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Parts 222, 200, and Subpart 227-2 Assessment of Public Comment Summary

A total of 225 distinct comments were submitted by 66 commenters in response to the Department's proposed rule for regulating distributed generation sources (Part 222). The purpose of this summary is to highlight key issues raised by the commenters and the Department's response to those issues. This document is divided into four sections. Comments regarding regulation of distributed generation (DG) sources operating in demand response (DR) programs are addressed in Section 1. Comments regarding the cost-effectiveness of installing and operating post-combustion pollution control systems, especially for economic dispatch sources operating in demand response programs, are addressed in Section 2. Comments regarding the rule's impacts on the reliability of the electric grid are addressed in Section 3. Finally, comments regarding costs to ratepayers are addressed in Section 4.

Section 1: Distributed Generation Sources Operating in Demand Response Programs

Several commenters referred to DG sources participating in DR programs as 'emergency generators'. The definition for 'emergency power generating stationary internal combustion engine' (see 6 NYCRR 200.1(cq)) or, colloquially, 'emergency generators', has existed prior to the proposal of Part 222 and is strictly defined as:

"(cq) Emergency power generating stationary internal combustion engine.

A stationary internal combustion engine that operates as a mechanical or electrical power source only when the usual supply of power is unavailable, and operates for no more than 500 hours per year. The 500 hours of annual operation for the engine include operation during emergency situations, routine maintenance, and routine exercising (for example, test firing the engine for one hour a week to ensure reliability). A stationary internal combustion engine used for peak shaving generation is not an emergency power generating stationary internal combustion engine."

This definition was first adopted in the early 1990s as required under the 1990 Clean Air Act Amendments and the then new Reasonably Available Control Technology (RACT) for Oxides of Nitrogen (NOx) emission standards (Subpart 227-2). When Subpart 227-2 was amended in 2010, this definition was moved into Part 200 and an additional point of clarification regarding emergency generators was added to 6 NYCRR 201-3.2(c)(6), "Permits and Registrations", which specifically states that "stationary internal combustion engines used for peak shaving and/or demand response programs are not exempt" from permitting requirements. The Department has not changed either provision with this rulemaking, nor has it proposed that emission standards apply to emergency generators. Since the usual supply of power is still available when a demand response event is called, DG sources operating during DR events fall outside the definition of an emergency generator and are therefore subject to the emission limits set forth in Section 222.4 or an alternative compliance option under Section 222.5 of Part 222.

Several commenters questioned why the Department was not treating DG sources participating in DR programs as the Environmental Protection Agency (EPA) did in the New Source Performance Standards for engines and the National Emission Standards for Hazardous Air Pollutants (see 40 CFR 60 Subparts IIII or JJJJ and 40 CFR 63 Subpart ZZZZ). While the EPA attempted to grant 100 hours of unregulated run-time for DG sources participating in DR programs, the U.S. Court of Appeals for the District of Columbia vacated these sections, paragraphs 40 CFR 60.4211(f)(2)(ii)-(iii), 60.4243(d)(2)(ii)-(iii) and 63.6640(f)(2)(ii)-(iii), as arbitrary and capricious. On April 15, 2016, the EPA issued guidance regarding the vacatur of paragraphs 40 CFR 60.4211(f)(2)(ii)-(iii), 60.4243(d)(2)(ii)-(iii) and 63.6640(f)(2)(ii)-(iii).1 EPA elected not to appeal the May 1, 2015 decision by the U.S. Court of Appeals for the District of Columbia Circuit in the case of Delaware v. EPA. As a result, emergency generators, as defined by the EPA, may not participate in demand response programs or operate when there are voltage fluctuations.

Part 222 defines the framework under which DG sources may be operated in New York State. The Department has developed this rule to reduce emissions of ozone precursors by currently unregulated sources and so the Department can better monitor the use of these sources to develop emissions inventories and State Implementation Plans, especially with respect to the ozone National Ambient Air Quality Standards (NAAQS). In order to do this, the Department needs to know which sources are operating as economic dispatch sources. There are three options by which sources can comply with the rule: 1) sources may be operated as emergency generators as set forth in paragraph 200.1(cq); 2) sources may comply with the emission limits set forth in Section 222.4 of Part 222; or 3) sources may opt for one of the alternative compliance options set forth in Section 222.5.

Section 2: Cost-Effectiveness of Installing and Operating Pollution Control Systems

Several commenters challenged the Department's position regarding the cost-effectiveness of installing and operating pollution control systems in order to comply with the emission limits set forth in Section 222.4 of Part 222. For NOx control, the Department estimated costs to be less than $5,000 per ton of NOx reduced for sources operating as little as 1500 hours per year. Many commenters developed their own estimates for cost-effectiveness, measured in dollars per ton of pollutant reduced, based upon historical operating data - primarily for DG sources operating in demand response programs. Their estimates ranged between $15,000 and $285,000 per ton of NOx reduced.

Several factors are considered when evaluating the cost effectiveness of emission standards. These factors include:

  1. Emission reductions (tons) during a period of time; and
  2. Capital and operation and maintenance costs for pollution control systems amortized over that period of time.

