From: King.Melanie@epamail.epa.gov Sent: Friday, January 04, 2013 9:36 PM To: Cortney Higgins Cc: VanLare.Paula@epamail.epa.gov; Balserak.Paul@epamail.epa.gov Subject: comments suggesting reporting Attachments: EPA-HQ-OAR-2008-0708-1033 NESCAUM.pdf; EPA-HQ-OAR-2008-0708- 1067 Exelon.pdf; EPA-HQ-OAR-2008-0708-1090 Coalition of Environmental Groups.pdf; EPA-HQ-OAR-2008-0708-1125 CT DEEP.pdf

Hi Cortney, Per our discussion today, attached are comments that recommended reporting and also the comments from NESCAUM recommending the use of ULSD.

Melanie King Energy Strategies Group Sector Policies and Programs Division Office of Air Quality Planning and Standards U.S. Environmental Protection Agency Mail Code D243-01 RTP, NC 27711 Phone: (919) 541-2469 Fax: (919) 541-5450 king.melanie@epa.gov

=August 9, 2012

Lisa P. Jackson, Administrator U.S. Environmental Protection Agency Air and Radiation Docket and Information Center Mailcode: 6102T 1200 Pennsylvania Ave. NW Washington, DC 20460 VIA EMAIL: a-and-r-docket@epa.gov Attention: Docket ID No. EPA–HQ–OAR–2008–0708

Re: National Emission Standards for Hazardous Air Pollutants for Reciprocating Internal Combustion Engines; New Source Performance Standards for Stationary Internal Combustion Engines – Proposed Rule

Dear Administrator Jackson:

The Northeast States for Coordinated Air Use Management (NESCAUM) offer the following comments on the U.S. Environmental Protection Agency’s (EPA’s) Notice of Proposed Rulemaking, published on June 7, 2012 in the Federal Register, entitled National Emission Standards for Hazardous Air Pollutants for Reciprocating Internal Combustion Engines; New Source Performance Standards for Stationary Internal Combustion Engines (77 Fed. Reg. 33812-33857) ( hereinafter “RICE NESHAP”). NESCAUM is the regional association of air pollution control agencies representing Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont.

These comments focus in particular on the proposed temporary allowance for reciprocating internal combustion engines (RICE) to participate in peak shaving and other non-emergency demand response programs. 1

The EPA’s proposed rule lacks supporting technical information on the RICE that would be subject to the rule and the air quality and health impacts of the proposed rule. These critical omissions include:

1 NESCAUM is not taking a position on the proposed allowance for emergency demand response programs. Individual member states of NESCAUM may file separate comments on this portion of the proposal. We note that a number of NESCAUM states allow participation of RICE in emergency demand response programs subject to specific criteria and a procedural hierarchy. See, e.g., ISO New England Operating Procedure 4, Action During a Capacity Deficiency , effective date December 9, 2011 (emergency demand response generation not called prior to Action Level 6 when voltage reduction of 5 percent is implemented along with amount- and location-specific emergency generation).EPA’s Proposed RICE NESHAP Page 2

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• The number of RICE that may take advantage of the proposed rule’s pollution control exemptions: unknown

.

• The locations of these sources: unknown

.

• The times at which these sources may operate: unknown

.

• The public’s exposure to increased levels of diesel exhaust and fine particulate matter from these sources: unknown

.

• The resulting public health harms from the increased exposure to diesel emissions: unknown

.

• The resulting impact on communities that may bear a disproportionate share of the negative environmental consequences resulting from industrial, governmental and commercial operations or policies: unknown.

• The resulting impact on the ability of states to attain and maintain the ozone and other air quality health standards: unknown

.

• The impacts on future resource mixes in the electricity markets from allowing uncontrolled RICE into economic demand response programs: unknown

.
Absent this information, NESCAUM is unable to evaluate the proposed rule’s prospective impacts. And NESCAUM respectfully submits that neither can EPA. Therefore, NESCAUM requests that EPA withdraw the proposed temporary allowance for uncontrolled emergency RICE to participate in non-emergency demand response.

I. Air Quality and Public Health Concerns A. Hazardous Air Pollutants (HAPs) Diesel exhaust is a complex gas-particle phase mixture of both known and unknown compounds that include confirmed carcinogens like benzene. 2 The World Health Organization classifies diesel exhaust as a known human carcinogen. 3 The EPA has not yet assessed diesel exhaust for potential cancer risk, but it has previously concluded that diesel exhaust is among the substances that may pose the greatest risk to the population at large. 4 The New Jersey Department of Environmental Protection (NJ DEP), using a cancer risk factor taken from California, finds diesel exhaust to have the highest cancer risk among air toxics in New Jersey. 5

2 U.S. Environmental Protection Agency, Health Assessment Document for Diesel Engine Exhaust, prepared by the National Center for Environmental Assessment, Washington, DC, for the EPA Office of Transportation and Air Quality, EPA/600/8-90/057F (2002).

3 International Agency for Research on Cancer, World Health Organization, IARC: Diesel Engine Exhaust Carcinogenic , Press Release No. 213 (June 12, 2012). Available at http://press.iarc.fr/pr213_E.pdf (accessed June 12, 2012).

4 U.S. Environmental Protection Agency, National-Scale Air Toxics Assessment for 2002 - Fact Sheet , (June 24, 2009). Available at: http://www.epa.gov/ttn/atw/nata2002/factsheet.html (accessed June 21, 2012).

5 New Jersey Department of Environmental Protection, Air Toxics in New Jersey: Diesel Emissions (2011). Available at http://www.nj.gov/dep/airtoxics/diesemis.htm (accessed June 21, 2012).EPA’s Proposed RICE NESHAP Page 3

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Diesel PM contributes to non-cancer health risks as well. Fine particulate matter, like diesel PM, has been linked to respiratory and cardiovascular health effects, including premature mortality. Non-cancer hazards have been assessed for diesel exhaust in EPA’s 2005 National-Scale Air Toxics Assessment (NATA). 6

It is impossible to determine whether the proposal satisfies the requirements of section 112 of the Clean Air Act because EPA’s proposal fails to provide any technical information on potential increases in HAP emissions due to implementation of the proposed rule. Under section 112, Congress has charged EPA with establishing emission standards for major and area sources to limit HAP emissions. The RICE NESHAP proposal exempts a class of sources from these requirements. Although limited in time through 2017, an increase in the utilization of uncontrolled RICE in non-emergency demand response and peak shaving programs will lead to increased diesel exhaust during the five years of the allowance. Compounding the increase in diesel exhaust is the accompanying attribute that these relatively small and widely distributed sources are often located in heavily populated areas and have low stacks with poor dispersion. This leads to a higher likelihood that large segments of the general population living and working near stationary diesel engines will be exposed to increasing levels of HAPs from diesel exhaust. As discussed later in these comments, NESCAUM is unable to suggest how many excess tons of pollutants will result from the temporary exemption given the paucity of inventory information for the sources, and EPA has not done this analysis.

B. Ground-level Ozone EPA’s proposed rule would further impair the ability of states in the Northeast from meeting and maintaining the ozone health standard.

Ground-level ozone is a persistent public health problem in the United States and a particular problem in NESCAUM states due to local emissions and ozone transport from out of the region. Breathing ozone in the air reduces lung function and aggravates existing asthmatic conditions. Emerging research indicates ozone exposure can also increase the risk of premature death. 7

The highest concentrations of ozone in the Northeast generally occur on the hottest days of the ozone season. NOx emissions from electric generating units (EGUs) are more than double the average daily emissions on the hottest days (Figure 1) as generation increases to meet space cooling demands. Higher NOx-emitting peaking units are used to meet this demand, and peak shaving uncontrolled RICE operating “behind the meter” would further add to the NOx load.

The period of July 21-23, 2011 illustrates the severity of the problem. During this period, parts of the NESCAUM region experienced the hottest days of the summer, the highest NOx emissions from fossil fueled EGUs, and the highest ozone levels. Babylon, NY, on Long Island, saw an 8-

6 ICF International, An Overview of Methods for EPA’s National-Scale Air Toxics Assessment , Research Triangle Park, N.C.: U.S. Environmental Protection Agency (EPA), Office of Air Quality Planning and Standards (January 2011).

7 U.S. Environmental Protection Agency, Ozone and Your Health , EPA-456/F-09-001 (February 2009). Available

at http://www.epa.gov/airnow/ozone-c.pdf (accessed June 22, 2012).EPA’s Proposed RICE NESHAP Page 4

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hour average of 0.114 parts per million (ppm), and Martha’s Vineyard, MA, downwind of the New York City metropolitan area, experienced a peak ozone concentration of 0.113 ppm. Almost 50 exceedances of the older 1997 ozone National Ambient Air Quality Standard (NAAQS) of 0.08 ppm occurred from Maryland to coastal Maine. Nearly 125 exceedances of the revised 0.075 ppm ozone NAAQS occurred from northern Virginia to Maine during these three days. 8

Figure 1. Daily NOx Emissions Variability from EGUs in NJ and Downstate NY Based on Fuel Type

60 70 80 90 100 110

0 50 100 150 200 25006/01/1106/08/1106/15/1106/22/1106/29/1107/06/1107/13/1107/20/1107/27/1108/03/1108/10/1108/17/1108/24/1108/31/1109/07/1109/14/11**Daily Max. Temperature (°F) Daily NO** **x Emissions (tons)**  Diesel

Residual Oil

Natural Gas

Coal

Max Temperature

Figure notes: Stacked bars are daily EGU NOx emissions by fossil fuel type. Emissions data were obtained in April 2012 from the U.S. EPA Clean Air Interstate Rule NOx (CAIRNOx) Annual Program ( http://ampd.epa.gov/ampd/ ). The NOx emissions are from EGUs operating in all of New Jersey and the downstate New York counties of Bronx, Kings, Nassau, New York, Orange, Queens, Richmond, Rockland, and Suffolk. The black diamond line is a plot of the maximum daily temperature recorded in Newark, New Jersey (Source: AccuWeather, http://www.accuweather.com/en/us/newark-nj/07102/jul y-weather/349530?year=2011 ).

C. Fine Particulate Matter Fine particulate matter (PM 2.5 ) poses a significant risk to human health due to its ability to penetrate deep into the lungs and pass into the bloodstream. In the lungs, PM 2.5 can irritate lung tissue, aggravate asthma symptoms, contribute to chronic bronchitis, and reduce overall lung function. In the bloodstream, PM 2.5 can lead to heartbeat irregularities, heart attacks, and even

8 U.S. Environmental Protection Agency, Air Quality System Data Mart [internet database] (2012). Available at http://www.epa.gov/ttn/airs/aqsdatamart (accessed June 22, 2012).EPA’s Proposed RICE NESHAP Page 5

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premature death in people with cardiovascular disease. PM 2.5 is also a major contributor to regional haze (reduced visibility).

PM 2.5 levels have dropped in the Northeast overall due to reductions in direct PM 2.5 emissions as well as emissions reductions of precursor pollutants 9 within the Northeast and in upwind regions. 10 Air quality planners expect that if current progress continues, all areas of the Northeast should meet the 2006 PM 2.5 standards by 2015 (15 μg/m 3 annual, 35 μg/m 3 daily). The EPA recently proposed a revised annual PM 2.5 NAAQS in the range of 12-13 μg/m 3 and a separate daily PM 2.5 secondary NAAQS to address urban visibility. 11 Based on current programs and expected declining emission trends, EPA projects that the NESCAUM region will be in attainment of the proposed revised standards. The proposed RICE NESHAP, however, lacks information on how increases in uncontrolled diesel PM 2.5 emissions can affect emission trends, as well as localized impacts.

Uncontrolled diesel combustion can release significant amounts of black carbon particles, as shown in Figure 2 for a downtown monitoring site in Boston, MA. The high black carbon concentrations are associated with a weekly test of a backup diesel generator lasting less than 30 minutes. These high concentration spikes from a single local source suggest the potential public health problems that can arise when multiple uncontrolled backup diesel RICE are collectively operating over longer time periods to generate electricity in a localized densely populated urban area. This is further borne out in the air quality modeling studies cited below in the section on information gaps.

9 PM 2.5 is both emitted directly as well as formed in the ambient air from precursor pollutants including NOx and sulfur dioxide (SO 2 ).

10 Similar to ozone, PM 2.5 and its precursors are also transported long distances and thus air quality in the NESCAUM region depends on local emissions as well as those in the Midwestern and southern U.S.

11 77 Fed. Reg. 38890 (June 29, 2012).EPA’s Proposed RICE NESHAP Page 6

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Figure 2. Fine timescale black carbon (BC) PM readings at a site in downtown Boston, MA

Source: Data collected by Northeast States for Coordinated Air Use Management

In addition to direct emissions of black carbon, if uncontrolled RICE operate on high sulfur content diesel, secondary formation of sulfate PM 2.5 will increase. The proposed RICE NESHAP rule contains no restrictions on sulfur content in diesel used by RICE. Use of high sulfur fuels will further compound the increases in PM 2.5 that will occur from greater utilization of RICE in demand response programs.

D. Nitrogen Dioxide (NO 2 ) Nitrogen dioxide (NO 2 ) is a highly reactive reddish brown gas that forms quickly from oxidation of nitric oxide (NO) emitted by stationary RICE, as well as cars, trucks and buses, power plants, and off-road equipment. Sub-daily short-term exposure to NO 2 is associated with increased asthma symptoms, difficulty controlling asthma, and an increase in respiratory illnesses and symptoms. Children, the elderly, and asthmatics are particularly sensitive populations. 12

The new 1-hour standard supplements the pre-existing NO 2 standard set at an annual mean of 53 ppb, which all areas of the country currently meet. For the new 1-hour NO 2 health standard, EPA classifies all areas of the country as “unclassifiable/attainment,” meaning that EPA believes available information does not indicate any areas violate the standard. NO 2 concentrations, however, can be highly localized near NO 2 sources. For example, NO 2 levels within about 50 meters of major roadways can be 30 to 100 percent higher than in areas farther away. The localized nature of NO 2 may not be readily observed with the current national air monitoring network. 12

12 77 Fed. Reg. 9532 (February 17, 2012).EPA’s Proposed RICE NESHAP Page 7

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Uncontrolled older diesel RICE that predate Tier 1 emission standards have very high NOx emission rates, of which NO 2 is a primary component. Table 1 compares NOx rates of uncontrolled pre-Tier stationary diesel engines with NOx rates of newer higher Tier-level diesel engines subject to emission limits. As another point of reference, a baseload coal-fired power plant equipped with selective catalytic reduction (SCR) can have a NOx emission rate around 1.0 lb per MWh. This is over an order of magnitude less than an uncontrolled diesel RICE, and even lower than most of the newer Tier limits. The NOx difference is much higher (over two orders of magnitude) when diesel is compared to new combined cycle or simple cycle turbines that emit at about 0.1 and 0.2 lb per MWh, respectively.

Table 1. NOx emission rates of stationary diesel engines (lb/MWh) NOx (lb/MWh)

Diesel

pre-Tier: < 600 hp 41.47

pre-Tier: > 600 hp 32.04

Tier 1 20.39

Tier 2 14.19

Tier 3 8.87

Tier 4 0.89

II. The Proposal is Based on Insufficient Information and Analysis The Clean Air Act has a “precautionary and preventive nature” in protecting the public from potential harms caused by air pollution. 13 Contrary to the precautionary nature of the Act, EPA appears to be promulgating the RICE NESHAP rule without having evaluated the rule’s impact on public health. This is particularly perplexing in light of EPA Administrator Lisa Jackson having identified “Improving Air Quality” and “Working for Environmental Justice” as among her seven priorities for EPA’s future. 14 The EPA admits that it lacks the information necessary to evaluate impacts relating to these priority areas, 15 yet appears ready to proceed in any event.

A. Insufficient Information on RICE Location and Activity Levels The EPA has not assessed emission impacts from the proposed rule, and it is impossible for EPA to do such an analysis because the number and locations of diesel generators used in demand response programs are simply not known. Owners of these units have not always been required to obtain air quality operating permits because the sources are relatively small and originally

13 Coalition for Responsible Regulation, Inc. et al. v. EPA , Case No. 09-1322, slip op. at 31 (D.C. Cir., decided June 26, 2012), citing Lead Indus. Ass’n, Inc. v. EPA , 647 F.2d 1130, 1155 (D.C. Cir. 1980).

14 Memorandum from EPA Administrator Lisa Jackson to All EPA Employees, Seven Priorities for EPA’s Future

, available at http://blog.epa.gov/administrator/2010/01/12/seven-p riorities-for-epas-future/ (accessed June 27, 2012).

15 For example, EPA states in the RICE NESHAP proposal that in response to Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations ; The EPA has concluded that it is not feasible to determine whether there would be disproportionately high and adverse human health or environmental effects on minority, low income or indigenous populations from the reconsideration of this final rule, as the EPA does not have specific information about the location of the stationary RICE affected by this rule. [77 Fed. Reg. at 33831]EPA’s Proposed RICE NESHAP Page 8

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dedicated for backup emergency generation only. In addition, the frequency and duration of deployment periods for these types of generators used in demand response programs are difficult to estimate because they have never before comprised such a potentially large share of the overall capacity resource mix in the region. As a result, neither air quality managers nor EPA has complete knowledge about their locations and activity levels when used in demand response programs, making it difficult to assess the extent of their emissions and apply emission restrictions where necessary.

There has been little change in available information since NESCAUM first attempted to identify the locations of stationary diesel backup generators in 2003. In our 2003 assessment, we estimated the possible existence at that time of over 30,000 units in the NESCAUM region 16 with a combined capacity exceeding 10 gigawatts (GW). Available national estimates suggested as many as 350,000 installed units with a capacity totaling more than 127 GW. 17 To place in context, total installed coal-fired generation capacity in the United States was about 315 GW in 2010, with natural gas-fired capacity at about 407 GW. 18 Clearly, the potential available capacity of diesel backup engines is not insignificant. The order of magnitude difference in emissions from uncontrolled diesel engines (particularly during the ozone season) makes even a small fraction of the total diesel engines used for demand response programs problematic for air quality, and the lack of information on their locations and potential utilization as a result of the RICE NESHAP proposed rule can pose significant problems for informed air quality planning.

The lack of location information also makes it impossible to determine if there are any situations where an aggregator exerting common control over multiple RICE might trigger major stationary source permitting requirements under EPA’s case-by-case aggregation policy, which EPA notes is a “highly fact-specific” decision. 19

B. Lack of Relevant Historical Experience to Serve as Future Guide It has been stated that backup RICE have been rarely called upon by electric system operators to address emergency needs, and that this is likely to remain the case in the future. 20 Emergency RICE, however, have not previously been allowed to participate in non-emergency programs. The proposal would provide a temporary allowance of up to 50 hours of exempted operation from pollution controls for emergency RICE used for “any non-emergency purpose, including peak shaving.” 21 There is no historical experience from peak shaving or other non-emergency

16 The NESCAUM region includes the states of Connecticut, Maine, Massachusetts, New Jersey, New York, Rhode Island, and Vermont.

17 Northeast States for Coordinated Air Use Management (NESCAUM), Stationary Diesel Engines in the Northeast

, NESCAUM, Boston, MA (June 2003). Available at http://www.nescaum.org/documents/rpt030612dieselgene rators.pdf/

. 18 U.S. Energy Information Administration, Electric Power Annual 2010 Data Tables , release date November 9, 2011. Available at http://205.254.135.7/electricity/annual/html/table1. 1a.cfm (accessed June 22, 2012).

19 See, EPA Memorandum, Gina McCarthy, Asst. Administrator Office of Air and Radiation, Withdrawal of Source Determinations for Oil and Gas Industries , Sept. 22, 2009.

20 See, e.g., EnerNOC et al.

, Review of Comments Filed on Proposed Settlement Agreement , letter to Michael Horowitz, U.S. EPA, Office of General Counsel, Air and Radiation Law Office (February 29, 2012).

21 77 Fed. Reg. at 33813.EPA’s Proposed RICE NESHAP Page 9

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programs to inform air quality planners on the potential future impacts of expanded emergency RICE utilization.

For example, within the PJM control area, there is an on-going rapid and significant expansion in capacity commitments for demand response resources that has no historical precedent. 22 Demand response capacity commitments have increased from less than 1,700 MW in 2006/2007 to commitments of almost 15,000 MW in 2015/2016, an increase by almost a factor of 10. While not all the demand response commitments are attributable solely to promised availability of backup RICE, it appears that a significant portion of the commitments is coming from entities deploying backup generators, either feeding directly to the grid or behind the meter generation. 23

C. Need for Air Quality Analysis of Potential RICE NESHAPs Impact The EPA has on hand the air quality modeling tools to analyze potential air impacts from the proposed RICE NESHAP, but does not present such analysis in the proposal. This is a serious information gap that further reflects EPA’s failure to evaluate environmental impacts of this proposed rule.

The Delaware Department of Natural Resources and Environmental Conservation (DNREC) undertook a screening analysis of potential impacts from increased utilization of emergency diesel RICE using AERSCREEN, which is EPA’s recommended screening model based on AERMOD. Results suggest that a single uncontrolled Tier 0 diesel RICE can exceed the new 1- hour NO 2 NAAQS when considering the existing background. Emissions from multiple diesel RICE in close proximity can exceed the 1-hour NO 2 NAAQS regardless of background. Emissions from a single diesel RICE can exceed the 24-hour PM 2.5 NAAQS when considering the background. Emissions from multiple diesel RICE in close proximity can exceed the 24- hour PM 2.5 NAAQS regardless of background. 24 The screening model results indicate a need for more detailed analyses by EPA of the air quality impacts reasonably foreseeable from implementation of the proposed RICE NESHAP (and associated conforming amendments to their new source performance standards).

The potential adverse air quality and health impacts from increased utilization of uncontrolled diesel backup generators are well-documented in peer-reviewed scientific literature. Using a research version of CAMx and EPA’s Environmental Benefits Mapping and Analysis Program (BenMAP), Gilmore et al. investigated the costs of using backup generators to meet peak

22 No similar change has occurred in New England given the different design of ISO-New England’s emergency demand response program.

23 Northeast States for Coordinated Air Use Management, Air Quality, Electricity, and Back-up Stationary Diesel Engines in the Northeast , NESCAUM, Boston, MA (August 2012). Available at http://www.nescaum.org/documents/nescaum-aq-electric ity-stat-diesel-engines-in-northeast_20120801.pdf/

. 24 A. Mirzakhalili, Director, DNREC Division of Air Quality, Air Quality Impacts of Diesel Generators Participating in Electricity Peak Shave and Demand Response Programs , presentation to the Mid-Atlantic Distributed Resources Initiative Work Group (MADRI), Washington, DC (June 8, 2012). Available at http://sites.energetics.com/madri/pdfs/Mirzakhalili_ 20120607.pdf (accessed June 25, 2012).EPA’s Proposed RICE NESHAP Page 10

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electricity demand. 25 Based on the modeled air quality changes and potential health impacts from utilizing 1,000 MW of backup generation in four different cities (Atlanta, Chicago, Dallas, New York City), the researchers recommended that the use of backup generators be accompanied with appropriate emission controls for PM 2.5 and NOx. They further recommended that generators be properly sited for the area of use.

A 2003 Synapse study of the ISO-New England region suggested that increased utilization of emergency diesel RICE in economic demand response programs could result in increases in several air toxics, including benzene and polycyclic aromatic hydrocarbons (PAHs). 26 As the statutory purpose of a NESHAP is to lower air toxics, this indicates a potential significant flaw in the RICE NESHAP as proposed.

The Synapse study’s authors also noted that reductions in sulfur dioxide and NOx attributed to quick starting RICE displacing other fossil fuel power plants idling over longer time periods may be lost through emissions trading. The diesel RICE are not under any cap and trade program, so the avoided emissions create excess tradable allowances for use by power plants at other times or locations.

We note that the Synapse study’s findings are specific to ISO-New England at that period of time ( circa 2003), and are not necessarily transferable to other transmission regions. This further underscores the need for a more thorough analysis of the proposed RICE NESHAP prior to finalizing.

The EPA has the modeling capacity and expertise to evaluate the public health implications of using uncontrolled backup RICE in demand response programs. The EPA has not used these readily-available tools and expertise. The limited modeling done to date by others clearly indicate the potential for public harm without appropriate measures to limit air pollutant emissions as well as the public’s exposure to those emissions. This needs to be more fully evaluated.

III. State Air Quality Concerns Addressing HAPs, ozone, PM 2.5 , and NO 2 pollution will require air quality managers to pursue emission reductions from additional air pollution sources. Addressing emissions from the electric generation sector on high electric demand days will be a key component in meeting these challenges. Ensuring that areas meet current and future air quality standards will require more effective and innovative approaches for generating sources operating mainly on high demand days. Historically, these types of generators have not been subject to NOx and PM 2.5 controls

25 Gilmore, E.A., P.J. Adams, and L.B. Lave, “Using Backup Generators for Meeting Peak Electricity Demand: A Sensitivity Analysis on Emission Controls, Location, and Health Endpoints,” J. Air & Waste Manage. Assoc. 60, 523-531, doi:10.3155/1047-3289.60.5.523 (2010); see also Gilmore, E.A., L.B. Lave, and P.J. Adams, “The Costs, Air Quality, and Human Health Effects of Meeting Peak Electricity Demand with Installed Backup Generators,” Environ. Sci. Technol. 40 , 6887-6893, doi:10.1021/es061151q (2006).

26 Synapse Energy Economics, Inc., Modeling Demand Response and Air Emissions in New England , prepared for U.S. EPA by Synapse Energy Economics, Cambridge, MA (revised September 4, 2003).EPA’s Proposed RICE NESHAP Page 11

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because of their limited use and relatively low total seasonal emissions. This rationale breaks down, however, when looking at the sources’ contributions on the most important smog-forming days, as well as their expanding usage.

For the revised ozone, PM 2.5 , and NO 2 NAAQS, failure to attain the standard by legal deadlines may result in “bump ups” of the nonattainment areas into higher nonattainment classifications. This will result in increasing planning burdens and potential greater controls on local sources. Furthermore, to the extent any NAAQS is revised in the future to be more health protective based on health information, nonattainment classifications will be potentially based on historical pollutant concentrations inflated by RICE utilization coinciding with periods of high pollution.

It is of small consolation that the 50 hour exemption for non-emergency programs such as peak shaving will expire in 2017. If increased RICE utilization in the near-term contributes to a nonattainment area’s failure to attain a NAAQS by its statutory deadline, the area will remain in nonattainment with increased planning and compliance costs over the longer term as a legacy of the short-term exemption.

IV. Cost Effective Control Options for RICE The EPA’s proposed rule is not necessary because other emissions reduction methods (use of ultra-low sulfur diesel and controls for particulate matter and NOx) are technologically feasible at reasonable cost. The ability to reduce emissions using revenue streams from economic demand response programs is particularly salient for RICE in nonattainment areas and areas that contribute significantly to nonattainment.

Revenue streams for RICE owners participating in non-emergency demand response programs appear sufficient to cover the costs of installing pollution controls in reasonably short time frames, potentially in less than five years. For example, within PJM, an owner of a 1 MW backup generator in a congested service area such as Baltimore, MD can receive capacity payments from about $45,000 per year to over $82,000 per year during the period 2008-2013. Within ISO-New England, a backup generator owner in the Hartford, CT area can receive payments from $27,000 per year to over $47,000 per year over the same period. 27 In a cost analysis by the California Air Resources Board (CARB), an owner of a 1 MW Tier 2 or 3 emergency standby generator set would incur a cost of about $61,000 to retrofit a diesel particulate filter (DPF), and $189,000 to retrofit a DPF in combination with an SCR. 28 Based on these figures, a 1 MW generator in these areas can cover the costs of controls in three to five years. These retrofit costs relative to annual capacity market payments in congested areas (the areas arguably in the most need of the resources) suggest that it is not economically unreasonable to require pollution control for those owners of backup RICE choosing to participate in the

27 Memorandum from Doug Hurley, Synapse, to Stacy Angel, EPA Project Manager, Sample Revenue for a 1 MW Backup Generation Unit , Synapse Energy Economics, Inc., Cambridge, MA (July 27, 2011).

28 California Air Resources Board, Staff Report: Initial Statement of Reasons for Proposed Rulemaking, Proposed Amendments to the Airborne Toxic Control Measure for Stationary Compression Ignition Engines (Appendix B), CARB Stationary Source Division, Emissions Assessment Branch (September 2010). Available at http://www.arb.ca.gov/regact/2010/atcm2010/atcm2010. htm (accessed June 27, 2012).EPA’s Proposed RICE NESHAP Page 12

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capacity markets. While there appears to be limited experience with regard to SCR retrofits on emergency standby engines, the advent of Tier 4f diesel engines suggest that the older engines will be able to take advantage of the learning curve achieved with introduction of the newer Tier 4f engines. Also, limiting market participation to newer diesel or spark ignited engines, both with air pollution control, should be considered.

Requiring pollution controls on backup generators as a condition for participating in nonemergency demand response programs is not without precedent. For example, Celerity Energy Partners San Diego, LLC, a subsidiary of EnerNOC, Inc., has a contractual arrangement with San Diego Gas & Electric under which it has installed and maintained pollution control equipment on existing backup diesel generators that allows the units to be used as demand response resources and for other ancillary purposes. 29

V. Ultra-low Sulfur Diesel/Testing and Maintenance In the NESCAUM region, many states require emergency backup generators to use ultra-low sulfur diesel containing 15 ppm or less sulfur by weight. The use of ultra-low sulfur fuel should be incorporated into EPA’s final rule as a basic requirement for all diesel engines of any age operating in any demand response program. In addition, the testing and maintenance of uncontrolled emergency diesel backup generators should be limited to days predicted to be good air quality days, and prohibited on bad air quality days.

VI. Summary and Additional Recommendations The Clean Air Act is precautionary by design. In keeping with the statutory intent, EPA needs a better developed analysis of potential health impacts arising from the proposed RICE NESHAP rule. Diesel exhaust has been classified a known carcinogen, and it is also a significant contributor to health-damaging fine particulates, ground-level ozone, and nitrogen dioxide. Monitoring and air quality modeling suggest that increased utilization of uncontrolled RICE in demand response programs will lead to increases in air pollution at levels of concern to public health.

NESCAUM recently undertook a review of competitive electricity markets in the NESCAUM region and current regulations of emergency and non-emergency RICE, which we believe is essential to understanding these engines’ increasing prominence. The report is attached to these comments, and makes the following recommendations:

• In light of the potential long-term impacts with regard to future resource mixes in the electricity markets, an economic dispatch model to simulate the operations of the current grid mix versus a scenario where backup generators were limited in the market and/or

29 EnerNOC, Inc., Annual Report 2011 , Boston, MA (2012). Available at http://files.shareholder.com/downloads/ENOC/19434135 83x0x562905/B01582C9-3E7F-4623-BB6CD43E92ACF0F9/Enernoc_2011_Annual.pdf (accessed June 27, 2012); Peltier, R., “Aggregated backup generators help support San Diego grid,” Power Magazine (February 15, 2008). Available at http://www.powermag.com/business/Aggregated-backup-g enerators-help-support-San-Diego-grid_92.html (accessed June 27, 2012).EPA’s Proposed RICE NESHAP Page 13

NESCAUM Comments August 9, 2012

required to install pollution control equipment would aid air quality planners to understand the potential for broader impacts and emission trends over time.

• Electric system operators (independent system operators – ISOs; regional transmission organizations – RTOs) should have the authority to collect information on the source of demand response resources from aggregators and other market participants. To improve transparency, system operators should provide a breakdown of the resources in their demand response programs by zone similar to the approach of the New York Independent System Operator. In addition to being necessary to accurately determine their impact, it would be important for the system operator to know what comprises system resources in order to ensure a reliable system.

• The ISOs and RTOs should consider separating backup generation resources into a standalone demand response program category similar to ISO-New England to better track their utilization for peak shaving and emergency demand response.

• The EPA should require the use of ultra-low sulfur diesel for all backup diesel engines that participate in demand response programs, similar to the existing requirements in most NESCAUM states.

• States and EPA should identify a reasonable timeframe for phasing out the participation of the oldest, dirtiest diesel engines in demand response programs.

• Operators and aggregators of engines seeking to participate in economic or priceresponsive demand response programs while remaining classified as emergency engines and thereby avoiding air pollution emissions standards should register and enroll engines directly with the relevant system operator and air quality agency; other indirect operation should be considered peak shaving and subject to air pollution emissions standards.

• Owners of backup diesel generators earning capacity revenue as electric generators in non-emergency demand response programs should be required to install appropriate pollution controls, taking into account population exposure, revenues received, control costs, and any other relevant factors.

The EPA should continue striving towards providing greater flexibility to the electric power sector in a manner that ensures system reliability along with improved protection of public health and the environment. It simply cannot be reduced to a choice between existing fossil fuel power plants and uncontrolled emergency diesel RICE. The EPA, in collaboration with electric system operators and relevant federal, state, and local partners, should encourage the use of clean generation, appropriate demand-side management measures, and greater energy efficiency to achieve system reliability needs as better environmental and energy policy than increasingly relying on uncontrolled diesel engines.EPA’s Proposed RICE NESHAP Page 14

NESCAUM Comments August 9, 2012

If you have any questions on these comments, please contact Paul Miller, NESCAUM Deputy Director, at 617-259-2016.

