowed hours of operation by emergency engine generators 17 · · are fully justified, because certain stationary 18 · · reciprocating internal combustion engines are able to 19 · · respond to emergency power needs, thereby improving the 20 · · reliability and efficiency of the electric power 21 · · transmission and distribution system in which they are 22 · · embedded.Page 41

· 1 · · · · · · · The recently proposed amendments to the NESHAP · 2 · · regulation allow owners and operators of such stationary · 3 · · emergency rights to operate their engines as part of an · 4 · · emergency demand response program within the 100 hours · 5 · ·per year permitted for maintenance and testing of such · 6 · · engine generators. · 7 · · · · · · · The use provided by the amendment for the 100 · 8 · ·hours per year allowance would ensure that a sufficient · 9 · ·numbers of hours is permitted for engines to meet 10 · · independent system operator and regional transmission 11 · · organization tariffs and other requirements for 12 · ·participating in various emergency demand response 13 · ·programs and would assist in stabilizing the grid, 14 · ·preventing electric blackouts and supporting regional and 15 · · local electric system reliability. 16 · · · · · · ·A temporary limited allowance that will expire 17 · · on April 16, 2017, the date by which full compliance with 18 · · the NESHAP from coal- and oil-fired electric utility 19 · · steam-generating units is expected, is being proposed for 20 · · stationary emergency engines located at area sources of 21 · · HAP emissions to be used for up to 50 hours per year for 22 · · any other non-emergency purpose, including peak shaving.Page 42

· 1 · · The 50 hours is part of the 100 hours per year total · 2 · · allowance for all types of emergency engine operation, · 3 · · except during emergencies where no other power source is · 4 · · available, which is not restricted by the rule. · 5 · · · · · · · The temporary allowance for peak shaving would · 6 · · give sources time to address reliability issues and · 7 · · develop solutions to reliability issues while facilities · 8 · · are coming into compliance with the National Emission · 9 · · Standards for HAP from coal- and oil-fired electric 10 · · utility steam-generating units, which were promulgated on 11 · · February 16, 2012. 12 · · · · · · · Innoventive Power fully supports the EPA 13 · ·proposal regarding changes to both the NESHAP and NSPS 14 · · and urges the EPA to work to make the December 2012 15 · · deadline. · Innoventive Power strongly agrees with the 16 · ·proposed uses of the 100-hours-per-year allowance being 17 · ·proposed for stationary emergency energy generators. · The 18 · · EPA conclusion to propose such uses is fully justified 19 · ·via the public hearing process, which has led to the EPA 20 · · amendment to the NESHAP regulation, which is the subject 21 · · of this hearing today. 22 · · · · · · ·And these comments are respectively submittedPage 43

· 1 · ·by me, Howard Feibus of Innoventive Power. · Thank you. · 2 · · · · · · ·MR. WAYLAND: · Thank you very much. · 3 · · · · · · ·No questions. · Thank you. · 4 · · · · · · · Our next speaker will be Colin Hansen of Kansas · 5 · ·Municipal Utilities. · 6 · · · · · · ·MR. HANSEN: · Good morning. · 7 · · · · · · ·MR. WAYLAND: · Good morning. · 8 · · · · · · ·MR. HANSEN: · My name is Colin Hansen. · I am the · 9 · · Executive Director of Kansas Municipal Utilities, or KMU. 10 · · · · · · · KMU is a statewide trade association for 11 · · currently 176 Kansas cities that operate a municipal 12 · · electric, gas, water, wastewater, telecommunication 13 · · facility. · I do appreciate the opportunity to speak 14 · · today, and what I'd like to do is confine my very brief 15 · · comments to the 5-percent voltage drop, peak shaving, and 16 · · compliance deadline aspects of the proposed amendments. 17 · · · · · · · First, just a couple of quick bullet points 18 · · about municipal utilities of Kansas. · There are 119 19 · ·municipal electric systems in the State. · Fifty-four of 20 · · those units have RICE units. · I might note that these are 21 · · dual-fuel RICE units. · They are not diesel units, and so 22 · · they are operating on 90-to-95-percent natural gas, byPage 44

· 1 · · and large. · 2 · · · · · · · The median size of a municipal electric utility · 3 · · in Kansas serves 882 customers. · That's well below the · 4 · · 50,000 population criteria that would designate a small · 5 · · entity. · 6 · · · · · · · In addition to being very small, our members · 7 · · are geographically isolated. · In fact, when I read some · 8 · · of the language about Alaska and such, it made me feel a · 9 · · lot like my members in Western Kansas as well. · They're 10 · ·pretty far out there and isolated. 11 · · · · · · · Kansas is also characterized by a weak 12 · · transmission system, particularly at lower voltages. 13 · ·RICE units don't run often, and when they do, they do 14 · ·because it's required to keep the lights on. · For us, 15 · · this is not about organized markets. · This is not about 16 · · quarterly earnings. · This is about the viability of 17 · · communities and being able to keep the lights on. 18 · · · · · · ·All but 5 of our 54 cities that have RICE units 19 · ·have a declining population, and since the rule was 20 · · initiated in 2010, two communities have closed the door 21 · · on their power plants in the Cities of Norton and 22 · · Harrington.Page 45

· 1 · · · · · · · I would like to commend EPA for their · 2 · · thoughtful reconsideration of the very real issues, very · 3 · · real concerns that we have about this, the impact on our · 4 · · smaller members. · 5 · · · · · · · In comments that we provided to the EPA last · 6 · ·year, KMU emphasized the need for demand response · 7 · · flexibility for small utilities. · For the vast majority · 8 · · of our members, local disturbances that would otherwise · 9 · ·be deemed a grid-wide emergency by the Southwest power 10 · ·pool go unseen. · That's because the power plants operated 11 · ·by our members are typically behind the meter and too 12 · · small to be monitored by the RTO. 13 · · · · · · · KMU is encouraged by the ability of local 14 · · distribution operators to declare and track their own 15 · · emergencies and bring RICE units online in order to keep 16 · · their communities' lights on. · Our members' RICE units 17 · · are not economic to run. · In nearly all cases, energy 18 · · available from other sources or markets are more 19 · · affordable than operating these RICE units. 20 · · · · · · ·We do encourage EPA to retain flexibility and 21 · · recordkeeping in regards to the 5-percent voltage sag 22 · ·provisions. · There is no simple one-size-fits-allPage 46

· 1 · · approach to metering this information. · Each distribution · 2 · · system, each power plant, at least within our membership, · 3 · · is unique. · We would urge the use of electronic or paper · 4 · · logs at these facilities, that these facilities currently · 5 · · use for other regulatory and recordkeeping purposes. · 6 · · · · · · · In regards to peak shaving, I suspect other · 7 · ·presenters today will address the issue much more · 8 · · thoroughly than I. · I will note that we remain confused · 9 · · about the definition of peak shaving and how it 10 · · interrelates to capacity payments and believe that the 11 · · 50-hour provision should not sunset in April 2017. 12 · · · · · · · One area of great concern to KMU's members is 13 · · the impending compliance deadline of the RICE rule. · I 14 · · suspect that I receive a call or an e-mail from one of 15 · · our members just about every week asking for guidance as 16 · · to whether or not to install catalysts. · KMU's larger 17 · ·power plants that often run in excess of 100 hours are in 18 · · the process of installing those catalysts at this time. 19 · · I will note, however, that the process has taken far 20 · · longer than anticipated. 21 · · · · · · · The smaller power plants, however, are far more 22 · ·problematic. · For them, the approval or rejection ofPage 47

· 1 · · these proposed amendments will determine the economic · 2 · · feasibility of installing catalysts. · These are not large · 3 · · utilities. · These are not large corporate polluters in · 4 · ·metropolitan areas. · Instead, they are small remote · 5 · · cities on the high plains like St. John, Attica, · 6 · · Stockton, Oberlin, Hugoton, Kansas. · Due to the poor · 7 · · economics of operating these units, most are operated · 8 · · fewer than 100 hours per year. · 9 · · · · · · · KMU strongly encourages EPA to consider an 18- 10 · ·month delay in implementation of the rule. · We believe 11 · · it's unfair to expect municipal utilities to comply with 12 · · a rule that will likely not be finalized until scant 13 · ·weeks before implementation would be required. 14 · · · · · · ·Unfortunately, it's not just an issue of 15 · · requesting bids for manufacturers and subsequently 16 · · scheduling construction. · Instead, the process in small 17 · ·municipal communities includes educating policy-makers, 18 · · city councils about the RICE rule, conducting engineering 19 · · studies, coordinating with power suppliers, coordinating 20 · ·with joint action agencies, and in some cases even 21 · ·modifying the bricks and mortar of the plan itself due to 22 · · space considerations.Page 48

· 1 · · · · · · · For a small town with less than a thousand · 2 · · customers, the tens of thousands of dollars per unit or · 3 · ·hundreds of thousands of dollars per power plant to · 4 · · install a catalyst is a huge investment and one that is · 5 · ·not and should not be taken lightly. · We believe a modest · 6 · · delay to provide these systems adequate time to · 7 · · responsibly educate policy-makers and contract with · 8 · · reputable equipment providers and contractors is only · 9 · · fair. 10 · · · · · · · Thank · you for the opportunity to testify 11 · · today. · I'd be glad to answer any questions at the 12 · · appropriate time. 13 · · · · · · ·MR. HOROWITZ: · I do have a question. 14 · · · · · · ·MR. WAYLAND: · One question. 15 · · · · · · ·MR. HANSEN: Yeah. 16 · · · · · · ·MR. HOROWITZ: · On the delay that you were just 17 · · talking about on the deadline, for power companies, for 18 · · engines that don't have to put on retrofits, I'm confused 19 · · as to why you need an 18-month delay. 20 · · · · · · ·MR. HANSEN: · If some of the proposed amendments 21 · · do go through and they do not need the catalysts, they 22 · · don't need the delay. · I'm talking about the people thatPage 49

· 1 · · if they make the decision and they aren't allowed to get · 2 · · those hours, if they have to make the implementation at · 3 · · that point, then they would need a delay. · 4 · · · · · · ·MR. WAYLAND: · Thank you very much. · 5 · · · · · · · Our next speaker will be Robert Jagusch of the · 6 · ·Minnesota Municipal Utilities Association. · 7 · · · · · · ·And I will remind everyone, if you don't mind, · 8 · · either give the reporter a card or spell your name to · 9 · ·make sure it's accurately reflected in the record. · Thank 10 · ·you. 11 · · · · · · ·MR. JAGUSCH: · Good morning. · My name is Robert 12 · · Jagusch, J-a-g-u-s-c-h. · I am the Director of Engineering 13 · · and Policy Analysis for the Minnesota Municipal Utilities 14 · ·Association. · MMUA represents the interest on Minnesota's 15 · · 125 municipal electric, 33 gas, and water utilities. 16 · · · · · · · Our utilities primarily serve small communities 17 · · in rural Minnesota. · Seventy-four percent of our 18 · · utilities serve fewer than 2,500 customers. · Forty-one 19 · ·percent serve fewer than 1,000 customers. · It's these 20 · · small Minnesota communities that are impacted so heavily 21 · ·by the RICE NESHAP rule. 22 · · · · · · ·Most of our municipal electric utilities alsoPage 50

· 1 · ·have only a single transmission feed. · If they lose that · 2 · · feed, local generation is the only option for keeping the · 3 · ·power on for their communities. · 4 · · · · · · · Eighty-three percent of our 46 utilities with · 5 · · CI RICE receive transmission at a voltage below the level · 6 · ·monitored and controlled by the independent system · 7 · · operator. · Thus, these utilities can experience voltage · 8 · · drops or instability that is virtually invisible to the · 9 · · ISO. 10 · · · · · · · Our members' units are dual fuel. · They operate 11 · · on natural gas or diesel fuel, which will depend on the 12 · · economic cost. 13 · · · · · · ·Also, we used to operate our units using a 14 · ·blend of 20-percent biofuels to comply with State 15 · · renewable standards, but with the CI RICE rule, that is 16 · ·no longer an option for our utilities. · Units that bid 17 · · into the day-ahead ISO market are refitting. · So I'm 18 · · discussing just the demand response. 19 · · · · · · ·MMUA's members appreciate the effort the Agency 20 · ·has made to make these changes to the rule that will 21 · ·provide some relief for non-profit public power utility 22 · · communities.Page 51

