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

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·7· · · · · · · · · · · ·Proposed Rule:

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·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

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14· · · · · · ·EPA Docket No. EPA-HQ-OAR-2008-0708

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17· · · · · · · · 10:09 a.m. through 2:55 p.m.

18· · · · · · · · · ·Tuesday, July 10, 2012

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20· · · · · · · · · · ·EPA East, Room 1152

21· · · · · · · ·1201 Constitution Avenue, N.W.

22· · · · · · · · · ·Washington, D.C.· 20460
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·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

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·7· · · · · · · · · · · · ·C O N T E N T S

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·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· · · · · · · · · 110
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·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 standards
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·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 to
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·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 a
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·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 after
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·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,
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·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.· Thank
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·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 should
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·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-
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·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 for
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·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 they
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·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 those
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·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, a
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·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 of
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·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 cascade
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·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.
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·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 are
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·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.· The
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·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 a
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·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,
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·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 are
Page 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" is
Page 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 proposing
Page 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 it
Page 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 set
Page 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 sore
Page 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.
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·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 of
Page 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 PJM
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·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 response
Page 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 any
Page 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 use
Page 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 June
Page 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 of
Page 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 submitted
Page 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, by
Page 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-all
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·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 of
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·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.
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·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 that
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·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 also
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·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.
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·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 year
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·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.
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·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 of
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·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.
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·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 at
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·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 fact
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·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 be
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·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 Electric
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·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, the
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·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.
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·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 include
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·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 with
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·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 to
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·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 uncontrolled
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·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 Cooperative
Page 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 often
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·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 only
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·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 for
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·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.
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·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.
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·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.
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·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 Christina
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·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 of
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·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.
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·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 from
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·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 by
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·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 for
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·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 for
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·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.
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·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 is
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·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 an
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·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 engines
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·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.
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·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 called
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·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.
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·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 we
Page 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 began
Page 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,
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·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 DR
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·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 than
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·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 about
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·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 past
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·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.
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·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-
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·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 supply
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·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 are
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·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 is
Page 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 generators
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·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 such
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·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.
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·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, and
Page 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 produce
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·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 pollution
Page 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 last
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·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 the
Page 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 market
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·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 side
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·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 demand
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·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.
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·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 no
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·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 to
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·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.
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·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.
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·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 time
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·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.]

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