Sincerely,

Arthur N. Marin Executive Director

Attachment: Air Quality, Electricity, and Back-up Stationary Diesel Engines in the Northeast

,

NESCAUM, Boston, MA (August 2012)

# Air Quality, Electricity, and Back-up Stationary Diesel Engines in the NortheastThis Page Intentionally Blank

### Air Quality, Electricity, and Back-up Stationary Diesel Engines in the Northeast

Prepared By:

Northeast States for Coordinated Air Use Management (NESCAUM)

89 South Street, Suite 602 Boston, MA 02111

August 1, 2012

### Members of Northeast States for Coordinated Air Use Management

Arthur Marin, Executive Director Northeast States for Coordinated Air Use Management

Anne Gobin, Bureau Chief Connecticut Department of Energy and Environmental Protection, Bureau of Air Management
Melanie Loyzim, Bureau Director Maine Department of Environmental Protection, Bureau of Air Quality

Nancy Seidman, Assistant Commissioner Massachusetts Department of Environmental Protection, Bureau of Waste Prevention
Craig Wright, Acting Director New Hampshire Department of Environmental Services, Air Resources Division

William O’Sullivan, Director New Jersey Department of Environmental Protection, Office of Air Quality Management

David Shaw, Director New York Department of Environmental Conservation, Division of Air Resources
Douglas L. McVay, Chief Rhode Island Department of Environmental Management, Office of Air Resources

Richard A. Valentinetti, Director Vermont Department of Environmental Conservation, Air Pollution Control Division

### About NESCAUM

NESCAUM is a 501(c)(3) nonprofit association of air quality agencies in the Northeast. Our Board of Directors consists of the air directors of the six New England states (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont), New Jersey, and New York. Our purpose is to provide scientific, technical, analytical, and policy support to the air quality and climate programs of the eight Northeast states. A fundamental component of our efforts is to assist our member states in implementing national environmental programs required under the Clean Air Act and other federal legislation. This report was a joint effort between staff at NESCAUM and M.J. Bradley & Associates, LLC (MJB&A). Principal NESCAUM contributors to this report were Dr. Paul Miller, George Allen, Leiran Biton, and Dr. Laura Shields. Principal MJB&A contributors to this report were Chris Van Atten, Brian Jones, and Kathleen Robertson.
We would like to thank the following individuals for providing review and comment on their respective areas of expertise: State members of the NESCAUM Stationary Sources & Permitting and Permit Modeling Committees, Doug Smith (ISO-NE), Donna Pratt (NYISO), Gary Helm (PJM), and Doug Hurley (Synapse Energy Economics, Inc.).This Page Intentionally BlankContents

Executive Summary .................................................................................................................. ES-1 Recommendations ............................................................................................................. ES-5

Introduction and Context ................................................................................................................ 1 The Regional Electricity System ............................................................................................ 1
Demand Response as a Resource ............................................................................................ 3
Demand Response Examples .................................................................................................. 0
Federal Policies Addressing On-Site Generation ................................................................... 5
Federal Energy Regulatory Commission ................................................................................ 5
Environmental Protection Agency .......................................................................................... 6 Key Stakeholders in the Demand Response Debate ............................................................... 0

Current State Initiatives .......................................................................................................... 9
NESCAUM State Emissions Regulations .............................................................................. 9
Emerging State Reporting Requirements .............................................................................. 12
ISO/RTO Demand Response Programs ........................................................................................ 13 Demand Response in Capacity Markets ............................................................................... 13
Participation of Backup Generators in Demand Response Programs ................................... 14
ISO New England ................................................................................................................. 15
ISO-NE Forward Capacity Market ....................................................................................... 16

NYISO

............................................................................................................................... ... 19
NYISO Capacity Market ....................................................................................................... 19

PJM

............................................................................................................................... ........ 21
PJM Capacity Market ........................................................................................................... 21
State-Level Challenges ................................................................................................................. 26 Air Quality Goals .................................................................................................................. 26
Regional Air Pollution Transport .......................................................................................... 26

Ground-Level Ozone ............................................................................................................ 27

Fine Particulate Matter .......................................................................................................... 29
Nitrogen Dioxide (NO 2 ) ........................................................................................................ 31

Diesel Exhaust ...................................................................................................................... 32

Emissions Estimates .............................................................................................................. 34
Emissions Factors for Stationary Internal Combustion Engines .......................................... 35
Challenges for Air Quality .................................................................................................... 37
Air Quality Impact Analysis ......................................................................................................... 38Overview of Goals and Data Limitations ............................................................................. 38

Demand Response Events ..................................................................................................... 38

NYISO

............................................................................................................................... ... 39

PJM

............................................................................................................................... ........ 39
ISO-New England ................................................................................................................. 40

Emissions Estimates .............................................................................................................. 40
July 21 NYISO Event Emissions Estimates ......................................................................... 40
July 22 NYISO Event Emissions Estimates ......................................................................... 40
Potential Long-Term Impacts ............................................................................................... 41

Observations and Recommendations .................................................................................... 42

Observations ......................................................................................................................... 42

Recommendations ................................................................................................................. 42
Appendix A: State Emergency Engine Regulations .................................................................. A-1 Appendix B: Demand Response Program Requirements .......................................................... B-1 Appendix C: Demand Response Event Scenario Details .......................................................... C-1 NYISO Enrollment Details ................................................................................................. C-1
July 21 NYISO Event Details ............................................................................................. C-2
July 22 NYISO Event Details ............................................................................................. C-2

PJM Enrollment Details ...................................................................................................... C-3
July 22 PJM Event Details .................................................................................................. C-3

Emission Rates .................................................................................................................... C-4P a g e | ES- 1



## Executive Summary As the largest stationary pollution sources become b etter controlled to meet tighter national air quality standards, air quality planners’ attention is shifting to smaller sources that are relatively uncontrolled and that represent an increasing share of harmful air emissions. In this report, we attempt to evaluate the expanding use of internal combustion engines (often diesel powered) that have historically been dedicated for backup generation when the facility lost service from the electric grid or required emergency power for tasks such as fire suppression. However, as a result of the recent development of capacity markets for electricity procurement in many parts of the U.S., these engines are now also directly and indirectly providing electricity to the grid through participation in demand response programs. In addition, traditional integrated utilities may use these engines for voltage or frequency regulation outside of market-based demand

response programs. xxx

This report focuses on engines classified as emergency, thus avoiding emission limits, while operating during non-emergency periods through participation in a demand response program.
As discussed in this report, demand response may involve actual reductions in electricity consumption (curtailment), but it can also involve the use of on-site backup generators in place of grid-delivered power. These engines are generally diesel-fired but may be natural gas-fired. State environmental agencies have raised concerns that demand response programs, by allowing the use of uncontrolled backup diesel generators, may aggravate air pollution problems. xxxi The electricity markets deploy all eligible supply- and demand-side resources without consideration of respective environmental performance. In particular, concerns have been raised that demand response programs provide financial incentives for the use of uncontrolled backup generators on the hottest summer days, creating a spike in air emissions, including nitrogen oxides (NOx), when conditions would be most conducive to the formation of ground-level ozone. xxxii In addition, diesel exhaust contains a mix of toxic substances and is classified as a known human carcinogen by the World Health Organization. xxxiii Because emergency diesel generators are often located in densely populated areas near ground-level, their increased use for electricity generation will also increase the public’s exposure to their harmful emissions.
Estimates of installed diesel generator capacity suggest that the total population of diesel generators in the Northeast could include well over 30,000 units with a combined capacity exceeding 10 gigawatts (GW). xxxiv The increasing attractiveness of backup diesel engines’ use in demand response programs has the potential to undermine successful efforts to date in reducing

xxx Under EPA’s existing and proposed rules, engines not seeking classification as “emergency” engines would be required to meet the applicable emissions standards, but in exchange, would not be bound by any operational limitations.

xxxi See, for example, New Jersey Department of Environmental Protection comments to U.S. EPA, re: Proposed Settlement Agreement on RICE NESHAP, EPA Docket EPA-HQ-OGC-2011-1030. February 3, 2012; Delaware Department of Natural Resources and Environmental Control’s Petition for Reconsideration, EPA Docket EPA-HQ-OAR-2008-0708-0400. April 30, 2010.

xxxii Ibid

. xxxiii World Health Organization – International Agency for Research on Cancer. IARC: Diesel Engine Exhaust Carcinogenic ( Press Release No. 213). June 12, 2012. Available at http://press.iarc.fr/pr213_E.pdf. Accessed June 2012.

xxxiv NESCAUM. Stationary Diesel Engines in the Northeast: An Initial Assessment of the Regional Population, Control Technology Options and Air Quality Policy Issues . 2003. Available at http://www.nescaum.org/documents/rpt030612dieselgenerators.pdf.P a g e | ES- 2

air pollution and impede states from achieving increasingly more health-protective air quality standards in the future.
Due to the number of sites, diversity of demand response resource configurations, evolving market rules, and confidentiality concerns of market participants, an inventory of diesel generators enrolled in demand response programs is not readily accessible to policymakers or the public. However, available data suggest these engines could represent 10 percent to 50 percent or more of total demand response capacity.
What is sorely lacking is an inventory of the resources that are enrolled in or operate under demand response programs, including characteristics such as generator size, installation year, fuel type, emissions rates or controls, and run time. Without this information, air quality planners cannot reasonably assess the air quality impacts of these resources’ participation in demand response programs. Older diesel generators, installed prior to national engine emission standards, could have emission rates of NOx as high as 40 pounds per megawatt-hour (lb/MWh), greater than ten times the NOx emission rates of well-controlled coal-fired power plants.
For air quality planners, this is most immediately a concern on high electricity demand days (HEDD). These days may be few in number over the course of a summer or several summers, but, in the NESCAUM region, xxxv high electricity demand days typically correlate with the highest temperature days as a result of air conditioner usage. This is a concern because these hot, stagnant, sunny days are also the most meteorologically-conducive for ozone (smog) formation. Therefore, even if diesel engines operate relatively rarely and on only the highest electricity demand days, their emissions on those specific days can be relatively significant and occur at the worst possible times for air pollution.
For example, electric loads soared in the NESCAUM region on July 21 to 22, 2011, when high temperatures were recorded throughout the Northeast. All three Independent System Operators (ISOs) xxxvi in the NESCAUM region dispatched demand resources on July 22, 2011, and NYISO also activated these resources on July 21, 2011.

• In NYISO, 666 MW of demand response resources responded during the four-hour event on July 21 and 1,417 MW of demand response resources responded during the five-hour event on July 22. According to NYISO data, approximately 10 percent of demand response capacity is backup generators. xxxvii

• In PJM, responding demand response resources achieved a reduction of approximately 2,000 MW combined on July 22. xxxviii According to PJM, at least 15 percent of demand response capacity is made up of backup generators, and an additional 60 percent is unclassified and likely includes some amount of backup generators.

xxxv The NESCAUM region encompasses the states of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont.

xxxviThe Regional Transmission Organizations/Independent System Operators (RTOs/ISOs) in the NESCAUM region are ISONew England (ISO-NE), New York ISO (NYISO), and PJM Interconnection (PJM).

xxxvii NYISO Semi-Annual Report on Demand Response Programs; Docket No. ER01-3001- June 3, 2011.

xxxviiiPJM. Load Management Performance Report 2011/2012. Available at http://pjm.com/markets-and-operations/demandresponse/~/media/markets-ops/dsr/load-management-performance-report-2011-2012.ashx. Accessed June 2012.P a g e | ES- 3

• In ISO-NE, 643 MW of demand response resources were called on July 22 and actual reductions totaled approximately 663 MW. xxxix According to ISO-NE, backup generators were not directly dispatched on July 22. xl

Given the paucity of data available from ISOs and demand response providers, to estimate the air quality impact of operating backup generators as part of demand response programs, particularly on poor air quality days, we obtained information from ISO demand response reports and estimated emissions associated with assumed backup generation participation in these events on July 21 and 22, 2011. For NYISO events, we utilized NYISO reported data on generator enrollment in their demand response programs. For PJM events, we created three scenarios based on levels of engine participation ranging from 15 to 50 percent. We did not estimate emissions associated with ISO-NE’s dispatch of demand response resources given that the ISO did not dispatch its Real Time Emergency Generation resources.

• Based on our analysis, backup diesel generator participation during the NYISO events are estimated to have emitted approximately 11 tons of NOx and one-third of a ton of PM over the duration of the four-hour event on July 21 and over 15 tons of NOx and nearly half a ton of PM over the duration of the five-hour event on July 22.

• Backup diesel generator participation during the PJM event is estimated to have emitted between 33 and 109 tons of NOx and between one and three tons of PM during the seven-hour event on July 22.
As shown in Figure ES-1, these days also coincided with the highest ozone readings that month. In fact, the highest ozone level recorded in the New York City metropolitan area in 2011 occurred on July 22, 2011. xli

xxxix ISO-NE. Semi-Annual Status Report on Load Response Programs of ISO New England Inc. December 30, 2011. Available at http://www.iso-ne.com/regulatory/ferc/filings/2011/dec/er03-345-000_-12-30-11_semi-annual_load_resp_rprt.pdf.

xl Ibid

. xli EPA AirData. Available at http://www.epa/gov/airdata. Accessed June 2012.P a g e | ES- 4 Figure ES-1. Daily Maximum 8-Hour Ozone Concentrations (NYC Area)

Source: U.S. EPA AirData. Available at http://www.epa/gov/airdata. Accessed June 2012. In addition to the immediate air quality impact of the operation of these engines during peak electricity demand days, there are also longer-term concerns. These units’ participation in competitive markets may be one factor, among other changing market signals, discouraging the development of new generating facilities with advanced pollution control systems. They may also discourage cleaner demand reduction measures that could meet the region’s resource needs while reducing air pollution emissions, including criteria air pollutants, air toxics, and greenhouse gases.
In the following report, we provide an introduction to competitive electricity markets in the NESCAUM region and then to regulation of these generators, which we believe is essential to understanding these engines’ increasing prominence.

Observations

• Air quality planners are challenged in addressing emissions from uncontrolled engines due to the lack of information on the locations of these sources, the times at which these sources may operate, the public’s exposure to increased levels of diesel exhaust from these sources, and the resulting public health harms from the increased exposure.

• Preliminary screening analyses indicate that uncontrolled diesel backup generators operating under the exemption included in EPA’s recent proposal could by themselves create hotspots exceeding the national health-based 1-hour NO 2 air standard.

• Increased utilization of uncontrolled diesel backup engines in economic demand response programs such as peak shaving may hinder areas from maintaining or achieving national air quality standards. Even though the proposed exemption for such use may be temporary, if usage over the next five years causes an area to violate or fail to attain a standard, that area will face additional years of planning and control requirements as aP a g e | ES- 5

result of the interim increase in emissions from use of backup generators in nonemergency situations.

• In addition to the short-term emissions impacts, there may also be longer term impacts with regard to future resource mixes in the electricity markets. An economic dispatch model to simulate the operations of the current grid mix versus a scenario where backup generators were limited in the market and/or required to install pollution control equipment would aid air quality planners to understand the potential for broader impacts and emission trends over time.

• Several NESCAUM states have been seeking to address emissions on high electric demand days, including regulation of peaking units. These regulations are resulting in the installation of pollution controls as well as unit shutdowns. Policies that permit the use of uncontrolled diesel-fired backup generators in economic or price-responsive demand response programs impede the progress that states are making to address electric sector emissions.

Recommendations

• I SOs should have the authority to collect information on the source of demand response resources from aggregators and other market participants. To improve transparency, ISOs should provide a breakdown of the resources in their demand response programs by zone similar to NYISO’s approach. In addition to being necessary to accurately determine their impact, it would be important for the system operator to know what comprises system resources in order to ensure a reliable system.

• ISOs should consider separating backup generation resources into a stand-alone demand response program category similar to ISO-NE to better track their utilization for peak shaving and emergency demand response.

• The Environmental Protection Agency (EPA) should require the use of ultra-low sulfur diesel for all backup diesel engines that participate in demand response programs, similar to the existing requirements in most NESCAUM states.

• States and EPA should identify a reasonable timeframe for phasing out the participation of the oldest, dirtiest diesel engines in demand response programs.

• Operators and aggregators of engines seeking to participate in economic or priceresponsive demand response programs while remaining classified as emergency engines and thereby avoiding air pollution emissions standards should register and enroll engines directly with the relevant ISO and air quality agency; other indirect operation should be considered peak shaving and subject to air pollution emissions standards.

• Owners of backup diesel generators earning capacity revenue as electric generators in non-emergency demand response programs should be required to install appropriate pollution controls, taking into account population exposure, revenues received, control costs, and any other relevant factors.P a g e | 1



## Introduction and Context
In 2003, the Northeast States for Coordinated Air Us e Management (NESCAUM; see Figure 1) issued a report in response to early concerns regarding the potential air quality impacts of on-site generators. This report sought to develop a more complete inventory of the numbers and types of backup diesel generators that exist in the NESCAUM region. To that end, the report reviewed state policies concerning the permitting and operation of diesel generators, provided preliminary estimates of emissions impacts associated with diesel generator operation, reviewed control technology options, and provided specific policy recommendations. 1

Since 2003, there has been considerable growth in the demand response programs managed by Independent System Operators (ISOs)/Regional Transmission Organizations (RTOs) in the NESCAUM region. During this time, demand response resources have grown from a small share (approximately 1 to 2 percent) of total capacity to greater than 5 percent currently. They are slated to grow to upwards of 10 percent of capacity by 2015. 2 This growth has prompted concerns ranging from environmental and public health impacts, system reliability, and implications for the long-term fuel mix of the region’s electricity markets.
Recently, the U.S. Environmental Protection Agency (EPA) proposed regulations that would allow backup diesel engines to participate in demand response programs without meeting otherwise-applicable emissions limitations under the New Source Performance Standards (NSPS) and National Emission Standards for Hazardous Air Pollutants (NESHAP).
This report is a follow-up to our earlier analysis with updated information on the role of demand response programs in the power markets of the Northeast, their incentives for on-site generators, and a preliminary assessment of the impact of backup diesel generators on air quality in the northeastern states. 

### The Regional Electricity System
The electric power system in the Northeast 3 serves more than 17 million customers and spans three major power markets managed by ISOs/RTOs: ISO New England (ISO-NE), the New York Independent System Operator (NYISO), and the PJM Interconnection (PJM) (see Figure 2). 4 The Federal Energy Regulatory Commission (FERC)—which oversees the U.S. electricity industry—encouraged the formation of the ISOs/RTOs as part of its efforts to restructure the

1 NESCAUM. Stationary Diesel Engines in the Northeast: An Initial Assessment of the Regional Population, Control Technology Options and Air Quality Policy Issues . 2003. Available at http://www.nescaum.org/documents/rpt030612dieselgenerators.pdf.

2 PJM. 2015/2016 RPM Base Residual Auction Results (PJM DOCS #699093). May 17, 2012.

3 For the purpose of this report, the “Northeast region” is defined as the NESCAUM states, which include New England, New York, and New Jersey. New Jersey is part of the 13-state PJM Interconnection.

4 An RTO is an ISO that meets the characteristics and performs the functions specified in FERC Rules at 18 CFR Part 35 Subpart F. ISO-NE, NYISO, and PJM are RTOs in addition to their status as ISOs. Figure 1. NESCAUM StatesP a g e | 2

electric industry in the 1990s. The ISOs/RTOs in the Northeast perform four primary functions: (1) managing the flow of power over the high-voltage transmission grid; (2) operating the competitive wholesale electricity markets in the region; (3) ensuring a reliable supply of power; and (4) planning the regional transmission grid.

Figure 2. Northeast Independent System Operators

NESCAUM Region ISO New England

New York ISO

PJM Northern Maine is part of the New Brunswick Power Market.

Source: Ventyx Velocity Suite The electric system must provide a reliable supply of power at all times, including when the demand for electricity surges or when equipment is down for maintenance or if some equipmentfails for any reason. This requires sufficient resources—including generation assets, demandside resources, and transmission assets—to maintain the stability of the electric grid by ensuring sufficient supply to satisfy the peak demand for electricity. The Northeast is a summer-peakingsystem, meaning that consumer demand for electricity peaks on hot summer days when airconditioning use is at its highest. ISO-NE and NYISO, for example, both experienced their highest average peak loads on August 2, 2006 after a heat wave spread throughout the United States and Canada. 5 PJM set a record for peak load on July 22, 2011, 6 when temperature records

5 ISO-NE. Top 10 Demand Days . Available at http://www.iso-ne.com/nwsiss/grid_mkts/demnd_days/. Accessed April 2012. NY-ISO. Heat Pushes New York Power Use to Near Record Peak: Electricity demand third highest on record (July 6, 2010). Available at http://www.nyiso.com/public/webdocs/newsroom/press_releases/2010/Heat_Pushes_NY_Power_Use_to_Near_Record_Peak_07 0610.pdf. Accessed April 2012.

6 PJM, Top 10 Summer Peak Days. Available at http://www.pjm.com/~/media/markets-ops/ops-analysis/top-10-all-time-summerwinter-peak-load-days.ashx. Accessed June 2012.P a g e | 3

Figure 3. ISO-NE Control Room

Source: ISO New England Inc. were broken throughout the NESCAUM region. On that day, Newark, New Jersey, recorded a record high of 108 degrees Fahrenheit with a heat index of 117 degrees. 7

The three system operators in the Northeast rely on a diverse mix of generation and demand-side resources to balance the production and consumption of electricity. Failure to maintain this balance can lead to voltage fluctuations and then cascading failures across the grid. This report focuses on the intersection of these resources; namely, generation resources that function as demand-side resources; specifically, backup diesel generators participating in demand response programs. Typically, demand response involves the curtailment of electricity usage by consumers in response to a dispatch order from the ISO/RTO. FERC has strongly encouraged the expanded use of demand response beyond its historic use as primarily an emergency resource, due to its expected impact on participants. All three of the Northeast ISOs/RTOs have since adopted demand response programs that give these resources the opportunity to participate more fully in the capacity and energy markets, competing against traditional supply resources such as fossil-fueled generation based upon price, not reliability emergency conditions. 8


### Demand Response as a Resource
FERC defines demand response as “a reduction in the consumption of electric energy by customers from their expected consumption in response to an increase in the price of electric energy or to incentive payments designed to induce lower consumption of electric energy.” 9 In actual operation, demand response may consist of a variety of strategies to reduce electricity consumption. For example, demand response may involve actual reductions in electricity consumption (“curtailment”) by, for example, temporarily shutting down air conditioning, lighting, or manufacturing production lines. In this case, electricity customers may either cut back on their electricity use or shift their electricity use to a later period of time.

7 NYC Area Weather. July 22, 2011: Excessive Heat Continues . Available at http://www.nycareaweather.com/2011/07/july-22- 2011-excessive-heat-continues.html. Accessed July 2012.

8 See, for example, Commissioner Wellinghoff’s Opening Remarks at the Commission Open Meeting (September 21, 2006), available at http://www.ferc.gov/media/statements-speeches/wellinghoff/2006/10-13-06-wellinghoff.asp. Accessed April 2012.

9 18 CFR 35.28(b)(4) (2011).P a g e | 4 Demand Response Examples Cabot Creamery participates in the ISO- NE demand response program. During a demand response event, Cabot Creamery shuts down large refrigeration and ice- making machinery within its manufacturing facilities – temporarily el iminating 1,000 kilowatts (kW) of electric load on the New England electric grid. This represents the energy conservation or curtailment strategy of demand response.
In Baltimore, the University of MarylandBaltimore participates in PJM demand response

p rograms by implementing a variety of energy management strategies, including: turning off

non- essential lighting during periods of high demand, reducing cooling demand, and remotely starting emergency and backup diesel- fired generators. This represents a mix of both strategies –

curtailment and using backup generation as a replacement for grid- supplied electricity. Demand response may also involve the use of backup generators, which are often diesel-fired, in lieu of consuming grid-based electricity (“backup generation”), which reduces electricity consumption from the grid as measured at the customer’s meter. ISOs/RTOs often cannot identify what specific actions a customer may be taking to reduce metered demand. However, anecdotal evidence suggests demand response aggregators – companies that facilitate customers’ participation in these programs – appear to be increasingly reliant on backup diesel generation as part of their overall portfolio. In effect, demand response programs appear to be shifting a portion of overall electricity demand from traditional generating resources that supply the grid to more dispersed, unregulated diesel generators.
As a matter of national energy policy, there are several advantages to allowing demand response resources to compete with traditional generation, including expanding competition, creating a more diverse set of supply resources, and providing economic incentives for end-use customers to actively manage their energy consumption. However, concerns have also been raised as the ISOs/RTOs have dramatically expanded reliance on demand response as a resource. These concerns include impacts on the generation fleet, public health and the environment, and overall system reliability.
The ISOs/RTOs in the Northeast rely on capacity markets to secure the resources necessary to meet current and future electricity demand with an added margin of safety in the event of unplanned contingencies, such as an unexpected generation plant shutdown or extreme weather

event. 10 Supply and demand resources (both existing and proposed) compete alongside one another in capacity markets (in PJM and ISO-NE) to meet the region’s expected capacity needs. As a result, various market monitors have raised concerns that demand response resources may discourage the development of new generation resources, such as power plants and renewable

10 In capacity markets, ISOs/RTOs typically conduct auctions for capacity resources several years into the future. Existing and new generation and demand-side resources register with the ISO/RTO and submit offers into the auctions. The ISO/RTO sets the amount of capacity that it will procure in the auction and is the sole purchaser of capacity through the auctions. The ISO/RTO allocates the costs of capacity on a pro rata basis among utilities or Load Serving Entities (LSEs) in its region. Successful bidders receive capacity payments prorated on a by megawatt-day or kilowatt-month. These capacity payments serve as an important revenue stream for both supply and demand-side resources.P a g e | 5

resources, as well as energy efficiency resources that might otherwise be developed. 11 Demand response resources may also reduce the ability of generating facilities to pay for environmental upgrades using capacity payments. 12


### Federal Policies Addressing On-Site Generation
Both FERC and EPA have federal legal authorities that are pertinent to the use of on-site generators in demand response programs. Each is discussed in turn. To mirror EPA’s terminology in current rulemakings, discussed below, we will use the following terminology for actual emergencies (e.g., loss of grid power) and permissible non-emergency use of these engines:

• Emergency Usage – Usage to preserve essential facility functions in the event of a loss of grid power or for situations that threaten the facility, such as fire pump use during a fire. These are the situations for which the emergency engine was originally purchased and installed. Under EPA rules, operation during true emergencies is unlimited.

• Demand Response – Time periods in which resources are called upon by the relevant RTO. This would include fluctuations in voltage or frequency of five or more percent. The current EPA proposal seeks to more clearly define permissible demand response programs using the North American Electric Corporation (NERC) Emergency Alert Level 2 as a threshold as well as to increase permissible non-emergency operation to 100 hours annually (from 15) if an engine participates in a demand response program called at or after NERC Level 2.

• Peak Shaving – Either situations where an engine participates in a demand response program called before NERC Level 2 or when a facility independently elects to reduce on-site electricity demand through the use of on-site generators, typically in response to economic signals associated with high real-time energy prices.
Federal Energy Regulatory Commission The Energy Independence and Security Act of 2007 (EI SA) directed FERC to develop a National Action Plan to maximize the amount of demand response developed and deployed in U.S. electricity markets. FERC has developed two Action Plan reports and has provided technical and market assistance to the ISOs and RTOs. FERC has also issued several orders to enable and encourage the participation of demand response in electricity markets.

• Order No. 719 - FERC issued Order No. 719 in October 2008 to address barriers to demand response participation in ISO and RTO markets. Order No. 719 required system operators to accept bids from qualified demand response resources and allowed aggregators to bid demand response directly into the markets. The participation of aggregators has enabled a larger segment of the commercial, industrial, and institutional markets to participate in demand response programs.

• Order No. 745 - In March 2011, FERC issued Order No. 745, which amended Commission regulations to require that demand response resources be allowed to

11 Monitoring Analytics, LLC. Comments of the Independent Market Monitor for PJM . Docket No. EPA–HQ–OGC–2011– 1030-0050.

12 Ibid

.P a g e | 6

participate in and receive compensation from competitive electricity markets in the same manner as generation resources. 13 Specifically, “a demand response resource participating in an organized wholesale energy market must be compensated for the service it provides at the market price for energy when the demand response resource has the capability to balance supply and demand as an alternative to a generation resource and when the dispatch of demand response resource is cost-effective.” 14 PJM, California ISO, the Southwest Power Pool, ISO-NE, NYISO, and the Midwest ISO filed tariff revisions to implement Order No. 745 in 2011. 15

These actions have created greater financial incentives for demand response and backup generators to participate in competitive wholesale electricity markets. Where demand response resources, and in particular backup generators, were once only used as a true emergency resource, they are now a more integral part of the regional resource mix, garnering the same types of economic incentives given to traditional generators. In the November 2011 Assessment of Demand Response and Advanced Metering Staff Report

, 16 FERC found that demand response potential in organized power markets increased by more than 16 percent since 2009, accounting for between 2.3 percent and 10.5 percent of 2010 peak demand. 17 Further, FERC staff observed that federal and state regulators “continue to focus on demand response, taking actions to remove barriers to wholesale demand response.” 18

Environmental Protection Agency The Clean Air Act (CAA) requires EPA to establish em issions standards for sources of air pollutants, such as nitrogen oxides or carbon monoxide, as well as hazardous or toxic air pollutants, such as mercury or benzene. These pollutants are regulated under CAA sections 111 and 112, respectively, and are known as New Source Performance Standards (NSPS) and National Emission Standards for Hazardous Air Pollutants (NESHAP). NSPS generally regulate new sources, i.e., sources put into operation after issuance of the rule, 19 while NESHAPs regulate both new and existing sources, although the standards may differ.
EPA finalized NESHAP for existing, new, and reconstructed stationary reciprocating internal combustion engines (RICE) greater than 500 horsepower (HP) located at major sources of HAPs 20 on June 15, 2004. 21 EPA then promulgated NESHAP for new and reconstructed stationary RICE located at area sources and for new and reconstructed stationary RICE less than or equal to 500 HP located at major sources of hazardous air pollutants (HAPs or air toxics) on

13 Several stakeholders, including the California ISO (Cal-ISO), the California Public Utilities Commission (CPUC), Edison Electric Institute (EEI), and the Electric Power Supply Association (EPSA), have filed for court review of Order 745.

14 FERC. Demand Response Compensation in Organized Wholesale Energy Markets . Order No. 745.

15 FERC. 2011 Assessment of Demand Response and Advanced Metering Staff Report . November 2011. Available at http://www.ferc.gov/legal/staff-reports/11-07-11-demand-response.pdf. Accessed May 2012.

16 The Energy Policy Act of 2005 (EPAct 2005) requires FERC to prepare and publish an annual report assessing electricity demand response resources.

17 FERC. 2011 Assessment of Demand Response and Advanced Metering Staff Report . November 2011. Available at http://www.ferc.gov/legal/staff-reports/11-07-11-demand-response.pdf. Accessed May 2012.

18 Ibid

. 19 While NSPS usually apply only to new sources, CAA subsection 111(d) requires EPA to regulate through the NSPS program existing sources’ emissions of some air pollutants that are not addressed under other CAA sections. This provision is not applicable to RICE.

20 A major source of HAP emissions is a stationary source that emits or has the potential to emit any single HAP at a rate of 10 tons or more per year or any combination of HAPs at a rate of 25 tons or more per year. An area source of HAP emissions is a source that emits HAPs but is not a major source.

21 69 FR 33474.P a g e | 7

January 18, 2008. 22 EPA did not promulgate final requirements for existing stationary RICE located at area sources or for existing stationary RICE less than or equal to 500 HP located at major sources because the Agency determined at the time that it did not have sufficient information to inform regulation. 23 Subsequent court decisions further delayed regulation of these remaining classes of engines.
In 2010, EPA eventually finalized NESHAPs for small RICE at major sources and RICE of all sizes located at area sources (facilities with limited potential to emit air toxics). During the public comment period in 2009, several commenters highlighted the role of these engines in demand response programs. In addition, traditional integrated utilities may use these engines for voltage or frequency regulation outside of market-based demand response programs. 24

In the final rule, which is scheduled to take effect for existing units in 2013, EPA established emission limits or work practice standards to reduce emissions of HAPs such as formaldehyde, benzene, and acrolein (see Table 1 ). At the same time, EPA allowed emergency backup diesel engines to operate for as long as necessary without meeting emission limits during actual emergencies (i.e., loss of grid power), as well as for up to 15 hours per year as part of a demand response program. In other words, EPA allowed engines to operate up to 15 hours per year for non-emergency reasons without emission limits. In the event of an emergency, backup diesel engines are permitted unlimited operation; however, “emergency” is not well-defined. 25 EPA received petitions for reconsideration requesting both a higher exemption and elimination of the exemption, from a coalition of curtailment service providers (CSPs) and the Delaware Department of Natural Resources and Environmental Control (DNREC), respectively.

Table 1. HAP Emissions from Reciprocating Internal Combustion Engines (RICE) Acetaldehyde

Acrolein

Benzene

Cadmium

Chromium Formaldehyde

Hexane

Lead

Manganese

Mercury Methanol

Methyl Chloride

Naphthalene

Nickel

Polycyclic Aromatic Hydrocarbons (PAH) Selenium

Toluene

Xylene

1,3-butadiene

2,2,4-trimethypentane

Source: National Emission Standards for Hazardous Air Pollutants for Stationary Reciprocating Internal Combustion Engines. 69 FR 33474.

22 73 FR 3568.

23 Statutorily, NESHAP standards must be based on the performance of the best units in a given source category, and EPA did not believe the Agency had sufficient information to determine the best performers.

24 Under EPA’s existing and proposed rules, engines not seeking classification as “emergency” engines would be required to meet the applicable emissions standards, but in exchange, would not be bound by any operational limitations. This report focuses on engines classified as emergency, thus avoiding emission limits, while operating during non-emergency periods through participation in a demand response program.

25 The 2010 final rule defines “Emergency stationary RICE” as “any stationary internal combustion engine whose operation is limited to emergency situations and required testing and maintenance. Examples include stationary ICE used to produce power for critical networks or equipment (including power supplied to portions of a facility) when electric power from the local utility (or the normal power source, if the facility runs on its own power production) is interrupted, or stationary ICE used to pump water in the case of fire or flood, etc. Stationary CI ICE used for peak shaving are not considered emergency stationary ICE. Stationary CI ICE used to supply power to an electric grid or that supply non-emergency power as part of a financial arrangement with another entity are not considered to be emergency engines, except as permitted [under the 15-hour demand response provisions].” 75 FR 9679.P a g e | 8

To address litigation filed by the CSP coalition, on June 7, 2012, EPA proposed revisions to the RICE NESHAP. 26 With regard to demand response provisions, this proposal would increase the annual hourly limit for and refine the definition of permissible demand response operation. To maintain engines’ status as “emergency” engines, and thus their exemption from emission standards, engines would be limited to 100 hours of operation per year under certain conditions. 27 EPA proposed that the operation hours would include the following: 1) maintenance and readiness testing and 2) participation in an “emergency demand response” program. To operate under the demand response option, the demand response program would be required to be called only after the relevant RTO has declared an emergency under NERC

Emergency Alert Level 2 or when there is a fluctuation in voltage or frequency of 5 percent or

more. 28 In addition, EPA proposed a temporary provision allowing engines at area sources tomaintain their emergency status while operating up to 50 hours per year as part of a nonemergency economic demand response or peak shaving program with a RTO or local distribution system operator. This exemption would expire in April 2017, when the Agency

26 77 FR 33812.

27 Operation during emergencies – such as when the normal power supply is interrupted or the engine is needed for fire suppression – would remain unlimited.

28 The full procedures of NERC’s “NERC Emergency Alert Level 2” (Standard EOP-002-2 — Capacity and Energy Emergencies) may be viewed at http://www.nerc.com/files/EOP-002-2.pdf. Accessed June 2012. Key Stakeholders in the Demand Response Debate
**Curtailment Service Providers (CSPs)** – Concerned that customers will not participate if backup generators are subject to air pollution emission limits; contend that the RICE NESHAP, if applied to these engines, would reverse environmental and reliability benefits of demand response.
**Environmental and Health Organizations** – Concerned with substantially higher emissions profile of diesel generation compared to traditional or renewable generation; support curtailment as demand response.
**Environmental Protection Agency (EPA)** – Attempting to balance environmental and reliability claims while carrying out the Agency’s statutory obligation to address hazardous and criteria pollutants from these engines. **Federal Energy Regulatory Commission (FERC)** – Concerned with overall system reliability; recently finalized rules to allow demand response resources to compete with generation resources.
**Independent Power Producers (IPPs)** – Concerned that a significant portion of demand response capacity is actually diesel generators; argue that all generators participating in electricity markets should be held to comparable environmental and reliability requirements. **Independent System Operators (ISOs) / Local Balancing Authorities** – Concerned with overall system reliability and whether committed demand response resources will be available and will respond when called to do so by the ISO. **Municipal/Cooperative Utilities** – Utilize diesel generators for a range of functions including frequency regulation and replacement power; argue that emission limits should not be imposed, particularly before the Mercury and Air Toxics Standards (MATS) for power plants take effect.
**State Environmental Agencies** – Concerned that increased use of uncontrolled backup generators may increase the public’s exposure to health damaging air pollution, while forcing more expensive pollution measures on other local sources in order to compensate for the increased air pollution.P a g e | 9

expects the Mercury and Air Toxics Standards (MATS) to be fully implemented. EPA intends that this provision would allow flexibility as the electricity system completes the transition.



### Current State Initiatives
Prior to federal regulations, stationary internal combustion engines have for the most part been regulated and permitted at the state and local level. This section summarizes current NESCAUM state regulation of non-emergency and emergency engines.
NESCAUM State Emissions Regulations Emergency engines are often exempt from emissions li mits or control technology requirements; however, their operation is usually limited to emergency situations and a maximum number of non-emergency hours. In some states, emergency units are allowed to operate under ISO/RTO emergency demand response programs, while in others, operation of emergency units remains constrained to actual outage situations only. Emergency units are generally precluded in all Northeast states from participating in non-emergency economic demand response programs. Many states require the use of ultra-low sulfur diesel ( ≤ 15 parts per million) for diesel-fueled emergency backup engines. Table 2 summarizes these requirements for NESCAUM states while

Table 4 and Appendix A provide further detail.P a g e | 10

Table 2. Summary of State Permitting Requirements for Distributed Generators Non-Emergency Engines Emergency Engines State Threshold Requirements Threshold Restrictions Demand Response

CT PTE 15 TPY any

individual air pollutant If operating underRCSA section 22a174-3a (individual permit), BACT/ LAER based on emissions

If operating underRCSA section 22a174-42 (distributed generator permit by rule), allowed operating hours and CO 2 , NOx PM, CO emission limits determined in accordance withRCSA section 22a174-42. ULSD or 10 grains sulfur/100 dscf for gaseous fuels required

Owners of engines may also be subject to the emission limits and testing requirements in RCSA sections 22a-174-22(e) and 22a-174-22(k), if the engine meets the applicability thresholds PTE 15 tpy any individual air pollutant. The owner has the option of obtaining an individual permit under RCSA section 22a-174- 3a or operating under one of two permits-by-rule (RCSA sections 22a-174-3b and - 3c) If operating under an

individual permit, run time restrictions will
vary

If operating underRCSA section 22a174-3b, run time limited to 300 hrs/yr

If operating underRCSA section 22a174-3c, limitations on fuel purchased

If operating underRCSA section 22a174-3c, gaseous fuel purchase limited to 3,360,000 ft 3 /yr, distillate oil purchase limited to 21,000 gal/yr, and propane purchase limited to 100,000 gal/yr Participation in price
response programs(e.g., nonemergency peak shaving) not allowed

Participation in emergency demand
response program allowed for 300 hr/yr using natural gas or ULSD when operating underRCSA sections 22a174-3b or 22a-174- 3c. Individual permit under RCSA section 22a-174-3a may have different restrictions

ME 5 MMBtu/hr (approx.

500 kW), 0.5 MMBtu/hr with combined heat input of 5 MMBtu/hr or operation-specific air permit (if at major source) SCR over 20 TPYNOx, BACT caseby-case, on-road diesel maximum of 15 ppm sulfur content from diesel fuel, 1.5 lb NOx/MWh 0.07 lb PM/MWh 2.0 lb CO/MWh 0.5 MMBtu/hr (approx. 50 kW) 500 hrs/yr, used only

during emergencies and maximum 50 hrs of maintenance and testing Emergency generators are not allowed to participate in anyvoluntary demandreduction program or any other interruptible supply arrangement with a utility, other market participant, or system operator.P a g e | 11 Non-Emergency Engines Emergency Engines State Threshold Requirements Threshold Restrictions Demand Response

MA 300 kW if installed

on or before March 23, 2006

50 kW if installed after March 23, 2006 Case-by-case review if installed on or before March 23, 2006

Permit by rule following the RAP model rule if installed after March 23, 2006. A peaking power production unit, a load shaving unit, or a unit in an energy assistance program may elect a case-by-case BACT review in lieu of complying with emission limits of permit by rule. If installation of the engine results in facility being subject to major NSR, it is not allowed permit by rule 300 kW (approx.

3 MMBtu/hr) if installed on or before March 23, 2006

37 kW if installed after March 23, 2006 300 hrs/yr total usage

If installed on or before March 23, 2006, operation
cannot create a condition of air pollution

If installed after March 23, 2006, RAP model rule requirements apply (non-road engine tiers, ULSD, etc.) Participation in price
response programs(e.g., nonemergency peak shaving) not allowed

Existing and new engines burning ULSD or natural gas can operate if called by ISO-NE. EDRP currently allowed during OP-4, Action 6

NH Aggregate total of

all engines at a facility exceeding either: 1.5 MMBtu/hr (approx. 150 kW) for diesel 10 MMBtu/hr (approx. 1,000 kW) for gaseous fuels Aggregate total excludes engines less than 0.15 MMBtu/hr for diesel and 1.5 MMBtu/hr for gaseous fuels Over 25 TPY or 4.5 MMBtu/hr require RACT Must obtain

general state permit 500 hrs/yr less than

25 TPY NOx Can participate after implementation of Action 6 ISO-NE Operating Procedure 4 (OP4)P a g e | 12 Non-Emergency Engines Emergency Engines State Threshold Requirements Threshold Restrictions Demand Response

NJ 1 MMBtu/hr

(approximately 100 kW), 5 TPY must meet SOTA requirements, 37 kW electricity generation Stationary engine power output 37 kW or greater: 1.5 NOx rich-burn gaseous or liquid fuel and lean-burn gaseous fuel, 2.3 NOx lean-burn liquid and dual fuels, 0.90 g/bhp-hr NOx emission limit Limit .15g/bhp-hr NOx, 0.5 g/bhp-hr CO, 0.15 g/bhp-hr VOC, ammonia slip 10 ppmvd at 15% O 2 , 0.02 g/bhp-hr liquid fuel firing, 500 ppmvd CO emissions at 15% O 2 , 0.9g/bhp-hr NOx electricity, 30 ppm sulfur until Jul 2016 sulfur limit 15
ppm 1 MMBtu/hr

(approx. 100 kW) Emergency,

maintenance, and testing operations only, maintenance and testing not during days forecasted to have poor air quality, 15 ppm fuel sulfur limit, no NOx requirements Cannot participate in economic demand
response programs; exempt for NOx requirements when there is a voltage reduction issued by PJM under its “emergency procedures.”