· 1 · · · · · · ·As stated in our comments in our letters from · 2 · · February 2011 and February 2012, we are concerned about · 3 · · the issue of capacity payments or credits. · These are · 4 · · financial payments made by a wholesale power provider to · 5 · · our members that have emergency generation to keep the · 6 · · units operational. · It is not a payment for the units to · 7 · · generate electricity but requires units to be available · 8 · · only. · 9 · · · · · · · The wholesale power providers then hold the 10 · · units as reserves, required by the independent system 11 · · operator. · Keeping these capacity payment credits as part 12 · · of the emergency demand response program and separate 13 · · from the peak-shaving non-emergency demand response will 14 · ·provide an essential revenue stream for operating, 15 · ·maintaining, and repairing these units by our small 16 · · utilities into the future. · To that end, we strongly 17 · · support the proposed amendment for the emergency demand 18 · · response program. 19 · · · · · · · Due to the significant economic impact 20 · · certainly of this rule as presented by Mr. Hansen and 21 · · requested by paragraph G of the compliance date of the 22 · · Proposed Rule, we'd also recommend extension of one yearPage 52

· 1 · · from the May 2013 compliance date for the rule · 2 · · implementation. · 3 · · · · · · · Small utility governing boards do not make · 4 · · decisions based on Proposed Rules when the economic · 5 · · impact on the utility is so large. · The extra time will · 6 · · give these affected utilities appropriate time to comply. · 7 · · · · · · ·We also appreciate the presence of Lisa · 8 · · Jackson, EPA Administrator, in this room attending, · 9 · · showing how important this rule is to our utilities. 10 · · · · · · · [EPA Administrator Lisa Jackson not present.] 11 · · · · · · ·MR. JAGUSCH: · Thank you very much. 12 · · · · · · ·MR. WAYLAND: · Thank you very much. 13 · · · · · · · Do we have any questions? 14 · · · · · · · [No audible response.] 15 · · · · · · ·MR. WAYLAND: · Thank you very much. 16 · · · · · · · Our next speaker this morning will be Floyd 17 · · Gilzow of the Missouri Joint Municipal Electric Utility 18 · · Commission. 19 · · · · · · · Thank you, sir. 20 · · · · · · ·MR. GILZOW: · Thank you for the opportunity to 21 · ·provide testimony on EPA's rule on NESHAP for 22 · · reciprocating internal combustion engines.Page 53

· 1 · · · · · · ·My name is Floyd Gilzow. · I am Director of · 2 · · Public Affairs for the 67-member Missouri Joint Municipal · 3 · · Electric Utility Commission, a group of cities across the · 4 · · State of Missouri with over 900,000 customer/owners. · 5 · · Scattered among these communities, we have 25 cities who · 6 · · own a total of 189 diesel generators. · Of those 25 · 7 · · cities, 8 have populations below 2,000, and the median · 8 · ·population for all 25 is 3,700. · In other words, the · 9 · ·majority of these impacted communities are small, rural, 10 · ·without large tax bases, and agricultural. 11 · · · · · · · I would like to echo Bob Jagusch's comments 12 · · about having Administrator Jackson in the room. We 13 · · appreciate her interest in this issue. 14 · · · · · · · [EPA Administrator Lisa Jackson not present.] 15 · · · · · · ·MR. GILZOW: · MPUA strongly endorses the 16 · ·proposed amendments as we understand them and want to 17 · ·voice our appreciation that EPA has recognized that CI 18 · ·RICE engines in the Midwest serve an entirely different 19 · · function than those in other parts of the country. · Our 20 · · engines generally provide power in times of emergency or 21 · ·provide what used to be known as spinning reserves. 22 · · Those reserves are used to ensure that the reliability ofPage 54

· 1 · · the regional power grid is consistent as required by the · 2 · ·Regional Reliability Council, which in our case is the · 3 · · Southwest Power Pool. · 4 · · · · · · · These units can receive, and do receive, · 5 · · currently payment for being available to run, not for · 6 · · actually running. · When they are called upon to run by · 7 · · our Joint Action Agency, the cities receive no net · 8 · · income, only a payment to cover the actual cost of · 9 · · operation, including fuel usage. 10 · · · · · · · Think of them like an emergency response 11 · ·vehicle but for power supply. · Cities are paid to have 12 · · them sit and wait for an emergency. · The monthly capacity 13 · ·payments are what allow them to maintain and service 14 · · those engines. 15 · · · · · · · The units owned by our cities don't for 16 · · extended periods, except in emergencies. · On average in 17 · · 2011, they ran less than 8 hours per unit per year, 18 · · including maintenance. 19 · · · · · · · The crux of our concern with the current rule 20 · ·has been its prohibition on cities earning any income, 21 · · including capacity payments, for the units unless they 22 · ·had catalytic converters.Page 55

· 1 · · · · · · · Let me give you a real-world example. · We have · 2 · · talked a lot about theory. · You have heard opinions that · 3 · · these don't have any impact on the reliability. · Let me · 4 · · turn to Missouri. · Two weeks ago in late June, when the · 5 · · 850-megawatt Iatan power plant in northwest Missouri · 6 · · tripped offline because of problems with steam lines, we · 7 · ·were unable to purchase but a small amount of the lost · 8 · ·power. · None was available. · We were in the middle of a · 9 · ·heat wave. · There was transmission constraints. · We did 10 · ·manage to buy some from Kansas City Power and Light at 11 · · $400 a megawatt hour. · The only reason we did not have to 12 · ·begin turning off lights in northwest Missouri cities is 13 · ·because we were able to press 12 of these units into 14 · · operation. · Otherwise, power would have been lost. 15 · · · · · · · Let me say that again. · No power at any price. 16 · · Power would have had to have been shut off. 17 · · Interestingly, one of those units will be turned off when 18 · · this rule goes into effect. · City Council has already 19 · ·voted. · The individual who runs the plan has already been 20 · · told his job will terminate. 21 · · · · · · ·We would encourage you to consider, as has been 22 · · discussed, eliminating the term "peak shaving" or atPage 56

· 1 · · least modifying it with "load reduction" or some other · 2 · · term. · Peak shaving is often used solely for economic · 3 · ·purposes. · It's done during the heaviest demand days · 4 · · solely to avoid purchasing more expensive power. · We · 5 · ·would prefer seeing something such as demand response or · 6 · · demand management or load management. · 7 · · · · · · ·Another issue the rule appears to be silent on · 8 · · is on recordkeeping requirements for these units during · 9 · · their operation. · To eliminate any chance for 10 · ·misconception during four future enforcement reviews, we 11 · ·would ask that EPA insert language in the rule allowing 12 · · for manual or electronic record systems, noting such data 13 · · as date, time, and hour meter reading at run start; date, 14 · · time, and hour meter reading at run stop; purpose of 15 · · operation; and in the case of voltage support, 16 · · identification of the triggering event. 17 · · · · · · · Because under the current proposed changes, you 18 · · are limiting this to only a short period of time, a 4- 19 · ·year period. · Don't require cities to purchase expensive 20 · · electronic logging devices for a system that will not be 21 · · or may not be extended. 22 · · · · · · ·We would ask again that EPA consider the factPage 57

· 1 · · that this rule reconsideration process has left many · 2 · · cities in the dark over whether to retrofit or operate as · 3 · · emergency-only units. · As we sit here today, it's likely · 4 · · to be another 6 or more months before cities know what · 5 · · the Final Rule will be. · As a practical matter, they will · 6 · ·probably have only 60 days from the date the rule becomes · 7 · · final until they are required to be in compliance. · 8 · · · · · · ·We acknowledge EPA's comments about the ability · 9 · · to seek an extension of time from our State environmental 10 · · agency. · Please know that even with the stronger language 11 · · that EPA included in the final MATS rule, encouraging 12 · · States to be lenient in issuing the 1-year compliance 13 · · extension, the State of Missouri is still working on the 14 · ·process to authorize that extension. 15 · · · · · · ·And with that, I am prepared to answer any 16 · · questions. 17 · · · · · · ·MR. WAYLAND: · Thank you very much. 18 · · · · · · · Do you guys have any questions? 19 · · · · · · · [No audible response.] 20 · · · · · · ·MR. WAYLAND: · Thank you for your time. 21 · · · · · · ·MR. GILZOW: · Thank you. 22 · · · · · · ·MR. WAYLAND: · Okay. · Our next speaker will bePage 58

· 1 · · Steve Rosenstock from the Edison Electric Institute. · 2 · · · · · · ·MR. ROSENSTOCK: · Thank you very much. · My name · 3 · · is Steve Rosenstock. · I am the Senior Manager of Energy · 4 · · Solutions for the Edison Electric Institute. · Again, · 5 · · thank you very much for the opportunity to testify at · 6 · · this hearing. · 7 · · · · · · · The Edison Electric Institute is the · 8 · · association of U.S. shareholder-owned electric companies. · 9 · · Our members serve 95 percent of the ultimate customers in 10 · · the shareholder-owned segment of the industry and 11 · · represent approximately 70 percent of the U.S. electric 12 · ·power industry. · We also have more than 65 international 13 · · electric companies as affiliate members and more than 170 14 · · industry suppliers and related organizations as associate 15 · ·members. 16 · · · · · · · One disclaimer, the comments I am about to give 17 · ·you do not reflect the views of all EEI members. · As a 18 · · trade association, we strive for consensus, but in some 19 · · cases, other members will have different views. 20 · · · · · · · First of all, to summarize, we agree with the 21 · · comments that have been offered by both the American 22 · · Public Power Association and the National Rural ElectricPage 59

· 1 · · Cooperative Association. · 2 · · · · · · · The new proposal is a significant improvement · 3 · · from earlier versions. · I would really like to thank EPA · 4 · · for making these improvements. · 5 · · · · · · · Demand response programs that allow for · 6 · · customers to use on-site generators or demand reductions · 7 · · are very important to help keep the lights on. As EEI · 8 · · discussed in our February 2011 letter, investor-owned · 9 · · utilities offered at least 124 interruptible or curtail10 · · able rate programs in the United States in 2010, with a 11 · · total potential peak demand reduction of 24,000 12 · ·megawatts. 13 · · · · · · · To give you a little personal example, I used 14 · · to work for Pepco, the utility serving Washington, D.C., 15 · · Montgomery and Prince George's County, and I worked on 16 · · the demand response programs for Pepco in the late '80s 17 · · and '90s. · As part of that program, the maximum hours 18 · · that we could ask customers to reduce load or operate 19 · · generators -- it was their choice -- was 15 events, 6 20 · ·hours per event or 90 hours per summer. · To my 21 · · recollection, even during the hottest summers when there 22 · ·was the issues either with supply or constraints, thePage 60

· 1 · ·maximum amount of hours that we asked customers was about · 2 · · 50. · In many cases, especially for milder summers with · 3 · ·plentiful supply, that number went way down, well below · 4 · · 20 hours. · So I know there has been a lot of discussion · 5 · · about 100 hours. · For many programs, that is the absolute · 6 · ·worst-case maximum. · For many utilities, the hours asked · 7 · ·were much, much less. · 8 · · · · · · ·Another reason why these programs help is the · 9 · · recent scenario for this area. · For people who live in 10 · · the Washington, D.C., Metropolitan Area, "Super Derecho" 11 · · is now a part of our vocabulary. · There were a number of 12 · ·people in this area who operated portable gasoline13 · ·powered generators as a response to the outages. · I don't 14 · · know if there were hundreds or thousands of homes in the 15 · · D.C. that use such generators, but I believe that the 16 · ·number was significant. 17 · · · · · · ·According to studies performed by the U.S. 18 · · Consumer Product Safety Commission in 2006 for one of 19 · · their rulemakings in terms of labeling of such 20 · · generators, there were over 10 million portable 21 · · generators in homes in the United States in 2005. 22 · ·Unfortunately, I was not able to find more recent data.Page 61

