Correction appended.

Americans could breathe more smog and toxic chemicals on summer days if regulators fail to get a handle on companies that use diesel-burning generators as a last line of defense against power outages, a coalition of state officials from the Northeast says in a new report.

There may be as many as 30,000 backup generators in the Northeast. All together, they could produce 10 gigawatts of electricity, says the Northeast States for Coordinated Air Use Management, or NESCAUM, which represents the six New England states, New York and New Jersey.

Generator owners typically only run them for testing and emergencies, but they are increasingly signing contracts with demand-response companies that get paid to reduce the number of megawatts that power companies must send onto the grid.

NESCAUM says that is a problem. These engines tend to produce far more air pollution than conventional power plants, and even if they only run for a few dozen hours per year in the summertime, the spikes in diesel emissions would "occur at the worst possible times for air pollution," the report says.

Older generators produce a disproportionate amount of the chemicals that form smog and soot, as well as toxic chemicals like benzene, said Paul Miller, the group's deputy director. Most worrying, he said, is that they tend to be located where people live and work.

NESCAUM runs an air quality monitor at its office in downtown Boston. Once a week, the amount of soot in the air quickly rises to three or four times its normal levels and then returns to normal, Miller said.

The increase is nearly twice as large as the one that occurs during rush hour on weekday mornings, and it takes place exactly when the backup generator at a nearby office building goes through a scheduled test run to show that it is working properly.

"It spikes on Saturdays at 11:30, all year round," Miller said. "And that's just one unit."

Regulators have always allowed these generators to run for several dozen hours per year to keep them in good working order for blackouts. New England's grid operator will pay the owner of a 1-megawatt generator about $29,000 this year to keep that generator on call for an emergency, which makes it a cheaper option than building a new power plant or operating an old, inefficient one that sits idle for all but a few hours a year.

Boston-based EnerNOC Inc., the largest U.S. demand-response company, says that these generators make up a minority of its portfolio. Still, they have drawn the most criticism from the merchant power companies that make a large share of their profits by selling electricity when prices climb in the summertime.

Houston-based Calpine Corp. and New Jersey-based Public Service Enterprise Group Inc. (PSEG), two large merchant power generators, spoke out on that point during a recent meeting at U.S. EPA headquarters. They said it is unfair that diesel generators are cutting into their business because the environmental regulations on those generators are less stringent (Greenwire, July 10).

David Brewster, the founder and president of EnerNOC, said these generators are coming under fire because demand-response companies are beating out power companies in auctions. EnerNOC's largest customer, the Pennsylvania-based power grid authority called the PJM Interconnection, says the new services will save ratepayers $11.8 billion for the 2013-2014 delivery year.

PJM has procured about 50 percent more demand response -- a total of 14,833 megawatts -- for the 2015-2016 delivery year.

"Like any disruptive industry, it rocks the incumbent players," Brewster said. "Our view is that in these markets, usually the more efficient technology and business model prevails in the long run."

Demand-response supporters say that having generators available for emergencies prevents devastating outages like the Northeast blackout of 2003, which left 50 million people without power and caused emergency generators to be used in far larger numbers.

That use has been accepted by regulators in states such as Massachusetts, Connecticut and Pennsylvania, which have come up with their own rules. Connecticut and Massachusetts both allow the generators into emergency demand-response programs but require them to burn natural gas or ultra-low-sulfur diesel fuel, the NESCAUM report says.

Since the Northeast blackout, grid operators in New England have only actually dispatched backup generators once for a total of 3.75 hours in 2006. If they could not use demand response for these emergencies, grid operators would need to sign contracts with power plants that would cost ratepayers billions of dollars more per year, Brewster said.

"These things are used very infrequently, but they provide a very important backstop to widescale outages," he said.

Searching for data

Top environmental officials in the Obama administration have bought into that argument. Two years after EPA released new air pollution rules for industrial engines, the agency is going back and changing the rules to let backup generators run for up to 100 hours per year if they are needed to keep the power grid stable.

Air chief Gina McCarthy recently told a conference of state regulators that she struggled with the decision to allow the use of diesel engines. After all, less than one month earlier, the World Health Organization had definitively concluded after decades of study that diesel emissions cause cancer.

Federal Energy Regulatory Commission Chairman Jon Wellinghoff said he is also "not a fan of diesels," but he recognizes that using them for demand response could help to make the U.S. power system cleaner, cheaper and more reliable.

"There potentially is a bridge here," Wellinghoff said, "and we really don't want to blow up the bridge unnecessarily without ensuring that we know [the data]" (E&ENews PM, July 10).

Data remains a sticking point. Companies such as EnerNOC do not typically disclose where they get their "negawatts," and the grid operators that call on them also lack solid data on the extent to which generators are being used, some state regulators say.

PJM says it does not know exactly how many of these generators are being used, though they make up at least 10 or 20 percent of the available negawatts, and the total could be much higher.

But as traditional power companies have started raising concerns about the generators, PJM has started asking its demand-response providers to submit data on their sources of megawatts.

Miller said these sorts of data-gathering efforts will help the members of NESCAUM decide whether the rise of demand response will harm air quality, as some of them suspect. His group has already called on the federal government to make dirtier diesel generators use the income from demand-response programs to pay for pollution controls or cleaner fuel.

"Maybe we're all completely wrong, but we just don't know," Miller said. If no one is collecting data, he added, "we have the same probability of being wrong as anybody else."

Click here to read the report.

Correction: An earlier version of this story incorrectly stated that Exelon Corp., not PSEG, spoke at the recent meeting at EPA headquarters.