NY NY: 300 kW, 33 kW

if diesel, 400 bhp (300 kW) in ozone attainment areas, 200 bhp (147 kW) in

ozone nonattainment areas, NYC: 12.5 TPY NOx, NY: 50 TPY NOx 90% NOx reduction from 1990, 1.5 g/bhp-hr natural gas, 2.0 g/bhp-hr landfill/digester gas, 2.3 g/bhp-hr distillate oil No threshold NY: 500 hrs/yr. including maintenance and testing, no permits, NYC: register but no restrictions An engine participating in a demand response program is not considered to be an emergency engine per NYS DEC regulations.

RI 350,000 Btu/hr or 50

hp minor source or general permit for generators BACT based on emissions for minor source permits or compliance with Regulation No. 43 for general permits 350,000 Btu/hr or

50 hp minor source or general permit for generators 500 hrs/yr for

maintenance, testing, and emergencies only, maximum 1,900 lb/MWh CO 2, 15 ppm sulfur content liquid fuel, 10 grains of sulfur per 100 dry standard cubic feet gaseous fuel, 10% visible emissions,must meet EPA nonroad emissions standards for Regulation No. 43 compliance only Cannot participate in demand-reduction program unless implemented at same time as ISO New England

VT 450 bhp (337 kW),

200 bhp located next to air contaminate source site Must meet EPA’s non-road standards No threshold 200 hrs/year use only for emergency purposes, 100 hrs/yr maintenance and testing Cannot participate in
emergency or economic demand
response programs

Emerging State Reporting Requirements Data on the enrollment and use of on-site generators in demand response programs is extremely limited because, unlike larger generating facilities, participating engines are generally exempt from reporting requirements at the state or federal level. The 2003 NESCAUM report sought to develop a more complete inventory of the numbers and types of backup generators that exist inP a g e | 13

the NESCAUM region. Estimates of installed diesel generator capacity suggest that the total population of diesel generators in the Northeast could include well over 30,000 units with a combined capacity exceeding 10 GW. In response, several states in the Ozone Transport Commission 29 have begun to require that demand response providers and program participants track and report the composition of demand response resources. In particular, both Delaware and Maryland are exploring requiring disclosure of demand response composition.



### ISO/RTO Demand Response Programs
This section summarizes demand response programs in ISO/RTO markets within the NESCAUM region; the growth and composition of these programs, with a particular focus on reliability-based demand response programs; and the conditions under which backup diesel generators are dispatched. 

### Demand Response in Capacity Markets
Demand resources may participate in capacity markets in all three ISOs/RTOs. Many ISOs/RTOs, including ISO-NE and PJM, hold annual capacity auctions to acquire capacity for a one-year period three years in advance with the goal of ensuring reliable electricity supply. 30 With limited exceptions, 31 the auctions do not discriminate between fuel type or technology – from the RTO perspective, there is little distinction between a megawatt of supply and a megawatt of demand response or between emergency or non-emergency capacity resources.
Each resource that participates in a capacity auction is competing for the same value of capacity revenue. Capacity revenue typically comes in the form of a fixed payment for each unit of capacity regardless of the ultimate frequency of its use. In other words, a megawatt of generation that expects to operate frequently receives the same capacity payment as a megawatt of demand response that expects to operate infrequently. According to recent analysis by Synapse Energy Economics for EPA, the annual capacity market revenue available to one MW – in this example, a backup generator – in ISO-NE and PJM varies from under $10,000 per year to greater than $80,000 per year, depending upon the specific year and location in which the unit is
installed. 32 Since the Synapse analysis, there have been two additional three-year forward capacity auctions in PJM and ISO-NE.

Table 3 summarizes demand response enrollment in 2011 and 2015. While PJM differentiatesbetween energy efficiency and demand response, ISO-NE does not. Furthermore, unlike ISONE and PJM, NYISO conducts seasonal (May-Oct/Nov-Apr), monthly, and spot capacity auctions rather than annual auctions for capacity needs three years in advance.

29 The Ozone Transport Commission was created by the 1990 Clean Air Act Amendments as a multi-jurisdictional organization that includes the District of Columbia and the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Virginia (known as the Ozone Transport Region). These jurisdictions collectively work together to address regional ground-level ozone problems.

30 NYISO operates strip, monthly, and spot capacity auctions.

31 See further detail regarding ISO-NE’s 600 MW cap on the amount of RTEG resources in the forward capacity auction on page 16.

32 Synapse Energy Economics. Sample Revenue for a 1 MW Backup Generation Unit . June 27, 2011.P a g e | 14

Table 3. Demand Response Enrollment by ISO Demand Response Enrollment ISO-NE NYISO PJM

2011 MW 2,554 2,173 11,800 Percent of 2011 Capacity 7% 6% 8% Percent Back Up Generators 2011 23% Approximately 10% 15%

2015 MW 3,628 N/A 14,832 Percent of 2015 Capacity 20% N/A TBD Percent Backup Generators 2015 N/A N/A N/A

Source: ISO-NE, NYISO, PJM, MJB&A Analysis. 

### Participation of Backup Generators in Demand Response Programs
Backup generators are allowed to participate in every aspect of the reliability and economic based demand response programs in the ISO/RTO markets within the NESCAUM region, with two exceptions: ISO-NE, where most state air regulations preclude backup generators from participating in economic demand response programs, and NYISO, where behind-the-meter generation is not permitted in its energy market. Where backup generation is eligible to participate in the NYISO’s reliability demand response programs, the NYISO requires that it adhere to all applicable laws and regulations. PJM does not limit the participation of backup generators but instead requires that the owner adhere to all applicable environmental regulations. In addition, while NYISO quantifies the generation capacity enrolled in demand response programs, PJM does not require explicit information regarding the source of demand response activity, including backup generation. Table 4 summarizes demand response program eligibility for backup generators, the environmental conditions for participation, and the dispatch trigger. Appendix B provides more detail for demand response programs in ISO-NE, NYISO, and PJM.

Table 4. Backup Generator Participation by ISO

ISO/RTO Program Eligibility Backup Generator Conditions Trigger Financial Compensation ISO-NE Real Time Emergency

Generation Resources Yes Federal, state and/or local air quality rules limit operation in response to requests from the ISO to the times when the ISO implements voltage reductions of five percent of normal operating voltage that require more than 10 minutes to implement Operating Procedure No. 4 – Action During A Capacity Deficiency (OP-4) – Action #6 Monthly capacity payments and energy payments for eventsP a g e | 15 ISO/RTO Program Eligibility Backup Generator Conditions Trigger Financial Compensation Installed Capacity/Special Case Resource Program Yes Monthly capacity payments for SCRs and energy payments for events and
tests Emergency Demand Response Program (“EDRP”) Yes The NYISO will deploy the SCR and EDRP as one of its
emergency procedures in conjunction with the In-day Peak Hour Forecast response to an Operating Reserve Peak Forecast Shortage or other operational
emergency Energy payments for
events NYISO

Targeted Demand

Response Program Yes Generators must adhere to all applicable operating hour and/or low sulfur fuel regulatory requirements. Participants must also report these requirements to NYISO at enrollment. In order to participate in the programs, engines must be model year 1995 or newer or demonstrate that their NOx emissions do not exceed 35 pounds per megawatt-hour (lb/MWh) Decision to activate TDRP resources made by Con Edison for local reliability issues in NYC Monthly capacity payments and energy payments for events

Limited (earns capacity and energy revenues) Yes 10 days up to 6 hours per day (i.e., 60 hours per year) Monthly capacity payments and energy payments for events Extended Summer (earns capacity and energy revenues) Yes Unlimited summer days up to 10 hours per day Monthly capacity payments and energy payments for events PJM

Annual (earns capacity

and energy revenues) Yes Unlimited days up to 10 hours per day Decision to activate by PJM according to “Manual 13 Emergency Operations” Activated during capacity emergencies Emergency conditions include: an abnormal electrical system condition requiring manual or automatic action, a fuel shortage, or a condition that requires implementation of
emergency procedures as defined in the PJM Manuals Monthly capacity payments and energy payments for events

Sources: ISO-NE, NYISO, PJM 

### ISO New England
ISO New England (ISO-NE), the RTO serving Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont, has a long history with demand response programs and was one of the first ISOs to include demand-side resources in its forward capacity auction. As early as 1997, ISO-NE (then the New England Power Pool) adopted a demand response program that offered a fixed payment for voluntary reductions in load during capacity shortages. Over time, ISO-NE has modified and expanded these programs to include both reliability-based (e.g., emergency) programs and economic-based programs. Reliability-based resources participate in both the capacity and energy markets, while economic-based resources participate in the energy markets only.
In the reliability-based programs, customers reduce demand in response to system reliability conditions as determined by ISO-NE. The reliability-based demand response programs includeP a g e | 16

Real Time Demand Response (RTDR) resources and Real Time Emergency Generation (RTEG)

resources. 33 A RTEG resource is a distributed generator whose federal, state, and/or local air quality rules limit operation in response to requests from the ISO to the times when the ISO implements voltage reductions of 5 percent of normal operating voltage that require more than 10 minutes to implement. 34

These resources are called upon by ISO-NE under very specific system conditions as part of operating procedures to maintain system reliability as defined by ISO-NE manuals. RTDR resources are dispatched when ISO-NE forecasts the implementation of measures to increase capacity 35 the day before or during the operating day. 36 RTEG resources are dispatched when ISO-NE forecasts worsening grid conditions. 37,38

ISO-NE Forward Capacity Market Each year, ISO-NE develops a projection of future co nsumer demand and power system needs three years in advance and holds an auction to purchase resources that will satisfy the anticipated regional requirements. In April 2012, ISO-NE completed its sixth Forward Capacity Auction to meet the region’s reliability needs in the 2015/2016 delivery year. 39

Participation by demand-side resources in the ISO-NE capacity auction has been steadily increasing. In the 2010/2011 delivery year, demand-side resources accounted for 7 percent (2,554 MW) of the total capacity resources and will increase to 10 percent (3,645 MW) by 2015/2016 based on the results of the 2012 auction. Figure 4 below illustrates the cleared resources in each of the six forward capacity auctions – generating resources, demand resources, and imports from other control regions. ISO-NE caps the amount of RTEG resources in the forward capacity auction at 600 MW. This means that the effective payment rate applied to RTEG is prorated by the maximum amount of RTEG allowed to be purchased in the auction, 600 MW, divided by the total amount of RTEG that received a capacity supply obligation in the auction.
While cleared capacity has been increasing, capacity supply obligations, after bilateral and reconfiguration auctions, have not been increasing at the same rate. The charts below showinitial auction results rather than the final obligations for the commitment period. Passive (nondispatchable) resources have continued to grow significantly, while active resources have not.

33 RTDR resources may also participate in economic-based programs.

34 ISO-NE. ISO New England Inc. Transmission, Markets and Services Tariff. Section I.2.2. Available at http://www.isone.com/regulatory/tariff/sect_1/sect_i.pdf. Accessed June 2012.

35 Operating Procedure No. 4 – Action During A Capacity Deficiency (OP-4) – Action #2 or higher (where higher indicates a more severe market condition).

36 ISO-NE OP-4 establishes criteria and guidance for actions during capacity deficiencies. OP-4 may be implemented any time an event occurs or is expected to occur that would result in insufficient resources to meet load and operating reserve requirements. This may include transmission facilities that are loaded beyond their transfer capabilities, abnormal voltage and/or reactive conditions, capacity deficiency in another power pool, or any other threat to the integrity of the ISO-NE system. OP-4 will normally precede implementation of manual load-shedding as required by Operating Procedure No. 7 - Action in an Emergency (OP-7). OP-4 Action 2 is the action taken by the ISO to dispatch RTDR Resources in the amount and location required in response to the depletion of the 30-minute operating reserve.

37 OP-4 Action 6.

38 ISO-NE dispatches RTEG resources, sharing reserves, and voltage reductions under Operating Procedure No. 4 Action 6. In this Action, ISO-NE implements a voltage reduction of five percent of normal operating voltage, which requires more than 10 minutes to implement, dispatches RTEG Resources in the amount and location required, and may alert the New York Independent System Operator (NYISO) that sharing of reserves may be required.

39 ISO-NE. Forward Capacity Market (FCA 6) Result Report . April 4, 2012. Available at http://www.isone.com/markets/othrmkts_data/fcm/cal_results/ccp16/fca16/fca_6_result_report.pdf. Accessed May 2012.P a g e | 17

Figure 4. Cleared Resources by Type and Delivery Year ISO-NE Forward Capacity Auctions

Source: ISO New England Inc. Resources cleared (e.g., accepted) in the forward capacity auction receive capacity payments on a dollars per kilowatt-month ($/kW-month) basis. As illustrated in Table 5 , the clearing prices in the auctions spanned a range from $2.52/kW-month to a high of $4.25/kW-month.

Table 5. ISO-NE Forward Capacity Auction Results 40

FCA #1 FCA #2 FCA #3 FCA #4 FCA #5 FCA #6

Delivery Year 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

Auction Year 2007 2008 2009 2010 2011 2012

Total Cleared (MW) 34,077 37,283 36,996 37,501 36,918 36,309
Generating Resources (MW) 30,865 32,207 32,228 32,247 31,439 30,757
Demand Resources (MW) 2,279 2,778 2,867 3,261 3,468 3,628

Imports (MW) 934 2,298 1,900 1,993 2,011 1,924
Prorated Price ($/kW-month) $4.25 $3.12 $2.54 $2.52 $2.86 $3.13
Source: ISO New England Inc. Initial results from each auction; amounts change with monthly and annual reconfiguration auctions. ISO-NE reports the total enrolled capacity by demand resource category on a monthly basis. As of May 2012, there were 1,161 MW of RTDR, 618 MW of RTEG, 564 MW of on-peak, and 359

40 ISO-NE. Sixth Forward Capacity Market Auction Procures Power System Resources Needed for 2015–2016 (Press Release). April 6, 2012.P a g e | 18

MW of seasonal peak resources enrolled in the programs. 41 The makeup of cleared demand response resources by auction is illustrated in Figure 5

. 42

Figure 5. Growth of Cleared Demand Resources in ISO-NE Forward Capacity Auctions

Sources: ISO New England Inc., MJB&A Analysis Based on the auction clearing prices, from 2012-2016, a backup generator would earn over $130,000 per MW in capacity market revenue as illustrated in Table 6 below.

Table 6. Capacity Market Revenue to a 1 MW Backup Generator – ISO-NE

Delivery Year Clearing Price

($/kW-month) Calendar Year Jan-May Revenue Jun-Dec Revenue Calendar Year Revenue

2012/13 $2.41 2012 $12,350 $16,870 $29,220

2013/14 $2.19 2013 $12,050 $15,330 $27,380

2014/15 $2.37 2014 $10,950 $16,618 $27,568

2015/16 $3.04 2015 $11,870 $21,308 $33,178

2016/17 TBD 2016 $15,220 TBD TBD; at least $15,220 *

Total $62,440 $70,126 $132,566
Source: Synapse Energy Economics, Sample Revenue for a 1 MW Backup Generation Unit, June 27, 2011. Results of ISO-NE Forward Capacity Auctions 2012/13-2015/16, MJB&A Analysis. *Only the first five months of 2016. The clearing price for the last seven months will be known in June 2013.

41 ISO-NE. Demand Resource Asset Enrollments . May 1, 2012. Available at http://www.isone.com/genrtion_resrcs/dr/stats/enroll_sum/2012/dr_enrollments_05_01_2012with_dispatch.ppt. Accessed May 2012.

42 Critical peak resources no longer exist as a demand resource option.P a g e | 19



### NYISO
Similar to ISO-NE, the New York Independent System Operator (NYISO) divides demand response programs into economic- and reliability-based programs.
NYISO Capacity Market NYISO operates a capacity market that incorporates s emi-annual, monthly, and spot capacity auctions to ensure resource adequacy. Eligible capacity resources (including owners of backup generators) may sell capacity in bilateral contracts (such as with a Load Serving Entity (LSE)) or offer directly into Installed Capacity (ICAP) auctions. NYISO classifies three demand response programs, summarized below, as emergency demand response resources and thus called when NYISO forecasts a reliability issue.

1. Emergency Demand Response Program (EDRP ). The EDRP program is limited to interruptible loads or loads with a qualified behind-the-fence local generator (e.g., backup generation). Generators must adhere to all applicable operating hour and/or low sulfur fuel regulatory requirements. Participants must also report these requirements to NYISO at enrollment. In order to participate in the EDRP program, the NYISO has established guidelines in the absence of any environmental limitations specifically applicable to demand response: engines must be model year 1995 or newer or demonstrate that their NOx emissions do not exceed 35 pounds per megawatt-hour (lb/MWh). 43 Participation during a NYISO-determined reliability event is voluntary, meaning that there are no consequences for enrolled EDRP resources that fail to curtail. Participants receive energy payments if called, but no capacity payments for participation.

2. Installed Capacity/Special Case Resource (ICAP/SCR) Program . These resources participate in the capacity market and accept an obligation to respond when called upon by the NYISO in exchange for capacity payments. Participation in the ICAP/SCRprogram is limited to resources with interruptible loads or loads with a qualified behindthe-fence local generator. Participation during a reliability event is mandatory, provided that the 21-hour advance notice has been issued by the NYISO; otherwise response is voluntary. These resources must also participate in a mandatory test during each capability period or season.

3. Targeted Demand Response Program (TDRP). This program curtails EDRP and SCR resources during periods of high demand to ensure reliability within New York City. While SCR resources are normally required to curtail usage when called, provided proper notice has been given, response under the TDRP program is voluntary.
The demand response resources in NYISO reliability programs represented approximately six percent of the 2011 reliability requirement of 37,782 MW. SCR represented 93 percent of the total resources enrolled in NYISO reliability programs and 91 percent of the reliability programs’ total enrolled capacity. 44 SCR is also the fastest-growing demand response program

43 NYISO. Emergency Demand Response Program Manual (Manual 7). December 2010. Available at http://www.nyiso.com/public/webdocs/products/demand_response/emergency_demand_response/edrp_mnl.pdf. Accessed June 2012.

44 NYISO. Annual Report to the Federal Energy Regulatory Commission on the NYISO’s Demand Side Management Programs

.January 17, 2012. Available at http://www.nyiso.com/public/webdocs/documents/regulatory/filings/2012/01/NYISO_DR_LttrCOS-PblcReport_20120117.pdf. Accessed June 2012.P a g e | 20

operated by the NYISO, increasing to roughly 2 GW in 2011. This growth is likely due to the fact that SCR participants receive monthly payments for capacity in the capacity market. 45 At the same time as SCR program registration has steadily increased since 2001, EDRP program registration has gradually declined since 2002 as resources switch from the EDRP program to the SCR program in order to earn revenue from the NYISO capacity market. From May 2001 through July 2011, combined enrollment in EDRP and SCR has grown from approximately 200 MW to 2,173 MW and the total number of end-use locations has increased from approximately 200 in March 2002 to 5,816 in July 2011. Since participation in EDRP and ICAP/SCR became mutually exclusive, EDRP enrollment and capacity have continued to decrease while ICAP/SCR enrollment and capacity have increased (see Figure 6). 46

SCR resources receive capacity payments, typically on a monthly basis,

to ensure availability to curtail power usage upon request by NYISO. In addition, SCR resources receive energy payments when called for events and tests. 47

In contrast, EDRP resources receive energy payments only for actual power reductions when called upon by the NYISO based on measured energy reduction during an event, with a minimum rate of $500/MWh or the actual locational marginal price (LMP), whichever is higher; payment is guaranteed for a minimum of four hours of verified load reduction.
The NYISO capacity auctions determine clearing prices for three distinct locations: New York City, Long Island, and New York Control Area (NYCA). In New York City, the spot priceaveraged $8.36/kW-month in the summer 2011. In NYCA, the spot price averaged $0.29/kWmonth in the same time period. 48 The Long Island price was set by the NYCA price for the all months except for September. 49,50

45 Potomac Economics. 2011 State of the Market Report for the New York ISO Markets . April 2012.

46 NYISO, Annual Report to the Federal Energy Regulatory Commission on the NYISO’s Demand Side Management Programs

, January 17, 2012.

47 Ibid

. 48 Potomac Economics. 2011 State of the Market Report for the New York ISO Markets . April 2012.

49 NYISO. Annual Report to the Federal Energy Regulatory Commission on the NYISO’s Installed Capacity (“ICAP”) Demand Curves and New Generation Projects in the New York Control Area , December 20, 2011. Figure 6. Historical Growth in Resources and MW in NYISO Reliability Programs

Source: NYISOP a g e | 21

NYISO allows CSPs to separately report the composition of load reduction and enrolled generators in the ICAP/SCR and EDRP programs. NYISO reports this enrollment data (in MW) by NYISO zone and resource type. According to the June 2011 report, approximately 9 percent of the total ICAP/SCR resource enrollment is made up of generators and 85 percent of the total EDRP resource enrollment is made up of generators. 51 However, it is important to note that historic data show that enrollment in the ICAP/SCR program and the EDRP change on a monthly basis. For example, between May 2011 and June 2011, there was an increase of 11 percent in the ICAP/SCR program. In addition, there was a 70 percent increase in the EDRP program between May 2011 and July 2011. 52

Based on the average spot price of $8.36/kW-month in New York City, a backup generator would have earned over $50,000 in capacity market revenues per MW during the six-month summer period in 2011. 

### PJM
PJM Interconnection is the RTO that spans all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. The PJM region has a total of 14,832 MW of demand response resources are committed as capacity resources for the 2015/2016 delivery year, representing slightly less than nine percent of anticipated capacity needs. 53

Demand response programs in PJM are organized as Economic and Emergency Load Response Programs. PJM also enables demand resources to participate and submit bids for reductions in the Synchronized Reserve, Regulation, and Day-Ahead Scheduling Reserves markets (discussed below).
PJM Capacity Market PJM procures all capacity for load serving entities (LSEs), the organizations responsible for delivering electricity to end-use customers, through the Reliability Pricing Model (RPM). 54 Capacity is obtained three years in advance of its delivery year. For example, the capacity auction held in May 2012 obtained capacity for the 2015/2016 delivery year. The generating unit retirement impacts of EPA’s Mercury and Air Toxics Standards (MATS) and the High Electricity Demand Day Rule (HEDD) 55 in New Jersey, which have compliance deadlines of April 16, 2015 and May 1, 2015 respectively, influenced the RPM auction results. 56 Over the

50 ICAP prices for Summer 2012 are based on a new demand curve. Data for 2012 will be available on the NYISO website at http://www.nyiso.com/public/markets_operations/market_data/icap/index.jsp.

51 NYISO. Semi-Annual Report on Demand Response Programs (Docket No. ER01-3001). June 3, 2011.

52 NYISO. Semi-Annual Reports on Demand Response Programs and New Generation Projects (Docket Nos. ER01-3001-000 and ER03-647-000). June 1, 2012.

53 PJM. 2015/2016 RPM Base Residual Auction Results . May 18, 2012. Available at http://www.pjm.com/markets-andoperations/rpm/~/media/markets-ops/rpm/rpm-auction-info/20120518-2015-16-base-residual-auction-report.ashx. Accessed June 2012

54 The PJM Capacity Market also contains an alternative method of participation, known as the Fixed Resource Requirement (FRR) Alternative. The Fixed Resource Requirement Alternative provides a Load Serving Entity (LSE) with the option to submit a FRR Capacity Plan and meet a fixed capacity resource requirement as an alternative to the requirement to participate in the PJM Reliability Pricing Model (RPM), which includes a variable capacity resource requirement.

55 New Jersey State Department of Environmental Protection, New Jersey Administrative Code, Title 7 Chapter 27 Subchapter 19, Control and Prohibition of Air Pollution from Oxides of Nitrogen . Available at http://www.nj.gov/dep/aqm/Sub19.pdf Accessed July 2012.

56 PJM. 2015/2016 RPM Base Residual Auction Results. May 18, 2012.P a g e | 22

next three years, over 14,000 MW of generation retirements have been announced in PJM. 57 There are over 6,600 MW of HEDD units in PJM that must comply with the New Jersey regulation by shutting down or installing emission controls. Several units are scheduled for deactivation in 2015. 58

Demand-side resources may be bid into the RPM’s Base Residual Auction, one of the incremental auctions, or may take on a capacity obligation through the bilateral market, such as through a CSP. There are three separate opportunities for emergency demand response in the RPM capacity market, with differing requirements. Demand-side resources in PJM include:

Limited Demand Resources . These must agree to be interrupted up to 10 times between June and September for up to six consecutive hours in duration, any weekday from noon until 8 pm.

Extended Summer Demand Resources . These must agree to be interrupted an unlimited number of times between June and October for up to 10 consecutive hours in duration between 10 am and 10 pm.

Annual Demand Resources . These must agree to be interrupted an unlimited number of times between October and April for up to 10 consecutive hours in duration (May through October from 10:00 am to 10:00 pm and November through April from 6:00 am to 9:00 pm).
Demand-side resource participation in the PJM capacity market has increased by almost nine times since the introduction of the RPM capacity market in 2006; however, it should be noted that the PJM region has expanded significantly since 2007. In 2011, American Transmission Systems, Inc. (ATSI), the transmission affiliate of FirstEnergy, and Cleveland Public Power (CPP) were integrated into PJM. These integrations expanded the number and diversity of resources available in PJM. Participation in the 2006/2007 delivery year was under 1,700 MW. However, commitments through the 2015/2016 delivery year are over 10,600 MW each year and almost 15,000 MW for 2015/2016, as shown in Figure 7

. 59

57 Ibid

. 58 Monitoring Analytics, LLC. Quarterly State of the Market Report for PJM: January through March. May 17, 2012. See Tables 11-12 and 11-13, Page 197

. Available at http://pjm.com/documents/reports/~/media/documents/reports/state-ofmarket/2012/2012q1-som-pjm.ashx. Accessed June 2012.

59 PJM. 2015/2016 RPM Base Residual Auction Results . May 18, 2012.P a g e | 23

Figure 7. PJM Generation, Demand Resources, and Energy Efficiency Resources by Delivery Year

Source: PJM, Load Management Performance Report, December 2011. For the 2015/2016 delivery year, Limited Demand Resources accounted for 62 percent of all demand response resources that cleared the auction (9,247 MW), while Extended Summer Demand Resources account for 35 percent (5,202 MW) and Annual Demand Resources account for 3 percent (383 MW).
PJM produces a monthly and annual Load Response Activity Report. 60 Beginning in April 2012, covering the 2011/2012 Delivery Year, PJM began reporting the makeup of demand response

resources. 61 As illustrated in Figure 8, the data indicate that backup generation represents at least 15 percent of the total demand resource capacity for the 2011/2012 delivery year, or approximately 1,770 MW out of a total 11,800 MW. However, Curtailment Service Providers registering participating end-use sites were allowed to select an “other” category, which was not defined in the report. This category includes the majority – 65 percent – of all demand response resources. Presumably, this category represents participants that use a combination of backup generation as well as other load curtailment activities. 62 It is therefore reasonable to assume that

60 PJM. Load Management Performance Report . December 2011.

61 PJM. Load Response Activity Report April 2012 . April 10, 2012.

62 As EnerNOC, a national demand response provider, notes in their 2011 Annual Report, “Demand response is achieved when C&I customers reduce their consumption of electricity from the electric power grid in response to a market signal, such as capacity constraints, price signals or transmission-level imbalances. [Commercial and industrial] customers can reduce their consumption of electricity by reducing demand (for example, by dimming lights, resetting air conditioning set-points or shuttingP a g e | 24 the actual level of backup generation as a component of total demand response resources is higher than the 15 percent highlighted in Figure 8.
Resources that clear the capacity auctions receive monthly capacity payments. The l atest PJM auction procured 164,561 MW of capacity resources at a base price of $136 per MW-day 63 (see Table 7). This represents a 20 percent reserve margin for the region.

Table 7. RPM Base Residual Action Resource Clearing Price Results

Auction Results 2008/2009 2009/2010 2010/2011 2011/2012* 2012/2013 2013/2014** 2014/2015*** 2015/2016

Resource Clearing Price $111.92 $102.04 $174.29 $110.00 $16.46 $27.73 $125.99 $136.00

Cleared UCAP (MW) 129,597.6 132,231.8 132,190.4 132,221.5 136,143.5 152,743.3 149,974.7 164,561.2

Reserve Margin 17.5% 17.8% 16.5% 18.1% 20.9% 20.2% 19.6% 20.2%

*2011/2012 BRA was conducted without Duquesne zone load. **2013/2014 BRA includes ATSI zone load ***2014/2015 BRA includes Duke zone ****2015/2016 BRA includes a significant portion of AEP and DEOK zone load previously under FRR Alternative Source: PJM Capacity prices in PJM differ depending upon the location of the unit and demand response product type, with capacity prices in the congested Mid-Atlantic region (MAAC) 64 often much higher than less congested areas of western PJM. Based on the auction clearing prices in the PJM auctions for MAAC, from 2012-2016, a backup generator would earn over $250,000 per MW as illustrated in Table 8, in addition to energy payments if called to operate.

down production lines) or they can self-generate electricity with onsite generation (for example, by means of a back-up generator or onsite cogeneration).”

63 PJM’s all-time peak demand is 158,448 MW.

64 The MAAC area consists of the transmission system of Atlantic City Electric, Baltimore Gas and Electric Company, Delmarva Power, Jersey Central Power and Light Company (JCP&L), Metropolitan Edison Company (Met-Ed), PECO, Pennsylvania Electric Company (Penelec), Pepco, PPL Electric Utilities, Public Service Electric and Gas Company (PSE&G), and Rockland Electric Company. Figure 8. PJM Demand Response Resources 2011/12

Source: PJM, Load Response Activity Report April 2012, April 10, 2012.P a g e | 25

Table 8. Capacity Market Revenue to a 1 MW Backup Generator – PJM MAAC

Delivery Year Clearing Price

($/MW-day) Calendar Year Jan-May Revenue Jun-Dec

Revenue Calendar Year

Revenue

2012/13 $133.37 2012 $16,610 $28,541 $45,151

2013/14 $226.15 2013 $20,139 $48,396 $68,535

2014/15 $136.50 2014 $34,149 $29,211 $63,360

2015/16 $167.46 2015 $20,612 $35,836 $56,448

2016/17 TBD 2016 $25,286 TBD At least $25,286 *

Total $116,795 $141,985 $258,780
Source: Synapse Energy Economics, Sample Revenue for a 1 MW Backup Generation Unit, June 27, 2011. PJM Base Residual Auction Results 2012/13-2015/16, MJB&A Analysis. *Only the first 151 days of 2016. The clearing price for the remaining 214 days will be known in June 2013.P a g e | 26



## State-Level Challenges
Air Quality Goals
Air quality in the United States, including the northeastern states, has been improving in recent years in many respects. This has been the result of concerted efforts between state and federal air quality planners working to implement environmental laws passed by Congress and state legislatures as well as with active participation by industry and public interest groups. At the same time, an increasing body of scientific knowledge has found harmful health impacts caused by air pollution at levels below existing national health standards. These impacts are more than inconveniences – they have been linked to serious respiratory and cardiovascular effects, and even increased risk of premature death. As a result, air quality standards continue to be strengthened in light of advances in scientific understanding of the public health harms occurring at lower air pollution concentrations.
Of particular note to the northeastern states are recent or expected changes to national health standards for ground-level ozone, or smog, fine particulate matter (PM), and nitrogen dioxide (NO 2 ). These pollutants have been the focus of control measures for a number of years, with some success. The need for greater health protection, however, will require additional air pollution reductions. As the largest pollution sources become better controlled to meet tighter national standards, air quality planners’ attention is shifting to smaller sources that are relatively uncontrolled and that represent an increasing share of harmful emissions.
A specific example is the expanding usage of diesel internal combustion engines that have historically been used for emergency backup generation in the event of a power failure. 65 However, as discussed above, these units have been repurposed as owners join demand response programs to receive financial compensation for reducing electricity demand from the grid. For air quality planners, this is most immediately a concern on high electric demand days (HEDD). These days may be few in number over the course of a summer (or several summers), but high electricity demand days typically correlate with the highest temperature days as a result of more air conditioner usage. This is a concern because these hot, stagnant, sunny days are also the most meteorologically conducive for air pollution build-up across a large regional scale. Therefore, even if diesel engines operate relatively rarely on only the highest electricity demand days, their emissions on those specific days can be relatively significant and occur at the worst possible times for air pollution. These engines also have the potential to affect attainment of the 1-hour NO 2 standard, a largely localized pollutant. The increasing financial incentives for the use of diesel engines in economic demand response programs threatens to undermine successful effortsto date in reducing air pollution and impede states from achieving increasingly more healthprotective air quality standards in the future.
Regional Air Pollution Transport The Northeast U.S. is subject to air pollutant trans port contributing to ground-level ozone and fine particulate problems that occurs across large distances. Scientific studies of the regional transport problem have uncovered a rich complexity in the interaction of meteorology and

65 This section focuses on diesel-powered generators given their higher emissions profile than natural gas-fired engines.P a g e | 27

topography with pollutant formation and transport. 66 Large scale high pressure systems covering hundreds of thousands of square miles are the source of classic severe pollution episodes in the eastern United States, particularly in summer. These large, synoptic scale systems create particularly favorable conditions for the oxidation of precursors that lead to ground-level ozone and fine particulates. The systems move from west to east across the United States, bringing air pollution emitted by large coal-fired power plants and other sources located outside the Northeast into the region. This then adds to the pollution burden within the Northeast on days when the region’s own air pollution sources are themselves contributing to poor air quality. At times, the high pressure systems may stall over the East for days, creating particularly intense air pollution episodes. The high pressure systems transporting polluted air into the Northeast are also characteristically associated with hot, stagnant, sunny conditions, the same conditions leading to increased electricity demand.

Ground-Level Ozone Ground-level ozone affects public health throughout the Northeast. Ozone reacts with lung tissue, causing short- and long-term lung damage and reduced lung function. It can affect otherwise healthy children and adults who are very active outdoors during high ozone episodes. It places additional stress on individuals with existing respiratory illnesses such as emphysema and bronchitis, and can impair the body’s respiratory system immune response. It triggers asthma attacks and aggravates existing asthmatic conditions, resulting in increased hospital emergency room visits. Recent research has found an increased risk of death from ozone exposure in compromised populations (e.g., diabetes, cardiovascular, pulmonary disease).
States in the Northeast have made significant progress in reducing exceedances of the national standards for ground-level ozone. New York City, for example, has seen a noticeable decline in the highest observed ozone concentrations over the past 15 years ( Figure 9 ). These improvements are due to reduced emissions of the ozone precursors nitrogen oxides (NOx) and volatile organic compounds (VOCs) within the region, as well as corresponding emissions reductions in other parts of the country from which ozone and its precursors are transported into the Northeast.

66 See, e.g., NESCAUM’s 2010 reports entitled The Nature of the Ozone Air Quality Problem in the Ozone Transport Region: A Conceptual Description , prepared for the Ozone Transport Commission and available at http://www.nescaum.org/documents/2010_o3_conceptual_model_final_revised_20100810.pdf/) and The Nature of the Fine Particle and Regional Haze Air Quality Problems in the MANE-VU Region: A Conceptual Description , available at http://www.nescaum.org/documents/2010-pm-conceptual-model-_final_revised-20100810.pdf/.P a g e | 28

Figure 9. New York City Trend in Annual 4th-Maximum 8-hour Ozone Average, 1995-2011 67

Note: The light blue line with markers is the plot of the observed annual fourth-maximum 8-hour ozone concentrations averaged across air monitoring sites in the New York City metropolitan area. The dashed line is a statistical fit (“Theil trend”) of the monitored concentrations showing a downward trend of approximately 20 percent from 1995 to 2011. Since the passage of the federal Clean Air Act Amendments in 1990, studies have found that health damage occurs at ozone concentrations below existing health standards. In 1997, EPA revised the national ozone standard from 0.12 parts per million (ppm) averaged over one hour to 0.08 ppm averaged over eight hours. In 2008, EPA again lowered the ozone health standard to 0.075 ppm averaged over eight hours to better reflect current scientific understanding of health impacts and as required by the Act. At the same time, however, an independent health panel created under the federal Clean Air Act recommended that a more protective ozone health standard should fall within the range of 0.060 to 0.070 ppm. EPA is now reviewing the current 0.075 ppm ozone standard for possible further tightening by 2014.

Figure 10 shows the status of ozone air monitors in the eastern U.S. relative to the current 0.075 ppm ozone standard based on monitoring data from 2009 to 2011. Orange squares and one red cross indicate monitors that measured ozone levels higher than the 0.075 ppm national health standard during this period. 68 As seen within the red oval on Figure 10, much of the densely populated Northeast Corridor experienced ozone levels above the current health standard.