· 1 · ·Nearly all of them operate on gasoline with no emission · 2 · · controls. · Based on the manufacturer specifications for · 3 · ·various generators, a typical 5,000-watt generator has an · 4 · · overall energy efficiency, fuel-to-electric output, of · 5 · · about 12 to 18 percent, depending on whether it is · 6 · · operating at part load or full load. · That 5,000-watt · 7 · · generator will use about .8 gallons of gasoline per hour. · 8 · ·A 6,000-watt generator will use about 1 gallon per hour · 9 · · at full load, and that's if it's tuned up, well 10 · ·maintained, and operating at peak efficiency. · That 11 · · doesn't include the energy used for the generator owner 12 · · to drive to gas stations to refill the small gas tanks on 13 · · these generators every several hours. 14 · · · · · · ·Now, of course, demand response programs would 15 · ·not have prevented what happened in this area due to the 16 · ·very violent storms, but in other situations, demand 17 · · response programs can prevent blackouts and prevent, 18 · · depending on the area, thousands or even tens of 19 · · thousands of these low-efficiency gasoline-powered 20 · ·portable generators from being operated. 21 · · · · · · · Thank you very much for your time and allowing 22 · ·me the opportunity to testify.Page 62

· 1 · · · · · · ·MR. WAYLAND: · Thank you very much. · 2 · · · · · · ·Any questions? · 3 · · · · · · · [No audible response.] · 4 · · · · · · ·MR. WAYLAND: · Thank you very much. · 5 · · · · · · · Our next speaker this morning will be Ali · 6 · ·Mirzakhalili, and I apologize. · I probably mispronounced · 7 · · that. · 8 · · · · · · ·MR. MIRZAKHALILI: · Good morning. · My name is · 9 · ·Ali Mirzakhalili, and I am the Director of Air Quality 10 · · Division for the State of Delaware. 11 · · · · · · · I would like to first thank you for providing 12 · · this opportunity to present comments on the Proposed 13 · ·Rule. · I am restricting my comments today on the 14 · ·provisions in the Proposed Rule that allows old, dirty, 15 · · unregulated diesel engines entry into the electricity 16 · · generation market as virtual power plants with no 17 · · environmental safeguards. 18 · · · · · · · By way of background, EPA proposed RICE NESHAP 19 · · rule initially on March 5th of 2009, which Delaware and 20 · · others criticized for having failed to include any NOx 21 · · limits. · To our surprise, the Final Rule published on 22 · ·March 3, 2010, not only failed to address NOx but includePage 63

· 1 · · a new provision, which included demand response as an · 2 · · emergency. · 3 · · · · · · · EPA explained in the docket that this term was · 4 · · in response to a few commenters that expressed concern · 5 · ·with the ability to maintain their engine status as an · 6 · · emergency because they participated in an economic demand · 7 · · response program. · The commenters characterized the · 8 · ·program as one that is called for 3 to 6 hours a year as · 9 · · a last resort to power loss and system failure. · In 10 · · response, EPA agreed to include a definition, which would 11 · · allow emergency engines to operate as part of emergency 12 · · demand response programs for a limited number of hours of 13 · · operation per year, 15 in this case, and in situations 14 · ·where grid failure and blackout were imminent. 15 · · · · · · · Delaware objected to this change by filing a 16 · ·motion for reconsideration, because the change was not in 17 · · the Proposed Rule. · It accompanied no environmental 18 · · impact assessment and was formulated based on 19 · ·misunderstood and incomplete facts. · Other petitions were 20 · · also filed by the energy marketers who found that 15 21 · ·hours was unnecessarily restrictive. · EPA granted our 22 · ·motion but then entered into a settlement agreement withPage 64

· 1 · · the other petitioners who had also filed in the courts. · 2 · · · · · · · That brings us to this hearing, which is to · 3 · · take comments on EPA's proposal driven by a settlement · 4 · · agreement which proposes to allow uncontrolled diesel · 5 · · engines 100 hours unrestricted operation under an · 6 · · emergency demand response provision. · 7 · · · · · · · EPA in a press release stated April 23, 2012, · 8 · · announcing $20 million in DERA Grant States. · Diesel · 9 · · engines are durable, fuel-efficient workhorses in the 10 · ·American economy. · EPA has standards in place that make 11 · ·new diesels more than 90 percent cleaner. · However, all 12 · · the diesels that predate these standards emit large 13 · · amounts of air pollutants such as nitrogen oxides and 14 · ·particulate matter. · These pollutants are linked to 15 · ·health problems, including asthma, lung, and heart 16 · · disease, and even premature death. 17 · · · · · · ·Yet, EPA has not made any attempt to assess the 18 · · extent of environment impact and resultant health costs 19 · · associated with this particular proposal. · EPA should get 20 · · off this slippery slope which moves the status quo for 21 · · emergency generators operating as virtual behind-the22 · ·meter power plants from zero hours to 15 hours, then toPage 65

· 1 · · 60 hours, and now 100 hours by withdrawing this proposal · 2 · · along with a provision allowing participation of · 3 · · uncontrolled diesel engines in any economic demand · 4 · · response program. · 5 · · · · · · · EPA should at least not finalize this rule · 6 · ·without conducting an assessment of the potential · 7 · · environment impacts. · This rule is not needed for · 8 · · emergency events. · Emergency generators are already · 9 · · allowed to operate without restriction during power 10 · · outages and real emergencies. · Demand response that 11 · · clears the capacity option displaces other resources on a 12 · ·megawatt-for-megawatt basis. · The long-term impact is 13 · · that this rule allows reliance on increased amounts of 14 · · diesel-based, behind-the-meter generation and discourages 15 · · construction of cleaner fossil and renewable resources. 16 · · · · · · · Let me make it perfectly clear that as a 17 · · regulatory agency in charge of protecting the air quality 18 · · and human health, we are supportive of demand response 19 · · initiatives which aim to reduce the consumption of 20 · · electric energy, and we see a legitimate and necessary 21 · · function for emergency generators. · We, however, object 22 · · to efforts that are designed to recruit uncontrolledPage 66

· 1 · · diesel generators as for-profit electricity vending · 2 · ·machines using a definition of "emergency" and "demand · 3 · · response" and under the guise of addressing system-wide · 4 · · reliability. · 5 · · · · · · · Our objection is primarily based on air quality · 6 · · and human health concerns, particularly about this impact · 7 · · and potential environment justice issues, but we are also · 8 · · concerned about displacing renewables and cleaner · 9 · · generation out of the market. 10 · · · · · · ·We plan to provide EPA with comprehensive 11 · ·written comments, and I thank you for the opportunity to 12 · ·be here today. 13 · · · · · · ·MR. WAYLAND: · Thank you very much. 14 · · · · · · ·Any questions, guys? 15 · · · · · · · [No audible response.] 16 · · · · · · ·MR. WAYLAND: · No. · Thank you, Ali. 17 · · · · · · · Our next speaker this morning will be Ted 18 · · Cromwell for the National Rural Electric Cooperative 19 · ·Association. 20 · · · · · · ·MR. CROMWELL: · Good morning. · My name is Ted 21 · · Cromwell, and I am the Senior Principal for Environmental 22 · · Policy at the National Rural Electric CooperativePage 67

· 1 · ·Association, and I am going to be speaking today on · 2 · ·behalf of NRECA and the significant number of our member · 3 · · companies as well as their customers which are directly · 4 · · impacted by EPA's proposed reconsideration of the RICE · 5 · · MACT. · 6 · · · · · · ·NRECA is a not-for-profit national service · 7 · · organization representing nearly 930 not-for-profit · 8 · ·member-owned rural electric cooperative systems. · We · 9 · · serve about 42 million consumers in 47 States. · NRECA 10 · · estimates that cooperatives own and maintain about 2-1/2 11 · ·million miles, or 42 percent, of the nation's electric 12 · · distribution lines, and this covers about three-quarters 13 · · of the U.S. land mass. 14 · · · · · · · Many of our rural electric consumers are 15 · · especially impacted by the current economic downturn. 16 · · The average household income for 93 percent of our 17 · · cooperatives fall almost 15 percent below the U.S. 18 · · average household income. · This makes affordable rates 19 · · even more critical for rural cooperatives and their 20 · · customers. 21 · · · · · · · Low population densities, together with the 22 · · issues of traversing vast expanses of remote and oftenPage 68

· 1 · · rugged topography, present unique economic and · 2 · · engineering challenges for our cooperatives. · 3 · · · · · · · Electric distribution lines serving our · 4 · · cooperative customers can run up to 80 miles from a · 5 · · substation and regularly extend 15 miles or longer. · 6 · · · · · · · I'd like to touch on several key issues in the · 7 · · EPA proposal: · first of all, the need to expand the load · 8 · ·management provisions; secondly, our support for the · 9 · · demand response provisions; third, the uncertainty 10 · · regarding the non-emergency situations; and then, fourth, 11 · · our support for EPA's definition of "remote operations." 12 · · · · · · ·NRECA does appreciate that EPA has taken 13 · · several steps towards reducing some of the burden of the 14 · ·RICE MACT on cooperatives and the customers. 15 · · Specifically, EPA has provided that emergency units can 16 · · operate up to 100 hours for demand response activities 17 · · under certain conditions and until April 17, 2012, that 18 · · up to 50 hours can be used for load management 19 · · activities. 20 · · · · · · ·While these steps provide some benefit for our 21 · · cooperative, the relief for load management activities is 22 · ·both limited by the 50 hours allowed, and it's onlyPage 69

· 1 · · temporarily available, up until 2017. · The needed support · 2 · ·provided by load management activity simply does not go · 3 · · away in April of 2017, and, therefore, neither should the · 4 · · load management allowance. · 5 · · · · · · ·We believe EPA can and should do more for load · 6 · ·management activities, particularly given that EPA's own · 7 · · analysis shows no adverse human health or environmental · 8 · · impacts resulting from the proposed amendments based upon · 9 · · an annual use of up to the 100 hours. · For compression 10 · · ignition engines, which are the bulk of what we are 11 · ·working with, EPA's analysis reflects that nationwide the 12 · ·proposed amendments will result in only 9 fewer tons per 13 · ·year of HAP emissions and 26 fewer tons per year of PM 14 · · emissions. · These pollutants were EPA's driver to initial 15 · · justify the RICE MACT, and yet, clearly, EPA indicates no 16 · · adverse health or environmental impacts are incurred by 17 · · allowing load management and other operations up to 100 18 · ·hours. · Therefore, NRECA sees no justification for EPA's 19 · · decision to limit load management to 50 hours or 20 · · eliminate that benefit in 2017. 21 · · · · · · ·While we support the proposed demand response 22 · ·provisions, NRECA is concerned that EPA's trigger forPage 70

· 1 · · demand response of Energy Emergency Alert Level 2 or a · 2 · ·voltage drop of 5 percent or greater could present some · 3 · · challenges for us. · 4 · · · · · · · First, many of the cooperatives aren't covered · 5 · · under ISO and RTOs, as several other speakers have · 6 · ·mentioned, and were instead subject to the local or · 7 · · regional balancing authority. · 8 · · · · · · · Secondly, as mentioned, our rural operations · 9 · · typically have lines stretching for 15 miles or more from 10 · · the nearest substation. · Avoiding voltage sags are an 11 · · important consideration in providing power reliability 12 · · and quality in rural areas, and waiting to take action 13 · · until a 5-percent drop occurs at a substation would 14 · · indicate more significant effects have already occurred 15 · · along other segments of these long distribution lines. 16 · · · · · · · The local regional balancing authority needs 17 · · the ability to rapidly address these situations to 18 · ·prevent the 5-percent voltage sag, rather than to wait 19 · · for it to occur prior to taking action. · EPA's proposed 20 · · definition indicates that you only take action after the 21 · · 5-percent voltage drop occurs, and we believe that is too 22 · · late.Page 71

