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Parts 222 and 200 Revised Regulatory Flexibility Analysis for Small Businesses and Local Governments

Distributed generation (DG) sources are engines used by host sites to supply electricity outside that supplied by distribution utilities. This on-site generation of electricity by DG sources is used by a wide-range of commercial, institutional and industrial facilities either in non-emergency situations when electricity costs are high or to reduce demand on the electric grid, or in emergency situations when the usual supply of power from central station power plants becomes unavailable.

DG sources emit nitrogen oxides (NOx), a precursor to ground-level ozone, which has been linked to adverse public health impacts. The increasing use of uncontrolled DG sources, if left unchecked, will exacerbate public health impacts and make it very difficult for New York to meet its obligations under the Clean Air Act (CAA) to attain the 2008 and 2015 8-hour ozone National Ambient Air Quality Standards (NAAQS).

The Department of Environmental Conservation (Department or DEC) adopted 6 NYCRR Part 222, "Distributed Generation Sources", along with attendant revisions to 6 NYCRR Part 200, "General Provisions", on November 1, 2016. The new rule took effect on December 1, 2016. On March 1, 2017, an Article 78 petition was filed challenging various aspects of Part 222. On July 26, 2017, a Stipulation and Order was issued whereby the Department agreed to propose a new rule to replace the adopted rule pursuant to the State Administrative Procedure Act (SAPA). The purpose of this rule making is to promulgate a new Part 222 along with the attendant changes to Part 200. The new rule will apply to economic dispatch sources located in the New York City metropolitan area (NYMA)1 which are not currently regulated under Subpart 227-2. In addition, the Department may initiate a new rule to develop a minor source new source review regulation in accordance with Section 110(a)(2)(C) of the Clean Air Act to address NOx emitting sources not covered under Subpart 227-2 or the new Part 222.

Effect of the Rule

The proposed rule is limited to economic dispatch sources located in the NYMA. Economic dispatch includes DG sources enrolled in demand response (DR) programs sponsored by the New York Independent System Operator (NYISO) or distribution utilities and that receive capacity or energy payments or both. In addition, price-responsive generation sources, defined in Part 222 as DG sources used to provide electricity when the cost of electricity supplied by the distribution utility is high, are also covered under the definition of economic dispatch sources.

Part 222 may impact a wide range of businesses in the NYMA. Based upon responses received pursuant to the notification provision in Section 222.3 of the rule adopted on November 1, 2016, more than 160 facilities enrolled in demand response programs may be subject to the new rule. Participants in DR programs include industrial, commercial and institutional facilities. There are approximately 10,960 buildings in New York City that are required to have emergency generators pursuant to Section 2702 of the New York City Electrical Code. These facilities could potentially operate those generators as price-responsive generation sources as a result of the ongoing Reforming the Energy Vision initiative overseen by the Public Service Commission.

Energy services companies (ESCOs) enroll facilities into DR programs sponsored by NYISO and distribution utilities. ESCOs' DR portfolios include curtailment, load shifting, energy efficiency and DG resources. Most DG resources in these portfolios are uncontrolled, diesel-fired engines. The Department is proposing a requirement whereby economic dispatch sources subject to Part 222 must be of Model Year 2000 or newer effective May 1, 2021. The Department anticipates that this will amount to a 35 percent reduction in generation resources enrolled in the NYISO's DR programs through 2025 with zero impact to the DR programs sponsored by Con Edison and Orange & Rockland Utilities. In addition, the Department is proposing NOx emission limits in Part 222 that would take effect on May 1, 2025 that are based, in large part, on provisions in Section 24-149.6 of the New York City Air Pollution Code. Therefore, it is expected that the provisions of Part 222 will minimally impact employment opportunities with ESCOs.

Compliance Requirements

Part 222 will apply to economic dispatch sources in the NYMA with mechanical output ratings of 200 horsepower (hp) or greater. The rule will not apply to economic dispatch sources currently regulated under Subpart 227-2.