67 An area’s achievement of the federal air quality standards is calculated based on the fourth-highest daily ozone average each

year. 68 The red cross indicates a monitor in Maryland that measured ozone concentrations above the 1997 0.08 ppm ozone health standard.P a g e | 29 Figure 10. Ozone 2009-2011 Design Values at Ozone Monitoring Sites

Source: Maine Department of Environmental Protection

Fine Particulate Matter Fine particulate matter (PM) poses a significant ris k to human health due to its ability to penetrate deep into the lungs and pass into the bloodstream. In the lungs, fine PM can irritate lung tissue, aggravate asthma symptoms, contribute to chronic bronchitis, and reduce overall lung function. In the bloodstream, fine PM can lead to heartbeat irregularities, heart attacks, and even premature death in people with cardiovascular disease. Fine PM is also a major contributor to regional haze (reduced visibility).
Fine PM levels have dropped in the Northeast overall due to reductions in direct PM emissions as well as emissions reductions of precursor pollutants 69 within the Northeast and in upwind regions. 70 Despite success in reducing fine PM concentrations, however, the greater New York

69 PM is both emitted directly as well as formed in the ambient air from precursor pollutants including NOx and SO 2 . 70 Similar to ozone, PM is also transported long distances and thus air quality in the NESCAUM region depends on local emissions as well as those in the Midwestern and Southern U.S.P a g e | 30

City area continues to pose a challenge for air quality managers, and remains in nonattainment of the current standards.
Particulate matter standards have long been a part of national efforts to improve air quality. The first fine PM standards were introduced in 1997 as the connections between fine PM and respiratory and pulmonary health effects became clearer. The 1997 standards were set at a level of 65 micrograms per cubic meter (μg/m 3 ) for a daily average 71 and an annual average of 15 μg/m 3

. 72 In 2006, the daily limit was lowered to 35 μg/m 3 and the 1997 annual limit was retained. 73 Most areas in the Northeast are in attainment of the 2006 fine PM standards, with the exception of the Pittsburgh-Beaver Valley, PA area; the Philadelphia, PA-Wilmington, DE area; and the greater New York City metropolitan area. Figure 11 shows areas in Connecticut, Delaware, New Jersey, New York, and Pennsylvania that do not attain the fine PM standards as of March 2012. 74

Air quality planners expect that if current progress continues, all areas of the Northeast should meet the 2006 fine PM standards by 2015. As with ozone, however, research advances have discerned health impacts at fine PM concentrations below the current federal standards. In recognition of this, EPA has proposed revising the annual standard from 15 μg/m 3 to within the range of 12 to 13 μg/m 3 while retaining the current 24-hour standard at 35 μg/m 3 . The EPA is also proposing a separate 24-hour PM standard for visibility protection. 75 As the result of a court order, EPA has negotiated a legal consent agreement to finalize revisions to the PM standards by December 14, 2012. 76

71 Attainment based on the 98 th percentile of monitored values over three years.

72 Attainment based on a three-year average.

73 However, in 2009, the D.C. Circuit remanded the annual standard to EPA for the Agency to either revise or adequately justify setting the standard outside the range recommended by CASAC.

74 Areas shown as nonattainment with clean air determinations means that monitors in the area show attainment but the process to redesignate the area as attainment is not yet complete.

75 77 FR 38890.

76 American Lung Association v. U.S. EPA , Civil Action No. 1:12-cv-00243-RLW (D.D.C.).P a g e | 31

Figure 11. Nonattainment areas for the 2006 fine PM standards in Connecticut, Delaware, New Jersey, New York, and Pennsylvania

Source: EPA. Pennsylvania, New York, New Jersey, Connecticut, Delaware PM-2.5 Nonattainment Areas (2006 Standard). July 20, 2012. Available at http://www.epa.gov/oaqps001/greenbk/panynjctde25b.html. Accessed July 31, 2012. Nitrogen Dioxide (NO 2

) Nitrogen dioxide (NO 2 ) is a highly reactive reddish brown gas that forms quickly from oxidation of nitric oxide (NO) emitted by stationary diesel engines, as well as cars, trucks and buses, power plants, and off-road equipment. In 2010, EPA established a new national NO 2 health standard at 100 parts per billion (ppb) averaged over 1 hour, based on a 3-year average of the annual 98 th percentile of hourly concentrations. 77 Sub-daily short-term exposure to NO 2 can cause an array of respiratory problems, including increased asthma symptoms, more difficulty controlling asthma, and an increase in respiratory illnesses and symptoms. Children, the elderly, and asthmatics are particular sensitive populations. 12

The new 1-hour standard supplements the pre-existing NO 2 standard set at an annual mean of 53 ppb, which all areas of the country currently meet. For the new 1-hour NO 2 health standard, EPA classifies all areas of the country as “unclassifiable/attainment,” meaning that EPA believes available information does not indicate any areas violate the standard. NO 2 concentrations, however, can be highly localized near NO 2 sources, and these levels may not be readily observed with the current national air monitoring network. 78 In a recent screening analysis by the Delaware Department of Natural Resources and Environmental Control (DNREC), modeling of a single uncontrolled Tier 0 diesel RICE suggested that it could exceed the new 1-hour NO 2

77 75 FR 6474.

78 77 FR 9532.P a g e | 32

health standard when considering the existing background. Emissions from multiple diesel RICE in close proximity could exceed the 1-hour NO 2 standard regardless of background. 79

Diesel Exhaust Exposure to diesel PM has been linked to increased c ancer and non-cancer health risks. EPA considers diesel exhaust a likely human carcinogen via inhalation. 80 The California Air Resources Board (CARB) has listed diesel exhaust as a chemical known to cause cancer and has developed quantitative factors for estimating cancer risk from exposures. 81 In June 2012, the International Agency for Research on Cancer, which is part of the World Health Organization, classified diesel exhaust as a known human carcinogen (Group 1) based on an increased risk for lung cancer. 82 Short-term exposures may cause lung irritation and exacerbation of asthma or allergies, while chronic exposures may result in lung cancer or lung damage. 83

Recent rulemakings, including a 2007 diesel particulate emission standard and a 2010 diesel NOx standard, have spurred the development of new technologies that reduce emissions of diesel PM and other harmful pollutants by approximately 90 percent. Results from a recent study on laboratory rats and mice suggest that post-2007 diesel engine exhaust has much lower PM levels and associated health impacts. 84 While newer diesel engines have emissions that may lead to fewer health impacts, many older diesel engines, including those used for emergency backup generation, remain in place and represent a significant potential source of diesel emissions should their activity levels increase through demand response programs.
Figure 12 and Figure 13 demonstrate the local impact of diesel PM from a single diesel emergency generator. Figure 12 shows daily profiles of diesel exhaust (measured as black carbon PM) averaged over 23 weeks at a downtown urban site in Boston for weekdays, Saturdays, and Sundays. The profiles reveal that an emergency diesel generator (exact location unknown) close to the monitoring location is tested on Saturdays at 11 a.m. The early morning maxima for all days, followed by decreases for the remainder of the day, likely reflects mobile source diesel exhaust that dissipates after the early morning rush hours.

79 A. Mirzakhalili, Director, DNREC Division of Air Quality. Air Quality Impacts of Diesel Generators Participating in Electricity Peak Shave and Demand Response Programs. Presentation to the Mid-Atlantic Distributed Resources Initiative Work Group (MADRI), Washington, DC, June 8, 2012. Available at http://sites.energetics.com/madri/pdfs/Mirzakhalili_20120607.pdf. Accessed June 25, 2012.

80 EPA. Integrated Risk Information System (IRIS): Diesel engine exhaust . February 28, 2003. Available at http://www.epa.gov/iris/subst/0642.htm.

81 California Environmental Protection Agency, Office of Environmental Health Hazard Assessment. Technical Support Document for Cancer Potency Factors . 2009. Available at http://www.oehha.ca.gov/air/hot_spots/2009/TSDCancerPotency.pdf.

82 International Agency for Research on Cancer, World Health Organization. IARC: Diesel Engine Exhaust Carcinogenic (Press Release No. 213). June 12, 2012. Available at http://press.iarc.fr/pr213_E.pdf.

83 EPA. Health Assessment Document for Diesel Engine Exhaust (EPA/600/8-90/057F). Prepared by the National Center for Environmental Assessment, Washington, DC, for the Office of Transportation and Air Quality. 2002.

84 Advanced Collaborative Emissions Study (ACES). Advanced Collaborative Emissions Study Subchronic Exposure Results: Biologic Responses in Rats and Mice and Assessment of Genotoxicity (Research Report 166). 2012. Health Effects Institute, Boston, MA. Available at http://pubs.healtheffects.org/getfile.php?u=709.P a g e | 33

Figure 12. Weekday, Saturday, and Sunday daily black carbon PM profiles for a site in Boston

Source: Northeast States for Coordinated Air Use Management (NESCAUM) Figure 13 displays 1-minute profiles of black carbon PM during a single Saturday afternoon peak. It clearly shows that the diesel generator operates for twenty minutes and that the maximum one-minute spike exceeds 100 μg/m 3 . This illustrates the potential public health threat of multiple diesel generation sets if called upon to meet peak demand within a heavily populated urban core. Air quality modeling by DNREC 85 and studies appearing in the peer-reviewed scientific literature 86 also indicate the potential for PM 2.5 increases at levels of concern for public health from backup diesel generators operating in peak demand response programs.

85 A. Mirzakhalili, Director, DNREC Division of Air Quality. Air Quality Impacts of Diesel Generators Participating in Electricity Peak Shave and Demand Response Programs. Presentation to the Mid-Atlantic Distributed Resources Initiative Work Group (MADRI), Washington, DC, June 8, 2012. Available at http://sites.energetics.com/madri/pdfs/Mirzakhalili_20120607.pdf. Accessed June 25, 2012.

86 Gilmore, E.A., P.J. Adams, and L.B. Lave. Using Backup Generators for Meeting Peak Electricity Demand: A Sensitivity Analysis on Emission Controls, Location, and Health Endpoints

. J. Air & Waste Manage. Assoc. 60, 523-531, doi:10.3155/1047- 3289.60.5.523 (2010); see also Gilmore, E.A., L.B. Lave, and P.J. Adams. The Costs, Air Quality, and Human Health Effects of Meeting Peak Electricity Demand with Installed Backup Generators

. Environ. Sci. Technol. 40, 6887-6893, doi:10.1021/es061151q (2006).P a g e | 34

Figure 13. Fine timescale black carbon PM readings for an event at a site in Boston

Source: Northeast States for Coordinated Air Use Management (NESCAUM)


### Emissions Estimates
NOx emissions from the electric generating sector are highly variable on a day-to-day basis in the Northeast. For example, Figure 14 shows daily NOx emissions (bars) from electric generating units (EGUs) in New Jersey and downstate New York during the summer of 2011. The figure also shows the daily maximum temperatures recorded at Newark, New Jersey. The figure clearly shows a generally positive relationship between daily maximum temperatures and EGU NOx emissions, consistent with increased air conditioning loads on the hottest days.
The height of the stacked bars indicates the daily total NOx emissions from EGUs in the region. Over the 2011 time period shown in Figure 14 , the average daily EGU NOx emissions are 62.6 tons. By comparison, EGU NOx emissions in this region over the same time period in 2002 averaged 286.5 tons per day. 87 While EGU NOx emissions have decreased significantly since 2002, the high day-to-day variability remains, with the 2011 period having eight days with more than double the average summer day NOx emissions. The days with the highest EGU NOx emissions coincide with the warmest days.

87 NESCAUM. High Electric Demand Day and Air Quality in the Northeast . 2006. Available athttp://www.nescaum.org/documents/high-electric-demand-day-and-air-quality-in-the-northeast/final-white-paper-hi-electricdemand-day-06052006.pdf/.P a g e | 35

Figure 14 further segments EGU NOx emissions according to the fossil fuel used to generate electricity. The bars divide the emissions by the primary unit fuel type: utility diesel 88 (purple), residual oil (green), natural gas (red), and coal (blue). The days with the highest NOx emissions from diesel-fired EGUs (on both a relative and absolute basis) are the same as the days with the highest overall emissions. The NOx emissions from diesel EGUs on July 22 (when the maximum temperature reached 108°F in Newark, NJ) are 52.5 tons; this amount is greater than the total emissions from all fuel types on more than half the days during the entire period shown in the figure. On the low demand days, the relative contribution by diesel EGUs is very small, indicating that most of the diesel-fuel units in the area are operating largely to meet the highest peak demand loads.

Figure 14. Daily NOx Emissions Variability from EGUs in NJ and Downstate NY Based on Fuel Type

60 70 80 90 100 110

0 50 100 150 200 25006/01/1106/08/1106/15/1106/22/1106/29/1107/06/1107/13/1107/20/1107/27/1108/03/1108/10/1108/17/1108/24/1108/31/1109/07/1109/14/11**Daily Max. Temperature (°F) D** **aily NO x** **Emissions (tons)** Diesel

Residual Oil

Natural Gas

Coal

Max Temperature

Figure notes: Stacked bars are daily EGU NOx emissions by fossil fuel type. Emissions data were obtained in April 2012 from the EPA Clean Air Interstate Rule NOx (CAIRNOx) Annual Program (http://ampd.epa.gov/ampd/). The NOx emissions are from EGUs operating in all of New Jersey and the downstate New York counties of Bronx, Kings, Nassau, New York, Orange, Queens, Richmond, Rockland, and Suffolk. The black diamond line is a plot of the maximum daily temperature recorded in Newark, New Jersey (Source: Old Farmer’s Almanac, http://www.almanac.com/weather/history).



### Emissions Factors for Stationary Internal Combustion Engines

Table 9 displays NOx and PM emissions factors for stationary internal combustion diesel engines on an output basis (pounds per megawatt-hour). Tier 1 through 4 emission standards indicate

88 This represents only EGUs’ use of diesel, not the distributed generation from backup generators discussed throughout this report.P a g e | 36

increasingly stringent emission limits established by EPA beginning in 2006 for new and modified engines. 89 While new stationary diesel engines have become relatively cleaner in recent years, there remain a large number of older “pre-Tier” backup generators in place prior to the implementation of these standards. In 2003, NESCAUM estimated that the total population of diesel generators in the Northeast could include well over 30,000 units with a combined capacity exceeding 10 GW. 90 These engines historically have primarily or exclusively providedbackup power in emergency (i.e., outage) situations and in some cases to reduce reliance on gridsupplied electricity during periods of peak demand. Because of their infrequent use, these engines typically remain in place for decades.
For comparative purposes, Table 9 also includes average NOx emissions rates based on historical 2010 data from fossil fuel EGUs in New Jersey. 91 These rates are sub-divided by fuel use and EGU type. The EGU type was designated by the 2010 operation hours: (1) “baseload” operated greater than 50 percent of the year; (2) “load-following” operated between 10 and 50 percent of the year; and (3) “peaking” operated less than 10 percent. The bracketed minimum and maximum values show the wide range of emissions rates across EGUs even when using the same fuel.
Only Tier 4 stationary diesel engines have NOx emission rates comparable to the EGUs operating in New Jersey. Tier 4 engines, however, are not representative of the vast majority of installed stationary diesel generators that would be called upon under demand response programs. Although NESCAUM has found it difficult to establish reliable estimates for the population and size distribution of stationary diesel engines in the Northeast, 92 it seems likely that the stock of stationary diesel engines available for demand response programs is dominated by pre-2006 (“pre-Tier”) stationary engines that have the highest NOx emission rates.

89 71 FR 39154.

90 NESCAUM. Stationary Diesel Engines in the Northeast . 2003. Available at http://www.nescaum.org/documents/rpt030612dieselgenerators.pdf/.

91 Emissions data provided by the New Jersey Department of Environmental Protection, April 27, 2012.

92 NESCAUM. Stationary Diesel Engines in the Northeast . 2003. Available at http://www.nescaum.org/documents/rpt030612dieselgenerators.pdf/.P a g e | 37 Table 9. Comparison of Emission Factors for Stationary Diesel Engines with New Jersey EGU 2010 Historical Emission Rates (lb/MWh) NOx (lb/MWh) PM (lb/MWh)

Diesel

pre-Tier: < 600 hp 41.47 2.95

pre-Tier: > 600 hp 32.04 0.94
Tier 1 (Phased in between 1996 and 2000) 20.39 1.18

Tier 2 (Phased in between 1999-and 2006) 14.19 0.44
Tier 3(Phased in between 2006 to 2008) 8.87 0.44
Tier 4 (Phased in between 2008 and 2014) 0.89 0.04

NJ 2010 EGUs

Coal: Baseload 1.62 [1.43-1.81]
Coal: Load Following 2.24 [0.87-4.40]

Natural Gas: Baseload 0.15 [0.05-0.27]

Natural Gas: Load Following 0.41 [0.32-0.72]

Natural Gas: Peaking 5.21 [0.06-25.60]

Residual Oil: Peaking 2.11 [1.94-2.28]

Diesel Oil: Peaking 13.10 [4.00-31.44]
Sources: EPA AP42; EIA, 2011; Communication from New Jersey Department of Environmental Protection (April 27, 2012) 

### Challenges for Air Quality
Meeting current as well as future ozone and PM standards will require that air quality managers pursue emission reductions from additional sources of NOx and PM emissions. Addressing emissions from the electric generation sector on high electric demand days will be a key component in meeting these challenges. For example, electric demand is typically highest on high temperature days in the Northeast due primarily to increased demand for air conditioning. High temperature days often are also conducive for the formation of high ozone levels. On these days, NOx emissions from electricity generation increase significantly relative to other days. Ensuring that areas meet current and future air quality standards will require more effective and innovative approaches for generating sources operating mainly on high demand days. Historically, these types of generators have not been subject to NOx and PM controls because of their limited use and relatively low total seasonal emissions. This rationale breaks down, however, when looking at the sources’ contributions on the most important smog-forming days as well as their expanding usage.
Reducing emissions from small diesel generators used in demand response programs is complicated by the fact that these sources are widely distributed and difficult to identify. Because the sources are relatively small and originally dedicated for backup emergency generation only, they have not always needed to obtain operating permits. In addition, the frequency and duration of deployment periods for these types of generators when used as demand response resources are difficult to estimate because their activity levels have not historically been reported. But, with the financial incentives now available to these resources, one can expect the usage of these resources to increase. As a result, air quality managers will not have complete knowledge about their locations and activity levels when used in demand response programs, making it difficult to assess the extent of their emissions impact on peak demand days and apply emissions restrictions where necessary. However, given the substantialP a g e | 38

differences in emissions between these backup diesel generators and other generators, there is the potential that the emissions impact and thus health impact could be significant, as discussed below.



## Air Quality Impact Analysis

Overview of Goals and Data Limitations
As noted previously, limited data are available with regard to the number and location of small stationary engines or their participation in economic demand response programs. As an illustration, in the preamble to the Agency’s proposal to increase these engines’ allowable participation in demand response programs, EPA notes that the Agency “does not have specific information about the location of the stationary RICE affected by this rule.” 93

Below, we estimate the air quality impacts of these engines’ participation in demand response programs during an event in 2011. We also touch on the potential long-term impacts of these units’ participation. See Appendix C for detailed information regarding the assumptions and sources used for estimating the impacts of backup generators in demand response events. 

### Demand Response Events
In this section, we estimate the air emissions impact of using backup generators as demand response resources on two recent high-electric demand days: July 21 and 22, 2011. Electric loads soared in the NESCAUM region on these days when high temperatures were recorded throughout the Northeast. All three ISOs in the NESCAUM region dispatched demand resources – NYISO on July 21 and 22, and PJM and ISO-NE on July 22. As shown in Figure 15 , these days also coincided with the highest ozone readings that month. In fact, the highest ozone level recorded in the New York City metropolitan area in 2011 occurred on July 22. 94

Figure 15. Daily Maximum 8-Hour Ozone Concentrations (NYC Area)

Source: U.S. EPA AirData. Available at http://www.epa.gov/airdata. Accessed June 2012.

93 77 FR 33831.

94 EPA AirData. Accessed June 2011. Available at http://www.epa/gov/airdata.P a g e | 39

In order to estimate the air quality impact of operating backup generators as part of demand response resources, particularly on poor air quality days, we obtained information from ISO demand response reports and estimated emissions associated with varying percentages of assumed backup generation participation in these events on July 21 and 22, 2011.

NYISO NYISO deployed demand response resources twice in Ju ly 2011. During the first event, which occurred on July 21 from 1:00 pm to 6:00 pm, CSPs deployed an average of 666 MW of demand response resources per hour in the New York City region. These resources provided over 3,300 MWh of estimated load reductions.
NYISO called for a second deployment of demand response resources from 12:00 pm to 6:00 pm in NYC and from 1:00 pm to 6:00 pm in all other load zones except northern New York State on July 22 when peak load reached 33,865 MW. During this second deployment, an average of 1,417 MW of demand response resources responded per hour statewide, resulting in total load reductions of 7,500 MWh.

PJM The PJM Interconnection experienced a new all-time p eak demand of 158,450 MW on July 21, 2011. Despite the record load, the ISO did not call a load management event. However, more than 90 MW of demand response resources provided load reduction due to high real-time energy prices.
On July 22, 2011, PJM activated a load management event in six zones. Responding resources achieved a reduction of approximately 2,000 MW combined. 95 During the July 22 event, demand response resources reduced over 13,700 MWh of load in PJM; however, only about 7 percent (987 MWh) of these reductions came from sources within the NESCAUM region through reductions with the territory of Jersey Central Power & Light (JCPL). An additional 4,921 MWh (36 percent) of reductions were achieved in zones immediately upwind of NESCAUM states, within the territory of PECO and METED. Table 10 below provides the load management event details by zone and an estimate of the total demand reduced.

Table 10. July 22, 2011, PJM Load Management Event by Zone

PJM Zone Approximate Event Duration Reduction MW MWh *

BGE 12:00 – 6:00 p.m. 962 5,772

DPL 1:00 – 8:00 p.m. 128 896

DUQ 1:00 – 8:00 p.m. 163 1,141

JCPL 1:00 – 8:00 p.m. 141 987

METED 1:00 – 8:00 p.m. 206 1,442

PECO 1:00 – 8:00 p.m. 497 3,479

Total 2,097 13,717
Source: PJM, Load Management Performance Report – 2011/2012. MJB&A Analysis. *We assume that the MW reduction is in place for the entire duration of the event. However, this may not necessarily be the case and would result in an overestimation of the MWh.

95 PJM. Load Management Performance Report 2011/2012. Available at http://pjm.com/markets-and-operations/demandresponse/~/media/markets-ops/dsr/load-management-performance-report-2011-2012.ashx. Accessed June 2012.P a g e | 40

ISO-New England ISO-NE called 643 MW of Real-Time Demand Response re sources on July 22 and estimated that actual reductions totaled 663 MW. 96 ISO-NE did not call Real-Time Emergency Generation resources; therefore backup emergency generators that are air permit-restricted were not called. 97



### Emissions Estimates
Due to the lack of publicly available data on demand response resources, estimating potential emissions from engines that may participate in these programs requires making several key assumptions. For NYISO events, we utilized NYISO-reported data on generator enrollment in its demand response programs. For PJM events, we created three scenarios based on different levels of engine penetration ranging from 15 to 50 percent. We do not estimate emissions associated with ISO-NE’s dispatch of RTDR resources in this section given that any generation resources enrolled in RTDR are likely permitted and have emissions controls. The following estimates for NYISO and PJM assume that the average participating generator has emissions rates similar to a pre-2000 vintage engine greater than 600 horsepower (hp).
July 21 NYISO Event Emissions Estimates

We estimated NOx and PM emissions associated with th e demand response resources that operated during the NYISO demand response event on July 21. Depending on the resources that responded on July 21, demand response resources called during the July 21 event could have contributed almost 11 tons of NOx and 0.31 tons of PM.
As discussed above, the July 21 event was only called for NYISO zones in close proximity to New York City. Therefore, the emissions would be concentrated within the metropolitan area, which is already in nonattainment for both PM 2.5 and ozone.
July 22 NYISO Event Emissions Estimates

We estimated the NOx and PM emissions associated wit h the demand response resources that operated during the NYISO demand response event on July 22. Depending on the resources that responded on July 22, demand response resources called during the July 22 event could have contributed over 15 tons of NOx and 0.45 tons of PM.

Table 11 estimates NOx and PM emissions associated with varying levels of backup generators making up the demand response resources that operated during the PJM demand response event on July 22. As the table illustrates, demand response resources called during the July 22 event could have contributed between 33 and 110 tons of NOx and between 1 and 3.2 tons of PM in
PJM.

Table 11. Estimated Emissions – PJM (July 22, 2011 Demand Response Event)

Pollutant 15% Penetration 25% Penetration 50% Penetration

NOx (tons) 33.0 54.9 109.9
PM (tons) 1.0 1.6 3.2
Source: NESCAUM and MJB&A Analysis.

96 ISO-NE. Semi-Annual Status Report on Load Response Programs of ISO New England Inc. December 30, 2011. Available at http://www.iso-ne.com/regulatory/ferc/filings/2011/dec/er03-345-000_-12-30-11_semi-annual_load_resp_rprt.pdf.

97 Ibid

.P a g e | 41

Approximately 43 percent of these potential emissions would have been from generators located in or immediately upwind of nonattainment areas in New York and New Jersey. Thus, while these engines’ emissions are relatively minor when viewed over the course of a year (see Figure

15 ), they may significantly contribute to elevated levels of harmful pollutants on the days when emissions have the most impact on air quality. As discussed above, it only takes a few days per year of high localized emissions and poor air quality to tip an area into nonattainment, with the attendant region-wide costs to public health and the economy.
While the emissions impact is potentially large, it is important to note that these ranges are just estimates, given the lack of publicly available data. In addition to being sensitive to the level of generator participation, emission estimates are also sensitive to the assumptions regarding the types of generators used and the controls installed. If the average engine were assumed to meet EPA’s Tier 2 standard, which began to phase in for 2001, potential emissions would decrease by more than 50 percent. The variability of these estimates once again highlights the need for greater transparency in the demand response market and emission control requirements for participating engines. 

### Potential Long-Term Impacts
An indirect but potentially significant consequence of expanding usage of backup generators in demand response programs is the displacement of other potentially lower-emitting demand- and supply-side resources that would otherwise be selected in capacity markets to serve a region’s future power needs. Each megawatt that clears—is selected in—a capacity market necessarily displaces alternative potential resources. Thus, the resources that clear the capacity market partially determine the generation mix of the electricity market and air pollution emissions over time.
Other demand-side resources effectively represent an emission rate of zero and therefore provide an overall air quality benefit associated with reduced demand for electricity. New supply-side generation resources are subject to emissions and operational permit limitations. For example, new natural gas-fired combustion turbines and natural gas combined cycle facilities are highly controlled and have very low emission rates. 98 Also, the resources selected to serve future capacity needs will also vary in terms of their operational characteristics. A new combined cycle power plant would be available throughout the year and is able to provide other services to maintain reliable operations of the transmission system. Backup generators would only be available for a limited number of hours each year. System operators have expressed concerns that these resources may not be available if they reach their hourly limit.
In order to evaluate the long-term consequences of allowing uncontrolled diesel engines to compete in the forward capacity markets of the region, an economic dispatch model would be required that could simulate the operations of the current grid mix versus a scenario where backup generators were limited in the market and/or required to install pollution control equipment. This is beyond the scope of this study; however, we would encourage EPA to undertake such an analysis in evaluating the impacts of the proposed RICE NESHAP Rule. In PJM, the market procured almost 15,000 MW of demand-response resources in its latest forward capacity auction. A megawatt is enough electricity to power 800 to 1,000 homes. In contrast,

98 According to EPA, emission rates for new natural gas combined cycle facilities are 0.09 lb NOx/MWh and 0.0041 lb SO 2 /MWh.P a g e | 42

almost 2,000 MW of new generating capacity and more than 5,000 MW of additional demand resources failed to clear the auction. Evaluating these market dynamics is critical to understanding the longer-term environmental implications of allowing uncontrolled diesel engines to compete in the region’s forward capacity auctions.



### Observations and Recommendations
In light of the identified information gaps and public health concerns described in this report, we make the following observations and recommendations that can help address these issues.

Observations

• A ir quality planners are challenged in addressing emissions from uncontrolled engines due to the lack of information on the locations of these sources, the times at which these sources may operate, the public’s exposure to increased levels of diesel exhaust from these sources, and the resulting public health harms from the increased exposure.

• Preliminary screening analyses indicate that uncontrolled diesel backup generators operating under the exemption included in EPA’s recent proposal could by themselves create hotspots exceeding the national health-based 1-hour NO 2 air standard.

• Increased utilization of uncontrolled diesel backup engines in economic demand response programs such as peak shaving may hinder areas from maintaining or achieving national air quality standards. Even though the proposed exemption for such use may be temporary, if usage over the next five years causes an area to violate or fail to attain a standard, that area will face additional years of planning and control requirements as aresult of the interim increase in emissions from use of backup generators in nonemergency situations.

• In addition to the short-term emissions impacts, there may also be longer term impacts with regard to future resource mixes in the electricity markets. An economic dispatch model to simulate the operations of the current grid mix versus a scenario where backup generators were limited in the market and/or required to install pollution control equipment would aid air quality planners to understand the potential for broader impacts and emission trends over time.

• Several NESCAUM states have been seeking to address emissions on high electric demand days, including regulation of peaking units. These regulations are resulting in the installation of pollution controls as well as unit shutdowns. Policies that permit the use of uncontrolled diesel-fired backup generators in economic or price-responsive demand response programs impede the progress that states are making to address electric sector emissions.

Recommendations

• I SOs should have the authority to collect information on the source of demand response resources from aggregators and other market participants. To improve transparency, ISOs should provide a breakdown of the resources in their demand response programs by zone similar to NYISO’s approach. In addition to being necessary to accurately determine their impact, it would be important for the system operator to know what comprises system resources in order to ensure a reliable system.P a g e | 43

• ISOs should consider separating backup generation resources into a stand-alone demand response program category similar to ISO-NE to better track their utilization for peak shaving and emergency demand response.

• The Environmental Protection Agency (EPA) should require the use of ultra-low sulfur diesel for all backup diesel engines that participate in demand response programs, similar to the existing requirements in most NESCAUM states.

• States and EPA should identify a reasonable timeframe for phasing out the participation of the oldest, dirtiest diesel engines in demand response programs.

• Operators and aggregators of engines seeking to participate in economic or priceresponsive demand response programs while remaining classified as emergency engines and thereby avoiding air pollution emissions standards should register and enroll engines directly with the relevant ISO and air quality agency; other indirect operation should be considered peak shaving and subject to air pollution emissions standards.

• Owners of backup diesel generators earning capacity revenue as electric generators in non-emergency demand response programs should be required to install appropriate pollution controls, taking into account population exposure, revenues received, control costs, and any other relevant factors.A p p e n d i x A P a g e | A-1



## Appendix A: State Emergency Engine Regulations A summary of NESCAUM states’ regulations covering em ergency backup generators is provided below.

State Summary of Regulation Connecticut Regulations of Connecticut State Agencies (RCSA) section 22a-174-22(a)(3)

"Emergency engine" means a stationary reciprocating engine or a turbine engine which is used as a means of providing mechanical or electrical power only during periods of testing and scheduled maintenance or during either an emergency or in accordance with a contract intended to ensure an adequate supply of electricity for use within the state of Connecticut during the loss of electrical power derived from nuclear facilities. The term does not include an engine for which the owner or operator of such engine is party to any other agreement to sell electrical power from such engine to an electricity supplier, or otherwise receives any reduction in the cost of electrical power for agreeing to produce power during periods of reduced voltage or reduced power availability. RCSA section 22a-174-22(a)(4) "Emergency" means an unforeseeable condition that is beyond the control of the owner or operator of an emergency engine and that:

(A) Results in an interruption of electrical power from the electricity supplier to the premises; (B) Results in a deviation of voltage from the electricity supplier to the premises of three percent (3%) above or five percent (5%) below standard voltage in accordance with subsection (a) of section 16-11-115 of the Regulations of Connecticut State Agencies; (C) Requires an interruption of electrical power from the electricity supplier to the premises enabling the owner or operator to perform emergency repairs; (D) Requires operation of the emergency engine to minimize damage from fire, flood, or any other catastrophic event, natural or man-made; or (E) Notwithstanding section 22a-174-22(a)(3) of the Regulations of Connecticut State Agencies, requires operation of the emergency engine under an agreement with the New England region system operator during the period of time the New England region system operator is implementing voltage reductions or involuntary load interruptions within the Connecticut load zone due to a capacity deficiency. RCSA section 22a-174-3a -Permit required for new or modified emission unit if potential emissions of individual air pollutant > 15 tons per year. RCSA section 22a-174-3b(e) – In lieu of obtaining a permit under RCSA section 22a-174-3a, the owner of an emergency engine may operate under this permit-by-rule if the owner limits operation to less than 300 hours per year (no non-emergency operation) and uses fuel with a sulfur content < 15ppm. No state notification is required but owners are responsible for recordkeeping. RCSA section 22a-174-3c – In lieu of obtaining a permit under RCSA section 22a-174-3a, the owner of an emergency engine may operate under this section if the owner restricts fuel purchases at the facility to 3.36 million cubic feet of gaseous fuel, 21,000 gallons of distillate fuel or 100,000 gallons of propane. Owner must maintain records of fuel purchases. RCSA section 22a-174-42 – In lieu of obtaining a permit under RCSA section 22a-174-3a, the owner of a distributed generator may operate under this permit-by-rule if the owner operates the generator to meet the restrictions on hours of operation and complies with the emissions limitations and other requirements of the regulation. Notification and recordkeeping are required.

Emissions limitations (lb/MWh): Nitrogen Oxides Particulate Matter Carbon Monoxide Installed prior to 1/1/05 4.0 0.7 10 Installed on or after 1/1/05 0.6 0.7 10 Installed on or after 5/1/08 0.3 0.07 2 Installed on or after 5/1/12 0.15 0.03 1A p p e n d i x A P a g e | A-2

State Summary of Regulation
Maine Maine rule 06-096 C.M.R. ch. 148 “Emissions from Smaller-scale Electric Generating Sources”

(http://www.maine.gov/sos/cec/rules/06/096/096c148.doc) applies to all non-mobile generators greater than or equal to 50 kW installed after January 1, 2005.

"Emergency generators" means generators used only during emergencies or for maintenance purposes, provided that the maximum annual operating hours shall not exceed 500 hours per calendar year, with a maximum of 50 hours for maintenance and testing. Emergency generators are not allowed to participate in any voluntary demand-reduction program or any other interruptible supply arrangement with a utility, other market participant, or system operator.

All diesel-powered generators must use diesel fuel with sulfur content no greater than 15 parts per million (ppm).

Depending on installation date, non-emergency generators are subject to the following emission standards:

Nitrogen Oxides Particulate Matter Carbon Monoxide Installed on or after January 1, 2005 4.0 lb/MWh 0.7 lb/MWh 10.0 lb/MWh Installed on or after January 1, 2009 1.5 lb/MWh 0.07 lb/MWh 2.0 lb/MWh Installed on or after January 1, 2013 reserved reserved reserved

Combined heat and power (CHP) generators meeting heat recovery, electric energy output, and design efficiency criteria given in the rule can take a credit for heat recovered from exhaust in meeting the emission standards.

Through its 06-096 C.M.R. ch. 115 “Major and Minor Source Air Emission License Regulations,” engines greater than 5 MMBtu/hr (approximately 500 kW output) must obtain a permit. Permits are also required for smaller engines (down to a heat rate input of 0.5 MMBtu/hr, or approximately 50 kW) if they are located at a facility with a combined heat input of 5 MMBtu/hr or more. Finally, facilities with operation-specific air permits must obtain permits for any on-site engines larger than 0.5 MMBtu/hr.

ME DEP requires non-emergency engines to use on-road diesel fuel and install selective catalytic reduction (SCR) technology for NOx control if their potential annual NOx emissions exceed 20 tons as best available control technology. Emergency engines larger than 0.5 MMBtu/hr require a permit, and are restricted to no more than 500 hours of operation each year. There are no additional restrictions preventing engines from participating in demand response programs.A p p e n d i x A P a g e | A-3

State Summary of Regulation Massachusetts Emergency and non-emergency engines are subject to installation self-certification requirements and do not

result in engine-specific approval.

An emergency or standby diesel or spark ignition stationary engine with a rated power output at least 37 kW installed after March 23, 2006 must comply with the applicable emission limits set by the EPA for non-road compression ignition engines (40 CFR 89) for the most recent model year up to and including the year of installation. A natural gas-fired or other spark ignition emergency engine may need add-on catalytic control to meet the part 89 emissions standard.

A diesel engine must use ultra-low sulfur fuel. There are certain stack height and modeling requirements depending on engine capacity and stack location relative to nearby buildings and sensitive receptors.

The emergency category allows operation for a total of no more than 300 hours per year, including scheduled maintenance and testing and emergency, standby operation (e.g., power outages). Emergency demand response is allowed, described as “periods during which the regional transmission organization directs the implementation of voltage reductions, voluntary load curtailments by customers, or automatic or manual load shedding within Massachusetts in response to unusually low frequency, equipment overload, capacity or energy deficiency, unacceptable voltage levels, or other such emergency conditions.” [These conditions conform to ISO-NE Operating Procedure 4 (Revision 11, effective 2011 Dec 9), Action 6.]

Under 310 CMR 7.26(43), a non-emergency engine with a rated power output equal to or greater than 50 kW installed after March 23, 2006 must meet the emission standards [RAP Model Rule for Distributed Generation]. As of January 1, 2012, the following took effect:

Pollutant Emission Limitation Oxides of Nitrogen 0.15 lb/MWh Particulate Matter (Liquid Fuel only) 0.03 lb/MWh Carbon Monoxide 1 lb/MWh Carbon Dioxide 1650 lb/MWh

A non-emergency engine in a combined heat and power (CHP application) may apply for relief from these emission limitations in the form of emission reduction credits (ERCs) calculated from the design avoided fuel combustion in an existing or new separate thermal-only unit (e.g., boiler), pursuant to 310 CMR 7.26(45).

For certain bio-fuel-fired engines, and some other categories, there is an option to submit a Plan Application for MassDEP approval. This would entail a BACT analysis and modeling, and would presumably allow a less stringent emission limit than above.