· 1 · · · · · · ·NRECA is also concerned that EPA has provided · 2 · · little clarity regarding the types of non-emergency · 3 · · activities that are allowed for up to 50 hours. · Any · 4 · ·number of examples from being weather related to downed · 5 · ·power poles or frayed transmission lines can occur, and · 6 · ·while these occurrences are almost always unforeseen, · 7 · · they do happen more frequently than either the utility or · 8 · · the customer would like. · 9 · · · · · · ·We're unsure as to whether these activities 10 · · fall under emergency or non-emergency actions within 11 · · EPA's definition, but we recommend EPA allow flexibility 12 · · under the 100-hour set-aside for emergency operations to 13 · ·provide for these circumstances, and we will be providing 14 · · specific examples in our comments and be happy to discuss 15 · · them. 16 · · · · · · · Lastly, NRECA supports EPA's decision to expand 17 · · the definition of "remote areas in Alaska." · This 18 · · definition will provide much needed relief for those 19 · · cooperatives and their customers. · We also support EPA's 20 · · decision to further define and distinguish between urban 21 · · and rural operations of units, as many units operated in 22 · · remote areas would have no adverse health effects.Page 72

· 1 · · · · · · ·NRECA and our members support the requirements · 2 · · to address air toxics in a way that protects human health · 3 · · and the environment. · In the case RICE MACT, EPA · 4 · · established up to 100 hours for emergency unit operations · 5 · · and clearly expressed that these provisions would not · 6 · · adversely affect human health and the environment. · NRECA · 7 · · agrees that these operations under the 100-hour limit · 8 · ·will not pose an adverse health effect, and we recommend · 9 · · that EPA remove the continued restrictions that have been 10 · ·placed upon the load management operations, namely the 11 · · 50-hour limit and the 2017 sunset. · This will allow the 12 · · local and regional balancing authorities the flexibility 13 · · to call upon these units within the 100-hour limit as 14 · · they need to support local conditions. 15 · · · · · · · Thank you. 16 · · · · · · ·MR. WAYLAND: · Any questions? 17 · · · · · · ·MS. KING: · I do have a question. 18 · · · · · · ·You mentioned that you thought the 5-percent 19 · ·voltage sag was too late. · Are you going to be providing 20 · · comments on what you think is the appropriate trigger? 21 · · · · · · ·MR. CROMWELL: · Sure. · Yes. 22 · · · · · · ·MR. WAYLAND: · Thank you.Page 73

· 1 · · · · · · · Is there anyone in the room at this point who · 2 · ·has not signed up to speak this morning but would like to · 3 · · do so? · Because Ted concludes the morning session of · 4 · · this. · We have two speakers who are present -- four · 5 · · speakers who are present, who are signed up for the · 6 · · afternoon session. · If you would be willing to go ahead · 7 · · and go this morning before the lunch break, we're happy · 8 · · to do that, but I don't want to mess up your timing if · 9 · ·you prefer to wait until after lunch. 10 · · · · · · ·Would either Christina Simeone or Shannon 11 · · Banaga -- would either of you like to go now, or do you 12 · ·want to wait until after the lunch break? 13 · · · · · · ·MS. SIMEONE: · I'd be happy to go now. 14 · · · · · · ·MR. WAYLAND: · Okay. 15 · · · · · · ·MS. SIMEONE: · Can we have an extra minute? 16 · · · · · · · [Laughter.] 17 · · · · · · ·MR. HOROWITZ: · She wants an extra minute. 18 · · · · · · ·MS. KING: · Can she have an extra minute, she 19 · · said? 20 · · · · · · ·MR. WAYLAND: · Yeah. · We can be flexible at this 21 · ·point in the hearing. 22 · · · · · · ·MS. SIMEONE: · Hi, there. · My name is ChristinaPage 74

· 1 · · Simeone. · That's S as in Sam, i-m as in Mary, e-o-n-e. · I · 2 · · am the Director of the PennFuture Energy Center. · I'd · 3 · · like to thank you for allowing me to provide testimony · 4 · · today. · 5 · · · · · · · PennFuture is a Pennsylvania-based 501(c)(3) · 6 · · environmental organization championing efforts to protect · 7 · · the environment while also growing the economy. · 8 · · PennFuture is very concerned about the provisions in the · 9 · · Proposed Rule that would allow RICE units without 10 · ·pollution controls to increase participation and demand 11 · · response programs from 15 hours to 100 hours, expand 12 · · demand response participation to larger engines, and 13 · · create a new loophole for participation and peak-shaving 14 · ·programs. · PennFuture believes that these provisions will 15 · ·harm public health, create market distortions that 16 · · discourage investment into cleaner generation, and will 17 · · reduce electric grid reliability. 18 · · · · · · · EPA lacks the data and analytics at this point 19 · ·needed to understand the environmental or public health 20 · · impacts of the demand response allowances in the Proposed 21 · ·Rule. · PennFuture urges EPA to require pollution controls 22 · · for emergency stationary RICE units as a condition ofPage 75

· 1 · ·participation in any demand response program. · 2 · · · · · · · Harming public health. · Stationary diesel · 3 · · engines are sources of extremely harmful pollution that · 4 · · cause respiratory problems, cancer, and premature death · 5 · · in humans. · The World Health Organization recently found · 6 · · that diesel fumes cause lung cancer and are more · 7 · · carcinogenic than secondhand cigarette smoke. · Diesel · 8 · · exhaust contains hazardous air pollutants and PM2.5 in · 9 · ·nitrogen oxides which are key precursors to ozone and 10 · · secondary PM formation. 11 · · · · · · ·As described by EPA, both ozone and PM2.5 are 12 · · associated with significant public health problems, 13 · · including premature mortality, aggravation of respiratory 14 · · and cardiovascular disease, changes in lung function, and 15 · · increased respiratory symptoms, chronic bronchitis, 16 · · altered respiratory defense mechanism, altered lung 17 · · development, adverse reproductive outcomes, and altered 18 · · fetal development. 19 · · · · · · · Stationary diesel technologies generally emit 20 · ·pollutants closer to the ground, often in more densely 21 · ·populated areas as compared to central station electric 22 · · generation with tall smokestacks.Page 76

· 1 · · · · · · · Environmental impacts are unknown. · 2 · · Environmental impacts of increased use of uncontrolled · 3 · ·RICE units are relatively unknown and could be · 4 · · significant. · This proposal will lead to increases in · 5 · · ozone, particulate matter, and hazardous air pollutant · 6 · · emissions, some of which will occur on the worst air · 7 · · quality days of the year and will also have negative · 8 · · impacts on State implementation planning. · 9 · · · · · · · Some argue environmental impacts are minimal, 10 · ·because in the past these resources have not run 11 · · frequently. · EPA should be mindful of the existing trends 12 · · in demand response growth and reflect on whether past 13 · ·behavior is an approximate proxy for the future, 14 · · especially under the expanded 100-hour scenario. 15 · · · · · · · EPA lacks data to support its proposal. · EPA is 16 · · developing the demand response waiver arbitrarily and in 17 · · the absence of critical information. · By its own 18 · · admission, EPA does not have data on the number and 19 · · location of or emissions from emergency stationary RICE. 20 · · · · · · · EPA didn't even model emission increases from 21 · · demand response programs. · For the Proposed Rule, EPA 22 · · failed to model; emission increases resulting fromPage 77

· 1 · · increased participation in demand response programs, · 2 · · resulting from the new provisions. · In fact, EPA made no · 3 · · changes to the original emissions modeling to account for · 4 · · the expanded demand response programs, even though the · 5 · · original modeling only factored in 50 hours of operation · 6 · · for compression emission and spark ignition emergency · 7 · · stationary RICE. · 8 · · · · · · · To be consistent with the proposal, EPA should · 9 · · assume 100 hours of operation for all emergency 10 · · stationary RICE and perform corresponding emissions 11 · ·modeling. 12 · · · · · · · EPA is creating a dirty energy subsidy harming 13 · · clean energy technologies. · EPA is arbitrarily picking 14 · · dirty RICE units as winners and creating obstacles to 15 · · investments in energy efficiency and cleaner generation 16 · · like wind and natural gas. · EPA's proposal will create 17 · · distortions in energy markets by making demand response 18 · · from uncontrolled RICE units artificially cheap, 19 · · resulting in foregone opportunities for both cleaner 20 · · demand response and construction of new generation builds 21 · · that are cleaner. 22 · · · · · · · Dirty demand response growth is being fueled byPage 78

· 1 · ·RICE. · PennFuture is a strong supporter and promoter of · 2 · · clean demand response, which we define as low curtailment · 3 · · through efficiency and conservation. · We do not support · 4 · · efforts to promote behind-the-meter dirty demand response · 5 · · that relies on RICE units with no pollution controls. · 6 · · · · · · · Demand response programs in the PJM are · 7 · · growing. · The 60-hour limited product, which is where we · 8 · ·believe most of the RICE units are being offered, are · 9 · · dominating the demand response market. · Ninety-one 10 · ·percent of the new demand response capacity offered in 11 · · the 2015 to 2016 energy year was the limited demand 12 · · response product, which translates into 10 percent of all 13 · · the new resources being offered into PJM. · That year, 62 14 · ·percent of the demand response resources that cleared the 15 · ·market were limited DR, which translates into 6 percent 16 · · of the new resources clearing the market. 17 · · · · · · · The 15-hour demand response limited compliance 18 · · obligations from the 2010 rule will come into effect by 19 · · the end of 2013. · In spite of the 15-hour limits that 20 · · some claim will harm demand response resources, we still 21 · · saw significant growth of demand response and limited 22 · · demand response in the 3-year-ahead capacity markets forPage 79

· 1 · ·years 2013 to 2014, 2014 to 2015, and 2015 to 2016, · 2 · · suggesting that either there is no problem if those · 3 · · resources drop out or that entities were not planning on · 4 · · compliance or not planning on the rule being finalized. · 5 · · · · · · · Overreliance on demand response from RICE will · 6 · ·harm reliability. · By making demand response from · 7 · · emergency RICE artificially cheap, EPA is creating a rush · 8 · · to these resources. · These resources are severely limited · 9 · · in their ability to operate and, therefore, inferior 10 · · resources to the grid. 11 · · · · · · ·RICE units are not needed for reliability. · EPA 12 · ·has led to believe that if the Agency requires pollution 13 · · controls for RICE units as a condition of participating 14 · · in demand response programs, electricity systems would 15 · ·not be able to maintain reliability. · This isn't true at 16 · · least in PJM. · For example, in the PJM, there were 14,026 17 · ·megawatts of uncleared capacity in the 2015 to 2016 base 18 · · residual auction. · This means that there would still be 19 · ·plenty of resources available if the entire 9,247 20 · ·megawatts of cleared limited demand response product in 21 · · the 2015 to 2016 auction were not available. 22 · · · · · · · Economic demand response programs can pay forPage 80

· 1 · ·pollution controls. · As a limited demand response · 2 · · resource in PJM, revenue generation potential is · 3 · · significant. · A 600-horsepower engine could earn about · 4 · · $25,500 per year, while a 300-horsepower unit could earn · 5 · · over $12,000 per year. · If pollution controls are · 6 · · installed, these units could add greater value to the · 7 · · grid while generating additional revenue streams through · 8 · ·participation in peak shaving and other ancillary service · 9 · ·products and would not have limitations on operation. 10 · · · · · · · In addition, conservation service providers 11 · ·have provided compliance as a service in order to 12 · · facilitate pollution control installation, monitoring, 13 · · and maintenance to keep RICE units operating in demand 14 · · response programs. 15 · · · · · · · In conclusion, PennFuture urges EPA to require 16 · ·pollution controls as a condition of participating in any 17 · · demand response program. · In the absence of accurate data 18 · · and adequate modeling, EPA has not presented clear 19 · · information on the impacts to public health from the 20 · ·proposed pollution control waivers. · EPA has also failed 21 · · to consider how their proposal will distort energy 22 · ·markets and cause harm to cleaner generation interests.Page 81

