EPA’s Backup Generators Clarification Explained – And What it Means for the 50-Hour Rule for Demand Response

The U.S. Environmental Protection Agency’s recent interpretation on using emergency backup generators in demand response programs does not change the existing prohibition in United States wholesale markets, such as PJM. Emergency generators must still meet federal non-emergency standards to participate in demand response in wholesale energy markets, despite some misinformation that has circulated on the topic.

There is some indication that the federal government may consider a change in the future, but it has not yet done so or indicated what such changes may entail. Until that occurs, federal, state and local air quality agencies are bound to enforce current regulations, which carry serious penalties for violations.

The confusion started in May of this year, when the EPA issued an interpretation approving a Duke Energy emergency backup generator program in North Carolina and South Carolina. Some have mistakenly interpreted the EPA’s announcement as changing the current prohibition that has been in place for over a decade. It did not. The EPA approval was expressly limited to an existing regulation applicable only to local entities such as a utility addressing strictly local reliability problems.

Duke Energy in the Carolinas is not part of a wholesale energy market, also known as an Independent System Operator or Regional Transmission Organization (ISO/RTO). Wholesale markets cover many utility service territories across a broad region. Neither the EPA interpretation nor the existing regulation applies to programs operated by wholesale markets such as PJM. Moreover, a 2014 federal appeals court decision that removed emergency generator participation in wholesale market demand response programs has not been reversed.

The EPA interpretation was explicitly limited to Duke Energy in its capacity as a local balancing authority (LBA) and its dispatching of participating generators for local transmission and distribution system support. An LBA includes a utility that does its own balancing across a localized area such as a single utility.

In contrast, PJM is a regional balancing authority that dispatches across the regional transmission network and many utilities and does not provide balancing within local distribution systems. Because the EPA’s 50-hour rule for enrolling generators requires a demand response program to be managed by a local balancing authority (which Duke Energy is, but RTOs and ISOs are not), emergency generators in these wholesale markets must still meet federal non-emergency standards to participate in demand response.

The following answers to frequently asked questions are based on CPower’s review of the EPA’s guidance on the Duke Energy program and similar reviews by environmental consulting firms.

What did the EPA do in May?

On May 1, the EPA released clarifying information in the form of FAQs with specific guidance “to help ensure data centers and power companies have reliable power” for artificial intelligence (AI). In doing so, the agency stated that it had determined that Duke Energy’s demand response program met the criteria for enrolling stationary emergency engines in response to the utility’s request for interpretation.

What did the EPA say about using backup generators to maintain grid reliability?

According to the fact sheet released by the EPA, the agency understands that backup generators powered by stationary reciprocating internal combustion engines (RICE) are important for maintaining the reliability of the electric grid. It expects these generators to become even more important as the demand for electricity increases.

The EPA also noted that regulatory provisions allow emergency engines to operate for up to 50 hours per year in non-emergency situations if all of the following conditions are met:

• • The local balancing authority or local transmission and distribution system operator dispatches the engine.
  • The dispatch is meant to mitigate local transmission and/or distribution limitations and avert potential voltage collapse or line overloads that could lead to the interruption of power supply in an area or region.
  • The dispatch follows reliability, emergency operation or similar protocols that follow specific North American Electric Reliability Corporation (NERC), regional, state, public utility commission or local standards or guidelines.
  • The power is provided only to the facility itself or to support the local transmission and distribution system.
  • The owner or operator identifies and records the entity that dispatches the engine and the specific NERC, regional, state, public utility commission or local standards or guidelines being followed for dispatching the engine.

What does the EPA’s clarification mean for demand response programs in wholesale energy markets such as PJM?

Nothing has changed yet to allow emergency generators to participate in PJM or other wholesale market demand response programs. As previously stated, the EPA clarification did not apply to demand response programs run by RTOs or ISOs because it emphasized Duke Energy’s role as a local balancing authority and its dispatching of participating generators for local transmission and distribution system support, per the EPA’s 50-hour regulation. ISOs and RTOs such as PJM are not local balancing authorities.

However, the clarification does signal heightened, and perhaps unprecedented, interest in harnessing distributed energy resources such as backup generators to increase grid flexibility and reliability. Given shifting rules and programs, plus heightened price signals and improved economics, CPower’s expert team continues to track regulations and policies closely. We will inform customers if the EPA issues further guidance or makes changes.

If you would like to learn more in the meantime, read this CPower whitepaper: Generating Revenue with Your Emergency Generation: How to Reclassify Assets as Non-Emergency Generation.