Prior to 2006, there were a variety of different rated capacity thresholds for preconstruction review or eligibility for permit-by-rule provisions.

Facilities with a combined heat input greater than 10 MMBtu/hr must file a statement of emissions at least every three years.
New Hampshire New Hampshire Administrative Rule Env-A 600 (statewide permit system), Env-A 1300 (NOx RACT)

One or more engines at a source powered by liquid fuel (i.e., diesel) require a permit in New Hampshire if the combined engines have an aggregate heat rate input of 1.5 MMBtu/hr (approximately 200 horsepower) or greater (individual engines with a heat input rate less than 0.15 MMBtu/hr are excluded). A higher size threshold of 10 MMBtu/hr (1 MW output) for all engines combined applies to engines at a source that operates on gaseous or LPG fuel (individual engines with a heat input rate less than 1.5 MMBtu/hr are excluded). Additionally, if the potential of all engines is 25 tons per year of NOx or greater the engine will besubject to NOx Reasonably Available Control Technology (RACT) requirements per Env-A 1306. Nonemergency internal combustion engines with a combined heat rate input exceeding 4.5 MMBtu/hr will be subject to NOx RACT requirements per Env-A 1307.

Owners of permitted emergency generators may operate during periods in which ISO New England, or any successor Regional Transmission Organization, directs the implementation of operating procedures for voltage reductions of 5% of normal operating voltage requiring more than 10 minutes to implement, voluntary load curtailments by customers, or automatic or manual load-shedding, in response to, or to prevent the occurrence of, unusually low frequency, equipment overload, capacity or energy deficiency, unacceptable voltage levels, or other such emergency conditions (ISO New England Operating Procedure 4 - Action 6 and NERC Emergency Action Level 2). The emergency generators are prohibited from being used as load shaving units in peak shaving program. Emergency engines must obtain a general state permit, must operate less than a maximum of 500 hours per year, and must emit less than 25 tons per year of NOx if the theoretical potential from all devices at the facility exceed 50 tons per year NOx. If these requirements are not met, refer to Env-A 1301.02(j) and Env-A 1311 for additional NOx RACT requirements.A p p e n d i x A P a g e | A-4

State Summary of Regulation New Jersey Permit applicability for engines generating electricity for new or modified is 37 kW and for existing is 148 kW

or greater. Permit applicability for all other engines is a heat rate input greater than 1 MMBtu/hr (equivalent to about 100 kW output). In addition, any new or modified engine with the potential to emit more than 5 tons per year of any criteria pollutants must meet “state of the art” (SOTA) control technology requirements. The applicable SOTA performance standards for new or modified engines are 0.15 g/bhp-hr for NOx, 0.5 g/bhp-hr for CO and 0.15 g/bhp-hr for volatile organic compounds (VOC). In addition, ammonia slip is limited to 10 ppmvd @ 15% O 2 . For liquid fuel firing, the particulate limit is 0.02 g/bhp-hr and the sulfur limit is 30 ppm (effective July 1, 2016, the allowable sulfur limit will be 15 ppm by weight). Meanwhile, existing engines producing electricity must also comply with minimum emissions performance requirements, specifically: (1) Rich burn NOx emissions limit of 1.5 g/bhp-hr for gaseous and liquid fuel;

(2) Lean burn NOx emissions limit of 1.5 g/bhp-hr or an emission rate which is equivalent to 80 percent NOx reduction from the uncontrolled NOx emission level for gaseous fuels;

(3) A NOx emissions limit of 2.3 g/bhp-hr for liquid and dual fuels; and

(4) A CO emissions limit (on all engines) of 500 ppmvd at 15% O 2 . New or modified engines producing electricity have to comply with NOx limit of 0.9 grams per bhp-hr.

Emergency engines are exempt from NOx control requirements provided it is operated only:

i. During the performance of normal testing and maintenance procedures, as recommended in writing by the manufacturer and/or as required in writing by a Federal or State law or regulation; ii. When there is power outage or the primary source of mechanical or thermal energy fails because of an emergency; or iii. When there is a voltage reduction issued by PJM and posted on the PJM website (www.pjm.com) under the “emergency procedures” menu.A p p e n d i x A P a g e | A-5

State Summary of Regulation New York The New York State Department of Environmental Conservation (NY DEC) has established a permitting

threshold for IC engines located outside of any severe ozone nonattainment areas of 400 bhp (approximately 300 kW). IC engines located within any severe nonattainment areas (New York City, Long Island, and the lower Hudson Valley) a lower permitting threshold of 200 bhp (147 kW) applies.

The current NYS DEC definition of an emergency power generating stationary internal combustion engine is a stationary internal combustion engine that operates as a mechanical or electrical power source only when the usual supply of power is unavailable, and operates for no more than 500 hours per year. The 500 hours of annual operation for the engine include operation during emergency situations, routine maintenance, and routine exercising (for example, test firing the engine for one hour a week to ensure reliability). A stationary internal combustion engine used for peak shaving generation is not an emergency power generating stationary internal combustion engine. Note that an engine participating in a demand response program is not considered to be an emergency engine per NYS DEC regulations.

The following requirements under Subpart 227-2 (NOx RACT) apply to stationary internal combustion engines at existing major stationary sources of NOx only. The presumptive limits outlined in Subpart 227-2

are: (1) For internal combustion engines fired solely with natural gas: 1.5 grams per brake horsepowerhour. (2) For internal combustion engines fired with landfill gas or digester gas (solely or in combination with natural gas): 2.0 grams per brake horsepower-hour. (3) For internal combustion engine fired with distillate oil (solely or in combination with other fuels): 2.3 grams per brake horsepower-hour. Compliance with these emission limits must be determined with a one hour average unless the owner or operator chooses to use a CEMS under the provisions of section 227- 2.6(b) of this Subpart. (4) For stationary internal combustion engines fired primarily with fuels not listed above, the owner or operator must submit a proposal for RACT to be implemented that includes descriptions of: i) the available NO x control technologies, the projected effectiveness of the technologies

considered, and the costs for installation and operation for each of the technologies; and ii) the technology and the appropriate emission limit selected as RACT considering the

costs for installation and operation of the technology. (5) Any stationary internal combustion engine may rely on an emission limit that reflects a 90 percent or greater NOx reduction from the engine's actual 1990 baseline emissions, if such emissions baseline exists. (6) Emergency power generating stationary internal combustion engines, and engine test cells at engine manufacturing facilities that are used for either research and development purposes, reliability testing, or quality assurance performance testing are exempt from the requirements of this subdivision.

In general, NYS DEC issues three types of permits: (1) “Registration certificates” with a “cap-by-rule” which restricts actual NOx emissions in the area consisting of the New York City Metropolitan Area and Lower Orange County Metropolitan Area to no more than 12.5 tons per year and NOx emissions in other areas to no more than 50 tons per year; (2) state facility permits for facilities that do not qualify for a registration certificate, but whose potential to emit is lower than the threshold for Title V permits; and (3) Title V permits, if the potential to emit is higher than Title V thresholds.

Additional permitting requirements may be written and enforced by the New York City Department of Environmental Protection (as distinct from the NYS DEC) for units located in New York City.A p p e n d i x A P a g e | A-6

State Summary of Regulation Rhode Island Rhode Island Air Pollution Control Regulation No. 43 “General Permits for Smaller-scale Electric Generation

Facilities,” May 15, 2007 (http://www.dem.ri.gov/pubs/regs/regs/air/air43_07.pdf).

Rhode Island’s rule for smaller-scale electric generators covers stationary internal combustion engines 50 hp or larger not subject to major source permitting requirements. Generators must obtain a minor source or general (pre-approved minor source) permit. Emergency generators must meet the appropriate Tier-level emission standards set by the US EPA for non-road engines (40 CFR 89) depending on date installed. Also, emergency generators must meet a CO 2 standard of 1,900 lb/MWh if installed on or after 5/15/07. The sulfur content of any liquid fuel burned in the emergency generator must not exceed 15 ppm by weight and for gaseous fuel not more than 10 grains of sulfur per 100 dry standard cubic feet. Visible emissions from emergency generators may not exceed 10%.

Emergency generators are allowed to operate up to a maximum of 500 hours per year for maintenance, testing, and emergencies. Emergency generators shall not be operated in conjunction with any voluntary demand-reduction program or any other interruptible power supply arrangement with a utility, other market participant or system operator unless such program is implemented at the same time as ISO New England, or any successor Regional Transmission Organization, directs the implementation of operating procedures for voltage reductions, voluntary load curtailments by customers or automatic or manual load shedding within Rhode Island in response to unusually low frequency, equipment overload, capacity or energy deficiency, unacceptable voltage levels or other such emergency conditions.

Generators not able to meet the General Permit requirements must obtain a minor source permit. Vermont Vermont Air Pollution Control Regulations adopted through September 2011

(http://www.anr.state.vt.us/air/docs/APCR%202011.pdf)

Vermont requires permits for stationary IC engines of 450 bhp and greater, excluding emergency use engines (see 5-401 of Regulations). Vermont defines an “Emergency use engine” as an engine used only for emergency purposes and up to 100 hours per year for routine testing and maintenance. Emergency purposes are limited to periods of time when the usual power source is temporarily unavailable, the Independent System Operator has determined a power capacity deficiency exists (ISO-NE OP4) and has implemented a voltage reduction of 5 percent or more of normal operating voltage, or a fire or flood requires water pumping to minimize property damage. Permit amendments are required for any engine greater than 200 bhp (excluding emergency use engines) if it is to be located at any site that is classified as an air contaminant source for some other reason and already has an existing air permit.

In addition to permitting requirements, all reciprocating internal combustion engines 450 bhp-hr or greater installed after July 1, 1999 (including emergency use engines installed) must meet minimum emissions standards comparable to federal requirements for non-road sources according to the date installed. Engines installed prior to July 1, 1999 (excluding emergency use engines) were required to be upgraded to meet federal Tier I non-road emission standards by no later than July 1, 2007.A p p e n d i x A P a g e | A-7A p p e n d i x BP a g e| B-1Appendix B: Demand Response Program RequirementsA summary of ISO-NE demand response programs is provided below.NameServiceTypeMinimumResourceSizeMinimumReductionAmountAggregationAllowedBackupGenerationEligible?PrimaryDriverTrigger"Peak"HoursOnly?Real Time DemandResponse Resource(RTDR)Capacity 100 kW 1 kWYesNoReliabilityCritical Peak Hours: OP4Action 2 or higher andForecast Peak Hourswhenever Day-AheadForecast≥95% of 50/50Seasonal Peak forecastfor the applicable seasonNoReal Time EmergencyGeneration ResourceCapacity 100 kW 1 kWYesYesReliability(compensationlimited to 600 MW)Operational ProcedureOP4 Action 6NoOn-Peak DemandResourcesCapacity 100 kW 1 kWYesNoReliabilityOn-Peak (hours ending5:00-7:00 pm winterseason, 1:00-5:00 pmsummer season)YesSeasonal PeakDemand ResourcesCapacity 100 kW 1 kWYesNoReliabilityReal time hourly load is≥to 90% of 50/50 systempeak load forecast for theapplicable seasonYesTransitional DemandResponseEnergy 100 kW 100 kWYesNoEconomicDay-Ahead LMP≥OfferPriceYesSource: ISO/RTO Council, North American Wholesale Electricity Demand Response Program Comparison, December 2011.A summary of NYISO demand response programs is provided below.A p p e n d i x BP a g e| B-2NameServiceTypeMinimumResourceSizeMinimumReductionAmountAggregationAllowed?BackupGenerationEligible?PrimaryDriverTrigger"Peak"HoursOnly?Day-Ahead DemandResponse ProgramEnergy 1 MW 1 MW Yes No EconomicEnergy Price > OfferPrice (SecurityConstrained UnitCommitment)NoDemand Side AncillaryServices ProgramSpinningReserve1 MW 1 MWNoNoEconomicEnergy Price > OfferPrice (SecurityConstrained EconomicDispatch)NoDemand Side AncillaryServices ProgramNonSynchronousReserve1 MW 1 MW NoYesEconomicEnergy Price > OfferPrice (SecurityConstrained EconomicDispatch)NoDemand Side AncillaryServices ProgramRegulation 1 MW 1 MWNoNoEconomicEnergy Price > OfferPrice (SecurityConstrained EconomicDispatch)NoEmergency DemandResponse ProgramEnergy100 kW (perzone)100 kW (perzone)YesYesReliability Operational Procedure NoInstalled CapacitySpecial CaseResources (EnergyComponent)Energy100kW(per Zone)100 kW(per Zone)YesYesReliability Operational Procedure NoInstalled CapacitySpecial CaseResources (CapacityComponent)Capacity100 kW (perzone)100 kW (perzone)YesYesReliability Operational Procedure NoSource: ISO/RTO Council, North American Wholesale Electricity Demand Response Program Comparison, December 2011.A p p e n d i x BP a g e| B-3A summary of PJM demand response programs is provided in the table below.NameServiceTypeMinimumResourceSizeMinimumReductionAmountAggregationAllowed?BackupGenerationEligible?PrimaryDriverTrigger"Peak"HoursOnlyEconomic LoadResponse (Energy)Energy100 kW 100 kWYesYesEconomicSelf-Scheduled, ClearedDay-Ahead Bid, or RealTime DispatchNoEmergency LoadResponse - EnergyOnlyEnergy100 kW 100 kWYesYesEconomic Operational Procedure NoEconomic LoadResponse(SynchronizedReserves)Reserve 100 kW 100 kWYesYesReliability Operational Procedure NoEconomic LoadResponseReserve 100 kW 100 kWYesYesReliability Operational Procedure NoDay ahead schedulingreserveReserve 100 kW 100 kWYesYesReliability Operational Procedure NoFull Emergency LoadResponse(Limited DR)Capacity andEnergy100 kW 100 kWYesYesReliabilityOperational Procedure10 days up to 6 hoursper dayYesA p p e n d i x BP a g e| B-4NameServiceTypeMinimumResourceSizeMinimumReductionAmountAggregationAllowed?BackupGenerationEligible?PrimaryDriverTrigger"Peak"HoursOnlyFull Emergency LoadResponse(Extended SummerDR)Capacity andEnergy100 kW 100 kWYesYesReliabilityOperational ProcedureUnlimited summer daysup to 10 hours per dayYesFull Emergency LoadResponse(Annual DR)Capacity andEnergy100 kW 100 kWYesYesReliabilityOperational ProcedureUnlimited days up to 10hours per dayYesSource: ISO/RTO Council, North American Wholesale Electricity Demand Response Program Comparison, December 2011.A p p e n d i x C P a g e | C-1



## Appendix C: Demand Response Event Scenario Details This Appendix C describes the sources and methodolog y used to estimate potential emissions from diesel generators that participate in demand response programs. In particular, this report selected demand response events called by NYISO, PJM, and ISO-NE from July 21 – 22, 2011.

NYISO Enrollment Details Tables C-1 and C-2 provide enrollment data in MW by NYISO zone and resource type. NYISO requires that CSP separately report the MW of load reduction and MW of enrolled generators. However, it is important to note that historic data show that enrollment in the ICAP/SCR program and the EDRP change on a monthly basis. For example, between May 2011 and June 2011 there was an increase of 11 percent in enrolled MW in the ICAP/SCR program. In addition, there was a 70 percent increase in enrolled MW between May 2011 and July 2011 in the EDRP

program. a However, for our analysis we assume that the percentage of generators by zone remains constant in both the ICAP/SCR program and EDRP program.

Table C-1. NYISO ICAP/SCR Enrollment by Zone (May 2011)

NYISO Zone Number of

Resources MW of Load

Reduction MW of Enrolled

Generators Total MW Percent Generators A 510 384.6 5.4 390 1%

B 250 105 10.1 115.1 9%

C 322 124.2 3 127.2 2%

D 22 314.2 0.2 314.4 0%

E 156 40.5 4.1 44.6 9%

F 199 124.8 9.5 134.3 7%

G 148 57.6 6.9 64.5 11%

H 21 8.4 0.4 8.8 5%

I 129 38 3.7 41.7 9%

J 2545 340 103.5 443.5 23%

K 984 119.5 25.3 144.8 17%

Totals 5286 1656.8 172.1 1828.9 9.4%

Source: NYISO Semi-Annual Report on Demand Response Programs; Docket No. ER01-3001- June 3, 2011, MJB&A Analysis.
Table C-2. NYISO EDRP Enrollment by Zone (May 2011)

NYISO Zone Number of

Resources MW of Load

Reduction MW of Enrolled

Generators Total MW Percent Generators A 13 0.6 9.9 10.5 94%

B 1 0 1 1 100%

C 27 3.2 11.9 15.1 79%

D 8 0.6 3.1 3.7 84%

E 26 1.1 24 25.1 96%

F 10 0.9 4.4 5.3 83%

G 13 0 17.1 17.1 100%

a NYISO. Docket Nos. ER01-3001-000 and ER03-647-000. June 1, 2012.A p p e n d i x C P a g e | C-2 NYISO Zone Number of

Resources MW of Load

Reduction MW of Enrolled

Generators Total MW Percent Generators H 3 0.3 1.5 1.8 83%

I 13 2 1.7 3.7 46%

J 22 4.6 0.5 5.1 10%

K 0 0 0 0 0%

Totals 136 13.3 75.1 88.4 85%

Source: NYISO Semi-Annual Report on Demand Response Programs; Docket No. ER01-3001- June 3, 2011, MJB&A Analysis. July 21 NYISO Event Details Tables C-3 and C-4 provide hourly load reduction dat a in MW by NYISO zone and resource type.

Table C-3. July 21, 2011, NYISO ICAP/SCR Load Management Event by Zone (MW)

NYISO Zone HB 13 1 HB 14 HB 15 HB 16 HB 17 Percent Generators G 58.2 63.1 65.8 66.4 64.3 11%

H 9.8 10 10.2 10.3 10.4 5%

I 20.7 26.1 27.8 29.1 30.2 9%

J 402.6 429 438.9 449.1 465.7 23%

K 109.7 117.5 121.9 127.5 130.2 17%

Total 601 645.7 664.6 682.4 700.8

Source: NYISO, Annual Report to the Federal Energy Regulatory Commission on the NYISO’s Demand Side Management Programs, January 17, 2012, MJB&A Analysis.

1. HB stands for “Hour Beginning” using a 24-hour clock. For example, HB 13 stands for the hour beginning at 1:00 pm and HB 17 stands for the hour beginning at 5:00 pm.

Table C-4. July 21, 2011, NYISO EDRP Load Management Event by Zone (MW)

NYISO Zone HB 13 1 HB 14 HB 15 HB 16 HB 17 Percent Generators G 0.2 0.2 0.1 0 0 100%

H 0 0 0.1 0.2 0.2 83%

I 0.2 0.3 0.3 0.3 0.2 46%

J 5 5.7 6.8 7 5.5 10%

K 1.1 1.5 1.2 1.2 0.6 0

Total 6.5 7.7 8.5 8.7 6.5

Source: NYISO, Annual Report to the Federal Energy Regulatory Commission on the NYISO’s Demand Side Management Programs, January 17, 2012, MJB&A Analysis. July 22 NYISO Event Details Tables C-5 and C-6 provide hourly load reduction dat a in MW by NYISO zone and resource type.

Table C-5. July 22, 2011, NYISO ICAP/SCR Load Management Event by Zone (MW)

NYISO Zone HB 13 HB 14 HB 15 HB 16 HB 17 Percent Generators A 305.1 326.6 341.1 343.6 1%

B 96.5 102.4 105.4 107.5 9%

C 110.9 128.8 135.6 140.1 2%A p p e n d i x C P a g e | C-3 NYISO Zone HB 13 HB 14 HB 15 HB 16 HB 17 Percent Generators E 39.1 49.6 52.7 54.5 9%

F 116.2 127 130.5 135.4 7%

G 61.3 66.1 69 70 11%

H 8.7 8.8 8.8 8.9 5%

I 26.3 27.1 28 28.9 9%

J 367.3 393.8 437.9 456.2 472 23%

K 96 102.8 107.9 113.1 17%

Total 367.3 1253.9 1377.1 1435.2 1474

Source: NYISO, Annual Report to the Federal Energy Regulatory Commission on the NYISO’s Demand Side Management Programs, January 17, 2012, MJB&A Analysis.
Table C-6. July 22, 2011, NYISO EDRP Load Management Event by Zone (MW)

NYISO Zone HB 13 HB 14 HB 15 HB 16 HB 17 Percent Generators A 0.3 0.3 0.4 0.7 94%

B 0 0 0 0 100%

C 1.5 2 1.6 1.4 79%

E 3.6 5.5 4.4 3.1 96%

F 0.6 0.7 0.7 0.5 83%

G 0.2 0.2 0.1 0 100%

H 0 0.1 0.1 0 83%

I 0.5 0.6 0.5 0.6 46%

J 12.6 12.4 13.3 13.6 13.7 10%

K 1 1.1 1 1.1 0%

Total 12.6 20.1 23.8 22.4 21.1

Source: NYISO, Annual Report to the Federal Energy Regulatory Commission on the NYISO’s Demand Side Management Programs, January 17, 2012, MJB&A Analysis. PJM Enrollment Details According to PJM, approximately 15 percent of the de mand response resources registered in the 2011/2012 delivery year is comprised of backup generation. However, approximately 60 percent of its demand response resources are listed as “other.” Therefore, the actual participation figure could range from 15 to 75 percent. Because of the limited data available in PJM, in order to estimate the impact of these engines’ participation in demand response programs on air quality, the PJM analysis in this report relies on a range of scenarios in which demand response backup generators comprise 15, 25, and 50 percent of demand response.
July 22 PJM Event Details Table C-7 provides data on the load reduction by PJM zone on July 22.A p p e n d i x C P a g e | C-4 Table C-7. July 22, 2011, PJM Load Management Event by Zone

PJM Zone Hour Ending 1 Reduction MW

BGE HE 1300-1800 962

DPL HE 1400-2000 128

DUQ HE 1400-2000 163

JCPL HE 1400-2000 141

METED HE 1400-2000 206

PECO HE 1400-2000 497

Totals 2,097

Source: PJM, Load Management Performance Report – 2011/2012. MJB&A Analysis.

1. HE is an abbreviation for Hour Ending. For example, HE 1500 – 1800 is the same as the expression 2:00 PM until 6:00 PM. The times shown for each event are the beginning and end of compliance reporting times. Events are not called or released exactly on the hour and all resources are expected to improve reliability by decreasing load or increasing generation as soon as practicable. Since PJM only provides data on megawatts of load reduced, the total MWh of reduced demand must be estimated. This report assumes that each megawatt of reduced load is achieved for the entire duration of the load management event. While this may not necessarily be the case, this assumption provides a straightforward method for estimating total MWh of reduced demand. However, this method may overestimate the total MWh reduced. Table C-8 provides the estimates of MWh of reduced demand in PJM during the July 22 event by zone.

Table C-8. Estimated Reduced Demand by Zone in PJM during July 22, 2011 Event

PJM Zone Hour Ending 1 MWh

BGE HE 1300-1800 5,772

DPL HE 1400-2000 896

DUQ HE 1400-2000 1,141

JCPL HE 1400-2000 987

METED HE 1400-2000 1,442

PECO HE 1400-2000 3,479

Totals 13,717

Source: PJM, Load Management Performance Report – 2011/2012. MJB&A Analysis.

Emission Rates
Table C-9 illustrates NOx and PM emission rates asso ciated with various engine types and EPA engine Tier.

Table C-9. NOx and PM Emission Rates for Various Engine Standards

Standard NOx Rate (lb/MWh) PM Rate

(lb/MWh)
pre-Tier: < 600 hp 41.47 2.95

pre-Tier: > 600 hp 32.04 0.94

Tier 1 20.39 1.18

Tier 2 14.19 0.44

Tier 3 8.87 0.44

Tier 4 0.89 0.04

Source: EPAA p p e n d i x C P a g e | C-5

The scenarios described in this report assumed that the average participating generator has emissions rates similar to a pre-2000 vintage engine greater than 600 horsepower (hp). The resulting emission rates (32.04 lb/MWh for NOx and 0.94 lb/MWh for PM) were multiplied by the megawatt-hour reductions assumed to be provided by generators. The MWh provided by generators is dependent on the scenario, which determines the percent of total reductions provided by generators.

## COMMENTS OF EXELON CORPORATION ON

U.S. ENVIRONMENTAL PROTECTION AGENCY’S PROPOSED NATIONAL EMISSION STANDARDS FOR HAZARDOUS AIR POLLUTANT S FOR RECIPROCATING INTERNAL COMBUSTION ENGINES; NEW SOURCE PERFORMANCE STANDARDS FO R STATIONARY INTERNAL COMBUSTION ENGINES

Docket ID No. EPA-HQ-OAR-2008-0708 77 Fed. Reg. 33,812 (June 7, 2012)

August 9, 2012I. INTRODUCTION & EXECUTIVE SUMMARY

Exelon Corporation ("Exelon" ) respectfully submits the following comments on the Environmental Protection Agency's ("EPA" or the "Agency") proposed National Emission Standards for Hazardous Air Pollutants for Reciprocating Internal Combustion Engines, 77 Fed. Reg. 33,812 (June 7, 2012) (the "Rule" ). Exelon is among the largest gas and electric utilities in the nation. Exelon owns a diverse fleet of ove r 35,000 megawatts of generation capacity that includes nuclear, natural gas, co al, hydroelectric and renewable generation resources. Exelon also provides energy products and services to retail and wholesale customers across 46 states, the District of Columbia and Canada. Through its subsidiary, Constell ation New Energy, Exelon manages over 1,750 megawatts ("MW") of de mand response in regional transmission organization ("RTO") markets across the United States. 1

Exelon subsidiaries include three of the nation’s ol dest and most respected utilities: Commonwealth Edison Company ("Co mEd"), PECO Energy Company ("PECO") and Baltimore Gas and Electric Company ("BGE"), se rving more than 6.6 million customers in the Chicago, Philadelphia and Baltimore regions, respectively. During the 2012 - 2013 delivery years, the ComEd Zone include s 2,005 MW of residential, co mmercial and industrial demand response. PECO manages 456 MW of demand res ponse and energy efficiency resources in the Philadelphia area. BGE currently manages ove r 658 MW of residen tial, commercial and industrial demand response and energy effici ency resources in the Baltimore Zone.

Exelon has supported EPA's efforts to impr ove air quality that yield significant public health and environmental benefits. For ex ample, Exelon has intervened in support of the EPA's long-awaited rules that a ddress emissions of criteria pollu tants from electric generating units ("EGUs") that interfere with air quality in downwind states (the "Cross-State Air Pollution Rule" or "CSAPR"), and that limit emissions ofhazardous air pollutants ("HAPs") from coaland oil-fired EGUs (the "Mercury and Air T oxics Rule" or "MATS"). These rules also encourage investment in modern, low-pollution generation technologies, including upgrades to existing nuclear plants, and investments in alternative and renewa ble technologies, cogeneration, and new, combined cycle gas-fired pl ants. Exelon has made investment in clean energy a part of its business strategy. In November 2010, Ex elon announced its intention to invest nearly $5 billion in cost -effective, clean energy projects to implement Exelon's 2020 Plan, which aims to reduce, offset, or displace the equivalent of Exelon's 2001 greenhouse gas emissions. The new projects include energy-effici ency and Smart Grid programs, investments in renewable energy generation projec ts, and increased output at Ex elon's existing nuclear plants achieved through investments in Exelon's nuclear uprate program.

As proposed, the Rule would permit emerge ncy stationary reciprocating internal combustion engines ("RICE") to operate without controls in order to participate in demand response and peak-shaving programs that do not involve true blackout emergencies. The

1 On October 12, 2010, CPower, Inc., a demand response aggregator and a petitioner in litigation challenging th e RICE NESHAP, captioned EnerNOC, Inc. v. EPA , D.C. Cir. Dkt. No. 10-1090, was acquired by Constellation Ne w Energy, which is an Exelon subsidiary. These comments reflect the views of Exelon and its subsidiaries.2 proposed Rule will undercut EPA's hard fought efforts to reduce air emissions through CSAPR and MATS. Not only is this bad environmental po licy, but it is bad energy policy as well. The proposed Rule would create an unlevel playing field by allowing select generators to operate without controls, thereby distorting price signals in competitive markets, subsidizing units with dirtier emissions, displacing clea n generation and discouraging i nvestment in cleaner, more efficient generation resources.

As explained in more detail in thes e comments, Exelon recommends that the proposed Rule be revised as follows:

 Emergency RICE should be allowed to opera te uncontrolled only in the event of a loss of power or blackout conditions . This narrowly-tailored exception accommodates the need for emergency pow er, and ensures that the cost of pollution controls does not impede ava ilability of RICE when needed to ameliorate loss of pow er at a facility.

 In all other instances, sta tionary RICE should be requi red to control their HAP emissions. If these units wish to cont inue to participate in emergency demand response programs, they should be required to compete evenly w ith other electric generation resources and control their HAP emissions. However, EPA should consider allowing a transition period until May 31, 2016 to provide time for owners, operators, and demand resource aggr egators to install emissions controls on their emergency stationary RICE if they wish to participate in power markets. This approach will recognize the expectations of owners and operators who have bid their units into recent capacity market auctions relying on an exemption in the RICE NESHAP for participation in em ergency demand response programs. In addition, the availability of these units will assist the regional transmission operators or equivalent ba lancing authorities who are charged with protecting the reliability and stability of the national el ectric service grid during this temporary transition period.

 The proposed Rule should not allow stationa ry RICE to operate without controls for "peak shaving" and similar progr ams. These programs do not address emergency conditions and merely result in ec onomic benefit for the participant.

In summary, EPA has proposed to subsidize uncontrolled RICE at the expense of other participants in the energy and capacity markets. The Rule undercuts EPA's efforts to improve air quality and public health, and to encourage cleaner, more efficient generation, without addressing legitimate emergency concerns. For these reasons, and as discussed in more detail below, Exelon opposes EPA's pr oposal to revise the RICE NESHAP.

II. EXELON'S COMMENTS ON THE PROPOSED RULE

A. Background

Pursuant to section 112 of the Clean Air Act, 42 U.S.C. § 7412, the RICE NESHAP sets emissions standards for HAPs from various subcategories of stationary RICE.3 EPA has promulgated the RICE NESHAP in stages , finalizing emissions standards for separate subcategories of RICE over se veral different rulemakings.

Under the existing RICE NESHAP, certain "emergency stationary RICE" are permitted to operate without meeting the emissi on standard requirements that apply to nonemergency engines. In true emergency condi tions, such as periods of blackout, emergency stationary RICE may operate for as long as the emergency situation continues. See 40 C.F.R. § 63.6640(f)(1)(i), (f)(2)(i). Emergency stati onary RICE also may operate to perform maintenance checks and readiness testing, though mo st subcategories of RICE are limited to 100 hours per year of operation for maintenance and testing. See id. § 63.6640(f)(1)(ii), (f)(2)(ii).

In March 2010, EPA adopted provisions de signed to allow several subcategories of emergency stationary RICE to participat e in emergency demand response programs for a limited period of time each year "i n situations where grid failur e and a blackout are imminent." See 75 Fed. Reg. 9,648, 9,667 (Mar. 3, 2010). Specifi cally, EPA allowed certain existing emergency stationary RICE to operate for 50 hour s per year in non-emerge ncy situations (which would count against the 100-hour limit for mainte nance and testing), and allowed up to 15 of those 50 hours to be for operation as part of a demand response program if the RTO or equivalent balancing authority and transmissi on operator has determined there are emergency conditions that could lead to a potential electrical blackout, such as unusually low frequency, equipment overload, capacity or energy defici ency, or unacceptable voltage level. See 75 Fed. Reg. at 9,667, 9,677. However, EPA otherwise prohi bited emergency RICE from operating in non-emergency conditions for peak sh aving or to generate income fo r a facility to supply power to an electric grid or otherwise supply power as part of a financial ar rangement with another entity. See id. EPA retained these provisions in furthe r amendments to the RICE NESHAP that were finalized in August 2010. See 75 Fed. Reg. 51,570 (Aug. 20, 2010); 40 C.F.R. § 63.6640(f)(1)(iii), (f)(2)(iii).

EPA received several petitions for reconsideration of its 2010 amendments to the RICE NESHAP, and several petitione rs sought judicial review of t hose standards. In response to petitions for reconsideration from Delawa re Department of Natural Resources and Environmental Control ("Delaware DNREC") and from EnerNOC, Inc., CPower, Inc., 2 EnergyConnect, Inc., and Innoventive Power, LLC (collectively, "EnerNOC petitioners"), EPA agreed to reconsider the provi sions of the March 2010 amendments allowing operation as part of an emergency demand response program. See 75 Fed. Reg. 75,937 (Dec. 7, 2010). On the one hand, EPA noted, Delaware DNREC had argued th at allowing 15 hours of emergency demand response operation would thwart progress that the State had made in reducing HAPs, ozone, VOCs, and NO x . See id. at 75,939. On the other hand, EP A explained that the EnerNOC petitioners argued that emergency engines need ed an allowance of 60 hours or the minimum hours required by the Independent System Operator ("ISO") tariff, whichever is lower, to ensure that these engines could meet ISO requirement s for participating in an emergency demand

response program. Id.

2 As explained in footnote 1, supra , CPower, Inc. was acqui red by Constellation New Energy, which is now a subsidiary of Exel on. These comments reflect the views of Exelon and its subsidiaries.4 In December 2011, during its reconsidera tion of the emergency demand response allowance provisions of the RICE NESHAP, EPA proposed to settle some of the judicial challenges to the 2010 NESHAP revisions. Spec ifically, EPA agreed to sign a notice of proposed rulemaking that would revi se the RICE NESHAP essentially to adopt the proposal that EnerNOC petitioners had requested in their pe tition for reconsiderati on, allowing owners and operators of emergency stationary internal combustion engines to operate in emergency conditions as part of an emergency demand res ponse program by the lesser of 60 hours per year or the minimum hours required by the ISO tariff. 3

This proposed Rule addresses provisions of the RICE NESHAP at issue in the proposed settlement and in several of the petition s for reconsideration and legal challenges to the 2010 RICE NESHAP amendments. It would leav e in place the provision allowing emergency stationary RICE to operate in conditions of tr ue emergency without limitation on time. This is consistent with the original purpose of thos e units—to provide backup power in periods of blackout or power loss. Exelon does not object to the continued allowance for true emergency operation. 4 The proposed Rule also would reta in a 100-hour allowance for operation for maintenance and testing. This allowance, too, is reasonable to ensure that emergency stationary RICE can perform when called upon to provide power during blackout or other periods of true emergency. Exelon believes these provisions refl ect sound policy and does not object to these aspects of the Rule.

However, this proposed Rule would revi se the RICE NESHAP provisions in a way that would dramatically expand the periods of time in which stationary RICE could operate outside of true emergency conditions without m eeting the emissions limitations that apply to non-emergency RICE. Specifically, EPA proposes to allow emergency engines to participate in demand response programs for up to 100 hours per year, whenever the regional transmission authority or equivalent balanc ing authority and transmission ope rator has declared an Energy Emergency Alert Level 2 and during periods where there is a deviation of voltage or frequency of 5 percent or greater below st andard voltage or frequency. See 77 Fed. Reg. at 33,838. These hours would count against the 100 hours provided for routine maintenance and testing. EPA also proposes to amend the provision allowing certa in RICE to operate for 50 hours in nonemergency situations. Under the Rule, opera tion for "demand response" programs would not count against the 50 hours of non-emergency use authorized by the Rule (though the 50 hours for non-emergency situations would count against the 100 hours allowed for emergency demand response and maintenance and testin g). Moreover, for existing stat ionary RICE at area sources, the Rule proposes to eliminate temporarily, until April 16, 2017, the prohibition on the use of non-emergency operation for peak shaving or to gene rate income for a facility to supply power to an electric grid or otherwise supply power as part of a financial ar rangement with another entity. Compare 40 C.F.R. § 63.6640(f)(1)(iii),(f)(2)(iii), with 77 Fed. Reg. at 33,838-839

3 The proposed settlement indicated that th e proposed rulemaking revision could allow for more hours of operation, but did not offer a justification fo r that potential expansion.

4 The Rule does not specify what constitutes "emergency situations" for purposes of this provision. Exelon recommends that EPA clarify that this exemption is limited to true emergency conditions, e.g. loss of power.5 (proposed 40 C.F.R. § 63.6640(f)(3)-(4)). It woul d allow those units to operate for peak shaving and non-emergency demand response to generate in come for a facility, or to otherwise supply power as part of a financial arrangement with anot her entity, if the engines are operated as part of a peak shaving (load management) program with the local distribution system operator and the power is provided to the fac ility itself or to support th e local distribution system. See id. These revisions are not necessary to address emergenc y conditions, and Exelon opposes their adoption.

B. EPA's Proposed Revisions to th e RICE NESHAP Would Subsidize Uncontrolled Sources That Displace Cleaner, More Efficient Generation Capacity

1. EPA's Proposal to Allow 100 Hours of Operation for Demand Response Programs is Unnecessary a nd Distorts the Playing Field in Favor of Uncontrolled Electric Sources.

Exelon opposes EPA's proposal in the Ru le to allow uncontrolled operation as part of a demand response program for up to 100 hours. EPA has not offered a reasonable explanation, one that will withstand judicial scrutiny, for why it is appropriate to allow uncontrolled stationary RICE to participate in an emergency demand response program for up to 100 hours. This is well beyond the exemp tion sought by the EnerNOC petitioners and contemplated by the proposed settlement agreemen t. EPA's proposal would distort the legitimate purpose of providing reasonable accommodations for true emer gency conditions and instead would encourage backup, on-site emergency genera tors to participate in power markets purely for economic benefit. This would discourage in vestment in cleaner generation capacity and in demand response programs that rely on real re ductions in energy consumption, and would subsidize sources that do not internalize their true costs.