· 1 · · · · · · · If EPA is seeking to ensure and maintain · 2 · · electric grid reliability, it should avoid creating · 3 · · loopholes that will prevent investments in the baseload · 4 · · generation needed to secure the grid. · 5 · · · · · · · Thank you very much, and I will answer any · 6 · · questions that you may have. · 7 · · · · · · ·MR. WAYLAND: · Any questions? · 8 · · · · · · · [No audible response.] · 9 · · · · · · ·MR. WAYLAND: · Thank you very much. 10 · · · · · · · Shannon, do you want to go ahead? 11 · · · · · · · This is Shannon Maher Banaga with PSEG. 12 · · · · · · ·MS. BANAGA: · Good morning. · On behalf of PSEG, 13 · · I appreciate the opportunity to share our comments on 14 · · EPA's proposed RICE NESHAP rule. · My name is Shannon 15 · ·Maher Banaga, and my position is Manager Environmental 16 · · Policy for PSEG. 17 · · · · · · · The portion of the Proposed Rule that PSEG 18 · · comments on today is that which relaxes compliance 19 · · obligations for stationary behind-the-meter engines to 20 · · allow expanded use of these engines in emergency response 21 · ·programs that treat these machines as capacity resources. 22 · ·Respectfully, we believe that the current proposal isPage 82

· 1 · · inconsistent with the long-held objectives of the Agency, · 2 · · counter to the use of economic signals to improve · 3 · · environmental performance and biases at the expense of · 4 · · the environment, the operation of the capacity and energy · 5 · ·markets created by FERC. · 6 · · · · · · · I would like to make three basic points · 7 · · concerning the Proposed Rule. · One, the claim that · 8 · · uncontrolled behind-the-meter diesel generation is needed · 9 · · as a capacity resource for reliability purposes is 10 · · unsupported and we believe inaccurate. 11 · · · · · · · The environmental impacts of allowing 12 · · additional operation of uncontrolled behind-the-meter 13 · · diesel generation has neither been accurately quantified 14 · ·nor adequately understood. · The value proposition for 15 · · adding control devices for this technology is subject to 16 · ·market forces, and EPA should allow market signals to 17 · · drive environmental improvements. 18 · · · · · · · Overall, as a policy choice, there does not 19 · · appear to be any justification for the EPA to reject the 20 · · statutory mandate of reducing harmful air emissions in 21 · · order to protect the environment, especially where EPA 22 · ·would compromise that mandate in order to address anPage 83

· 1 · · issue squarely within the jurisdiction of FERC. · 2 · · · · · · · First, particularly in those parts of the · 3 · · country that have established organized wholesale markets · 4 · ·with distinct market-based capacity markets, it is not · 5 · ·necessary for the Agency to relax environmental standards · 6 · · for behind-the-meter generation in order to satisfy · 7 · · regional reliability standards. · The evidence shows that · 8 · · given adequate advanced notice, market structures for · 9 · · capacity procurement can and will respond to adequate 10 · · capacity when satisfying environmental requirements. 11 · · · · · · · For example, even with 14,000 megawatts of 12 · ·plant retirements in the last PJM capacity auction, 13 · · enough new capacity was offered not only to meet PJM's 14 · · reliability standard but to exceed it. · With an 15 · · additional 14,000 megawatts of excess capacity not 16 · · clearing the auction, a clear indication that more than 17 · · sufficient resources are available to maintain resource 18 · · adequacy. 19 · · · · · · · But because of the financial incentives 20 · · available to participants in these economic capacity 21 · ·markets, the only likely effect of relaxing environmental 22 · · standards for behind-the-meter diesel-generating enginesPage 84

· 1 · · in market regions will be to give those resources an · 2 · · unwarranted competitive advantage and displacing other · 3 · · types of capacity resources with superior environmental · 4 · · and operating characteristics. · 5 · · · · · · · The claim made by proponents of the revisions · 6 · · to the Final Rule that uncontrolled behind-the-meter · 7 · · diesel generation as a type of demand response capacity · 8 · · resource is necessary as a last safeguard before · 9 · ·brownouts or load shutting is a gross 10 · ·mischaracterization. · No capacity resource has the unique 11 · ·must-have reliability characteristic. · Demand response 12 · · capacity resources historically have been called later in 13 · · the dispatch order, because they are only available for 14 · · limited periods of time. 15 · · · · · · · Second, the environment impacts of relaxing the 16 · · environmental standards for behind-the-meter generation 17 · ·have not adequately been evaluated. · Not only does EPA 18 · · lack reliable estimates of the quantities of such 19 · · resources that currently exist, but in addition, it has 20 · ·never considered the amount of additional behind-the21 · ·meter generation as demand response that would be built 22 · · in the future if the Proposed Rule would be finalized.Page 85

· 1 · · This should be a significant concern, as PJM has shown · 2 · ·when the level of demand response. · As a share of total · 3 · · capacity resources increases, the number of times that · 4 · · demand response is deployed will also increase · 5 · · significantly. · Claims to the contrary are based on · 6 · · obsolete studies and should be reevaluated. · 7 · · · · · · · EPA's own summary of reductions for existing · 8 · · stationary RICE appears to be severely flawed, and that · 9 · · the initial assumption of emissions impact based on run 10 · · time was not revised to reflect a maximum run time of 100 11 · ·hours per year to accord for the impact of the Proposed 12 · ·Rule. 13 · · · · · · · The underlying assumption of these studies and 14 · · EPA's emissions impact study that demand response is the 15 · ·miniscule component of the resource mix and will be 16 · · rarely deployed does not comport with reality. · If EPA 17 · · adopts policies, increasing the additional run times for 18 · · uncontrolled diesel BTM generation, it should also expect 19 · · that additional generators will be built to exploit this 20 · · competitive advantage in markets such as PJM that have 21 · · economic capacity markets. 22 · · · · · · · To the extent that these resources are calledPage 86

· 1 · · on during the hottest days of the year, their · 2 · · contribution to ozone formation will far exceed those of · 3 · · comparable generation resources on a unit basis. · It is · 4 · · quite apparent that little is known about the profile of · 5 · · demand response by EPA, FERC, or the ISOs or RTOs. · This · 6 · · lack of information dictates that EPA should commence a · 7 · · full study of the environmental ramifications of allowing · 8 · · operation of these generators without imposing otherwise · 9 · · applicable air quality protections, and include in such 10 · · an assessment the potential impacts of not just existing 11 · · resources but the impact of those new resources that 12 · ·would be constructed if such an exception were allowed. 13 · · · · · · · Third, should the EPA limit the run time of 14 · · uncontrolled diesel-fired generation? · It would appear 15 · · that many units could be upgraded to meet current 16 · · environmental standards. · According to the Manufacturers 17 · · of Emission Controls Association, emission control 18 · · technologies are commercially available today that can 19 · · greatly reduce air pollutants, such as particulate 20 · ·matter, nitrogen oxides, carbon monoxide, hydrocarbons, 21 · · and other air toxics emitted from existing diesel 22 · · stationary internal combustion engines.Page 87

· 1 · · · · · · ·A recent Carnegie Mellon University study · 2 · ·published in the Journal of Air and Waste Management · 3 · · found that on a full cost basis, properly controlled · 4 · ·diesel generators are cost effective for meeting peak · 5 · · electricity demand and, therefore, recommends · 6 · · implementation of NOx and PM2.5 controls for such sources. · 7 · · · · · · ·While the cost of adding emission controls to · 8 · · these engines is dependent on site conditions, horsepower · 9 · · and the type of emission reductions sought, such controls 10 · · are apparently cost effective, especially for engines 11 · · that are receiving capacity payments, comparable to other 12 · · grid-connected power generators. 13 · · · · · · · PSEG, therefore, submits that expanding the 14 · · allowances for behind-the-meter generation to participate 15 · · as demand response capacity resource is not justified. 16 · ·Rather, there is no need for the current 15-hour 17 · · allowance in regions that have capacity markets, and, 18 · · therefore, EPA should consider its elimination. 19 · · · · · · · EPA should require that those behind-the-meter 20 · ·diesel generators satisfy the same emission standards 21 · · and, therefore, add emission controls to meet such 22 · · environmental standards in order to provide capacity.Page 88

· 1 · ·Moreover, at a minimum, before EPA could even consider an · 2 · · expansion of air emission allowable for this type of · 3 · · generation, it would need to determine how much · 4 · · uncontrolled behind-the-meter generation exists, how much · 5 · ·might be added, how often such resources would be · 6 · · deployed. · EPA should then utilize this information to · 7 · · conduct a thorough analysis of the energy, economic, and · 8 · · environmental impacts of this increased run time of · 9 · · emissions. · Without doing so, EPA not only renders the 10 · · regulations susceptible to legal challenge as 11 · · inconsistent with the mandates of the Clean Air Act but, 12 · ·more importantly, jeopardizes the quality of air control. 13 · · · · · · · Thank you. 14 · · · · · · ·MR. WAYLAND: · Thank you. 15 · · · · · · ·Any questions? 16 · · · · · · ·MS. BANAGA: · Any questions? 17 · · · · · · · [No audible response.] 18 · · · · · · ·MS. BANAGA: · Thank you. 19 · · · · · · ·MR. WAYLAND: · Thank you very much. 20 · · · · · · · [Pause.] 21 · · · · · · ·MR. WAYLAND: · Our next speaker will be Don 22 · · DiCristofaro from Blue Sky Environmental, and then wePage 89

· 1 · ·will have one additional speaker this morning. · And then · 2 · ·we will break for lunch, unless there is anyone in the · 3 · · room who would like to testify this morning that hasn't · 4 · · registered. · If you would like to do so, please see the · 5 · · lady out by the table at the front door. · 6 · · · · · · ·MR. DiCRISTOFARO: · My name is Don DiCristofaro, · 7 · · and I am an air quality meteorologist, who is President · 8 · · of Blue Sky Environmental in Massachusetts. · I'm also a · 9 · · certified consulting meteorologist, as designated by the 10 · ·American Meteorological Society. 11 · · · · · · · I have worked closely with State environmental 12 · · agencies, demand response providers, and end-use 13 · ·participates on permitting the use of engines in demand 14 · · response, or DR programs, since 2002. · My comments today 15 · · focus on the use of engines in both emergency and non16 · · emergency DR programs. 17 · · · · · · · I fully support the EPA's proposal regarding 18 · · changes to both the NESHAP and the NSPS and urge the EPA 19 · · to work to meet the December 2012 deadline. · It has taken 20 · · a very long time to get to this day, and I greatly 21 · · appreciate the time and effort the EPA has put into this 22 · · Proposed Rulemaking since this whole process first beganPage 90

· 1 · · in 2008. · 2 · · · · · · · I can speak from firsthand experience about the · 3 · · extensive diligence EPA has put into this matter to · 4 · · arrive at the right outcome in the form of its Proposed · 5 · ·Rule changes. · Throughout this process, I have been · 6 · · questioned extensively by EPA during numerous meetings · 7 · · and phone calls. · I have supplied EPA with a mountain of · 8 · ·backup and provided numerous references. · 9 · · · · · · · So here we are now commenting on the proposed 10 · ·NOPR that EPA published in June, closing a well-vetted 11 · · and thorough process. · I would like to thank and praise 12 · · the EPA's staff for taking the time and effort to 13 · · understand this issue and to ask the required detailed 14 · · questions. · I know you put a lot of time and effort into 15 · · this due diligence. · I know you took the time to 16 · · understand the importance of DR in maintaining grid 17 · · reliability. 18 · · · · · · ·When the electric grid fails, as we all well 19 · · know, it can take days or weeks to restore it back to 20 · · 100-percent conditions. · During blackouts, every 21 · · generator, whether properly permitted or not, will run 22 · · 24/7 until the power grid is restored. · During blackouts,Page 91