The quantity of emission reductions during the analysis period depends on the initial pollutant levels in the exhaust, the anticipated level of control and the number of hours a source (e.g., engine) operates each year. Newer engines generally have lower initial pollutant levels in the stream exiting the combustion chamber than older engines. The capital and operation and maintenance costs were amortized over a 10-year period at a discount rate of seven percent. The number of hours of operation is assumed to be 8,760 hours per year unless constrained by a legally enforceable regulatory or permit requirement. Historical operation data are not legally enforceable constraints. In the case of economic dispatch sources there is no annual limit on the hours of operation included in the definition of that term (Section 222.2(b)(3)):

(3) 'Economic dispatch source'. A distributed generation source used to reduce energy costs or ensure a reliable electricity supply for a facility. A distributed generation source that is not an emergency power generating stationary internal combustion engine as defined in section 200.1 is considered to be an economic dispatch source.

Therefore, minus any legally enforceable operational constraints, the cost effectiveness calculation is based on the assumption that a source operates all year (8,760 hours). Shorter time periods may be considered on a source-specific basis and must be incorporated in a facility's air permit. Permit limitations are typically requested by the permittee. The mechanism by which this could be accomplished is when a permittee requests a variance per subdivision 222.5(a) of Part 222.

In the Regulatory Impact Statement (RIS), the Department estimated the number of operating hours at which the cost effectiveness calculation reached a benchmark of $5,000/ton of NOx reduced to account for sources operating outside of demand response events. This benchmark was deemed a reasonable cost in the development of Subpart 227-2 which, in part, addresses engines and turbines at facilities subject to a Title V permit due to their potential to emit oxides of nitrogen. Facilities subject to time of use pricing from their electricity provider may opt to generate their own electricity during periods when utility-supplied electricity costs are high. Facilities with economic dispatch sources that meet the emission limits in Section 222.4 of Part 222 would have more operational flexibility than those that operate under a variance (subdivision 222.5(f) of Part 222) or for that matter, use DG sources solely as emergency generators. Therefore, the NYSDEC assumed that economic dispatch sources enrolled in demand response programs will also operate at times when electricity costs are high.

Section 3: Part 222's Impact on the Reliability on New York's Electric Grid

Several commenters stated that Part 222 would have adverse impacts on the reliability of the electric grid. Furthermore, it was stated that a reliable electric grid is essential for public health and safety and protection of the environment.

In developing Part 222, the Department has systematically evaluated how regulating DG sources will impact source owners, DR programs, utilities, energy services companies, and other governmental agencies such as the Public Service Commission. The Department conducted an in-depth cost analysis of the application of this rule which is presented in the RIS. The Department reached out to the New York Independent System Operator, which is responsible for maintaining the reliability of the bulk transmission grid, and Con Edison, which is responsible for maintaining the distribution grid in New York City, to better understand the potential impacts the rule could have on reliability of the electric grid. The Department has taken great care to create a regulatory regime that will control emissions from economic dispatch sources; provide the Department with data crucial for tabulating the most accurate emissions inventory and making meaningful measures to bring the NYMA into attainment with the 2008 and 2015 ozone NAAQS as required by the Clean Air Act while maintaining the reliability of the electric grid.

Section 4: Part 222's Impact on Electricity Rate Payers

Seventeen commenters stated that economic dispatch sources enrolled in DR programs lower electricity costs for all customers. Specifically, sixteen commenters stated that participation in the New York Independent System Operator's Special Case Resources Program saves ratepayers between $125 and $150 million annually.

The commenters did not offer an explanation regarding how the projected savings to ratepayers were calculated. The commenters' estimates of savings to ratepayers is a large sum of money. However, compared to utility electricity revenues, these benefits represent a small fraction of the electricity payments made by ratepayers.

In 2014, Con Edison reported total revenues from their electric service of $10,920 million.2 Assuming the $150 million benefit to ratepayers cited by commenters is correct and limited to the Con Edison service territory, then the net impact on electricity bills would be approximately 1.37 percent. By comparison, taxes on electrical bills for Con Edison customers range from 4.5 percent for residential customers to 8.875 percent for most commercial customers.

Not all of the commenters above are located in the Con Edison service territory. When the electricity revenues from other utilities are considered, the benefit provided to ratepayers by DG sources enrolled in demand response programs is likely less than 1.2 percent.3

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1 Memorandum from Peter Tsirigotis, Director, Sector Policies and Programs Division, Office of Air Quality Planning and Standards, April 15, 2016.
2 2014 Annual Report to DPS (see: http://www3.dps.ny.gov/W/PSCWeb.nsf/0/A97C16D00017FB1F852578E0005454E8?OpenDocument)
3 In 2014, Rochester Gas & Electric reported revenues from their electricity service of $546 million (2014 Annual Report to DPS). In 2014, New York State Electric & Gas reported revenues from their electricity service of $1,135 million (2014 Annual Report to DPS). Data obtained from: http://www3.dps.ny.gov/W/PSCWeb.nsf/0/A97C16D00017FB1F852578E0005454E8?OpenDocument


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