The following NOx provisions will apply to economic dispatch sources subject to Part 222, effective May 1, 2021 through April 30, 2025:

  1. combustion turbines firing natural gas: must be of model year 2000 or newer or must have a NOx emission rate less than or equal to 2.96 pounds per megawatt-hour as certified in writing by a professional engineer;
  2. combustion turbines firing oil: must be of model year 2000 or newer or must have a NOx emission rate less than or equal to 2.96 pounds per megawatt-hour as certified in writing by a professional engineer;
  3. compression-ignition engines: must be of model year 2000 or newer or must have a NOx emission rate less than or equal to 2.96 pounds per megawatt-hour as certified in writing by a professional engineer;
  4. lean-burn engines: must be of model year 2000 or newer or must have a NOx emission rate less than or equal to 2.96 pounds per megawatt-hour as certified in writing by a professional engineer; or
  5. rich-burn engines: must be equipped with three-way catalyst emission controls.

The following NOx emission limits will apply to economic dispatch sources effective May 1, 2025:

  1. combustion turbines firing natural gas: 25 parts per million on a dry basis corrected to 15 percent oxygen;
  2. combined cycle turbines firing oil: 42 parts per million on a dry basis corrected to 15 percent oxygen;
  3. spark ignition engines firing natural gas: 1.0 grams per brake horsepower-hour;
  4. compression-ignition engines firing distillate oil (solely or in combination with other fuels) with nameplate ratings less than 750 hp: 0.30 grams per brake horsepower-hour; or
  5. compression-ignition engines firing distillate oil (solely or in combination with other fuels) with nameplate ratings greater than or equal to 750 hp: 0.50 grams per brake horsepower-hour.

Emissions test reports demonstrating compliance with subdivision 222.4(b) of Part 222 must be submitted to and approved by the Department before a distributed generation source may be operated as an economic dispatch source on or after May 1, 2025.

Professional Services

The services of an engineering consultant may be required in order to complete a permit. A stack testing company would be required to conduct the emissions testing required in Section 222.5.

Compliance Costs

There are several pathways by which facilities subject to Part 222 may follow in order to comply with the emission limits set forth in Section 222.4 of Part 222:

  1. replace a DG source with a new source;
  2. install post-combustion NOx controls on an existing source; or
  3. limit the use of non-compliant sources to emergency uses only.

The costs for post-combustion control systems are presented in the following sections for 1200 hp and 2000 hp engines as a possible compliance option for existing sources operating on or beyond May 1, 2025. As a point of comparison, replacement costs for new 1200 hp or 2000 hp engines that meet the EPA's New Source Performance Standards (NSPS) requirements range from $525,000 to $1,000,000.2,3 The compliance costs for relegating a source to emergency-only status as defined in subdivision 200.1(cq) are lost income from capacity payments and generation payments during DR events.

Selective Catalytic Reduction (SCR) Systems

Selective catalytic reduction (SCR) systems can reduce the NOx emissions from lean-burn natural gas fired-engines and diesel-fired engines by up to 90 percent.4 The capital cost (installed) of SCR control systems are presented in Table 1.

Table 1: Capital Costs for SCR Systems
Cost Component 1200 hp Engine 2000 hp Engine
SCR System5 $108,300 $180,500
Installation $65,000 $108,300
Taxes $8,700 $14,500
Testing6 $8,000 $8,000
Total Cost $190,000 $311,300

Operational costs vary depending upon several factors. The primary driver is the reagent (urea) cost. The other operational factors DEC considered in developing cost estimates for SCR systems are insurance, maintenance and labor costs.

Non-Selective Catalytic Reduction (NSCR) Systems

Non-selective catalytic reduction (NSCR) systems can reduce the NOx emissions from rich-burn natural gas fired-engines by up to 98 percent.7 The capital cost (installed) of NSCR control systems are presented in Table 2.

Table 2: Capital Costs for NSCR Systems
Cost Component 1200 hp Engine 2000 hp Engine
SCR System $23,500 $39,200
Installation $14,100 $23,500
Taxes $1,900 $3,200
Testing8 $8,000 $8,000
Total Cost $47,500 $73,900

NSCR catalysts need to be replaced every five years.9 Replacement catalysts are estimated to cost 7 percent of the original NSCR system cost. In DEC cost analyses, the cost of installing the replacement catalyst was assumed to be 60 percent of the cost of the new catalyst. Annual costs for operating NSCR include insurance, maintenance and labor.

Compliance Testing

The emission testing costs are estimated to be $8,000.10 This is a one-time cost for sources operating on or after May 1, 2025.