· 1 · ·public health and safety and the environment are greatly · 2 · ·harmed. · 3 · · · · · · · For example, during the 2003 blackout, millions · 4 · · of gallons of untreated sewerage poured into New York · 5 · · City's rivers. · Many States understand the importance of · 6 · · using a subset of generators for a short period of time · 7 · · to avoid a blackout is good for the environment. · 8 · · · · · · ·We are discussing conditions that very rarely · 9 · · occur. · For example, the last time, and the only time, 10 · · emergency engines were used by ISO New England for 11 · · emergency DR in all of New England was on August 2, 2006, 12 · · for a total of 3.75 hours. · Without emergency DR that 13 · · day, though, there would have been widespread blackouts 14 · · and the possibility of the entire grid going down. 15 · · · · · · · Some allege that emergency DR is dispatched by 16 · · ISOs on days of high ozone, thereby implying that the use 17 · · of emergency generators will increase the number of ozone 18 · · exceedence days. 19 · · · · · · · I am an air quality meteorologist with over 30 20 · ·years of experience, and I've studied this issue 21 · · extensively. · There is no correlation between emergency 22 · · DR and ozone exceedence days. · Although some emergency DRPage 92

· 1 · · events are called during high ozone days, many DR events · 2 · · occur on non-ozone exceedence days, and many, many, many · 3 · ·more have ozone alerts but no DR events. · The data does · 4 · · not show that the emergency use -- that the use of · 5 · · emergency engines during emergency DR events causes high · 6 · · ozone, particularly since in many instances, the ozone · 7 · · concentrations are as high or higher on the days · 8 · ·preceding an event. · 9 · · · · · · · Some may say that the EPA is allowing more 10 · · engine use in DR, but you need to look at the NESHAP, 11 · ·which is a very difficult regulation to wade through. 12 · · EPA has always allowed up to 100 hours per year for non13 · · emergency use, which includes testing and maintenance. 14 · · EPA is not proposing to change this 100 annual hour 15 · · limit. · It is just being more flexible as to how those 16 · ·hours may be used. 17 · · · · · · ·Also, remember that DR event hours can and are 18 · · used as substitutes for normal testing and maintenance. 19 · · EPA is doing the right thing. · EPA understands the 20 · · importance of protecting the reliability of our electric 21 · · grid as well as our environment. · EPA understands a grid 22 · · failure would do far more harm to the environment thanPage 93

· 1 · ·proactively using as a last line of defense a subset of · 2 · · generators for a short period of time to avoid blackouts · 3 · · and brownouts. · 4 · · · · · · · EPA is doing the right thing also by promoting · 5 · · the use of DR to help our nation make a significant · 6 · · transition away from coal to cleaner, centralized power · 7 · · generation over the next half decade or so, and we · 8 · · commend EPA for this smart approach. · 9 · · · · · · · In closing, I want to thank EPA for the time 10 · · and effort that I know firsthand, you have put into this 11 · · issue over the past several years, and I thank you for 12 · ·hearing my comments today. 13 · · · · · · · MR. WAYLAND: · Thank you very much. 14 · · · · · · ·Any questions? · Michael? · Melanie? 15 · · · · · · · [No audible response.] 16 · · · · · · · MR. WAYLAND: · Our last speaker this morning 17 · ·will be Rick Counihan of EnerNOC, Incorporated, and then 18 · ·we will take a 1-hour break for lunch and reconvene the 19 · ·hearing at 1 p.m. back in this room. · If you leave the 20 · ·building, you will have to come back through security. 21 · · So just keep that in mind if you want to be in here when 22 · · it starts at one. · You probably ought to get here aboutPage 94

· 1 · · 12:45 or 12:50. · Thank you. · 2 · · · · · · ·MR. COUNIHAN: · Thank you. · Thank you very much · 3 · · for the opportunity to speak today. · My name is Rick · 4 · · Counihan. · That's spelled C-o-u-n-i-h-a-n, and I am Vice · 5 · · President of Government Affairs for EnerNOC. · 6 · · · · · · ·And I would like to say that EnerNOC fully · 7 · · supports EPA's Proposed Rule in its entirety regarding · 8 · · the use of emergency generators in demand response · 9 · ·programs. 10 · · · · · · ·As a party that has been engaged in this 11 · · Proposed Rule for almost 2 years, I very much appreciate 12 · · the hard work, the careful listening, and the thoughtful 13 · · analysis that EPA staff has put into this issue over the 14 · · last couple of years. 15 · · · · · · · Sort of coming at the end, it's difficult to 16 · · say things that haven't already been said by one party or 17 · · another today, but I will endeavor to do that. 18 · · · · · · · One thing I'd like to bring up is that to 19 · · reiterate that emergency demand response events are 20 · · rarely called. · There is a lot of talk today about the 21 · · 100 hours, the 100 hours, the 100 hours, but the 100 22 · ·hours is really an upper limit. · And over the pastPage 95

· 1 · · decade, there have been less than 35 emergency demand · 2 · · response events called by PJM, the New York ISO, ISO New · 3 · · England, and the ERCOT, Electric Reliability Council of · 4 · · Texas, combined, 35 events in a decade from all of those · 5 · · combined. · This is very, very few hours, and this is in · 6 · · contrast to the big generators that we've heard from · 7 · · today who operate for thousands of hours per year. · So · 8 · · there's a significant difference in the resources we're · 9 · · discussing. 10 · · · · · · · This rule sets an upper limit at 100, as I said 11 · ·before, not just for the operation of these ISOs, but if 12 · ·you look at the State regulations regarding the use of 13 · · emergency generators in demand response, they vary. · Some 14 · · States like Delaware do not allow it. · Other States do 15 · · allow it. · The rule that you have crafted here would 16 · · generally allow the States to have -- continue that 17 · · diversity as they see their needs in the State. 18 · · · · · · · If we were to go back to the 15-hour, that 19 · ·would contradict what the majority of the States 20 · · currently allow, which is they currently allow a 21 · · significant number of hours such that generators can 22 · ·participate in demand response.Page 96

· 1 · · · · · · · So I congratulate you for crafting a rule that · 2 · · allows the diversity among the State policy positions · 3 · · currently. · 4 · · · · · · · One thing that wasn't talked about very much · 5 · · today was the economic benefits of emergency demand · 6 · · response. · Businesses and institutions such a hospitals, · 7 · · universities, that participate in emergency demand · 8 · · response programs are compensated for their availability, · 9 · · their availability to reduce electricity from the grid 10 · ·when they are called upon, and they are compensated 11 · ·whether or not they are actually called upon to do so. 12 · · This money helps improve their bottom line if they're a 13 · · for-profit entity. · It helps not-for-profit entities and 14 · · government entities meet their budgets in times of very 15 · · scarce public dollars. 16 · · · · · · · But the economic benefits are not limited to 17 · · those who participate in the emergency demand response. 18 · ·All the customers of the electric entities that provide 19 · · demand response, such as ISOs and utilities, benefit from 20 · · lower overall cost of power. · We have heard this 21 · · testified from some of the public power entities that are 22 · ·here today that emergency demand response is a cost-Page 97

· 1 · · effective way for them to meet their customers' needs, · 2 · ·but the PJM Independent Market Monitor, who will · 3 · ·presumably be speaking here this afternoon, has · 4 · · calculated that demand response and energy efficiency · 5 · · reduce the overall cost of capacity to all PJM customers · 6 · ·by $11.8 billion in the 2013-2014 delivery year. · That's · 7 · · almost $12 billion that received for consumers -- these · 8 · · are not the people who are participating. · These are all · 9 · · consumers. 10 · · · · · · ·Now, not all of that was from demand response. 11 · · Some was from energy efficiency, and not all of the 12 · · demand response is from emergency generation, far from 13 · · it, far less than half in my opinion, but the point is 14 · · that at least billions of dollars were saved for 15 · · customers in PJM by PJM's use of emergency demand 16 · · response. 17 · · · · · · · I leave with one last thought. · I listened to 18 · · all the speakers previously, and if you listened to a lot 19 · · of people who were opposed to the Proposed Rule, they 20 · · used words like "PJM" and "organized capacity markets," 21 · · and I would submit to you, the EPA, that they have very 22 · · real policy disputes with us and entities that supplyPage 98

· 1 · · demand response. · They have legitimate policy positions. · 2 · ·We have legitimate policy positions, but the proper forum · 3 · · for resolution of those is in the PJM stakeholder · 4 · ·process, and if it fails there, at the Federal Energy · 5 · ·Regulatory Commission. · You guys have to make a rule that · 6 · · covers that entire country and all the different market · 7 · · conditions. · 8 · · · · · · · Thank you very much, and I'll happily answer · 9 · · any clarifying questions. · And I am sure there won't be 10 · · any, because I'm standing between us and lunch. 11 · · · · · · ·MR. WAYLAND: · Any questions, guys? 12 · · · · · · · [No audible response.] 13 · · · · · · ·MR. WAYLAND: · Thank you very much. 14 · · · · · · · Is there anyone in the room before we recess 15 · · for lunch that has not had a chance to speak that would 16 · · like to? 17 · · · · · · · [No audible response.] 18 · · · · · · ·MR. WAYLAND: · Seeing none, I am going to recess 19 · · this hearing at this time. · We will reconvene at one 20 · · o'clock in this room. · Thank you. 21 · · · · · · · [Luncheon recess taken from 12:03 to 1:07 p.m.] 22 · · · · · · ·MR. WAYLAND: · Good afternoon, everyone. · We arePage 99

· 1 · · going to reconvene today's hearing on the RICE · 2 · · amendments. · However, at this time, we have no one who · 3 · ·has expressed an interest to speak yet this afternoon. · 4 · ·We have two or three individuals who are signed up in the · 5 · · 2:00 to 3:45 range, but at this time, there's no one · 6 · ·wishing to speak. · 7 · · · · · · · Is there anyone in the room who would like to · 8 · · address the panel that has not signed up? · 9 · · · · · · ·MS. KING: · 1:30 is the next person that's 10 · · signed up. 11 · · · · · · ·MR. WAYLAND: · Yeah. · I think the next 12 · · appointment is at 1:30. · Someone is supposed to be here, 13 · · and then there is a 2:30 and a 3:45 request. 14 · · · · · · · So seeing no one willing to speak, I am going 15 · · to recess the hearing at this time again until such time 16 · · that one of those three folks for the afternoon shows up. 17 · · · · · · · Thank you. 18 · · · · · · · [Recess taken from 1:08 to 1:34 p.m.] 19 · · · · · · ·MR. WAYLAND: · Okay. · At this time, we are going 20 · · to reconvene the hearing on the RICE NESHAP and NSPS 21 · · amendments. 22 · · · · · · ·Ready to testify today before the panel isPage 100

· 1 · · Bruce Campbell of EnergyConnect, and since you weren't · 2 · ·here for all the front-end stuff, you will have 5 minutes · 3 · · to testify, start with the green light. · When you have a · 4 · ·minute left, the yellow light will come on. · When the red · 5 · · light comes on, your 5 minutes is up, but, obviously, · 6 · · there's nobody beating down the door. · So if you run over · 7 · · a little bit, that's okay. · 8 · · · · · · ·MR. CAMPBELL: · I doubt that I go very long. · 9 · · · · · · ·MR. WAYLAND: · The floor is yours. · Thank you 10 · · again for coming to testify. 11 · · · · · · ·MR. CAMPBELL: · Well, thank you for having me, 12 · ·Mr. Wayland, Ms. King, Mr. Horowitz. · Thank you for 13 · ·having me here today. 14 · · · · · · ·My name is Bruce Campbell, and I am the 15 · · Director of Regulatory Affairs for EnergyConnect. 16 · · EnergyConnect is a wholly owned subsidiary of Johnson 17 · · Controls, a Fortune 100 company. · EnergyConnect is 18 · · engaged in aggregating retail customers for provision of 19 · ·wholesale electric grid services through demand response 20 · · on the East Coast and in California, and it is actively 21 · ·moving to expand into other regions. 22 · · · · · · · Some of our customers use emergency generatorsPage 101

