D.C. Circuit faults EPA handling of background generation environmental controls

The U.S. Circuit Court of Appeals for the District of Columbia Circuit held May 1 that certain Environmental Protection Agency (EPA) rules covering backup generation create a loophole that could harm the environment and put power plants that are more fully-regulated at a competitive disadvantage.

The ruling has drawn praise from the Electric Power Supply Association, which represents competitive power.

“EPSA applauds the D.C. Circuit panel for its unanimous decision issued May 1 agreeing with EPSA and other parties to the case, including state environmental regulators, that EPA’s exemption for dirty diesel demand response was legally deficient,” EPSA President and CEO John Shelk said in a statement.

“The May 1 D.C. Circuit decision shows that the same demand response providers who said they want to be treated the same when it comes to getting paid, sought to avoid being treated the same when it comes to complying with important environmental laws,” Shelk went on to say.

Prior to the court’s May 1 ruling, the American Public Power Association had joined with the Kansas Power Pool and that National Rural Electric Cooperative in filing a brief supporting EPA in the case.

EPA stance deemed ‘arbitrarily and capricious’

“For the reasons that follow, we hold that EPA acted arbitrarily and capriciously when it modified the National Emissions Standards and the Performance Standards to allow backup generators to operate without emissions controls for up to 100 hours per year as part of an emergency demand-response program.”

Backup generators have traditionally been used in emergency situations “to produce power for critical networks or equipment . . . when electric power from the local utility is interrupted,” the D.C. Circuit said.

“Industry and environmental petitioners are concerned with what they consider a new phenomenon in demand response, whereby some consumers substitute the supply of capacity from traditional sources with backup generators,” the D.C. Circuit panel said.

So-called “demand response ‘aggregators’ have adopted the practice of grouping backup generators together to form ‘virtual power plants’ of considerable size,” according to comments presented to EPA by intervenor EPSA, according to the D.C. Circuit.

“EPA appears to have relied on faulty evidence when justifying the exemption increase from fifteen hours to 100 hours,” the D.C. Circuit held. “EPA also did not consider the alternative of limiting the exception to parts of the country not served by organized capacity markets,” the court held.

“We should further note that EPA did not obtain the views of FERC or NERC on the reliability considerations upon which EPA based the exemption,” according to the appeals court.

EPA policy started to change in 2004, when EPA promulgated a rule allowing backup generators to operate without emissions controls for unlimited periods “in emergency situations and for routine testing and maintenance.”

In a final rule issued in January 2013, EPA radically revised its prior “15-hour” rule. Under the new rule, backup generators are permitted to operate exempt from emissions controls for “emergency demand response” for up to 100 hours each year, in addition to actual emergency situations and maintenance.

The D.C. Circuit also held that a regulatory agency in Delaware did not have standing in the case. There is evidence in the administrative record that backup generators represent nearly 15% of demand response in the PJM region, the court said. But Delaware offered no evidence emissions from backup generators in the remote area sub-category are close enough to pose a threat to the state’s air quality, the EPA said.

The case Delaware Department of Natural Resources and Environmental Control versus EPA; No. 13-1093; was argued Sept. 26. The 30-page opinion in the case was written by D.C. Senior Circuit Judge Raymond Randolph. D.C. Circuit Judges Merrick Garland and rounded out the three-judge panel.

EPA and other parties now have 45 days to seek rehearing or rehearing “en banc,” meaning before the full court.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.