Minimizing Adverse Impact

The Department has taken the following steps to minimize the adverse impacts of Part 222 on small businesses and local governments:

  1. The provisions that take effect on May 1, 2021 mirror the tariff provisions governing the demand response programs sponsored by Con Edison and Orange & Rockland Utilities. Sources enrolled in those programs will not be affected by this rulemaking until 2025, at which time most sources will be impacted by Section 24-149.6 of the New York City Air Pollution Code. This rule is anticipated to impact approximately 35 MW of DR sources enrolled in the NYISO's DR programs beginning May 1, 2021. This amounts to approximately 7.7 percent of the capacity enrolled in the Special Case Resources program in NYISO Zones I, J and K.11 Therefore, the impact to ESCO's will be small in 2021.
  2. The provisions limiting DR enrollment and price-responsive generation sources to model year 2000 or newer do not take effect until May 1, 2021 in order to provide DR sponsors, ESCOs and source owners sufficient time to adjust to the new rule.
  3. The emissions testing requirements have been reduced significantly compared to the rule adopted in November 2016. PM testing will not be required. Only one emissions test per source is required - and this only applies to economic dispatch sources operating on or after May 1, 2025.

Small Business and Local Government Participation

The rule adopted on November 1, 2016 was the result of a stakeholder process initiated by the Department in 2001. Stakeholder Meetings were held on November 13, 2001, December 12, 2002, April 8, 2003, May 17, 2004, June 29, 2006 and June 25, 2013. Drafts of Part 222 were circulated electronically to stakeholders in May 2004, January 2005, June 2006 and May 2013. More than 175 stakeholders have been involved in the process of developing Part 222 and anyone who requested to be added to the list of stakeholders was added. The meeting of April 8, 2003 was advertised in the Department's Environmental Notice Bulletin.

Drafts of a proposed replacement rule were released to stakeholders on November 3, 2017, February 26, 2018 and June 5, 2018. Stakeholder meetings were held on November 13, 2017 and March 12, 2018.

Many of the participants in the stakeholder process represented small businesses and local governments. These groups include law firms, consultants, ESCOs, trade organizations, manufacturers, and governmental agencies that work with small businesses and local governments.

Economic and Technical Feasibility

Facilities that decide to participate in demand response or utilize price-responsive generation sources will have two compliance pathways to choose from. First, they can purchase new DG sources that meet the NOx limits set forth in Part 222. Second, they can install post-combustion NOx controls on existing sources in order to comply with the appropriate NOx standard. Both options are technically feasible. It will be up to each facility to decide whether participating in DR or price-responsive generation is consistent with their respective business models.

Cure Period:

In accordance with SAPA Section 202-b, this rulemaking does not include a cure period since the first compliance date (May 1, 2021) will be more than 30 days after rule adoption. This rulemaking does not require stakeholders to take any actions which necessitate a cure period.

Initial Review

The initial review of this rule shall occur within the third year after this rule is adopted

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1 The term 'New York City metropolitan area' is defined in Part 200.1(au) as all of New York City and Nassau, Suffolk, Westchester and Rockland Counties.
2 E-mail from Joe Suchecki (Truck & Engine Manufacturers Association) to John Barnes (DEC) dated November 8, 2013.
3 Replacement costs as well as the costs for pollution control systems could be higher than the costs presented in this section in cases where there are space limitations or building or fire code requirements that must be met.
4 "NOx Control for Stationary Gas Engines," Wilson Chu (Johnson-Matthey), Advances in Air Pollution Control Technology, MARAMA Workshop, May 19, 2011.
5 Sources: CARB 2010. Regulatory Analysis for Revisions to Stationary Diesel Engine Air Toxic Control Measure. Appendix B. Analysis of Technical Feasibility and Costs of After-treatment Controls on New Emergency Diesel Engines; and (2) Producer Price Index, U.S. Department of Labor, Bureau of Labor Statistics.
6 Testing costs include NOx and PM tests (diesel engines). For natural gas-fired engines, the estimated cost is $8,000 for NOx tests only.
7 "NOx Control for Stationary Gas Engines," Wilson Chu (Johnson-Matthey), Advances in Air Pollution Control Technology, MARAMA Workshop, May 19, 2011.
8 Emissions tests for NOx only since the PM standard does not apply to natural gas engines.
9 E-mail from Wilson Chu (Johnson Matthey) to John Barnes (DEC) dated January 24, 2008.
10 Stack testing costs are based upon an informal Department survey of several stack testing companies.
11 "Semi-Annual Reports on New Generation Projects and Demand Response Programs," Attachment II, New York Independent System Operator, June 1, 2017


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