At its core, "demand response" is a "r eduction in the consumption of electric energy" by customers in response to an increase in the price of electric en ergy or in response to incentive payments to induce that reduction. 5 Customers that participate in demand response programs receive a financial incentive to generate these reductions in consumption at the request of the RTO. These reductions can be achieved either by actually reducing use, or by replacing power supplied through the grid with power genera ted "behind the meter" by backup generators. In the latter case, the decisi on to participate in the demand response program is simply an economic one, based on a conclusion that the ec onomic incentives for pa rticipation will exceed the cost of operating the backup generators. In these comments, Exelon refe rs to this mode of operation as "economic demand response."

Economic demand response can interfere with price signals to power markets and may discourage investment in new, cleaner genera tion sources. When backup generators operate in emergency conditions, they do so without havi ng to comply with emissions limitations. These uncontrolled engines, many of which are diesel, have dirtier emissions than controlled, cleaner,

5 See 18 C.F.R. § 35.28(b)(4); FERC Order N o. 745, issued Mar. 15, 2011, at 2 n.2; see also Exhibit A to Comments of Calpine Co rporation, Document ID No. EPA-HQ-OGC2011-1030-0015 (Feb. 2, 2012).6 more efficient resources. All other things being equal, sources ope rating without pollution controls have lower costs than equivalent s ources with emission controls, and therefore can underbid controlled sources in electricity mark ets. Expanding the conditions under which these units may operate without controls can lead to unnecessary and unde sirable environmental impairment that would be avoided if a clean er source was called upon to meet energy demand. 6

Further, economic demand response may discourage upgrades in existing capacity or investment in new, cleaner generation that would encourage long-te rm reliability, reduce emissions, and modernize the generation fleet . Except in limited circumstances, demand resources are not acquired as "emergency" re sources. In the PJM capacity market, demand response resources compete with clean generation sources, and PJM holds annual auctions to secure sufficient capacity for the one-year pe riod commencing three year s after the auction. Each MW of demand response that clears the capacity market aucti on displaces a MW of traditional supply that would otherwise clear the auction. It is not always obvious, though, whether the demand response resources that clear th e market are based upon actual reductions in consumption of energy, or whether they are based upon operation of unc ontrolled stationary RICE. PJM, for example, sees only a load redu ction at the customer's meter and does not look behind the meter to evaluate how the reduction is accomplished. Reports estimate that more than 58 percent (5,077 MW out of 8,663 MW) of the demand response capacity in the market managed by the Midwest Independe nt System Operator ("MISO") in 2010 was behind-the-meter, and another 40 percent (3,001 MW out of 7,736 MW) of demand response capacity in 2011 in MISO was behind-the-meter. 7 Thus, a significant portion of demand response programs may depend upon operation of uncontrolled, dirtier diesel engines to meet a customer's need, rather than upon real reductions in overall energy demand. With more demand response clearing capacity markets, this concern becomes more acute. 8 Even if the RICE asset never runs, its

6 NESCAUM observes that increased use of uncontrolled diesel backup engines in economic demand response programs may interfere with maintenance or achievement of national ambient air quality standards. See NESCAUM, Air Quality, Electricity, and Back-up Stationary Diesel E ngines in the Northeast (Aug. 1, 2012) at ES-4, available at

www.nescaum.org

.

7 Potomac Economics, 2010 State of the Market Report fo r the MISO Electricity Markets (June 2011) at 136, available at http://www.potomaceconomics.com/uploads/m idwest reports/2010 State of the Marke t Report Final.pdf ; Potomac Economics, 2011 State of the Market Report fo r the MISO Electricity Markets (June 2012) at 54, available at http://www.potomaceconomics.com/uploads /midwest_reports/2011_SOM_Report.pdf

.

8 See NESCAUM, Air Quality, Electricity, and Back-up Stationary Diesel Engines in the Northeast (Aug. 1, 2012) at 1; PJM, Demand Resource Saturation Analysis

, Resource Adequacy Planning Department (May 2010) at 3, available at http://www.pjm.com/~/media/comm ittees-groups/committees/mrc/20100518/20100518- item-05-dr-satura tion-report.ashx . For example, in PJM in 2011, approximately 14,000 MW of demand response capacity cleared th e auction for the 2014/2015 capacity period, an increase of 4,836 MW of demand response from the immediately preceding capacity7 participation as a subsidized capacity resource re sults in a substantial opp ortunity cost: the loss of investment in a cleaner resource that c ould improve overall re gional air emissions.

EPA should not promote this outcome. S ection 112 of the Clean Air Act requires EPA to promulgate emission standards that requir e sources in listed source categories, including stationary RICE, to control their HAP emissions. The linchpin of that sec tion is the requirement that covered sources meet the standards met by the best performing sim ilar units, thus requiring all sources in the same source category to reduce their emissions at least to the degree achieved in practice ("maximum achievable control techno logy" or "MACT"). 42 U.S.C. § 7412(d)(2)- (3). This ensures that sources reduce emissions of pollutants known to be hazardous or toxic to human health or the environment, and internalize the true costs of their operation. The proposed Rule is an incentive for greater operation of sources with fewer em issions controls, which is at odds with section 112 and EPA's goal in promulga ting the RICE NESHAP and other air rules, such as CSAPR and MATS. If adopted, the Rule would substantially weaken the reductions in HAPs and improvements to air quality that are th e core goal of the RICE NESHAP, and would favor a capacity source that weakens the incentiv e for further investments in cleaner, more efficient sources of power. By EPA's own account, the proposed Rule would allow 4,200 tons more HAP, 88,000 tons more CO, 86,400 tons more NO x , and 22,000 tons more VOCs to be emitted in 2013 than under the existing RICE NESHAP. See 77 Fed. Reg. at 33,814. Monetized co-benefits of the RICE NESH AP similarly will diminish. See id.

Those losses simply are not necessary to address emergency conditions. Emergency stationary RICE should not be prec luded from participating in demand response programs, but like all other sources, should in th e long run be expected to control their harmful HAP emissions. This would ensure that they pa rticipate on a level play ing field in energy and capacity markets, and that they do not crowd out cleaner, more efficient sources of generation and demand response.

Exelon recognizes, however, that the settlement agreement resolving certain appeals of the 2010 RICE NESHAP amendments proposed to allow up to 60 hours for sources operating in an emergency demand response prog ram. The agreement may have created an expectation for demand response resources backed by emergency stationary RICE that were participating in recent capacity auctions. Fo r this reason, Exelon believes that it would be reasonable for EPA to allow demand response re sources that are part of these programs to operate for the lesser of 60 hours or the mini mum number of hours re quired by ISO tariff. 9

period. In the 2012 PJM auction for th e 2015/2016 capacity period, the amount of demand response that cleared increase d another five percent (to 14,833 MW).

9 EPA does not identify any demand response pr ogram that requires a commitment greater than 60 hours except for the program operate d by the Hawaiian Electric Company, which EPA states requires that emer gency engines be able to ope rate for 100 hours per year in the event of an emergency. See 77 Fed. Reg. at 33,818. EPA s hould not establish a rule that would apply to the vast majority of sour ces and in the vast majority of markets to accommodate this unique and limited circum stance. Moreover, the RICE NESHAP already allows unlimited operation in the even t of a true emergenc y. Exelon also notes that EPA created a subcategory of non-continen tal liquid oil-fired EGUs in MATS, and if8 However, that accommodation should be permitted only for as long as necessary to take into account reasonable expectations fo r what limitations would exist over the coming capacity years. Accordingly, the allowance of 60 hours should sunset no later than May 31, 2016. This would allow sufficient time for emergency stationary RI CE that wish to continue to participate in demand response programs to install controls that will ensure those units meet the requirements for non-emergency RICE. In addition, the availabi lity of these units wi ll assist the regional transmission operators or equiva lent balancing author ities who are charged with protecting the reliability and stability of the national electric service grid during this temporary transition period. This proposal is more consistent with section 112 than the proposed Rule, and provides more than enough time for uncontrolled sources that plan to operate in conditions other than true emergencies, to install cont rols or upgrade their units. 10 A sunset provision ensures that EPA is not extending indefinitely a benefit that c ould promote the use of economic demand response rather than address true emergency need.

In the preamble to the proposed Rule, EP A suggests its proposal is motivated by a desire to avoid jeopardizing electrical reliabi lity or discouraging RICE from participating in demand resource programs when RTOs and ISOs re quire commitments to be available for more than 15 hours to participate. See 77 Fed. Reg. at 33,817. But th e existing RICE NESHAP should not harm reliability, and in fact would im prove reliability. For example, if PJM does not purchase capacity from a limited demand side resource, that capacity can be provided by a baseload generator with improved efficiency. When limited demand side resources clear the capacity market, they displace generation that is obligated to operate every day of the year, and therefore could degrade long-te rm reliability. Therefore, Exelon's proposed temporary accommodation would address the potential short- term reliability concerns of EPA without frustrating improvements and investments th at would ensure long-term reliability.

2. EPA Should Not Expand the Provisions Allowing Operation for NonEmergency Purposes to Include "Peak-Shaving" or Other NonEmergency Demand Response.

The Rule also proposes to expand the pr ovisions allowing emergency stationary RICE to operate for non-emergency purposes in two ways. First, for all stationary RICE covered by the Rule, the proposed Rule would retain the 50 hour allowance for non-emergency operation, but no longer would count against those hours an y operation as part of an emergency demand response program. Second, for existing stationa ry RICE at area sources, the Rule would temporarily (until April 16, 2017) expand th e exemption for non-emergency operation for

the Agency believes that such an approach is within its discreti on under section 112, then it could consider whether that authority is appropriate to exerci se in this Rule. See 40 C.F.R. § 63.9990-.9991; 77 Fed. Reg. 9,304, 9,368-70, 9,379 (Feb. 16, 2012).

10 NESCAUM recommends that EPA and States should identify a reasonable timeframe to phase out the oldest, most po lluting diesel engines in demand response programs, and this accommodation would support that laudable goal. See NESCAUM, Air Quality, Electricity, and Back-up Stationary Di esel Engines in the Northeast(Aug. 1, 2012) at ES5.9 existing stationary RICE at area sources, to allow operation for peak shaving and non-emergency demand response to generate income for a facility , or to otherwise supply power as part of a financial arrangement with another entity if the e ngines are operated as part of a program with the local distribution system operator and the power is provided to the facility itself or to support the local distribution system. Exelon opposes both of these revisions.

EPA does not offer a reasonable explanati on for why participation in a "demand response" program no longer should count against the 50- hour allowance for non-emergency operation. As Exelon noted, uncontrolled operation of stationary RICE, and the environmental and economic harms that accompany such operation, should only be tolerated for true emergencies. EPA's proposal only encourages more and unnecessary operation of uncontrolled diesel engines, further enhanci ng the financial incentives for these sources to participate in wholesale energy and capacity ma rkets without installing emissi ons controls. EPA's proposal lacks a reasonable basis and would be vulnerable to judicial challenge. Therefore, if EPA includes in the final Rule any accommodation for participation in emergency demand response programs, those hours should count against any allocation for non- emergency operation.

EPA also should not adopt its proposal to expand the non-emergency provisions to allow, even temporarily, operation for peak shaving and non-emergency demand response purposes. EPA has not allowed this exception before, and it was not contemplated by the settlement that, in part, led to the proposed Rule . Rather than address any valid concerns about making sure emergency stationary RICE rema in available for emergency conditions, this proposal merely provides a windfall for uncontro lled sources that have, for economic benefit, arranged to operate their uncont rolled backup generators when cal led upon, even in times that are not critical to avoiding blackout conditions. As explai ned above, purely economic demand response resources reduce capacity market price signals, and di scourage investment in more efficient, cleaner electricity resources. At th e same time, EPA's proposal is entirely unmoored from the requirements of section 112 of the Cl ean Air Act, which mandate that EPA address emissions of HAPs from listed sources such as stationary RICE thr ough the application of emission standards. EPA's proposal would allo w unnecessary emissions of harmful HAPs that could and should be avoided, without any bene fit for accommodating true emergency needs. EPA's proposal contravenes section 112 of the Clean Air Act and is unlikely to withstand judicial scrutiny.

In the preamble to the proposed Rule, EP A contends that the "peak shaving" revision would "allow the owners and operators of these engines more flexibility to run reliability critical units in order to minimize pot ential grid-related interruptions as coal- and oilfired baseload power plants may be temporarily shut down to install emissions controls to comply with [MATS]." 77 Fed. Reg. at 33,818. Yet, the Agency has not made a reasonable case that this accommodation is necessary to address the reliability problem it purportedly is intended to solve. First, EPA acknowledges that it does not anticipate grid-relat ed interruptions from implementation of MATS. See id. EPA's expectation is well founded, as many studies have concluded that MATS is not expected to impair electric reliability of the grid. 11 In the event

11 See, e.g. , Department of Energy, Adequacy Implications of Forthcoming EPA Air Quality Regulations (Dec. 2011), available at10 unexpected issues arise, EPA already has made clear in MATS that it would use the tools available under section 112 of the Clean Air Ac t to accommodate any reliability concerns, such as encouraging permitting authorities to exerci se their discretion under section 112(i)(3)(B), 42 U.S.C. § 7412(i)(3)(B), to provide an additi onal one-year extension when necessary for the installation of controls. See 77 Fed. Reg. 9,304, 9,407-9,411 (Feb. 16, 2012). The Agency also is prepared to accommodate an additional year for compliance, extending the period of time to comply with MATS until April 2017, under limited circumstances. See id. In MATS, EPA set reasonable bounds on the exercise of discreti on under section 112 to accommodate and address any local reliability impacts that , though unforeseen and unexpected, potentially might arise. In this proposed Rule, EPA undercuts that reasoned decision-making.

Second, even if reliability during the period that sources will be expected to comply with MATS was a reason able concern, EPA's explanation for its proposal makes clear that electric prices, not power availability, mo tivate the proposed change. As EPA describes, "[c]ommenters promoting the cont inued use of peak shaving progr ams said that maintaining the cost of power as low as possible is important across the country, but is particul arly of significant importance to rural electric cooperatives that, according to the commenter, service customers in the most economically depressed areas of the co untry, where options are the most limited." 77 Fed. Reg. at 33,818. That is, those supporting pe ak shaving complain that because power options are limited in certain areas, not allowing emergency stationary RICE to operate without controls for peak shaving drives up costs for co operatives and their customers. Yet because these units would be operating in non-emergency conditions, the peak shaving exception simply results in a financial windfall for uncontrolled sources without addressi ng any true emergency reliability need. Moreover, if the real problem is that limited sources of power are available in remote regions, then the accommodation EPA proposes discourages any real fix to address that concern. The Rule would allow uncontrolled, dirt ier sources to undercut new, cleaner forms of technology that might otherwise develop to meet demand in those areas. That outcome merely prolongs the reliability concern that purportedly motivates the exception.

EPA already recognizes that the justifi cations for peak shaving do not support allowing emergency stationary RICE to operate in definitely without controls. The Rule would limit the exception for peak shaving to engines at area sources and would extend that exception only until April 2017, the latest date by which all sources would have had to comply with MATS. Yet, limited as it may be, there simply is no need to add an exception for peak shaving. In fact, EPA's proposal to allow up to 100 hour s for demand response programs in emergency conditions more than accommodates any legitimate concern about reliability that motivates its proposed revision to the peak shaving rule in non-emergency periods of operation. Exelon's proposed modification to the emergency ener gy program provision—a cap on the number of hours at 60, that expires May 31, 2016—is a reas onable accommodation that addresses any legitimate reliability concern that might arise during implementation of MATS, without subsidizing non-emergency operation of uncontro lled backup sources that displace more efficient, less polluting sources that would operate more frequently or that would be built to meet any long-term demand increase.

http://energy.gov/sites/prod/files/2011%20A ir%20Quality%20Regulations%20Report 12 0111.pdf ; see also 77 Fed. Reg. 9,304, 9,407-9,411 (Feb. 16, 2012).11 C. Owners and Operators of Emergency Stationary RICE Should Notify EPA or State or Local Permitting Authorit ies if they Participate in Emergency Demand Response Programs

The Rule should ensure that all owners or operators of stationary RICE that use the exemption for energy emergency programs under this Rule notify EPA or their state or local permitting authority by the later of the effective date of the Rule or within 30 days of signing up with a demand response program that would use the exemption. To ensure transparency of these programs and to enable EPA and other stake holders to assess the air quality and other environmental impacts in the c ontext of the operation of thes e units, the notif ication should provide the following minimum information, wh ich would be publicly available: the owner/operator; the demand response program; the IS O and balancing authorit y; location; engine size, make, and model; installation date; fuel type; estimated emission rates; and emission controls, if any.

III. CONCLUSION

For the reasons set forth herein, Exel on opposes EPA's proposal to revise the RICE NESHAP to allow sources covered by the Ru le to operate for up to 100 hours per year for demand response programs, and to operate in no n-emergency situations for peak shaving and other programs that financially benefit those so urces. Exelon urges EP A to adopt the changes proposed herein when it promulgates the final rule.12 Appendix A

Contact Information

Should EPA have any questions or need further information, please contact:

William J. Donohue Associate General Counsel – Environmental, Health and Safety Exelon Corporation 2301 Market Street/S-23-1 Philadelphia, PA 19103 Direct Dial: 215.841.4417 William.Donohue@exeloncorp.com

Amy Trojecki Director – Environmental and Fuels Policy Exelon Corporation 2301 Market Street/S-23-1 Philadelphia, PA 19103 Direct Dial: 215.841.4917 Amy.Trojecki@exeloncorp.com1 | P a g e

August 9, 2012

Via Electronic Submis s ion

Air and Radiation Docket and Information Center United States Environmental Protection Agency (EPA)
Attn: Docket ID No. EPA- HQ -OAR- 2008

- 0708
Mailcode: 6102T 1200 Pennsylvania Ave, NW Washington, DC 20460

Re: Comments on Docket ID No. EPA- HQ

- OAR -2008- 0708, “National Emission Standards for Hazardous Air Pollutants for Reciprocating Internal Combustion Engines; New Source Performance Standards for Stationary Internal Combustion Engines”

Dear Docket Clerk,

The coalition of environmental and public interest organizations (Coalition) listed below respectfully submit the following comments on the above referenced docket, for inclusion
in the docket records. All documents cited to in these comments are to be incorporated into
the administrative record.

Please contact Christina Simeone at (215) 545 -2013 or at simeone@pennfuture.org if you have any questions or concerns.

Thank you,

Citizens for Pennsylvania’s Future (PennFuture)
Clean Air Council
Environmental Defense Fund Group Against Smog and Pollution
Natural Resources Defense Council PACE Law and Policy Center
Piedmont Environmental Council
Sierra Club2 | P a g e

Table of Contents Summary of Comments ................................................................................................ .................. 4

Basic Concerns................................................................ ................................................................ 5
Public Health Impacts ................................................................................................ ................. 5
Diesel Exhaust and Its Components Cause or Contribute to Significant Health and Environmental Impacts ................................

........................................................................... 5
Diesel Exhaust Has Been Classified as a Probable/Known Human Carcinogen .................... 7
Diesel Pollution is Associated with a Wide Variety of Non-Cancer Effects .......................... 8

Harmful Fine Particulate Matter is a Constituent of Diesel Exhaust .................................... 10
Components of Diesel Exhaust Contribute to Formation of Ground-Level Ozone.............. 12

Diesel Exhaust Contains More Than 600 Toxic Chemicals ................................ ................. 13
Spark-Ignition Engines Emit Harmful Criteria Pollution and Air Toxics ............................ 14
Lack of Data and Analysis ................................

........................................................................ 15
Proposal is Based on Inconsistent Conclusions and Lack of Public Input ........................... 15

EPA Lacks Basic Data ................................

.......................................................................... 16

EPA D idn’t Model Emissions Increases from DR Programs

................................ ............... 17
Lack of Environmental Justice Analysis ................................................................ ............... 18
EPA’s Economic Reasoning is Flawed

................................................................ ................. 20
Regulatory Construction ........................................................................................................... 21
Regulatory Inconsistencies ................................

................................................................... 21
EPA has Duty to Protect Public Health and the Environment .............................................. 22
No More Stringent Than ................................

....................................................................... 22
Demand Response Provisions ................................

....................................................................... 23
Emissions from Diesel RICE Units are Significant and Harmful............................................. 23
Existing Diesel RICE Units are Dirtier than Other Generation ............................................ 23
Diesel Exposures May Be Higher with Stationary Diesel Engin es

...................................... 24
Emissions Increase on the Worst Air Quality Days of the Year........................................... 25
DR Program Revenues Can Offset Pollution Control Costs ................................ ................ 26
Reliability ................................................................

.................................................................. 28
RICE Units are not Needed for Reliability and Overreliance on Them Will Harm Reliability

................................................................................................................................ ............... 28
Cleaner Alternatives Are Available to Maintain Reliability ................................ ................. 303 | P a g e

EPA is Creating a Dirty Energy Subsidy, Harming Cleaner Energy Technologies ............. 30

Remote Areas Provisions .............................................................................................................. 31
Waiving Pollution Controls for Remote RICE Will Harm Public Health ................................ 31
Background on EPA’s Proposal

................................................................ ............................ 32
EPA is Creating a Second-Class of Citizens in Rural Areas ................................ ................ 33

Unbalanced Incentives ................................

.......................................................................... 34
The Remote Stationary RICE Definition is Not Based on Relevant Factors ....................... 34
EPA is Weakening the BACT/BAT Standard by Creating a Category of Remote Stationary
RICE ................................................................

..................................................................... 35

Pollutants Will Trave l Much Farther and Have Impact Beyond EPA’s Arbitrarily Designated “Remote Areas”

................................ ................................................................. 35

Conclusion and Recommendations ................................ ............................................................... 364 | P a g e

Summary of Comments The Coalition has deep concerns with EPA’s proposal to allow emergency stationary reciprocating internal combustion engines (RICE) to increase participation in emergency demand response and peak shaving programs (collectively referred to as demand response, herein) without installing pollution controls, and to waive pollution control requirements for spark ignition (SI) RICE units located in remote areas.

Diesel exhaust from compression ignition (CI) RICE units is hazardous to human health and
the environment. Diesel exhaust has been classified as a probable and /or known human carcinogen and has a wide variety of non-cancer effects. Diesel exhaust contains over 600
toxic chemicals and contributes to particulate matter and ozone pollution. Spark ignition (SI) RICE units emit harmful criteria and toxic air pollution, contributing to ambient ozone and carbon monoxide levels and putting public health at risk. The negative public health and environmental implications of increasing the use of uncontrolled CI and SI RICE units in demand response (DR) programs and SI RICE in remote areas are significant. Moreover, EPA proposed these provisions in the absence of basic data and reasonable analysis, indicating the proposal is not only capricious, but also arbitrary.

EPA’s proposal creates regulatory inconsistencies that may inhibit states from meeting other compliance obligations required by the agency. The proposal also seems contradictory to several established EPA practices regarding examination of scientific evidence, aggregation of emissions sources, emissions modeling, permitting and requirements for environmental justice analysis.

Demand response programs are economic in nature. Revenues generated by participation in these programs are sufficient to fund the cost of pollution controls and other compliance activities. There is no justification for waiving pollution control requirements in order for RICE units to participate in DR programs. RICE units can meet modern pollution control requirements cost-effectively and without compromising availability. EPA’s proposed pollution control exemptions will promote the continued operation of inferior, dirty RICE units with no basis in fact. In addition, the proposed policy will create a competitive disadvantage for curtailment, cleaner DR and other resources, and discoura ge investments into cleaner generation. EPA should send clear signals to the market that will promote reliability while protecting public health.

EPA is also proposing to create an exemption from pollution control requirements for a new category of stationary SI RICE located in remote areas. Existing SI engines are currently responsible for more than 1 million tons per year of NOx pollution, and more5 | P a g e

than 75% of those emissions come from area sources. 1 EPA has arbitrarily established this proposed exemption. The proximity-based definitions used are not relevant to protection from harmful air pollution, a system of identifying and enforcing the weaker management practices recommended as alternatives to pollution controls are absent, and the Agency has failed to provide evidence that the exemptions will not result in disparate and negative impacts to certain rural populations.

The Coalition recommends EPA require pollution controls as a condition of participation in

any and all DR programs . EPA should also eliminate its proposal to exempt pollution controls for RICE located in remote areas. Installation of pollution controls should be a requirement for operation of these units, regardless of their location. Due to lack of available data, which impairs the Agency’s ability to understand public health impacts and to enforce its regulations, EPA should require registration and submission of specificinformation for all new and existing, emergency and non-emergency, and rurally or nonrurally sited RICE units.

Basic Concerns
The Coalition has several broad concerns about EPA’s proposed rule, which center around public health impacts

, harmful emissions increases, lack of data and analysis to support EPA’s assertions that the public will not be harmed by its proposal

, and the myriad issues created by this proposal with respect to regulatory construction and consistency.

Public Health Impacts EPA’s proposal would allow additional emissions of toxic and criteria pollution from sparkignition (SI) and compression-ignition (CI) RICE units that are harmful to human health and the environment. Diesel air pollution, which is emitted by CI engines, was recently determined to be a human carcinogen by the World Health Organization. 2 SI engines emit smog-forming nitrogen oxides (NOx), harmful carbon monoxide (CO) and non-methane hydrocarbons (NMHC), which contribute to ozone and contain air toxics known to be carcinogenic. The sheer nature of and potential damage from these pollutants warrants rejecting any exemptions for stationary RICE units.

Diesel Exhaust and Its Components Cause or Contribute to Significant Health and Environmental Impacts Stationary CI diesel engines are used for a variety of applications such as compressors, cranes, pumps (including agricultural irrigation pumps) and generators. EPA estimated in the 2008 advance notice for existing engines that there are 900,000 existing CI diesel

1 EPA, “ Regulatory Impact Analysis (RIA) for Existing Stationary Reciprocating Internal Combustion Engines (RICE) NESHAP ,” (2009); Table 4-10, Page 4-50.

2 World Health Organization news release at: http://press.iarc.fr/pr213_E.pdf6 | P a g e

RICE. 3 The exhaust emitted from diesel engines is among the most dangerous and pervasive sources of air pollution. Its components include particulate matter implicated ina host of respiratory problems and thousands of premature deaths every year; smogforming oxides of nitrogen; sulfur dioxide, which forms harmful fine particles and falls back to earth as acid rain; and a noxious brew of toxic chemicals that together pose a cancer risk greater than that of any other air pollutant.

 Diesel air pollution adds to cancer risk all around the country. In many counties across the country, diesel emissions are the hazardous air pollutant with the highest contribution to cancer risk. For example, in the Seattle area, diesel soot accounts for
somewhere between 70-85% of the total cancer risk from all air toxics. 4 And in the
South Coast Air Basin, which includes Los Angeles, diesel exhaust contributes about
84% of the cancer risk from air toxics. 5 New Jersey ranks diesel exhaust particulate matter as having the greatest relative cancer risk state-wide among air toxics. 6 In the San Joaquin Valley, diesel pollution caused more than 250 premature deaths in

2004. 7 In California, diesel pollution leads to roughly 6,500 cardiopulmonary deaths

per year. 8

 Because diesel air pollution is a complex mixture of chemicals, exposure to diesel air pollution is considered to contribute to a wide range of non-cancer health effects, including pulmonary disease, cardiovascular effects, neurotoxicity, low birth weight in infants, premature births, congenital abnormalities, and elevated infant mortality

rates. 9

 Diesel air pollution is a major source of harmful fine particles. Particulate matter, or

soot, can aggravate respiratory conditions such as asthma and chronic bronchitis and has been associated with cardiac arrhythmias (heartbeat irregularities), heart attacks and premature deaths. People with heart or lung disease; the elderly; and children are at highest risk from exposure to particulate pollution. 10 EPA has

propos ed to strengthen the National Ambient Air Quality Standards (NAAQS) for particulate matter to better protect human health. 11 The proposal comes almost

3 73 Fed. Reg. (January 24, 2008) at 4141.

4 Puget Sound Clean Air Agency, “Final Report: Puget Sound Air Toxics Evaluation,” Octob er 2003. http://www.pscleanair.org/airq/basics/psate_final.pdf

5 South Coast Air Quality Management District, “Final Report: MATES III,” September 2008. http://www.aqmd.gov/prdas/matesIII/MATESIIIFinalReportSept2008.html

6 New Jersey Department of Environmental Protection, “ Air Toxics in New Jersey: Diesel Emissions ,” 2011. http://www.nj.gov/dep/airtoxics/diesemis.htm

7 Anair, D. and P. Monahan. 2004. Sick of Soot: Reducing the Health Impacts of Diesel Pollution in California. Cambridge, MA: Union of Concerned Scientists. June.

8 California Air Resources Board, Online technical information supplied for the 2010 amendments to the diesel truck and bus regulation. http://www.arb.ca.gov/msprog/onrdiesel/ab1085compliance.htm (see information on direct PM and indirect PM formed from NOx in the Public Health Impact Data tab of the spreadsheet.)

9 Krivoshto IN, Richards JR, Albertson TE, Derlet RW. 2008. The Toxicity of Diesel Exhaust: Implications for Primary Care. J Am Board Fam Med. 21:55

–

62.

10 American Lung Association. 2000. Particulate Matter: Nature and Sources of the Pollutant. Accessed online at http://www.lungusa.org/site/pp.asp?c=dvLUK9O0E&b=35356

11 77 Fed. Reg. (June 29, 2012) at 388890.7 | P a g e

three years after the D.C. Circuit Court remanded the 2006 standards back to EPA to correct deficiencies identified by the Court. 12

 Diesel air pollution contributes to harmful ozone and smog levels. High ozone levels

cause acute respiratory problems, aggravated asthma, decreased lung function, inflammation of lung tissue, an increase in hospital admissions and emergency room visits for respiratory causes, and crop damage. 13 Children with asthma are most at risk. Ozone is also associated with premature death. 14 The EPA’s science advisors have repeatedly and unanimously called for protective ozone standards, as have the nation’s leading medical and health organizations, including the American Lung Association, American Thoracic Society, American Academy of Pediatrics, American Public Health Association, American Heart Association, and American Medical Association. In 2011, the Obama Administration rejected stronger ozone standards that scientists say are needed to save lives and prevent thousands of hospital visits.

 Diesel exhaust contains more than 600 toxic chemicals, many associated with increased risk of a variety of cancers. 15

 Diesel air pollution impairs visibility. The same fine particles that have adverse
health effects cause the haze that pollutes scenic vistas in our treasured National Parks, which about 280 million people visited in 2011. 16

 Diesel air pollution threatens ecosystems across the country. The constituents of
diesel exhaust contribute to the acid rain that continues to harm sensitive ecosystems in the Adirondack Mountains, southern Appalachians and high elevation ecosystems in the western United States. 17

Diesel Exhaust Has Been Classified as a Probable/Known Human Carcinogen
The Wo rld Health Organization and the State of California have both classified diesel exhaust as a known human carcinogen. 18 The U.S. Environmental Protection Agency has determined that diesel exhaust is a probable or likely human carcinogen. 19 In addition to these assessments of diesel exhaust as a mixture of pollutants, fifteen of the individual

12 Am. Farm Bureau Fed’n v. EPA , 559 F.3d 512, 528 and 531 (D.C. Cir. 2009).

13 EPA Health Effects, http://www.epa.gov/air/ozonepollution/health.html

14 Bell ML, Peng RD, Dominici F. 2006. The exposure-response curve for ozone and risk of mortality and the adequacy of current ozone regulations. Environ Health Perspect. 114(4):532-536. Bell ML, McDermott A, Zeger SL, Samet JM, Dominici F. 2004. Ozone and short-term mortality in 95 US urban communities, 1987-2000. JAMA. 292(19):2372-2378. Levy JI, Chemerynsk i SM, Sarnat JA. 2005. Ozone exposure and mortality: an empiric bayes metaregression analysis,” Epidemiol. 16(4):458

- 468.

15 Vineis P, Husgafvel-Pursiainen K. 2005. Air pollution and cancer: biomarker studies in human populations. Carcinogenesis. 26:1846-1855. Rybicki BA, Neslund-Dudas C, Nock NL, Schultz LR, Eklund L, Rosbolt J, Bock CH, Monaghan KG. 2006. Prostate cancer risk from occupational exposure to polycyclic aromatic hydrocarbons interacting with the GSTP1 Ile105Val polymorphism. Cancer Detect Prev. 30:412- 422.

16 National Park Service, http://www2.nature.nps.gov/stats/viewReport.cfm.

17 EPA, “Our Nation’s Air: Status and Trends through 2008,” February 2010.

18 http://www.who.int/bulletin/volumes/90/7/12-010712/en/

19 U.S. Environmental Protection Agency. 2002. Health assessment document for diesel engine exhaust. May 2002. National Center for Environmental Assessment - Office of Research and Development. Washington, DC. EPA/600/8-90/057F. Available from http://www.epa.gov/iris8 | P a g e

components of diesel exhaust have also been linked to cancer. 20 The American Cancer Society cohort study has identified an association between exposure to fine particles, sulfates and lung cancer. 21 Many other compounds associated with increased cancer risks, such as benzene, 1,3-butadiene, chromium and formaldehyde, are found in diesel exhaust.

Although EPA acknowledges that diesel exhaust is a complex mixture of over 600 compounds or elements including several known carcinogens (e.g., benzene and 1,3- butadiene), 22 and is in fact likely to be carcinogenic by inhalation, 23 the agency maintains that a zero risk for cancer cannot be ruled out, 24 and uses this argument, along with the uncertainty around actual risk levels to decline to quantitatively assess human cancer risk. The Agency’s failure to quantify a unit cancer risk for diesel exhaust is inconsistent with the extensive body of science that is in fact demonstrating such risk. The fact there is uncertainty involved in quantifying the dose-response relationship does not in any way mean that rigorous and quantified cancer risk analyses cannot be produced. In fact, uncertainty is a component of every risk assessment, and although there is room for improvement, there are multiple approaches available to describe and even quantify uncertainty. 25 EPA should move forward and quantify the number of cancer cases associated with exposure to diesel exhaust, as this is imperative to better assess the full health effects of diesel emissions, as well as the benefits of reducing these emissions.

Once EPA has quantified the number of cancer cases associated with diesel exhaust, the full assessment of health effects and benefits will be able to more completely account for the advances in diesel engines and the impact of advanced technologies in reducing or altering
cancer risk.

Diesel Pollution is Associated with a Wide Variety of Non-Cancer Effects Occupational exposure to diesel exhaust emissions is linked to increased heart disease and heart disease-related mortality. 26 Acute exposure to diesel exhaust has been associated

20 Diesel exhaust contains the following toxic constituents: acetaldehyde, acrolein, aniline, antimony compounds, arsenic, benzene, beryllium compounds, biphenyl, bis[2-ethylhexyl]phthalate, 1,3-butadiene, cadmium, chlorine, chlorobenzene, chromium compounds, cobalt compounds, cresol isomers, cyanide compounds, dioxins and dibenzofurans, dibutylphthalate, ethyl benzene, formaldehyde, hexane, inorganic lead, manganese compounds, mercury compounds, methanol, methyl ethyl ketone, naphthalene, nickel, 4-nitrobiphenyl, phenol, phosphorus, POM including PAHs and their derivatives, propionaldehyde, selenium compounds, styrene, toluene, xylenes. http://www.oehha.ca.gov/public_info/facts/dieselfacts.html http://www.oehha.ca.gov/air/toxic_contaminants/html/Diesel%20Exhaust.htm

21 Pope CA 3rd, Burnett RT, Thun MJ, Calle EE, Krewski D, Ito K, Thurston GD. 2002. Lung cancer, cardiopulmonary mortality, and long-term exposure to fine particulate air pollution. JAMA. 287(9):1132

- 41.

22 73 Fed. Reg. 4136, page 4139

23 73 Fed. Reg. 4136, page 4138

24 Ibid.

25 National Research Council. 2008. Science and Decisions: Advancing Risk Assessment. Committee on Improving Risk Analysis Approaches Used by the U.S. EPA, National Research Council. ISBN: 0-309-12047-0, Washington DC: the National Academies Press. http://www.nap.edu/catalog/12209.html

26 Finkelstein MM, Verma DK, Sahai D, Stefov E. 2004. Ischemic heart disease mortality among heavy equipment operators. Am. J. Ind. Med. 46(1):16-22. Alfredsson L, Hammar N, Hogstedt C. 1993. Incidence of myocardial infarction and mortality from specific causes among bus drivers in Sweden. Int J Epidemiol 22:57

– 61.9 | P a g e

with vascular dysfunction, including ST-segment depression, the release of endothelial tissue plasminogen activator, ischemic heart disease, and the onset of myocardial
infarction. 27 Chronic exposure to PM 2.5 – a prominent constituent of diesel exhaust - has been associated with progression of atherosclerosis, 28 and increased risk of cardiovascular death in postmenopausal women. 29 People with pre-existing conditions as diverse as cardiac arrhythmias 30 and diabetes 31 may be more sensitive to diesel pollution constituentinduced cardiotoxicity. Several studies have identified a link between hypertension and exposure to diesel exhaust and its constituents. 32

There is also evidence for an association between exposure to diesel exhaust, or its constituents, and neurotoxicity. The results of animal studies have helped to elucidate mechanisms by which inhaled particles can reach the brain 33 and one study has demonstrated decrements in the number of dopaminergic neurons in mice exposed to diesel exhaust particles. 34 Another study evaluated brain lesions associated with different fractions of diesel exhaust, noting that PAH-rich fractions were associated with the most
dramatic lesions. 35 Epidemiological studies have documented an association between occupational exposure to diesel and a suite of neurological effects, 36 and children chronically exposed to traffic-related air pollution score lower on tests of cognitive function, after adjusting for age at cognitive assessment, gender, race/ethnicity, and maternal education and controlling for known confounders including exposure to tobacco smoke, blood lead levels and birth weight. 37

Rosengren A, Anderson K,Wilhelmsen L. 1991. Risk of coronary heart disease in middle-aged male bus and tram drivers compared to men in other occupations: A prospective study. Int J Epidemiol 20:82

– 87.

