Recently, many electric utilities in Ohio are approaching businesses with offers of reduced rates in exchange for disconnecting from the grid and operating instead with on-site emergency generators at certain times—an arrangement known as demand response. However, in order to take advantage of these opportunities, businesses must carefully navigate environmental permitting and regulation for emergency generators, which continues to be in a state of flux.

Beginning in 2004, U.S. EPA began regulating stationary reciprocating internal combustion engines (RICE), such as emergency generators, under a regulatory program known as National Emission Standards for Hazardous Air Pollutants, or NESHAP. Since that time, U.S. EPA has made several revisions and amendments to the RICE NESHAP gradually increasing its application based on the size and type of the engines, and whether the engine is located at a minor or major source of air pollution.

On January 30, 2013, U.S. EPA issued new amendments, effective April 1, 2013, to the RICE NESHAP. In addition to other amendments, U.S. EPA established limits on the hours emergency generators may be used for demand response arrangements and peak shaving, and imposed reporting requirements for this type of use. Demand response arrangements are agreements designed to offer incentives to entities to lower the use of electricity during times of high market prices or when the electric grid is unstable, often with the entities curtailing power usage and/or utilizing on-site generation such as emergency generators. Peak shaving is when entities reduce the amount of energy utilized during hours when rates are the highest, often compensating with on-site generation. Under the RICE NESHAP amendments, certain emergency generators can operate for up to 50 hours per year for the purposes of non-emergency demand response or peak shaving until May 3, 2014. However, the 50 hours can only be used if certain specific conditions under the regulations are met.

Ohio EPA also regulates emergency generators and issues air pollution control permits for them. Under Ohio law, emergency generators may be permitted in various ways, such as part of a Title V permit or under a permit to operate on registration status, but most emergency generators are permitted under a “permit-by-rule.” Until very recently, emergency generators authorized by an Ohio EPA permit-by-rule could not operate for purposes of demand response or peaking power. This was because the state definition for an “emergency internal combustion engine” under Ohio Administrative Code 3745-31-03(A)(4)(a)(viii)(c) excludes engines used to produce peaking power or used in non-emergency energy assistance programs.

In response to the January 2013 U.S. EPA RICE NESHAP amendments, Ohio EPA issued orders directly pertaining to emergency generators used for demand response purposes. Under these orders, Ohio EPA has allowed emergency generators authorized under by a permit-by-rule to operate for demand response purposes for up to 50 hours per year (consistent with the 2013 RICE NESHAP amendments) until May 3, 2014 without obtaining any further revised permits. However, under these orders, the emergency generators must comply with all of the RICE NESHAP requirements under the 2013 amendments, which include maintenance of specific records, and submit the records to Ohio EPA by May 15, 2014.

Though this change in regulation provides new ways for Ohio businesses with emergency generators operating under a permit-by-rule to take advantage of demand response agreements, businesses must ensure compliance with a number of regulations. In addition to time-limits and a cut-off date of these regulations, Ohio businesses must be properly permitted by Ohio EPA and keep certain records, and possibly even use specific types of fuels. In addition, the January 2013 RICE NESHAP amendments are under appeal in court, and on June 28, 2013, U.S. EPA announced that it was reconsidering portions of the January 2013 RICE NESHAP amendments. As a consequence, the rules impacting emergency generators are subject to change.

Before entering into a demand response contract or engaging in peak shaving with emergency generators, businesses should be mindful of current legal requirements, and should seek good counsel on how to maximize business opportunities while complying with state and federal environmental regulation.