· 1 · · to provide a portion of their curtailment activity. · As · 2 · · an initial matter, I would like to comment that · 3 · · EnergyConnect supports the Proposed Rule to allow · 4 · · emergency generators to provide grid support services · 5 · · through demand response in extreme grid emergencies for · 6 · · up to 100 hours. · 7 · · · · · · · Let me also say that we appreciate the hard · 8 · ·work that EPA staff has put into the first -- put into, · 9 · · first, reach an understanding of the complex rules and 10 · · conditions in the electric industry and, second, in 11 · · reaching a recommendation on use of emergency generators 12 · · for electric grid support. · The 100-hour limit proposed 13 · ·will allow emergency generators to continue to contribute 14 · · to this grid support. 15 · · · · · · · I'd like to point out -- as a major matter, I'd 16 · · like to point out that the availability of emergency 17 · · generators for use in grid emergencies results in 18 · · substantial savings to electricity customers. · We don't 19 · ·have solid information on the amount of grid reliability 20 · ·megawatts provided by emergency generators. · However, as 21 · ·people in the business, we estimate that perhaps as much 22 · · as 30 percent of demand response is sourced from suchPage 102

· 1 · · generators, and we can't break that down, by the way, · 2 · · into emergency generators and otherwise permitted · 3 · · generators. · But if the 30-percent estimate is accurate, · 4 · ·we estimate for PJM alone that the value of emergency · 5 · · generator participation is about $1 billion per year in · 6 · · reduced electricity cost. · 7 · · · · · · · This estimate is based on PJM simulations of · 8 · · certain market outcomes that illustrate the impact of · 9 · ·precluding 30 percent of demand response from 10 · ·participation. · This suggests that nationally the value 11 · · could be as high as 4 billion per year. 12 · · · · · · · Of course, there are some stakeholders that 13 · ·have opposed the EPA Proposed Rule who offer estimates 14 · · that emergency generators provide as much as 50 percent 15 · · of grid emergency service, a substantially greater 16 · · reliability capability than we think is credible. 17 · · However, if they are correct, then these same PJM 18 · · simulations indicate that the savings through electricity 19 · · customers from emergency generators in PJM along is 20 · ·nearly $3 billion per year. · If the EPA imposes a 15-hour 21 · · limit on emergency generators, these savings will 22 · · disappear.Page 103

· 1 · · · · · · ·A great deal of my work involves support of · 2 · · efforts of PJM and FERC to properly recognize the · 3 · · contribution of demand response resources, including · 4 · ·backup generation. · These issues are at the root of many · 5 · · of the comments that you've heard today from others, and · 6 · · these are economic issues that are in the purview of the · 7 · · Federal Energy Regulatory Commission and, in my case, PJM · 8 · · and are best resolved in those arenas. · It is up to · 9 · · companies like mine to provide opportunities within the 10 · · rules, both the EPA rules and electricity market rules, 11 · · for electricity users to manage their cost through 12 · · activities like demand response. 13 · · · · · · ·As the others have pointed out, grid 14 · · emergencies are historically infrequent and of short 15 · · duration. · Thus, the mere availability of emergency 16 · · generation for grid backup is unlikely to result in 17 · ·notable economic degradation. · This suggests that EPA's 18 · ·proposed rule to limit such operation to 100 hours per 19 · ·year is a reasonable approach that has benefits for all 20 · ·Americans, and for these reasons, we encourage the EPA to 21 · · follow through with the proposed changes. 22 · · · · · · · Thank you for your time and attention.Page 104

· 1 · · · · · · ·MR. WAYLAND: · Thank you very much, Bruce. · 2 · · · · · · ·Any questions from you guys? · 3 · · · · · · · [No audible response.] · 4 · · · · · · ·MR. WAYLAND: · Okay. · Thank you very much. · 5 · · · · · · · Is there anyone here who would like to speak at · 6 · · this time? · 7 · · · · · · · [No audible response.] · 8 · · · · · · ·MR. WAYLAND: · Seeing no interest, we will · 9 · · recess again until the next speaker is available, I think 10 · · at approximately 2:30. 11 · · · · · · ·MS. KING: · 2:30, yes. 12 · · · · · · ·MR. WAYLAND: · Yeah, 2:30. · Thank you. 13 · · · · · · · [Recess taken from 1:39 to 1:56. p.m.] 14 · · · · · · ·MR. WAYLAND: · Okay. · I am going to reconvene 15 · · the hearing at this time. · We have one additional 16 · · speaker, Jesse Tremaine from the American Lung 17 · ·Association. 18 · · · · · · · Jesse, you are free to start when you are 19 · · ready. 20 · · · · · · ·MR. TREMAINE: · Great. · All right. · Good 21 · · afternoon. · Thank you for having me. · My name is Jesse 22 · · Tremaine. · I am with the American Lung Association, andPage 105

· 1 · · that's T-r-e-m-a-i-n-e. · 2 · · · · · · · Like I said, my name is Jesse Tremaine. · I am · 3 · · an attorney working with the American Lung Association · 4 · ·here in D.C. · The Lung Association appreciates the · 5 · · opportunity to comment on the Proposed Rule; in · 6 · ·particular, the opportunity to bring the health · 7 · ·perspective to the discussion of diesel backup generators · 8 · · and emergency demand response. · 9 · · · · · · · The Lung Association opposes changes in the 10 · · Proposed Rule that allow use of diesel backup generators 11 · · for anything other than true emergencies. · We strongly 12 · · oppose exempting any number of hours for peak shaving. 13 · · · · · · · Backup generators are for emergencies, not for 14 · ·meeting peak demand. · Emergency demand response programs 15 · · respond to spikes in electricity demand or impending 16 · · outages through either reduced consumption or behind-the17 · ·meter generation. · When demand response means reducing 18 · · electricity use, it improves reliability. · It protects 19 · ·public health. · However, backup generators rely on diesel 20 · · fuel, which produces more harmful emissions than 21 · · standard-scale fossil fuel-fired electricity generation. 22 · · · · · · · Even uncontrolled natural gas plants producePage 106

· 1 · · far less pollution per million BTU than diesel backup · 2 · · generators. · 3 · · · · · · · Diesel generators emit significant fine · 4 · ·particle pollution. · Short-term exposure to fine · 5 · ·particles may result in death from respiratory and · 6 · · cardiovascular causes, including strokes, increased risk · 7 · · of heart attacks, congestive heart failure, and · 8 · · inflammation of lung tissue. · It also causes increased · 9 · ·hospitalization for cardiovascular disease, including 10 · · strokes, and hospitalization for asthma among -- 11 · · aggravated asthma attacks among children. 12 · · · · · · · Exposure to year-round particle pollution has 13 · · also been found to cause premature death and 14 · · cardiovascular harm, especially greater risk of death 15 · · from cardiovascular disease. · Particulate matter is 16 · · likely to increase the risk of hospitalization -- excuse 17 · ·me -- for asthma attacks in children, stunt lung function 18 · · growth in children and teenagers, damage the small 19 · · airways of the lungs, and increase the risk of heart 20 · · attacks and strokes in older women and increase risk of 21 · · dying from lung cancer. 22 · · · · · · · Evidence links long-term particle pollutionPage 107

· 1 · · exposure to adverse reproductive and developmental · 2 · · outcomes, such as low birth weight and infant mortality. · 3 · · · · · · · Diesel generators also produce nitrogen oxides, · 4 · · a principal component in ozone. · Ozone or smog causes a · 5 · ·wide range of health effects, including asthma attacks, · 6 · · and it's linked to premature mortality. · 7 · · · · · · ·And this summer, the International Agency for · 8 · ·Research on Cancer found conclusively that diesel engine · 9 · · exhaust causes cancer in humans. 10 · · · · · · · This Proposed Rule would increase the permitted 11 · ·yearly operation of individual generators from 15 to 100 12 · ·hours. · This increase would include up to 50 hours for 13 · ·non-emergency use, such as peak shaving. · Under the 14 · · Proposed Rule, utilities could run generators to 15 · · supplement power supply for more than three times as long 16 · · as was previously permitted. · This is in addition to 17 · · another 50 hours per year for emergency operation. 18 · · · · · · · Peak shaving will overlap with times when air 19 · · quality is already poor. · In D.C. last week, we had temps 20 · · over 100, Code Red ozone days, and a lot of strain placed 21 · · on the power grid. · These are exactly the type of days 22 · ·when operators would want to supplement, but the lastPage 108

· 1 · · thing we need on a day like that is to run more diesel · 2 · · engines. · 3 · · · · · · ·While the Lung Association recognizes the need · 4 · · for emergency backups, we cannot support any regulation · 5 · · that incentivizes increased reliance on high emission · 6 · · generation. · To be clear, we want hospitals to be able to · 7 · · run generators when the power goes out. · We just do not · 8 · · think that a hospital should run their dirty diesel · 9 · · generator and sell that power to others when it's not 10 · · absolutely necessary. 11 · · · · · · · Let's not lose sight of the big picture. · This 12 · · regulation is a health issue. · We're talking about 13 · ·permitting operators to run huge, dirty diesel engines to 14 · ·meet peak demand. · These engines pollute much more than 15 · · standard generation, and they should be reserved for true 16 · · emergencies. 17 · · · · · · · The Lung Association encourages the EPA to 18 · · structure a rule that provides for emergency power supply 19 · ·without incentivizing increased use of diesel generators. 20 · ·As a proactive means to increase reliability and protect 21 · ·public health, the appropriate response is to incentivize 22 · · efficiency and decrease consumption during peak periods,Page 109

· 1 · · rather than embrace highly polluting technology. · 2 · · · · · · · Thank you. · 3 · · · · · · ·MR. WAYLAND: · Thank you. · 4 · · · · · · ·Any questions? · 5 · · · · · · · [No audible response.] · 6 · · · · · · ·MR. WAYLAND: · Okay. · Thank you, Jesse. · 7 · · · · · · · Is there anyone else in the room at this time · 8 · · that would like to address the panel? · 9 · · · · · · · [No audible response.] 10 · · · · · · ·MR. WAYLAND: · Okay. · Seeing none, we will go 11 · ·back into recess. · There is one additional speaker at 12 · · 2:30, Joseph Bowring, who is probably going to be a 13 · · little bit late because of a train delay, but we will 14 · · stay to hear his testimony. · So, at this point, we will 15 · · go into recess until Joseph shows up. · Thank you. 16 · · · · · · · [Recess taken from 2:02 to 2:42 p.m.] 17 · · · · · · ·MR. WAYLAND: · Our next speaker today in the 18 · ·RICE hearing, on the RICE NESHAP and NSPS amendments will 19 · ·be Joseph Bowring. · He's with Monitoring Analytics, and 20 · · like I said earlier, we'll reconvene the hearing now to 21 · ·hear his testimony, after which we will check to see if 22 · · there's anyone else who would like to speak before thePage 110

· 1 · ·panel today. · 2 · · · · · · · If there is no one, we will put the panel in · 3 · · recess, pending somebody walking through the door that · 4 · ·wants to speak. · 5 · · · · · · · So, Joseph, it's all yours. · Thanks. · 6 · · · · · · ·MR. BOWRING: · Thank you, and thank you for the · 7 · · opportunity to speak this afternoon. · 8 · · · · · · · I am, as you know, Joe Bowring. · I am the · 9 · · Independent Market Monitor for PJM Interconnection and 10 · · the President of Monitoring Analytics, which serves as 11 · · the Independent Market Monitor. 12 · · · · · · · One of the things we do is produce detailed 13 · · reports on all aspects of the PJM markets, and I think 14 · · that background may be useful to those involved in this 15 · ·proceeding. · All those reports are on our Web page. 16 · · · · · · · If we go to the first slide, I think. 17 · · · · · · · So PJM is the largest wholesale competitive 18 · ·power market in the world. · As part of that, there are 19 · · two basic markets in the PJM market. · There's the energy 20 · ·market and the capacity market. · Both are essential to 21 · · the operation of the overall market. · They complement one 22 · · another, and as you can see from this slide,Page 111