27 Mills NL, Tornqvist H, Gonzalez MC, et al. 2007. Ischemic and thrombotic effects of dilute diesel-exhaust inhalation in men with coronary heart disease. N Engl J Med. 357:1075

– 1082. Mills NL, Tornqvist H, Robinson SD, Gonzalez M, Darnley K, MacNee W, Boon NA, Donaldson K, Blomberg A, Sandstrom T, Newby DE. 2005. Diesel Exhaust Inhalation Causes Vascular Dysfunction and Impaired Endogenous Fibrinolysis. Circulation. 112;3930-3936.

28 Suwa T, Hogg JC, Quinlan KB, Ohgami A, Vincent R, Van Eeden SF. 2002. Particulate air pollution induces progression of atherosclerosis. J Am Coll Cardiol. 39:935

– 42.

29 Miller KA, Siscovick DS, Sheppard L, et al. 2007. Longterm exposure to air pollution and incidence of cardiovascular events in women. N Engl J Med. 356:447

–

458.

30 Peters A, Liu E, Verrier RL. 2000. Air pollution and incidence of cardiac arrhythmia. Epidemiology. 11:11

– 17.

31 Zanobetti A, Schwartz J. 2002. Cardiovascular damage by airborne particles: are diabetics more susceptible? Epidemiology. 13:588

– 592.

32 Lee WJ, Baris D, Jarvholm B, Silverman DT, Bergdahl IA, Blair A. 2003. Multiple myeloma and diesel and other occupational exposures in Swedish construction workers. Int J Cancer. 107:134

– 138. Brook RD, Brook JR, Urch B, et al. 2002. Inhalation of fine particulate air pollution and ozone causes acute arterial vasoconstriction in healthy adults. Circulation. 105:1534

– 1536. Ibald-Mulli A, Stieber J, Wichmann HE, Koenig W, Peters A. 2001. Effects of air pollution on blood pressure: a population-based approach. Am J Public Health. 91:571

– 577. de Paula Santos U, Braga AL, Giorgi DM, et al. 2005. Effects of air pollution on blood pressure and heart rate variability: a panel study of vehicular traffic controllers in the city of Sao Paulo, Brazil. Eur Heart J. 26:193

– 200. Zanobetti A, Canner MJ, Stone PH, et al. 2004. Ambient pollution and blood pressure in cardiac rehabilitation patients Circulation. 110:2184

– 2189.

33 Oberdorster G, Sharp Z, Atudorei V, et al. 2004. Translocation of inhaled ultrafine particles to the brain. Inhal Toxicol. 16:437

– 445. Elder A, Gelein R, Silva V, et al. 2006. Translocation of inhaled ultrafine manganese oxide particles to the central nervous system. Environ Health Perspect. 114:1172

– 1178.

34 Block ML, Wu X, Pei Z, et al. 2004. Nanometer size diesel exhaust particles are selectively toxic to dopaminergic neurons: the role of microglia, phagocytosis, and NADPH oxidase. FASEB J. 18:1618

– 1620

35 Andersson H, Lindqvist E, Westerholm R, Grägg K, Almén J, Olson L. 1998. Neurotoxic effects of fractionated diesel exhausts following microinjections in rat hippocampus and striatum. Environ Res. 76(1):41-51.

36 Kilburn KH. 2000. Effects of diesel exhaust on neurobehavioral and pulmonary functions. Arch Environ Health. 55:11

– 17.

37 Suglia SF, Gryparis A, Wright AO, Schwartz J, Wright RJ. 2007. Association of Black Carbon with Cognition among Children in a Prospective Birth Cohort Study. Am J. Epidem. 167:280

– 286.10 | P a g e

While several studies have explored the association between air pollution and low birth weight, 38 congenital abnormalities, 39 and infant mortality rates, 40 some studies have focused on a direct link between diesel exhaust particles and decreased fertility in humans, 41 animal 42 and in vitro models. 43 Diesel exhaust is widely regarded as a dangerous pollutant impacting hundreds of thousands of people, with health hazards posed by the diesel exhaust mixture as a whole, as well as individual constituents such as fine particulate.

Harmful Fine Particulate Matter is a Constituent of Diesel Exhaust Particulate pollution , often called “soot”, is a mixture of directly emitted particles (soot ), and tiny “secondary” particles formed in the atmosphere from sulfur dioxide (SO 2 ), nitrogen oxides (NOx) and ammonia (NH 3 ). The smallest particles are the most dangerous (particularly those less than 2.5 microns in diameter), as they are easily inhaled and reach deep into the lungs where they can trigger an inflammatory response. Breathing in air heavy with tiny particles can be dangerous even over a short time. The smallest particles, those less than around 0.1 microns, can enter the circulatory system and damage blood vessels. Children are especially vulnerable because their lungs are still developing. 44

A major constituent of diesel emissions, fine particulate matter ( PM 2.5 ) is associated with a host of adverse health effects, lung function, allergic responses, chronic obstructive pulmonary disease, lung cancer, and both acute and chronic cardiovascular effects. 45 Current ambient concentrations of particulate matter are considered a health risk in many locations throughout the country. 46 As with other diesel engines, stationary diesel engines

38 Parker JD, Woodruff TJ, Basu R, Schoendorf KC. 2005. Air pollution and birth weight among term infants in California. Pediatrics. 115:121

– 8.

39 Dolk H, Vrijheid M. 2003. The impact of environmental pollution on congenital anomalies. Br Med Bull. 68:25

– 45.

40 Glinianaia SV, Rankin J, Bell R, Pless-Mulloli T, Howel D. 2004. Does particulate air pollution contribute to infant death? A systematic review. Environ Health Perspect. 112:1365

– 71.

41 Fredricsson B, Moller L, Pousette A, Westerholm R. 1993. Human sperm motility is affected by plasticizers and diesel particle extracts. Pharmacol Toxicol. 72:128

– 33.

42 Watanabe N. 2005. Decreased number of sperms and Sertoli cells in mature rats exposed to diesel exhaust as fetuses. Toxicol. 155:51

– 8.

43 Taneda S, Mori Y, Kamata K, et al. 2004. Estrogenic and anti-androgenic activity of nitrophenols in diesel exhaust particles (DEP). Biol Pharm Bull. 27:835

– 7. Li C, Taneda S, Suzuki AK, Furuta C, Watanabe G, Taya K. 2006. Estrogenic and anti-androgenic activities of 4-nitrophenol in diesel exhaust particles. Toxicol Appl Pharmacol. 217:1

– 6.

44 US Environmental Protection Agency. 20 12 . Regulatory Impact Analysis for the Proposed Revisions to the National Ambient Air Quality Standards for Particulate Matter. Available at http://www.epa.gov/ttnecas1/regdata/RIAs/PMRIACombinedFile_Bookmarked.pdf

45 Alfaro

- Moreno E, Nawrot TS, Nemmar A, Nemery B. (2007) Particulate matter in the environment: pulmonary and cardiovascular effects. Curr. Opin. Pulm. Med. 13:98

- 106. Peters A, Dockery DW, Muller JE, Mittleman MA. 2001. Increased particulate air pollution and the triggering of myocardial infarction. Circulation. 103:2810

– 2815. Peters A, von Klot S, Heier M, et al. 2004. Cooperative Health Research in the Region of Augsburg Study Group. Exposure to traffic and the onset of myocardial infarction. N Engl J Med. 351:1721

– 1730.

46 EPA, Area Designations for 2006 Fine Particle (PM2.5) Standards. http://www.epa.gov/pmdesignations/2006standards/index.htm11 | P a g e

emit substantial quantities of PM 2.5 , which contribute to significant health risks. 47 PM toxicity may be attri buted to the particle’s physical presence in biological tissues, its chemical constituents, included chemicals adsorbed on the particle, or a combination of
these factors. 48

The consistency of the data on PM 2.5 makes it possible to quantify the health be nefits to reducing this type of pollution for a suite of health indicators, including: premature mortality, bronchitis, hospital admissions for both respiratory and cardiovascular events, emergency room visits for asthma, nonfatal heart attacks, lower and upper respiratory illness, minor restricted-activity days, work loss days, asthma exacerbations, respiratory symptoms (asthmatic population), and infant mortality. 49

According to EPA’s Regulatory Impact Assessment (RIA) released in June 2012 in parallel
with the proposed revisions to the PM 2.5 NAAQS, the accumulation of published studies serve to strengthen the case for an association between PM exposure and respiratory inflammation and infection leading to premature mortality in children under 5 years of

age. 50 In this document, EPA cites the findings of the Science Advisory Board

– Health Effects Subcommittee (SAB-HES), 51 which in turn references numerous corroborating studies linking PM exposure to numerous adverse health outcomes. The R IA also cites a study by Woodruff et al. that continues to find associations between PM 2.5 and infant mortality. 52

With the publication of numerous studies involving the collection of data over an extended period of time, including Laden and colleagues, 53 Gauderman and colleagues, 54 Brauer and colleagues, 55 and Krewski and colleagues, 56 the evidence linking particulate matter with premature mortality, significant lung damage, and other significant adverse health effects is strong. The extended observational period of these studies, combined with more

47 California Air Resources Board. 2003. Staff Report: Initial Statement of Reasons for Proposed Rulemaking, Airborne Toxic Control Measure for Stationary Compression Ignition Engines. Stationary Source Division Emissions Assessment Branch, September 2003. Page 2 4

– 29 and 49

– 55.

48 Schlesinger RB, Kunzli N, Hidy GM, Gotschi T, Jerrett M. 2006. The health relevance of ambient particulate matter characteristics: coherence of toxicological and epidemiological inferences. Inhal. Toxicol. 18:95-125.

49 Ibid.

50 US Environmental Protection Agency. 20 12 . Regulatory Impact Analysis for the Proposed Revisions to the National Ambient Air Quality Standards for Particulate Matter. Available at http://www.epa.gov/ttnecas1/regdata/RIAs/PMRIACombinedFile_Bookmarked.pdf

51 EPA-SAB-COUNCIL_ADV_04- 002. March 2004. Advisory on Plans for Health Effects Analysis in the Analytical Plan for EPA’s Second Prospective Analysis

–

Benefits and Costs of the Clean Air Act, 1990-2020: Advisory by the Health Effects Subcommittee of the Advisory Council on Clean Air Compliance Analysis.

52 Woodruff TJ, Parker JD, Schoendorf KC. 2006. “Fine particulate matter (PM2.5) air pollution and selected causes of post-neonatal infant mortality in California.” Environmental Health Perspectives 114(5):786-90.

53 Laden F, Schwartz J, Speizer FE, Dockery DW. 2006. Reduction in fine particulate air pollution and mortality extended follow-up of the Harvard Six Cities Study. Am. J. Respir. Crit. Care Med. 173:667

– 672.

54 Gauderman WJ, Vora H, McConnell R, Berhane K, Gilliland F, Thomas D, Lurmann F, Avol E, Kunzli N, Jerrett M, Peters J. 2007. Effect of exposure to traffic on lung development from 10 to 18 years of age: a cohort study. Lancet. 369(9561):571-577.

55 Brauer M, Hoek G, Smit HA, de Jongste JC, Gerritsen1 J, Postmae DS, Kerkhof M, Brunekreef B. 2007. Air pollution and development of asthma, allergy and infections in a birth cohort. Eur. Resp. J. 29: 879

– 888.

56 Krewski et. al. 2009. Extended Follow-Up and Spatial Analysis of the American Cancer Society Study Linking Particulate Air Pollution and Mortality. Health Effects Institute, Research Report 140.12 | P a g e

sophisticated exposure assessments continue to strengthen the evidence that particulate matter poses a significant health threat at current levels of exposure. A study released in 2012 as a follow up to the Harvard Six Cities Study reaffirmed the association of particulate pollution exposure to increased risk of premature mortality. The study found that every increase of 10 micrograms per cubic meter in fine particulate pollution was associated with
a 14% increased risk of “all

- cause” mortality, a 26% increase in cardiovascular death, and a 37% increase in lung cancer death. 57

In light of this overwhelming scientific evidence, the Clean Air Scientific Advisory Committee, EPA’s independent science advisors, concluded that the current PM standards do not protect human health. 58 The American Thoracic Society, the American Academy of Pediatrics, the American Medical Association, the American Public Health Association and others have all called for more protective particulate matter standards. We look forward to EPA finalizing strong health-protective PM NAAQS standards in December 2012.

Components of Diesel Exhaust Contribute to Formation of Ground-Level Ozone Ground-level ozone (O3) pollution, often referred to as smog, is formed by the reaction of volatile organic compounds (VOCs) and nitrogen oxides (NOx) in the atmosphere in the presence of heat and sunlight. The highest levels of ozone are produced when both VOC and

NOx emissions are present in significant quantities on clear summer days. The 2007 Air Quality Criteria Document for ozone confirms that the adverse effects of ozone are noncontroversial and compelling; tropospheric O3 at the surface can also exert adverse effects on humans, nonhuman animal species, and vegetation. 59 Adverse effects that have been observed in controlled exposure and field/panel studies include respiratory effects (e.g., reduced pulmonary function), among both healthy and asthmatic children and adults exposed acutely for 1

– 8 hours to 0.08 ppm ozone while physically active. 60 More recent studies indicate that sensitive individuals are affected at concentrations substantially below 0.08 ppm. 61 Also, laboratory animal studies have boosted the biological plausibility of other adverse outcomes identified in human epidemiological studies, including cardiovascular effects and mortality, and provide a mechanistic understanding for accepted adverse outcomes related to pulmonary function.

57 Lepeule, J. et al. Environmental Health Perspectives, “Chronic Exposure to Fine Particles and Mortality: An Extended Follow -up of the Harvard Six Cities Study from 1974 to 2009,” 120(7) July 2012.

58 Letter from CASAC to Administrator Johnson, “ Clean Air Scientific Advisory Committee Recommendations Concerning the Final National Ambient Air Quality Standards for Particulate Matter ,” September 9, 2006.

59 U.S. EPA. 2006. Air Quality Criteria for Ozone and Related Photochemical Oxidants. National Center for Environmental Assessment-RTP Office. Office of Research and Development. February 2006. EPA 600/R-05/004aF.

60 Ibid.

61 Ibid.13 | P a g e

A study by Bell and colleagues 62 examined the concentration-response curve for the ozonemortality relationship. Using data from 98 urban communities, Bell found “strong and consistent evidence” that ozone exposure is associated with premature mortality. This
data demonstrates the need to reduce ozone levels below the 75 ppb ozone NAAQS issued in March 2008. Despite EPA’s science advisors’ repeated and unanimous calls for protective ozone standards, together with the nation’s leading medical and health organizations, including the American Lung Association, American Thoracic Society, American Academy of Pediatrics, American Public Health Association, American Heart Association, and American Medical Association, the Obama Administration rejected stronger ozone standards. Strengthening the standards to 60 ppb would have saved up to 12,000 lives every year, prevented 58,000 asthma attacks and avoided 21,000 hospital and emergency room visits, according to the EPA estimates. 63

Diesel Exhaust Contains More Than 600 Toxic Chemicals Dozens of toxic air contaminants are found in diesel exhaust, many of which are known or suspected to cause cancer, like benzene, 1,3 butadiene, and polycyclic aromatic hydrocarbons (PAHs). In addition to increasing the risk of adverse pulmonary effects, 64
diesel exhaust is a known human carcinogen (see above). Diesel constituents such as benzene and 1,3-butadiene are well-characterized human carcinogens, associated with increased risk of leukemias and lymphomas. 65 Other constituents, such as a broad array of polycyclic aromatic hydrocarbons, are genotoxic and form DNA adducts that have been associated with increased risk of a variety of cancers, including lung 66 and prostate. 67 Recent investigations have explored the hormone-modulating capability of nitrophenol

constituents. 68 As noted in the Advance Notice for existing stationary engines, “ EPA has
concluded that diesel exhaust ranks with the other air toxic substances that the national-scale assessment suggests pose the greatest relative risk”. 69 In fact, Jerret (2007) suggests that

62 Bell ML, Peng RD, Dominici F. 2006. The exposure-response curve for ozone and risk of mortality and the adequacy of current ozone regulations. Environ. Health Perspect. 114:532-536.

63 http://www.edf.org/news/groups-sue-obama-administration-scrapping-stronger-ozone-standards

64 Peden DB. 2002. Pollutants and asthma: role of air toxics. Environ. Health Perspect. 110:565-568. Delfino RJ. 2002. Epidemiologic evidence for asthma and exposure to air toxics: linkages between occupational, indoor, and community air pollution research. 110:573-589.

65 Melnick RL, Huff JE. 1993. 1,3-Butadiene induces cancer in experimental animals at all concentrations from 6.25 to 8000 parts per million. IARC Sci. Publ. 309-322. National Toxicology Program (NTP). 1993. NTP Toxicology and Carcinogenesis Studies of 1,3-Butadiene (CAS No. 106- 99 -0) in B6C3F1 Mice (Inhalation Studies). 434:1-389. Snyder R. 2002. Benzene and leukemia. Crit. Rev. Toxicol. 32:155-210 Smith MT, Jones RM, Smith AH. 2007. Benzene exposure and risk of non-Hodgkin lymphoma. Cancer Epidem. Biomark. Prev. 16:385-391.

66 Vineis P, Husgafvel-Pursiainen K. 2005. Air pollution and cancer: biomarker studies in human populations. Carcinogenesis. 26:1846-1855.

67 Rybicki BA, Neslund-Dudas C, Nock NL, Schultz LR, Eklund L, Rosbolt J, Bock CH, Monaghan KG. 2006. Prostate cancer risk from occupational exposure to polycyclic aromatic hydrocarbons interacting with the GSTP1 Ile105Val polymorphism. Cancer Detect Prev. 30:412- 422.

68 Taneda S, Mori Y, Kamata K, et al. 2004. Estrogenic and anti-androgenic activity of nitrophenols in diesel exhaust particles (DEP). Biol Pharm Bull. 27:835

– 7. Li C, Taneda S, Suzuki AK, Furuta C, Watanabe G, Taya K. 2006. Estrogenic and anti-androgenic activities of 4-nitrophenol in diesel exhaust particles. Toxicol Appl Pharmacol. 217:1

– 6.

69 Emission Standards for Stationary Diesel Engines, 73 Fed. Reg. 4136, page 4138. (2008)14 | P a g e

unmeasured pollutants may have a significant contribution on adverse health effects 70

. Therefore it is very likely that significant health benefits will accrue with reduced diesel emissions beyond what is measurable in any current regulatory efforts.

Diesel emissions are a complex mixture of gases and solids. Hazardous air pollutants, regulated under CAA section 112, can take the form of both gases and solid particles. The metallic HAPs found in diesel emissions are always in the particle state and many of the semi-volatile HAPs can also change into a particle form or condense on to other particles. EPA has stated that stationary diesel engines emit significant amounts of PAHs, which adhere to particles, and Sobus et al have suggested that the PAHs naphthalene and phenanthrene could actually serve as useful surrogates for diesel emissions

concentrations. 71 PAHs comprise a group of chemicals that vary in potency although many PAHs are mutagenic. 72 EPA has not yet completed a toxicological review for mixtures of PAHs, but has assessed certain individual PAHs, such as naphthalene (reference concentration = 0.003 mg/m 3 , based on hyperplasia and metaplasia in respiratory and olfactory epithelium, respectively; classified as a possible human carcinogen), and benz[a]anthracene, benzo[b]fluoranthene and benzo [a]pyrene (all considered probable human carcinogen). Courter et al. (2008) investigated the potency of a mixture of PAHs found in diesel exhaust and found that certain combinations of potent PAHs increased tumorigenicity. 73 PAHs can form DNA adducts, which serve as biomarkers of human

exposure, 74 and since DNA adducts can lead to DNA damage these biomarkers could also be
indicators of health risks as well.

Spark-Ignition Engines Emit Harmful Criteria Pollution and Air Toxics Uncontrolled SI RICE units emit high levels of NOx, CO and NMHCs. As described above,

NOx is a precursor to ozone formation. Exposure to ozone has been linked to health and welfare impacts including impaired respiratory function and irritation of the lungs, and has also been associated with premature mortality

. In EPA’s 2006 proposed NSPS for SI engines, the Agency stated, “Nitrogen oxides are one of the major pollutants emitted from stationary ICE and stationary ICE are considered to cause or contribute significantly to
nationwide releases of NOX emissions.” 75 Nitrogen oxides are also a major precursor for PM, which is associated with premature mortality and a number of serious adverse

70 Jerrett M. 2007. Does traffic-related air pollution contribute to respiratory disease formation in children? Europ. Resp. Journal. 29:825-826.

71 Sobus JR, Pleil JD, Madden MC, Funk WE, Hubbard HF, Rappaport SM. 2008. Identification of surrogate measures of diesel exhaust exposure in a controlled chamber study. Environ Sci Technol. 42(23):8822- 8.

72 IARC (International Agency for Research on Cancer). 1989. Occupational exposures in petroleum refining; crude oil and major petroleum fuels. In: IARC monographs on the evaluation of carcinogenic risk to humans, vol. 45. Lyon: IARCPress.

73 Courter LA, Luch A, Musafia-Jeknic T, Arlt VM, Fischer K, Bildfell R, Pereira C, Phillips DH, Poirier MC, Baird WM. 2008. The influence of diesel exhaust on polycyclic aromatic hydrocarbon-induced DNA damage, gene expression, and tumor initiation in Sencar mice in vivo. Cancer Lett. 265(1):135-47.

74 Godschalk RW

, Van Schooten FJ

, Bartsch H . 2003 A critical evaluation of DNA adducts as biological markers for human exposure to polycyclic aromatic compounds. J Biochem Mol Biol. 36(1):1-11. 75 71 Fed. Reg. (June 12, 2006) at 33807.15 | P a g e

respiratory and cardiovascular effects, especially in children, the elderly, and people with existing heart or lung disease.

Carbon monoxide has been linked to increased risk for people with heart disease, reduced visual perception, cognitive functions and aerobic capacity, and possible fetal effects. Stationary SI engines emit CO and according to EPA they are considered to contribute to several areas failing to attain the National Ambient Air Quality Standards for CO. 76

Emissions of NMHC from stationary engines contribute to the formation of ozone and include air toxics such as benzene, formaldehyde, acetaldehyde, 1,3- butadiene, and acrolein. As discussed above, these toxic substances are known or suspected carcinogens
and have additional non-cancer health effects such as irritation or corrosion of the eyes, nose, throat, and lungs; pulmonary and respiratory problems; and dermatitis and sensitization of the skin and respiratory tract.

Lack of Data and Analysis In general, EPA’s proposed rule lacks the data and analysis necessary to justify exemptions to existing final rules that the Agency previously determined adequate and necessary to protect public health and the environment. The proposed exemptions are based on conclusions that are inconsistent with previous determinations by the Agency. Moreover, EPA did not allow for public comment before allowing the use of emergency RICE in DR programs. EPA does not have the data and analysis to determine that exempting pollution controls for emergency and remote area RICE would not harm public health or create disparate impacts on certain populations.

Proposal is Based on Inconsistent Conclusions and Lack of Public Input In proposed and final NSPS and NESHAP rulemakings for CI and SI RICE engines, the Agency has repeatedly stated the importance of reducing harmful emissions from existing RICE engines and the feasibility of installing emissions control technology. For example, in response to a previous request to exempt emergency SI engines from emissions controls, the Agency stated in a 2008 final rulemaking , “EPA disagrees that stationary emergency engines should be completely exempted from the rule and also does not agree that emergency engines should be exempt from emission standards. Emergency engines are part of the source category and stationary internal combustion engines and they represent a significant portion of the engines being regulated under these combined rules, and their aggregate emissions are not insignificant.” 77

76 Id.

77 73 Fed. Reg. (January 18, 2008) at 3581.16 | P a g e

Yet despite the Agency’s repeated admission that stationary RICE emissions are prevalent and harmful, the Agency has now proposed to exempt a large number of them, based on poor assumptions and a lack of data.

In addition, EPA’s 2009 proposed rule for the RICE NESHAP did not provide for hours of operation of uncontrolled RICE in DR programs. 78 It was not until the rule was released in final in 2010 did the 15 hour waiver for emergency stationary RICE to participate in DR

programs appear. 79 Lack of advance notice about this specific provision prevented meaningful involvement of the public.

EPA Lacks Basic Data EPA is developing the demand response (DR) and remote areas waivers arbitrarily and in the absence of critical information. By its own admission, EPA does not have data on the number and location of, or emissions from, emergency stationary RICE. (“EPA does not have specific information about the l ocation of the stationary RICE affected by this rule.”) 80 Emergency stationary RICE are not required to register their engines with EPA or provide basic information to the agency. Without such information, the Agency lacks the ability to effectively estimate the increased use and emissions of emergency engines, where the
increased use will occur, and the public health and environmental impacts of such growth.

In its Advance Notice of Proposed Rulemaking published on January 24, 2008, 81 EPA used 2005 sales data to make an approximation that 80% of the estimated 900,000 existing diesel RICE units are considered emergency units. At the time, EPA asserted that 10% of
PM and NOx emissions from all stationary RICE units came from emergency engines and therefore only a small percentage of HAPs was being emitted from these units. However, the definition of emergency stationary RICE used by EPA at the time clearly excluded engines participating in DR and peak shaving programs. Consequently, previous assumptions about emissions from emergency stationary RICE failed to account for these

activities. And the Agency has made no changes to its assumptions for this proposal.

Independent Sys tem Operators (ISOs) and Regional Trans mis s ion Operators (RTOs), organizations res pons ible for electric s ys tem reliability, also lack data on the number and
location of these units. For example, PJM’s May 2012 load activity report 82 for emergency DR activities in delivery year 2011-2012 identified 15% of DR resources as backup

78 EPA “National Emission Standards for Hazardous Air Pollutants for Reciprocating Internal Combustion Engines”, Proposed Rule, March 5, 2009, FR Vol. 74, No. 42

79 EPA “National Emission Standards for Hazardous Air Pollutants for Reciprocating Internal Combustion Engines”, Final Rule, FR March 3, 2010 Vol 75, No. 41 at 9654

80 77 Fed. Reg. at 33831

81 U.S. EPA, Advance Notice of Proposed Rulemaking, “Emission Standards for Stationary Diesel Engines”, Federal Register, Januar y 24, 2008

82 PJM Interconnection, ‘Load Response Activity Report: May 2012”, James McAnany, PJM Demand Side Response, located at http://www.pjm.com/~/media/markets-ops/dsr/2012-dsr-activity-report-20120509.ashx17 | P a g e

generation. However, 64.4% of the DR resources were unidentified, since curtailment service providers (CSP) simply opted out of providing more detailed information by choosing the ‘other’ category. Midwest ISO (MISO) identified a total of 7,376 MW of DR resource in 2011 with over 40% (3,001 MW) identified as behind-the-meter generation and 930 MW as emergency DR. 83 The percentage of capacity from RICE units

, s pecifically,

is not known.

EPA has proposed waiving pollution controls for stationary RICE located in remote areas in the absence of providing clear data and evidence to prove public health will not be negatively impacted . In establishing the definition of ‘remote stationary RICE’, EPA used distance limits of 220 yards and 0.25 miles relating to housing density to qualify certain engine locations for pollution control exemptions. EPA has not provided scientific data or evidence to support the conclusion that public health will not be harmed if pollution control exemptions are granted to RICE units located in areas that meet these distance and housing density thresholds.

In order to provide the agency with the basic data it needs to protect public health, the Coalition strongly urges EPA to require all stationary engines, whether new, modified or existing, emergency or non-emergency, or located in remote or non-remote areas, to be registered in order to provide the agency with much needed information. Precedent exists for requiring registration of stationary generators. Several states that have adopted emissions standards for stationary generators have included registration requirements in their regulations, including California, Connecticut, and Maine. 84 Typical registration information, in addition to names, addresses and model numbers, includes emissions data, fuel types used, and construction dates. Re-registration should also be required when there is a change in the owner or operator of an engine. Only by requiring reporting of this information from all stationary engines will EPA be able to enforce compliance with emissions limits, ensure reporting is carried out by all engine owners and operators, and apply the appropriate emissions standards for remanufactured engines.

EPA Didn’t Model Emissions Increases from DR Programs In the current proposal, the Agency claims that emergency engines have rarely been used in the past, so they assume they will rarely be used in the future. Based on that false assumption, the Agency failed to update the emissions modeling to reflect the new exemptions, claiming that the previous hours- of -use assumptions are still valid. EPA failed to model emissions increases resulting from increased allowable participation in DR programs resulting from: (1) the 100 hour DR provision within the operation and

83 2011 State of the Market Report for the MISO Electricity Markets, p. 54, located at http://www.potomaceconomics.com/uploads/midwest_reports/2011_SOM_Report.pdf

84 See e.g. California Airborne Toxic Control Measure (e)(4)(A)3; Conn. Agencies Regs. § 22a- 174 -42(j); 06-096 Code Me. R. Ch. 148 (2005).18 | P a g e

maintenance allowance, (2) the new provision for RICE > 500 HP installed prior to June 12,

2006 to allow thes e units to participate in DR programs , and (3) the new temporary peak shaving provision for area sources. In fact, EPA made no changes to the original 2010 emissions modeling results, even though the original modeling only accounted for 50 hours of operation for compression ignition and spark ignition emergency stationary RICE. 85

, 86

For typical electric generators, EPA processes air quality permits based on the full capacity of the unit, regardless of whether or not the unit runs below full capacity. For purposes of this proposed rule, in order to be consistent with the provisions therein and with EPA’s standard practices for assessing air quality impacts, EPA should assume 100 hours of operation for all emergency stationary RICE and perform corresponding emissions modeling. EPA should also accoun t for the proposed expansion of engines that can qualify to participate in DR programs.

Lack of Environmental Justice Analysis EPA failed to perform an environmental justice analysis of this rule, 87 in spite of the plentiful evidence that suggests one should have been completed. Specifically, this rule provides special treatment for RICE units located in remote areas and RICE units located in rural electric cooperatives (coops). The proposal is also likely to contribut e to increased pollution in urban areas. These special provisions and disparate impacts likely result in the agency failing to meet its own environmental justice criteria for “ fair treatment ” and/or

“ meaningful involvement ”

. 88

With respect to rural electric cooperatives, EPA justifies its proposal to expand the use of
uncontrolled RICE units for DR and peak shaving as strategies to “maintain the cost of power as low as possible” in some of the “most economically depressed areas of th e country”. Establishing pollution control waivers aimed at reducing costs to specific entities ( cooperatives), while not considering public health impacts or trans-boundary pollution transport, could constitute unfair treatment. Failure to perform an EJ analysis also seems inconsistent with the recently signed interagency “Memorandum of Understanding on Environmental Justice and Executive Order 12898”, 89 which reaffirmed
the commitment of covered federal agencies in identifying and addressing

85 EPA Regulatory Impact Analysis for Proposed Reconsideration Existing Stationary Compression Ignition RICE NESHAP”, May 2012, p. 4-8

86 EPA Regulatory Impact Analysis for Proposed Reconsideration Existing Stationary Spark Ignition RICE NESHAP”, May 2012, p. 4 -7

87 “The EPA has concluded that it is not feasible to determine whether there would be disproportionately high and adverse human health or environmental effects on minority, lo w income or indigenous populations from the reconsideration of this final rule...” 77 Fed. Reg. at 33831

88 EPA Definition, http://www.epa.gov/environmentaljustice/basics/index.html “ Fa ir treatment means that no group of people should bear a disproportionate share of the negative environmental consequences resulting from industrial, governmental and commercial operations or policies.” and “ Meaningful Involvement means that: (1) people have an opportunity to participate in decisions about activities that may affect their environment and/or health; (2) the public’s contribution can influence the regulatory agency’s decision; (3) their conc erns will be considered in the decision making process; and (4) the decision makers seek out and facilitate the involvement of those potentially affected.

89 EPA, “Memorandum of Understanding on Environmental Justice and Executive Order 12898” http://epa.gov/environmentaljustice/resources/publications/interagency/ej-mou-2011-08.pdf19 | P a g e

“disproport ionately high and adverse human health or environmental effects of its programs, policies and activities on minority populations and low- income populations”.

EPA is potentially creating inequities between coop members and RICE unit owners. A

coo p member that is the owner of a RICE unit receives payments for participating in peak shaving and DR programs, but does not share those benefits with other cooperative members. It is true that other coop members will receive benefits from the RICE unit participating in the peak and DR programs, in the form of potentially significant reductions

in electricity costs. However, the costs of increased pollution to these local members are not taken into account. In essence, by waiving the pollution control requirements, the owner of the RICE unit is externalizing 100% of the pollution costs to other local members (realized through negative health impacts) while, potentially, capturing the majority of the
benefits.

It sho uld also be noted that in EPA’s 2009 proposed rule for the RICE NESHAP, the agency did not provide for hours of operation of uncontrolled RICE in DR programs. 90 It was not until the rule was released in final did the 15 hour waiver for emergency stationary RICE to participate in DR programs appear. 91 Lack of advanced notice about this specific provision prevented meaningful involvement of the public. EPA now is now being pressured to increase the number of hours these uncontrolled engines can participate in DR programs in order to allow the units to meet the operable hours qualifying criteria required to participate in organized DR programs. However, PJM has already acknowledged that multiple RICE units with 15 hour limits could be grouped together by CSPs in order to qualify for the 60 hour minimum needed to participate in the DR programs. 92 It appears that EPA was able to establish the original 15 hour criterion without inclusive public debate and now seeks to multiply the size of the exemption when it is not even required for its intended purpose.

EPA has proposed to waive pollution control requirements for SI RICE in remote areas, defined as less than 5 residences within a quarter mile radius. This exemption for SI RICE

in remote areas could have significant public health impacts

. The Coalition is concerned that potentially affected communities may not be aware that this rule could impact them
becaus e they do not have information about the existence or location of nearby RICE units

, and therefore, may not have been meaningfully involved in the process. This exemption
also seems inconsistent with EPA’s actions to reduce emissions at oil and natural gas operations. EPA’s Ap ril 17, 2012 “Oil and Gas Sector: New Source Performance Standards

90 EPA “National Emission Standards for Hazardous Air Pollutants for Reciprocating Internal Combustion Engines”, Proposed Rule, March 5, 2009, FR Vol. 74, No. 42

91 EPA “National Emission Standards for Hazardous Air Pollutants for Reciprocating Internal Combustion Engines”, Final Rule, FR March 3, 2010 Vol 75, No. 41 at 9654

92 Comments from Craig Glazer of PJM Interconnection, LLC. to EPA NESHAP Docket No. EPA- HQ

- OA R-2008-0708, February 14, 201120 | P a g e

and National Emission Standards for Hazardous Air Pollutants Reviews” final rule and incentives (and other ongoing efforts such as to establish requirements for compressors and pneumatic controllers) aim to reduce toxic and criteria emissions from oil and natural gas operations. The April 17, 2012 final rule acknowledged the powerful impact that RICE units have on facility -wide risk assessment for oil and natural gas operations by stating the
risk is primarily “driven by emissions from reciprocating internal combustion engines”. 93 The remote areas exemption is very troubling given the potential health impacts involved.

Furthermore, EPA is creating a second-class of rural citizens within their remote areas definition. EPA is creating an incentive to locate uncontrolled RICE in areas that meet the

‘ not located near a pipeline ’ portion of the remote areas definition. If finalized, EPA’s proposal will prompt industry to locate engines in these areas as a way to reduce costsassociated with pollution controls. This will create concentrations of engines in lessregulated areas. This rule change may cause fewer people to be impacted because engines will be placed in remote areas, but the impacted people will be exposed to much more air pollution because of the elimination of basic controls and the higher number of engines near them. This portion of the rule is directly at odds with the Agency’s commitment to environmental justice, which aims to avoid disparate impacts through fair treatment of all groups of people.

EPA’s Economic Reasoning is Flawed EPA does not seem to be properly balancing scientific and public health considerations with economic impacts. Especially with respect to electric coops , EPA justifies increased use of uncontrolled RICE units in order to keep electricity rates low for coop members. However, EPA did not perform the emission analysis needed to understand the potential human health exposures and impacts of these pollution control waivers for DR programs. In the absence of this information, it is difficult to understand how economic and public health costs and benefits are being balanced.

EPA should consider whether or not cooperatives have engaged in available alternative strategies as cost-effective means to keeping electricity rates low, as opposed to promoting dirty RICE generation. There are many other strategies cooperatives can engage in to augment supply or decrease demand, all which are cleaner than allowing uncontrolled RICE units to supplement the system. For example, the cooperatives can (1) enter into long-term contracts for bulk power (where the longer time frames helps secure lower rates as compared to the spot market), (2) invest in energy efficiency and conservation to reduce energy demand and avoid higher prices, (3) invest in transmission and distribution upgrades to facilitate bulk power transfers and to enhance system and local reliability, (4)

93 EPA, “Oil and Natural Gas Sector: New Source Performance Standards and National Emission Standards for Hazardous Air Pollutan ts Reviews”, Final Rule, 4/17/12 http://www.epa.gov/airquality/oilandgas/pdfs/20120417finalrule.pdf , p. 78, p. 8821 | P a g e

develop innovative, clean demand response, peak shaving, and energy storage options for members to choose from, and (5) invest in new, cleaner generation. Cost savings and returns on investments captured by the coop members through these system enhancements, will be realized by the all of the coop members, since cooperative members are cooperative owners, by definition. Unlike pollution control waivers for RICE units, these alternative strategies do not create disparate harms and benefits to cooperative
members.

Regulatory Construction EPA’s proposed rule creates a myriad of regulatory construction issues that will cause significant confusion to regulators, with impacts reaching far beyond the regulated community intended for this rule.

Regulatory Inconsistencies
This proposed rule will put state air quality regulators in untenable positions regarding state implementation planning and compliance, as data on the number and location of these units is not available, nor will data be available on run times and pollution emissions. How will regulators be able to model the impact of emission from uncontrolled RICE in remote areas or from RICE participating in DR programs? How will the operation of these uncontrolled units impact attainment of NAAQS? It is plausible that operation of thes e uncontrolled units could prevent attainment of NAAQS limits, potentially triggering greater required reductions in the future with costly implications for states, regulated entities and
the health of the public.

