On May 1, 2015, the D.C. Circuit  in Delaware v. EPA vacated a portion of EPA’s National Emissions Standards for Hazardous Air Pollutants (NESHAP) and New Source Performance Standards (NSPS) for Reciprocating Internal Combustion Engines (RICE), which allowed backup / emergency generators to operate without pollution controls for up to 100 hours per year as part of an emergency demand-response program. The 100-hour exemption in the rules was remanded to EPA. The petitioners challenging EPA’s rule included the state of Delaware, the Conservation Law Foundation, FirstEnergy, Calpine, PSEG, and intervenor petitioner Electric Power Supply Association.

Petitioners argued that EPA’s decision to exclude 100 hours of emergency generator operation from the RICE NESHAP and RICE NSPS was arbitrary and capricious. While emergency generators are typically relied on for demand response, Petitioners explained to the Court that some consumers have substituted the supply of capacity from traditional sources with backup generators. This practice reduces electricity consumption from the grid, results in “dirtier” energy production, and destabilizes the grid.

The D.C. Circuit found that EPA’s decision to allow 100 hours of uncontrolled operation from emergency generators was arbitrary and capricious because EPA relied on faulty evidence to justify the exemption and did not properly respond to comments raising concerns about the exemption. For example, the Court found that EPA failed to respond to comments that not requiring pollution controls for 100 hours of backup generator operation threatens the efficiency and reliability of the energy markets. The Court observed that “EPA seems to have missed the forest for the trees: the overriding concern of these comments was the perverse effect the 100-hour exemption would have on the reliability and efficiency of the capacity and energy markets….”

Because EPA failed to respond to serious objections, the Court found EPA’s rulemaking to be arbitrary and capricious. No doubt this case sets a standard for EPA’s response to comments that will carry forward into the inevitable challenges to EPA’s forthcoming Clean Power Plan.

Another aspect of this case to note, while looking ahead to challenges to the Clean Power Plan and other EPA rulemakings, is that EPA justified the backup generator exemption on the basis of supporting grid reliability. However, during the rulemaking period, when a commenter suggested that EPA work with FERC to ensure grid reliability, EPA responded that its purpose is to control emissions and “[i]t is not within the scope of this rulemaking to determine which resources are used for grid reliability, nor is it the responsibility of the EPA to decide which type of power is used to address emergency situations.”

This decision vacates the exemption but otherwise leaves EPA’s air rules for generators in place.