· 1 · · approximately 15 to 20 percent of total annual revenues · 2 · · from the capacity market, most of the balance is from the · 3 · · energy market. · 4 · · · · · · · Competitive markets in general and the PJM · 5 · ·wholesale market in particular are flexible and adaptive. · 6 · ·Markets have shown this in response to, among other · 7 · · things, the EPA's MATS rules. · When environmental rules · 8 · · are established, markets determine compliance cost, and · 9 · ·market prices reflect those costs. · And this actually 10 · ·happened in PJM over the last year or two. · Inefficient 11 · · units retire. · Inefficient units are added. 12 · · · · · · · The New Jersey High Energy Mandate Rules and 13 · · their implementation also reflect the same, the same 14 · ·principle, the same functioning of markets. · Rather than 15 · ·modifying the power markets to get the intended result, 16 · · that is, to get cleaner power by somehow modifying the 17 · ·power markets, New Jersey chose to directly regulate 18 · · emissions, to limit them directly, and let the market 19 · · adapt. · And the market did adapt. · Some units chose to 20 · ·make the investment to be clean enough to meet those 21 · · requirements, and for some, it was too expensive. · They 22 · · offered in the market and did not clear, but the marketPage 112

· 1 · ·wasn't -- adapted, and the market addressed the · 2 · · environmental issues and the costs associated with · 3 · · implementing them. · 4 · · · · · · · So a large part of why everyone is here today · 5 · ·has to do with demand side. · Demand side or "DR" as it's · 6 · · called in PJM in the capacity market plays a key role in · 7 · · the PJM markets. · About 95 percent of all demand side · 8 · · revenues are from the capacity market in PJM. · 9 · · · · · · · If we could just flip down a slide or two. · One 10 · ·more. · One more perhaps until you get to a pretty 11 · ·picture. · One more. · Keep going until you get to the 12 · ·pretty picture. · It should be the only pretty picture I 13 · ·have. · I don't know what happened to it. · Oh, there it 14 · · is. · Okay. · Thank you. 15 · · · · · · · So, as you can see, particularly over the last 16 · · few years since 2007 and since the 2007 introduction of 17 · · capacity markets, the vast majority, in excess of 90 18 · ·percent, of all revenues for demand side comes from the 19 · ·RPM or capacity market. 20 · · · · · · ·Now, what's being sold in the capacity market 21 · ·when it's called demand side is interruptability. · What 22 · · that means is that a customer who is selling demand sidePage 113

· 1 · · is selling the willingness to interrupt when the capacity · 2 · · that they're not willing to pay for is needed by · 3 · · customers who are willing to pay for it. · So if I have · 4 · · 100-megawatt load and I don't want to pay for 100 · 5 · ·megawatts capacity, I can continue to take energy out of · 6 · · the market until that capacity is needed by someone who · 7 · · did pay for it, in which case I have to interrupt. · And · 8 · · that's really all demand side is in the capacity market. · 9 · · · · · · · But there are three basic types of demand side, 10 · · as I'm sure you've heard today. · One is limited DR, one 11 · · is unlimited summer DR, and one is annual DR. 12 · · · · · · · Limited DR is an inferior product. · It's not 13 · · really directly comparable to other forms of capacity for 14 · · a very simple reason. · That is limited DR products are 15 · · required to interrupt for only 10 times for a maximum of 16 · · 6 hours per interruption or a total of 60 hours per year. 17 · · For that reason, limited demand side is relatively low 18 · · cost to provide. · Nonetheless, limited DR is competing 19 · · directly with generation capacity, which is obligated to 20 · ·make a percent of the day at energy market, every hour of 21 · · the year, all 8,760 hours of the year. · And the result is 22 · · the demand side has had a number of -- limited demandPage 114

· 1 · · side has had a number of negative impacts on the PJM · 2 · ·markets, which we have documented in a number of reports. · 3 · · · · · · · First, it displaces new efficient gas-fired · 4 · · combined cycles at the margin, and, secondly, it · 5 · · suppresses RPM prices compared to the competitive level. · 6 · · · · · · ·Now, demand side, I believe that demand side is · 7 · · a valuable resource and should be encouraged, but it · 8 · ·needs to be defined properly, so that customers and the · 9 · ·markets are getting what they pay for. · Limited DR is not 10 · · a reasonable way to define DR. · Annual DR is, and there 11 · · should be no limit on the amount of annual DR that's 12 · ·purchased in the markets. · It serves a real function. · It 13 · · should be able to and permitted to compete head to head 14 · ·with generation, and if it wins, it wins. 15 · · · · · · · The result of all this has been that very large 16 · · amounts of demand side DR have been sold, particularly in 17 · · the '14-'15 and the '15-'16 capacity delivery years. · As 18 · · a result of that, there will be a substantial reliance in 19 · · PJM markets, a substantial increase in reliance in PJM 20 · ·markets compared to 2012 on demand side for reliability 21 · · as we move forward and get to the delivery years that 22 · ·have already been sold.Page 115

· 1 · · · · · · ·As the amount of demand side, which is involved · 2 · · in the market goes up, which is cleared in the market, as · 3 · · that increases, the probability of actually requiring it · 4 · · to interrupt also goes up. · Not surprisingly, if you go · 5 · · from 1,000 or 2,000 megawatts of demand side to · 6 · · fulfilling almost all or all of your reliability margin · 7 · · on demand side, the probability of using that demand side · 8 · · resource goes up, and it goes up significantly. · 9 · · · · · · · Demand side, as it's cleared -- demand side in 10 · · general is not required for reliability; that is, you 11 · · don't need demand side to have reliable markets. · You 12 · ·need some source of capacity. · That can be either 13 · ·willingness to interrupt or physical capacity, but as I 14 · ·noted, annual demand side can and does serve a very 15 · ·positive function and role in PJM markets, and it's 16 · · limited demand side, that is, with a maximum of 60 hours 17 · · of interruptability during the year, 60 hours of 18 · · interruptability during the year that's most likely to 19 · · use the diesel engines that are at issue here. 20 · · · · · · ·And a central point is that there's no reason 21 · · in the design or the operation of PJM markets to weaken 22 · · emission limits on diesel engines. · There is simply noPage 116

· 1 · ·basis in any market logic for that whatsoever, and as I · 2 · · said at the outset, markets are flexible and adaptable. · 3 · ·Markets will adapt if -- regardless of what the EPA · 4 · · decides is the appropriate level of hours of operation of · 5 · · a diesel engine. · 6 · · · · · · · So, to repeat, there's no reason whatsoever · 7 · · that the EPA should feel constrained by arguments about · 8 · · impacts on the market to modify your views about what you · 9 · · think the appropriate air quality and emission limits 10 · · should be. · In fact, given the role, in my view, the 11 · ·negative role of limited DR In the PJM markets, if one 12 · · outcome of that is to reduce the amount of limited DR, 13 · · that's actually more likely to have a positive effect on 14 · ·markets than a negative effect. 15 · · · · · · · The demand side product generally in PJM 16 · · capacity markets, DR, is also referred to as "emergency 17 · · DR," but that name is actually a misnomer. · Prior to the 18 · · introduction of PJM markets in 1999, industrial customers 19 · · could take a curtail-able option and were called upon to 20 · · curtail when PJM declared an emergency, and when PJM 21 · · declared an emergency, it means that PJM was short of 22 · · capacity, that the amount of available capacity toPage 117

· 1 · ·produce energy was at or below a targeted reserve margin, · 2 · · and PJM literally was facing an emergency. · They needed · 3 · · every possible source of power, and they needed some load · 4 · · to get off the system. · 5 · · · · · · · But as you can see from the level of demand · 6 · · side in the market, demand side is no longer an emergency · 7 · · resource. · It's an economic resource. · It's an economic · 8 · · resource which is central to the PJM markets. · It's · 9 · ·purchased in the RPM market and the capacity market, and 10 · · it completes directly with other forms of capacity, most 11 · ·particularly generation. 12 · · · · · · · So saying the demand response, or DR, is an 13 · · emergency-only resource is like saying a gas-fired 14 · · combined cycle is an emergency-only resource. · Both are 15 · · forms of capacity. · Both need to function in order to 16 · ·provide reliability, and neither is an emergency resource 17 · · in any meaningful sense of that word. · The term 18 · · "emergency," as it was used to apply in the early days of 19 · · curtail-ability, actually mean that it was expected to be 20 · · low frequency, and while industrial -- large industrial 21 · · customers signed up for curtail-able options, they were 22 · · curtailed very infrequently.Page 118

· 1 · · · · · · · But, as I noted, as the amount, total amount of · 2 · · demand side and significance in the market goes up, the · 3 · ·number of so-called "emergencies" is going to go up. · So · 4 · · it's no longer really correct terminology to call DR an · 5 · · "emergency technology." · It's simply an economic · 6 · · technology. · It's an economic resource purchased in the · 7 · ·market and will function like that, and we will see, as I · 8 · ·noted, as the amount of total DR gets closer to the total · 9 · · reserve margin, you will see an increase in cost on that. 10 · ·Again, nothing wrong with that, but it needs to be 11 · · thought of and treated as an economic resource rather 12 · · than an emergency resource. 13 · · · · · · · Thank you very much for the opportunity to 14 · · speak. 15 · · · · · · ·MR. WAYLAND: · Thank you. 16 · · · · · · ·Melanie, any questions? 17 · · · · · · · [No audible response.] 18 · · · · · · ·MR. WAYLAND: · Mike? 19 · · · · · · · [No audible response.] 20 · · · · · · ·MR. WAYLAND: · Joseph, could you provide us a 21 · · copy of your slides for the socket? 22 · · · · · · ·MR. BOWRING: · Yes. · Yes, sir.Page 119

· 1 · · · · · · ·MR. WAYLAND: · You can just e-mail them to us. · 2 · · That's fine. · 3 · · · · · · ·MR. BOWRING: · Okay. · 4 · · · · · · ·MR. WAYLAND: · We'd love to include that as part · 5 · · of your testimony. · 6 · · · · · · ·MR. BOWRING: · Yes, sir. · 7 · · · · · · ·MR. WAYLAND: · Okay. · Thank you. · 8 · · · · · · ·MR. BOWRING: · Thank you. · 9 · · · · · · ·MR. WAYLAND: · Let me give you a card so you'll 10 · · know where to send them. 11 · · · · · · ·MR. BOWRING: · Okay. 12 · · · · · · · I still feel bad having everybody wait for me 13 · · to come. 14 · · · · · · ·MR. WAYLAND: · Oh, no. · No problem at all. · It 15 · ·was very informative. · Thank you for making the effort to 16 · · get here. 17 · · · · · · ·At this time, is there anyone else who would 18 · · like to speak before the panel this afternoon that has 19 · ·not done so yet? 20 · · · · · · · [No audible response.] 21 · · · · · · ·MR. WAYLAND: · Going once, going twice. 22 · · · · · · ·Well, I'd like to thank all of you for the timePage 120

· 1 · ·you've spent here this morning and this afternoon. · Thank · 2 · ·you for the thoughts that you have provided, and thank · 3 · ·you for taking the time to be with us. · We greatly · 4 · · appreciate that and look forward to incorporating your · 5 · · comments into the Final Rulemaking. · 6 · · · · · · ·At this point, I'm going to announce this · 7 · ·hearing closed, and everyone have a good afternoon. · 8 · · Thank you. · 9 · · · · · · · [Whereupon, at 2:55 p.m., the hearing 10 · · concluded.] 11 12 13 14 15 16 17 18 19 20 21 22