EPA’s proposed rule may also be in conflict with the Agency’s views on aggregation or grouping of multiple, similar sources of emissions into one single source for evaluation of certain permitting requirements. 94 Typically, EPA uses a three-part test to determine if sources should be aggregated, which includes (1) whether facilities are contiguous or adjacent, (2) whether the facilities are under common control and (3) whether the facilities are under the same industrial groupin g. EPA lacks critical information to make the proximity determination. It is very likely that many RICE units could be considered as being under the common control of CSPs who have direct (automated) or indirect (via notification) access to operation of these units. Obviously, RICE units are under the same ‘reciprocating internal combustion engine’ industry category. Additionally, these aggregated sources would have to exceed locally established pollution emissions

94 For example, EPA questioned the legality of Pennsylvania’s proposed draft guidance (“Interim Guidance for Performing Single S tationary Source Determinations for Oil and Gas Industries”, issued October 2011) that aimed to set a quarter mile distance boundary fo r when Clean Air Act permit applicants must aggregate emissions from dispersed oil and gas drilling operations, rather than follow procedures consistent with the state’s SIP or EPA’s three -part aggregation test. November 21, 2011 letter from Diana Esher, Director of Air Protection Division in EPA Region III to Krishnan Ramamurthy at the PA Department of Environmental Protection, located at http://insideepa.com/iwpfile.html?file=nov2011/epa2011_2268a.pdf22 | P a g e

thresholds to trigger permitting requirements, which may be determined on a case- by -case basis. It is plausible to assume that EPA’s aggregation policy may apply to some subset of

RICE units.

Should EPA finalize the remote areas portion of this rule, many state-run air permitting

programs may be severely weakened. EPA-delegated air permit programs issue permits requiring the Best Available Technology/Best Available Control Technology (BAT/BACT), especially for area sources of hazardous air pollutants, in areas of attainment for the NAAQS standards. Finalizing a rule that does not require oxidation catalysts or nonselective catalytic reduction may signal to states that BAT/BACT should be contemplated differently in these remote areas despite well-worn regulatory precedent. As BAT/BACT is an ever-tightening standard resulting from increasing market penetration of pollution control technology, this rule could negatively impact that standard, delaying or rolling back reasonable advances in air quality.

EPA has Duty to Protect Public Health and the Environment

EPA has the authority and the responsibility to establish rigorous clean air rules to protect the public from harmful air pollution. PJM and other RTOs/ISOs do not establish health and environmental regulations, as they are not required to do so. EPA, not the Federal Energy Regulatory Commiss ion or the RTOs/ ISOs, has the responsibility for developing and enforcing regulations to protect human health and the environment. It is EPA’s duty to develop a rule that can be feasibly implemented, is effective in protecting public health and avoids making arbitrary and capricious decisions. The Coalition believes that the proposed rule fails to achieve these basic goals and requirements.

No More Stringent Than Typically, EPA establishes environmental rules that serve as minimum standards that all states must meet, providing the flexibility for states to set limits more stringent than the federal standards. However, some state laws have “no more stringent than” (NMST) provisions that prevent environmental standards from being more stringent than the federal standards. For these states, EPA’s rules are the only option for protection of public
health and the environment. Seventeen states 95 have generally applicable NMST rules that apply to all water quality rules and in some cases all environmental rules. 96 For example, Pennsylvania’s Air Pollution Control Act has several provisions that prevent or severely inhibit the state’s ability to establish more stringent air quality standards or controls than the federal government. States with existing NMST rules that prevent or impede establishment of more stringent air toxic and criteria standards for RICE units are relying

95 Colorado, Florida, Idaho, Iowa, Kentucky, Maine, Maryland, Mississippi, Montana, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Utah, West Virginia, and Wisconsin.

96 Andrew Hecht, “Obstacles to the Devolution of Environmental Protection: States’ Self

- Imposed Limitations on Rulemaking”, Fall 2004, http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1110&context=delpf23 | P a g e

on EPA to protect the health and welfare of their populations. Therefore, it is imperative that the Agency put in place, and keep in place, rigorous air pollution standards for stationary RICE that equally protect public health in all states.

Demand Response Provisions The Coalition is a strong supporter and promoter of clean demand response, including load curtailment through efficiency and conservation, and the use of clean distributed generation. We do not support efforts to promote behind-the-meter, dirty DR that relies on RICE units with no pollution controls. As the health and environmental effects section above demonstrates, reducing pollution from stationary diesel engines is necessary to help
states meet their air quality attainment goals, protect Americans who live near diesel “hot spots”, and protect sensitive ecosystems. Waivers for emergency engines will reduce emissions benefits already calculated and relied upon for states, and put public health at
risk.

Emissions from Diesel RICE Units are Significant and Harmful The health and environmental impacts of increased use of uncontrolled RICE units would be significant and dangerous. Diesel RICE contribute significant amounts of criteria and toxic air pollution. EPA estimates they are responsible for more than 3,000 tons per year (tpy) of HAPs, more than 600,000 tpy of NOx, nearly 20,000 tpy of PM, and more than 80,000 tpy of both VOCs and CO. 97 Uncontrolled diesel RICE units are dirtier than other energy sources, are more likely to be used in heavily populated areas, and more likely to run on days where air pollution is already at its worst. Together, these factors create an
untenable situation.

Existing Diesel RICE Units are Dirtier than Other Generation New analyses shed light on the significant emissions from diesel generators, even compared to large power plants. A recent analysis by NESCAUM compared NOx emissions factors for stationary diesel engines with New Jersey Electric Generating Unit (EGU) 2010 emissions rates. Only Tier 4 diesel engines have emissions rates comparable to the EGUs operating in New Jersey. A Tier 3 diesel engine has NOx emissions 5 times dirtier than New Jersey’s coal plants. And many back -up diesel engines in the region are likely pre-Tier, making them 20 times dirtier than coal and more than twice as dirty as oil peaking plants in New Jersey. 98

97 EPA, “ Regulatory Impact Analysis (RIA) for Existing Stationary Reciprocating Internal Combustion Engines (RICE) NESHAP ,” (2009); Table 4-10, Page 4-50.

98 NESCAUM, “The Potential Air Quality Impacts of Back

- up Generators in Demand Response Programs in the NESCAUM Region,” August 2012.24 | P a g e

The NESCAUM study also looked at PM emissions. A monitor near an emergency diesel generator in Boston measured one-minute spike in black carbon PM readings exceeding 100 ug/m3. 99 That reading illustrates the potential public health threat of multiple diesel generation sets if called upon to meet demand within densely populated areas.

Diesel Exposures May Be Higher with Stationary Diesel Engines Health risk is a function of toxicity and exposure. The use of stationary diesel engines can result in significantly higher exposures relative to larger, centrally located facilities. According to a study by Heath and colleagues (2006) stationary diesel technologies generally emit pollutants closer to the ground, often in more densely populated areas, resulting in exposures to higher concentrations compared to emissions from tall smoke
stacks. 100 In their study the authors simulated emissions dispersion patterns of both distributed stationary diesel engines and central power generating units using a Gaussian plume dispersion models and geographic information systems. 101 The findings of this study suggest that the use of stationary diesel engines for energy generation could result in an approximately 20x increase in the fraction of conserved primary emissions inhaled by the exposed population within 100 km as compared to central station electricity generation. And higher exposures translate to elevated health risks; people who spend more time outdoors, such as children, 102 adult exercisers, 103 and outdoor workers 104

, exhibit elevated health risks from air pollution.

Diesel RICE engines are often used in densely populated areas, putting public health at an increased risk if the use of emergency engines is allowed to rise. In 2002, Environmental Defense Fund completed a risk assessment of emergency diesel backup generators in
California. Smaller, Closer, Dirtier showed that people in close proximity to emergency or

99 NESCAUM, “The Potential Air Quality Impacts of Back -up Generators in Demand Response Prog rams in the NESCAUM Region,” August 2012.

100 Heath GA, Granvold PW, Hoats AS, Nazaroff WW. 2006. Intake fraction assessment of the air pollutant exposure: implications of a shift toward distributed electricity generation. Atmosph Environ. 40: 7164-7177.

101 Ibid.

102 American Academy of Pediatrics Committee on Environmental Health. 2004. Ambient Air Pollution:
Health Hazards to Children. Pediatrics

. 114: 1699 -1707. McConnell R, Berhane K, Gilliland FD, London SJ, Islam T, Gauderman WJ, Avol E, Margolis HG, Peters JM. 2002. Asthma in Exercising Children Exposed to Ozone. The Lancet. 359: 386 -391.

103 Mittleman MA. 2007. Air pollution, exercise, and cardiovascular risk. N Engl J Med 357:1147

– 1149. Spektor DM, Lippmann M, Thurston GD, Lioy PJ, Stecko J, O’Con nor G, Garshick, E, Speizer FE, Kinney PL, Nilsen DM, Lippmann M, Brescia M, Gordon T, McGovern T, Fawal HE, Devlin RB, Rom WN. 1996. Biomarkers of lung inflammation in recreational joggers exposed to ozone. Am J Respir Crit Care Med. 154: 1430

– 1435. Hayes C.1988. Effects of Ambient Ozone on Respiratory Function in Healthy Adults Exercising Outdoors. Am Rev Respir Dis. 138: 8 21 -828.

104 Tovalin H, Valverde M, Morandi MT, Blanco S, Whitehead L, Rojas E. 2006. DNA damage in outdoor workers occupationally exposed to environmental air pollutants. Occup Environ Med. 63: 230-236. Chan C-C, Wu T- H. 2005. Effects of ambient ozone exposure on mail carriers’ peak expiratory flow rates. Environ Health Perspect. 113: 735- 738. O'Neill MS, Ramirez-Aguilar M, Meneses-Gonzalez F, Hernández-Avila M, Geyh AS, Sienra-Monge JJ, Romieu I. 2003. Ozone exposure among Mexico City outdoor workers. J Air Waste Manag Assoc. 53: 339-346. Brauer M; Blair J; Vedal S. 1996. Effect of ambient ozone exposure on lung function in farm workers. Am J Respir Crit. Care Med. 154: 981- 987.25 | P a g e

back-up generators (BUGs) are exposed to more harmful diesel emissions than those living and working further away. 105

The assessment worked to determine the "risk zone" for BUGs, or the area surrounding a BUG in which people are exposed to concentrations of diesel pollution that result in unacceptably high health risks. EDF chose as a threshold a cancer risk of one per million, consistent with regulatory benchmarks. Even if BUGs are operated as little as 100 hours

per year - the limit proposed in this rulemaking - the surrounding risk zone ranges from 63 to 118 acres or 10 to 20 average city blocks. In general, the more BUGs are used, the larger the risk zone. Since many BUGs are concentrated in densely populated areas, expanding the risk zone means increasing the number of people exposed to unacceptably high levels of pollution. Furthermore, the report found the population within the BUG risk zone is more likely to be low income, elderly, and of a racial minority. In some instances the proportional differences are substantial: for example, in the Sacramento metropolitan air district, the proportion of elderly residents within the risk zone is 26% higher than for the entire
district.

Emissions Increase on the Worst Air Quality Days of the Year We believe the proposed rule will lead to increases in ozone, particular matter and hazardous air pollution emissions, some of which will occur on the worst air quality days of the year. High concentrations of ground level ozone occur on hot summer days, when pollutants react in the sunlight and form ground level ozone. High electricity demand days typically occur on hot summer days, when large numbers of air conditioners are operating to keep people cool. For example, NESCAUM looked at the daily NOx emissions from electricity generating units (EGUs) in New Jersey and downstate New York in summer 2011, compared to daily maximum temperatures recorded at Newark, New Jerse y. 106 The study found a generally positive relationship between daily maximum temperatures and NOx emissions from EGUs, consistent with higher air conditioning use on the hottest days. The study also found that the days with the highest temperatures and the highest EGU NOx emissions were also days with the highest use of diesel EGUs. In fact, on July 22, when the temperature in Newark reached 108 degrees, the NOx emissions from diesel EGUs was 52.5 tons, more than the total NOx emissions from all EGUs on more than half of the days the entire summer. This illustrates the incredibly high emissions from the use of controlled diesel on hot days, even before emergency demand response programs are counted.

Demand response events, and therefore emergency diesel RICE, are also typically called on hot summer days, when electricity demand is high. For example, demand response

105 See, Environmental Defense Fund, Smaller, Closer, Dirtier: Diesel Backup Generators in California accessible at http://www.environmentaldefense.org/documents/2272_BUGsreport.pdf 106 NESCAUM, “The Potential Air Quality Impacts of Back -up Generators in Demand Response Prog rams in the NESCAUM Region,” August
2012.26 | P a g e

resources were dispatched by all three ISOs in the NESCAUM region on July 21 and 22, 2011, which coincided with the highest ozone readings that month. On July 22, it is estimated that emergency diesel generators contributed up to 109 tons of NOx and 3.2 tons of PM, much of it concentrated within metropolitan areas, some of which are

nonattainment areas. 107

DR Program Revenues Can Offset Pollution Control Costs The DR programs addressed in this rule are economically lucrative in nature. Exemptions for emergency RICE are not necessary for economic reasons because pollution control costs can be more than offset by DR revenues.

Environmental Defense Fund recently conducted an economic analysis to evaluate the costs of installing emissions controls on existing RICE engines compared with the estimated annual capacity market revenue and emergency energy price payments available to emergency RICE engines in NYISO and PJM. These evaluations were used to estimate the payback period to RICE owners who install emissions controls, finding that in both ISO/RTOs the payback period was approximately one year.

The capital cost for diesel oxidation catalyst (DOC) and open crankcase ventilation (OCV) for a 500 hp engine is approximately $14,000, based on EPA numbers in the 2010 RIA. This includes the costs of equipment and installation. In the PJM RTO, annual capacity market revenue available for a 500 hp engine from the three year period of 2013-2015 would likely total over $60,000 in the PJM MAAC region and $30,000 in lower priced areas of the PJM RTO. In NYISO, the capacity revenue available for a 500 hp engine would be in the range of $20,000 per year in the New York City area.

The analysis estimated that the all-in dispatch cost (fuel costs, engine maintenance and emission control maintenance) for a 500 hp engine is $0.28/kWh ($280/MWh). In PJM, emergency energy prices paid to emergency DR resources have historically been in the $1,000/MWh range. Using this assumption, a 500 hp engine operating for 15 hours annually would earn approximately $3,600 in net energy revenue, and an engine operating for the maximum 100 hours annually would earn more than $24,000 in net energy revenue. In NYISO, energy prices paid to emergency DR resources typically average $500/MWh. A 500 hp engine dispatched for 15 hours per year would earn approximately $1,100 in net energy revenue and an engine dispatched for the full 100 hours would earn more than $7,000 in net energy revenue.

107 NESCAUM, “The Potential Air Quality Impacts of Back

- up Generators in Demand Response Programs in the NESCAUM Region,” August 2012; Table 11.27 | P a g e

In both ISOs/RTOs, the capacity and energy revenues would pay for the costs of emission controls in approximately one year, even if they only run for 15 hours. This analysis assumes that all of the capacity and energy revenue would accrue to the owner of the engine enrolled in the demand response program. In some cases, CSPs that aggregate these engines may receive a significant portion of these revenues, which would prolong the
return on investment for the owner that installed the emissions controls.

In addition, CSPs that aggregate DR resources can and have provided compliance as a service in order to facilitate pollution control installation, monitoring and maintenance to keep RICE units operating in DR programs. In the San Diego Gas and Electric (SDGE) service territory, EnerN oc established its “Clean Gen” program which upgrades backup generators in order to utilize them as DR resources. In 2007, EnerN oc sought to expand the Clean Gen Program where , at the company’s own expense, pollution controls would be
installed and testing and maintenance performed for certain SDGE customers. 108 Presumably, EnerN oc sought the expansion because they found it to be economic to provide these compliance services in exchange for increased grid service-based

revenues. 109

Based on EnerN oc’s Clean Gen program, the Arizona Public Service Company (APS) performed a benefit-cost analysis on a proposed program to install pollution controls on standby generators in order to utilize the existing customer owned units in the downtown
Phoenix area, without contributing to poor air quality. 110 APS ’s proposal included the utility paying the cost of pollution control upgrades and operation, maintenance, fuel and interconnection costs in order to maximize consumer participation while minimizing harmful air emissions releases. APS performed two benefit-cost tests based on a high ($4.50) and low ($3.50) price of diesel fuel. The results indicated total benefits of the program (measured in avoided capacity costs $46.1M and avoided energy costs $5.8M)

would be $51.9M and total costs (technology, program and incentives) would be $41.6 M for the low diesel price scenario and $45.3 M for the high price scenario, indicating a net benefit for the program in either fuel cost scenarios. The benefit to cost ratio was 1.25 for the lower fuel price and 1.15 for the higher fuel price.

108 Enernoc Website, “Ener N oc Expands Clean Gen Demand Reduction Program with San Diego Gas and Electric”, May 2007,http://www.enernoc.com/press/press-releases/2007/235-press/press-releases/2007/673-enernoc-expands-clean-gen-demand-reduction-programwith-san-diego-gas-a-electric

109 The California Public Utility Commission (CPUC) denied EnerN oc’s request to expand the Clean Gen program because the proposal did not comport with the CPUC’s interpre tation of DR and the Clean Gen program operated more like distributed generation (supply side resources) as opposed to DR (load curtailment)

. California Public Utility Commission, Energy Division Resolution E-4103, October 18, 2007, http://docs.cpuc.ca.gov/published/Final_resolution/74123.htm

110 Arizona Public Services Company,“Demand Response and Load Management Study and Programs, Docket No. E -01345A- 05 -0816, E01345A- 05 -0826 and E-01345A- 05

- 0827”, June 27, 2008 http://www.aps.com/_files/various/ResourceAlt/APS_DR_Study_05_RC- 05

- 0816_062708_1.pdf28 | P a g e Reliability

DR programs have been growing, much of which is attributed to increased use of
uncontrolled RICE units. There is no technical or economic reason why RICE units cannot meet modern pollution control standards and provide reliable service whenever needed. Moreover, uncontrolled RICE units are not the only resources available to address reliability concerns; there are many cleaner, cost effective DR resources available and many markets regularly rely on these services without incident. In addition, there have been numerous independent analyses of reliability in the last year concluding that the nation's
electric grid has adequate resources. 111

Demand response resources can be called upon to run in extreme situations of grid instability. Uncontrolled RICE units are actually inferior resources to the grid because of their associated operation limitations, which are related to unit emissions. With proper emission controls, they would become more valuable to operation of the grid. Requiring RICE units to install pollution controls would actually increase their ability to assist the system by eliminating limitations on run times.

EPA’s proposal could result in increased dispatch of uncontrolled RICE units with serious, and unnecessary impacts to public health and the environment. EPA lacks the data to effectively estimate the potential increase in use of diesel generators under its proposal

. The proposal states that emergency engines have not been run frequently for emergency demand response programs in the past. However, past behavior is not an appropriate proxy for the future, and it is important to recognize the recent upward trends in DR growth over the last few years and the potential implications of the expanded 100-hour and peak shaving provisions.

RICE Units are not Needed for Reliability and Overreliance on Them Will Harm Reliability Electric system reliability is maintained by ongoing, long-term planning processes aimed at securing enough electricity supply (or capacity - including demand response as a category of supply) to meet future projected demand, plus additional margins of excess supply in case unexpected events arise like extreme weather or a power plant unexpectedly going

111 Analyses by the U.S. Department of Energy, the Congressional Research Service, the North American Electric Reliability Corporation, M.J. Bradley & Associates, and The Analysis Group found that national electric reliability is unlikely to be harmed by clean air rules. The most recent analysis by The Analysis Group found that most regions are expected to have adequate reserve margins to ensure reliability and regions with potential reliability issues are addressing them in a proactive manner. The Mercury and Air Toxics Rule for power plants, which is in place, provides an adaptable compliance framework that will secure the vital life-saving benefits under these clean air standards while addressing any source-specific reliability issues that could potentially arise. U.S. Department of Energy, Resource Adequacy Implications of Forthcoming EPA Air Quality Regulations , December 2011. James McCarthy, Congressional Research Service, EPA’s Utility MACT: Will the Lights Go Out? 1/9/2012. North American Electric Reliability Corporati on , 2011 Long-Term Reliability Assessment , November 2011. M.J. Bradley & Associates and the Analysis Group, “Ensuring a Clean, Modern Electric Generating Fleet While Maintaining Electric System Reliability,” N ovember 2011.29 | P a g e

offline. Requiring pollution controls for RICE units as a condition of participating in DR programs will not jeopardize system reliability because emissions controls are technically and economically feasible in all instances. But even assuming that certain units could not meet EPA’s standards, and therefore could not offer emergency DR services, the data indicates that system reliability will not suffer. For example in PJM, 14,026 MW of capacity (including generation, energy efficiency and DR res ources ) did not clear the 2015-2016 BRA. This means that there would be plenty of resources available if the entire 9,247 MW of cleared limited DR product in the 2015-2016 auction had not been available. In addition,
the 2 015 -2016 BRA cleared enough capacity resources (including demand response) to create a 20.2% reserve margin, 112 which is significantly greater than the 15.4% margin recommended through PJM’s analysis. 113

Note that the compliance obligations from the 2010 final rule that limited emergency RICE units to 15 hours of participation in DR programs will come into effect by the end of 2013. Therefore, the increase in DR and the limited product in the PJM market should have impacted BRA results (which are bid in to the market 3-years in advance of the time they will operate) in all three of the forward auctions in 2013-2014, 2014-2015 and 2015-2016. However, in spite of the 15-hour limits that some claim will harm DR resources, there was significant growth of DR and limited DR in these full compliance years. Meaning either DR resources are plentiful in spite of the 15-hour limits, or that CSP were prepared to economically comply with the final rule.

The Coalition believes the proposed exemptions will result in greater penetration of uncontrolled RICE into DR programs. This increase in availability of dirty engines will result in high er probability of their utilization and potential concerns with the run-time
limitations of thes e dirty res ources (related to their uncontrolled, dangerous emis s ions ).

EPA should not make special accommodations to facili tate participation of these resources

in DR markets. EPA is actually creating or exacerbating market failures by promoting the externalization of costs associated with increasing operation of dirty RICE units. By requiring pollution controls as a condition to participating in DR programs, thus allowing unlimited operational times for these units, EPA can actually enhance the ability of RICE units to assist the grid. By requiring pollution controls, EPA is do ing its job: protecting public health and the environment by mandating technically available and economically feasible pollution controls, without compromising electric system reliability.

112 PJM, 2015-2016 RPM Base Residual Action Results, #699093, http://www.pjm.com/markets-and-operations/rpm/~/media/marketsops/rpm/rpm-auction-info/20120518-2015- 16 -base-residual-auction-report.ashx

113 PJM Interconnection, “Draft 2011 PJM Reserve Requirement Study”, Docs# 66619230 | P a g e

Cleaner Alternatives Are Available to Maintain Reliability Proponents of the pollution controls waivers for RICE units assert that uncontrolled RICE units should be able to participate in DR programs because they are cleaner than other alternatives, such as avoiding black out situations when RICE operations are unlimite d or by displacing coal fired power. Justifying emissions from uncontrolled RICE units as a strategy to avoid emissions from blackout situations is inappropriate because it presumes
that uncontrolled RICE units are the only resources capable of preventing black outs, which is false. Aside from the fact that reasonable pollution control technologies exists for RICE units, there are many other supply and demand side resources available to reliability organizations to prevent blackout. For example, in the 2015-2016 BRA, PJM had plenty of excess reserve margin (20.2% total reserve margin) capacity above the minimum (15.4%) required to ensure reliability. In addition, PJM has enough capacity resources bid into the market that if uncontrolled RICE units (assumed to be offered through the limited DR product) were not available, the system could still clear enough resources and maintain excess reserve capacity margin. The argument to overlook the emissions caused by the

increas ed use of dirty uncontrolled RICE units as a way to avoid even greater emissions in blackout situations is fundamentally flawed because it assumes use of dirty RICE is the only option to avoid blackouts.

A 2003 study from Synapse 114 indicated that increased use of uncontrolled RICE in DR programs could result in increased emissions of hazardous air pollutants, the exact category of pollutants the NESHAP program is required to reduce. When considering the impact on criteria air pollution like NOX and SO2, it is important to factor in the impact on emissions trading programs and net emissions. Uncontrolled RICE operating in DR programs may displace other resources participating in cap and trade programs. The net impact will be an increase in emissions since avoided operation from units in the cap and trade program will create excess tradable units, plus emissions from the RICE units.

EPA is Creating a Dirty Energy Subsidy, Harming Cleaner Energy Technologies By offering an unnecessary exemption, EPA is in effect, arbitrarily favoring dirty RICE units over controlled RICE units, as well as other reliability options such as energy efficiency

, demand response, and cleaner distributed and utility scale generation . EPA’s proposal will create distortions in energy markets by making DR from uncontrolled RICE units artificially cheap. This will result in increased use of DR from uncontrolled RICE and foregone opportunities for actual curtailment, cleaner DR resources, and construction of new, cleaner generation builds of both distributed and utility scale generation. This subsidy eliminates the competitive advantage renewable energy generation and energy efficiency

114 Synapse Energy Economics, Inc, “Modeling Demand Response and Air Emissions in New England”, Au gust 2003 (Revised Sept. 2004)31 | P a g e

resources should receive since, as zero-pollution resources, they are not required to invest in pollution controls.

Remote Areas Provisions

Waiving Pollution Controls for Remote RICE Will Harm Public Health The Coalition strongly argues against the proposed waiver of pollution control requirements for SI RICE located in remote areas

. Existing SI RICE are currently responsible for more than 1 million tons per year of NOx pollution, and more than 75% of
those emissions come from area sources. 115 According to EPA’s summary of emissions reductions for existing stationary RICE, the proposed exemptions for remote areas will result in significant loss of HAP, CO, NOx, and VOC emissions reductions finalized under the 2010 existing engine rule. The NOx reductions that would have been realized under the final 2010 rule will now be reduced by 90 percent, barely denting the million tons per year currently emitted by these dirty engines.

Table 1. Summary of Pollutant Reductions for Existing Stationary RICE

Pollutant Emission Reductions (tpy) in the year 2013

Previous Estimate (2010 Final Rule) RICE Reconsideration (2012 Proposed Amendments)
CI SI CI SI
HAP 1,014 6,008 1,005 1,778
CO 14,342 109,321 14,238 22,211
PM 2,844 N/A 2,818 N/A
NO x N/A 96,479 N/A 9,648
VOC 27,395 30,907 27,142 9,147

These harmful pollutants will be emitted in “remote” areas, failing to protect rural residents who are assured the same health protections under the Clean Air Act. Second, EPA wrongly bases a measure to protect public health from pollution on a Department of Transportation regulation dealing with pipeline safety. Third, EPA is undermining state and tribal air permitting programs because its proposal will weaken the Best Available Control Technology/Best Available Technology Standard (BACT/BAT). Fourth, the EPA proposal ignores significant issues with transportation of pollutants and may impact the NAAQS in
different areas.

115 EPA, “Regulatory Impact Analysis (RIA) for Existing Stationary Reciprocating Internal Combustion Engines (RICE) NESHAP,” (200 9); Table 4-10, Page 4-50.32 | P a g e

Background on EPA’s Proposal EPA is proposing to create a class of engines called “Remote Stationary RICE” that are not subject to emission controls. This definition includes >500 horsepower 4SRB-SI and 4- stroke lean burn spark ignition (4SLB-SI) engines on a pipeline with 10 or fewer buildings intended for human occupancy within 220 yards of any continuous 1-mile length of the pipeline; >500 horsepower 4SRB-SI and 4SLB-SI on a pipeline segment not within 100 yards of either a building or a small, well-defined outside area that is occupied by 20 or more persons and at least 5 days a week for 10 weeks in any 12-month period; and >500 horsepower 4SRB-SI and 4SLB-SI not on any pipeline that have 5 or fewer buildings intended for human occupancy within a 0.25 mile radius around the engine. 116 Any engine classified as “remote stationary RICE” would not need oxidation catalysts for lean burn engines or non-selective catalytic reduction technology for rich burn engines.

A significant portion of the United States’ population may be living in areas with engines that will no longer be required maintain oxidation catalysts or non-selective catalytic reduction technology, if EPA finalizes this proposal. Under EPA’s proposed revisions to the RICE NESHAP, a new category of engines called “Remote Stationary RICE” will be created under the following definition: (1) Stationary RICE located in an offshore area that is beyond the line of ordinary low water along that portion of the coast of the United States that is in direct contact with the open seas and beyond the line marking the seaward limit of inland waters. (2) Stationary RICE located on a pipeline segment that meets both of the criteria in paragraphs (2)(i) and (ii) of this definition. (i) A pipeline segment with 10 or fewer buildings intended for human occupancy within 220 yards (200 meters) on either side of the centerline of any continuous 1-mile (1.6 kilometers) length of pipeline. Each separate dwelling unit in a multiple dwelling unit building is counted as a separate building intended for human occupancy. (ii) The pipeline segment does not lie within 100 yards (91 meters) of either a building or a small, well-defined outside area (such as a playground, recreation area, outdoor theater, or other place of public assembly) that is occupied by 20 or more persons on at least 5 days a week for 10 weeks in any 12-month period. The days and weeks need not be consecutive. The building or area is considered occupied for a full day if it is occupied for any portion of the day. (iii) For purposes of this paragraph (2), the term pipeline segment means all parts of those physical facilities through which gas moves in transportation, including but not limited to pipe, valves, and other appurtenance attached to

116 77 Fed. Reg. at 33,839.33 | P a g e pipe, compressor units, metering stations, regulator stations, delivery stations, holders, and fabricated assemblies. Stationary RICE located within 50 yards (46 m) of the pipeline segment providing power for equipment on a pipeline segment are part of the pipeline segment. Transportation of gas means the gathering, transmission, or distribution of gas by pipeline, or the storage of gas. A building is intended for human occupancy if its primary use is for a purpose involving the presence of humans. (3) Stationary RICE that are not located on gas pipelines and that have 5 or fewer buildings intended for human occupancy within a 0.25 mile radius around the engine. A building is intended for human occupancy if its primary use is for a purpose involving the presence of humans . (Emphasis added). 117

EPA is Creating a Second-Class of Citizens in Rural Areas
EPA’s new standards for RICE NESHAP under the definition of Remo te Stationary RICE will replace proven and effective control technology requirements with hortatory management practice standards. These management practices involve replacing oil and oil filters, checking and replacing spark plugs, and checking and replacing hoses and belts. 118 Aside from viewing easily falsified logged maintenance schedules, EPA has no way of verifying compliance with this standard. EPA justifies this change by claiming its goals will still be met and industry’s costs for control technology may be unreasonable when compared to
the relative health benefits. 119

What EPA ignores, however, is the impact of the definition of remote areas not associated with pipelines. EPA justifies this proposed change by stating “[implementation] for affected sources would also be less burdensome because the system is already in place and used by the natural gas pipeline industry and covers the majority of these engines,” in reference to the Department of Transportation’s pipeline classification system. 120 Despite r emote stationary RICE that are not on gas pipelines (engines located in areas with five or fewer buildings meant for human occupancy in a .25 mile radius) still being subject to the far less strict management practice standard, there is not a similar, parallel accounting procedure in place for these engines as there is for class 1 pipeline areas. 121 EPA’s justification for reduced technology standards for engines in class 1 pipeline areas relies on the Department of Transportation’s pre -existing knowledge and oversight of these areas. EPA’s ‘less burdensome’ justification for waiv ing pollution controls and instead issuing

ma nagement practice standards for remote stationary RICE not on gas pipelines is not reasonable since there is no comparable system of accounting or oversight in place.

117 77 Fed. Reg. at 33,839.

118 Id . at 33,843.

119 Id . at 33,820.

120 Id

. 121 Id . at 33,813.34 | P a g e

Impacted residents in class 1 pipeline areas would likely enjoy better air quality because even the minimal management practice standards are more likely to be adhered to because of the pre-existing oversight for the Department of Transportation’s pipeline classification system. Impacted residents not in class 1 pipeline areas are likely to suffer greater harms because lack of oversight is likely to result in lack of compliance with the management practices.

Unbalanced Incentives EPA also ignores the unbalanced incentives it is creating for stationary RICE owners and operators with this rule. The intent of this rule seems to be based on concerns for industry

cost -savings during incidental placement of engines in remote areas. 122 This intent is not served by this rule because remote area designations will likely be factors in future placement of engines. As industry factors in reduced costs from not needing oxidation catalysts or non-selective catalytic reduction technologies into the calculus of where and when it places engines, people living in these remote areas are much more likely to be exposed to more pollution. Owners and operators of stationary RICE will be more likely to place stationary RICE in lower housing density areas, creating concentrations of engines in less-regulated areas. This rule change may cause fewer people to be impacted because engines will be placed in remote areas, but the impacted people will be exposed to much more air pollution because of the elimination of basic controls and the higher number of engines near them.

The Remote Stationary RICE Definition is Not Based on Relevant Factors EPA’s proposed definition of “Remote Stationary RICE” is not consistent with EPA’s mandate to protect public health because the definition is based on regulations intended to assure pipeline safety. Those regulations are not germane to the purposes of the Clean Air Act and the establishment of emission standards for hazardous air pollutants. EPA’s
creation of a category “Remote Stationary RICE” , insofar as it relates to purposes for pipeline safety instead of protecting humans and the environment from constant exposure to air pollution is irrational, arbitrary, and capricious.

In its notice of proposed rulemaking EPA acknowledges that its proposed pipeline 1 area classifications are derived from Department of Transportation regulations. 123 Pursuant to the Pipeline Safety Improvement Act of 2002, the purpose behind pipeline area classifications is to “provide adeq uate protection against risks to life and property posed by pipeline transportation and pipeline facilities by improving the regulatory and enforcement authority of the Secretary of Transportation.” 124 These standards are directed at preventing injury, property damage, and loss of life resulting from explosions and other

122 Id . at 33,820.

123 Id

. 124 49 USC § 60102(a)(1).35 | P a g e

catastrophic events that occur in pipeline transportation. The Pipeline Safety Act of 2002 and its regulations do not set work practice standards, emission rates, or ambient air quality standards designed to protect air quality in the same way as the Clean Air Act.

EPA’s decision to create a class of “Remote Stationary RICE” should be abandoned because

it definition is based on non-relevant factors. By using pipeline 1 area classifications, EPA is claiming its factual or scientific analysis overlaps perfectly with a regulatory mechanism bearing no relationship to air quality and air quality’s impact on human health. A pipeline classification system meant to guard against immediate, catastrophic, and dire events like pipeline explosions is irrelevant to a system of emission standards and pollution control technology requirements. The RICE NESHAP is part of a statutory scheme meant to protect the public against health impacts from air pollution. 125 The types of systems needed to guard against these competing harms are incommensurate and do not inform one another.

EPA is Weakening the BACT/BAT Standard by Creating a Category of Remote Stationary RICE Should EPA finalize this rule, many state-run air permitting programs may be severely weakened. EPA-delegated air permit programs issue permits requiring the Best Available Technology/Best Available Control Technology (BAT/BACT), especially for area sources of hazardous air pollutants, in areas of attainment for the national ambient air quality standards. EPA states that it may set work practice standards as generally available control technology for existing area sources of hazardous air pollutants in sparsely populated

areas. 126 Oxidation catalysts and non-selective catalytic reduction technologies have both been required in permits as BAT/BACT in Pennsylvania and other states. Finalizing a rule that does not require oxidation catalysts or non-selective catalytic reduction may signal to states that BAT/BACT should be contemplated differently in these remote areas despite
well -worn regulatory precedent. As BAT/BACT is an ever-tightening standard resulting from increasing market penetration of pollution control technology, this rule could negatively impact that standard, delaying or rolling back reasonable advances in air quality.

Pollutants Will Travel Much Farther and Have Impact Beyond EPA’s Arbitrarily Designated “Remote Areas” Hazardous air pollutants have significant transport potential that the remote stationary RICE definition does not account for. One study of formaldehyde transport detected levels at 48 parts per billion 50 kilometers away from the sources of formaldehyde emission. 127 This is significantly farther away from a source than the distances from higher housing density areas contained in the remote stationary RICE definition. EPA must account for the

125 42 USC § 7401(b), (c).

126 77 Fed. Reg. at 33,821.

127 Daniel Grosjean, Formaldehyde and Other Carbonyls in Los Angeles Ambient Air

. Environ. Sci. Technol., 1982, 16 (5 ).36 | P a g e

transport potential of hazardous air pollutants under different circumstances. The existing distance limits of 220 yards and .25 miles relating to housing density are scientifically
irrelevant as related to the tr ansportation of pollutants. EPA’s definition of remote stationary RICE is not based on actual pollutant data.

Conclusion and Recommendations The Coalition urges EPA to require pollution controls as a condition of participating in any and all demand response programs . In the absence of accurate data and adequate modeling, EPA has not presented clear information on the impacts to public health from the proposed pollution control waivers. EPA has also failed to consider how its proposal will distort energy markets

, cause harm to cleaner generation interests and impact related obligations on the regulatory community

.

The Coalition recommends that the EPA eliminate its proposal to waive or otherwise weaken pollution control requirements for RICE located in rural areas. EPA has failed to produce scientific evidence suggesting that this proposal will not result in disparate or disproportionate impacts to rural communities, nor has it considered the potential broader public health or unintended regulatory consequences of the remote areas provisions.

In order to collect the basic data EPA needs to better understand the public health impact of RICE engines, the Coalition strongly urges EPA to require all stationary engines, whether

new , modified or existing, emergency or non-emergency, or rurally or non-rurally sited, to be registered in order to provide the agency with much needed information. Typical registration information, in addition to names, addresses and model numbers, includes emissions data, fuel types used, and construction dates. Re-registration should also be required when there is a change in the owner or operator of an engine.