Utilities and power marketers are warning U.S. EPA that easing air pollution rules for demand-response companies could encourage the use of dirty generators and distort power markets.

At issue is an EPA proposal that would more than quadruple the amount of time that demand-response companies can use backup diesel-fueled generators without tripping air pollution standards during times of peak power demands. The goal is to keep power flowing and prevent rolling blackouts.

The National Emissions Standards for Hazardous Air Pollutants (NESHAP) for reciprocating internal combustion engines would allow retail companies, manufacturers and other entities to use the generators for up to 100 hours a year -- as opposed to the current cap of 15 hours -- without curbing emissions.

The agency finalized a rule in March 2010 that allows grid operators to order schools, hospitals, companies and other entities to rely on generators to reduce stress on the grid and prevent rolling blackouts during emergencies.

But EPA eased the standard after running into stiff opposition from demand-response companies.

Boston-based demand-response company EnerNOC said that the 15-hour limit was arbitrary and that demand-response companies -- which bundle customers to pull back electricity demand on cue -- need to make generators available for more than 15 hours annually.

But the Electric Power Supply Association (EPSA) says demand-response companies are fighting to ease the standard to avoid installing emissions control technology on the generators, which use diesel and pollute. The companies would also be compensated for using the generators instead of conserving energy.

"The essential design and purpose of demand response is to encourage consumers to reduce their consumption of electricity in response to appropriate market signals, not to simply replace power from the grid with power from an on-site emergency diesel generator not subject to the same air emissions rules," John Shelk, EPSA's president and CEO, said in a statement.

David Brewster, EnerNOC's president, said EPSA and its members are mischaracterizing how often the generators are used because the electric sector benefits from high energy prices during times of tight supply.

The backup diesel generators are used only during emergencies to prevent rolling blackouts and only at the discretion of the grid operators, Brewster said. The machines are used as a "line of last defense," he added.

"The knee-jerk reaction is 'this is bad and this is diesel,' but the EPA, through a lot of education and attention they've given the matter, shows they recognize this is a valuable resource to prevent wide-scale blackouts," Brewster said. "EPSA would have you believe we're going to start running these generators willy-nilly in the markets, but the fact is these emergency backup diesel generators are only run at the discretion of the grid operators when the grid is vulnerable."

EPA's new proposal also includes a provision aimed at addressing reliability concerns from EPA's new air standards for mercury and other air toxics. The proposal would allow emergency generators to operate without limits for up to 50 hours in "nonemergency" situations and high demand periods, or "peak shaving," through August 2017.

Capitol Hill backlash

The NESHAP rule has come under some scrutiny on Capitol Hill.

North Dakota Republican Rep. Rick Berg has said the rule is problematic in rural areas that rely heavily on stationary diesel and natural gas engines during peak shaving.

Berg introduced legislation in December that would exempt all existing engines from the new standards when being used for that purpose (E&ENews PM, Dec. 9, 2011).

In a statement to Greenwire, Berg applauded part of the new proposal but remained adamant that the standards are a step in the wrong direction.

"While the 50-hour threshold appears to be a step in the right direction, this is still over regulation by the Obama administration and the EPA," Berg said. "By simply kicking the can five years down the road, schools and small businesses are still not getting the long term certainty that they need. North Dakotans are still being forced to waste time fighting back the EPA's misguided policies instead of focusing on running their schools or businesses."

Reporter Jeremy P. Jacobs contributed.