High Electric Demand Day (HEDD) Regulatory Concepts for AQTAC Discussion

1. High Electric Demand Day (HEDD) Regulatory Concepts for AQTAC Discussion Air Quality Technical Advisory Committee November 18, 2009 Randy Bordner Environmental Group Manager Air Resources Management Bureau of Air Quality

2. Approval to Develop a Proposed Rulemaking for the Control of NOx from High Electric Demand Day Units • Department of Environmental Protection Secretary John Hanger approved a request to develop a proposed rulemaking for High Electric Demand Day units on July 21, 2009.

3. HEDD Background Information • On March 2, 2007 the Ozone Transport Commission (OTC) states developed a “Memorandum of Understanding” (MOU) with regard to incorporation of HEDD emission reduction strategies into ozone attainment state implementation planning. Pennsylvania did not sign the MOU. • Stakeholders in Pennsylvania suggested that Pennsylvania pursue its own HEDD program to include smaller generation units and the utilization of CAIR allowances as part of its compliance strategy. Stakeholders noted that OTC’s program was focused on units already in the CAIR program and on retiring CAIR NOx allowances at high turn in ratios, relied on the installation of high cost NOx controls or command and control standards all of which would threaten the grid’s reliability.

4. What are the HEDD reductions stipulated in the MOU? • OTC states that sign onto the MOU had agreed to achieve the following HEDD reductions listed in the table below.

5. OTC Recommended HEDD Strategies • The OTC MOU lists several strategies for states to select in order to achieve the HEDD reductions proposed in the MOU. • Regulatory caps for emissions from HEDD units on high electric demand days; • Performance standards; • State/generator HEDD Partnership Agreements; • Energy efficiency Programs; • Demand response programs; • Regulatory standards or controls for behind the meter programs; • Effective adjustment of the NOx retirement ratio to provide reductions on High Electric Demand Days.

6. Why does Pennsylvania need an HEDD rule. • Many small HEDD generating units in Pennsylvania: • Have no NOx emission controls; • Have no NOx emission standards to meet; • Have operated only as emergency generators in the past; • Emit 10 times more NOx per MW-hr of generation than base load units; • Operate during days of high electric demand which often occur on high ozone days; • Are highly compensated since they run when electricity prices are as high as $700 per Mw-hr during periods of high demand; • Emit more NOx in total than non-EGUs regulated under the NOx Budget program; • Are concentrated in urban ozone nonattainment areas.

7. Example of Costs and Peak Electric Prices • Initial analysis estimates the cost of retrofitting water injection technology on combustion turbines reduces NOx by about 55 percent at a cost of about $75/MWh, or about $37,000/MW for peak turbines operating less than 500 hours per year. By comparison, the market price of peak electricity in New Jersey is over $700/MWh. • Similarly, a New York Times article stated that in 2003, New York City received from the local power authority $40 for each kilowatt of demand the city removed from the electricity grid during times of peak electricity demand ($40/kW is equivalent to $40,000/MW).4 This article also reported that New York City was disconnecting facilities from the grid when requested during peak demand days by turning on their emergency backup diesel generators, which are typically higher polluting, thus contributing to greater air pollution on peak summer days. 4 Anthony DePalma, NY Times, “Relieving the Power Grid, Dirtying the Air,” April 8, 2006.

8. Diesel usage during the ozone season in Pennsylvania from known generation diesel engines.

9. Diesel Usage Spikes during the Ozone Season in Philadelphia from Known Generation Diesel Engines

10. 2008 Estimated Emissions from HEDD Units • Estimated Ozone Season emissions from HEDD units less than 25 MW – 3,180 tons. • Ozone Season emissions from HEDD units 25 MW and greater – 1,242 tons. • Estimated Ozone Season NOx emissions from HEDD units – 4,422 tons. The total emissions are estimated by using the difference between the fossil fuel heat input from EIA and the fossil fuel heat input reported to EPA through the CAIR program.

11. HEDD Unit Distribution

12. Pennsylvania’s Strategy • Based upon its stakeholders’ recommendations, Pennsylvania will develop an HEDD rule to address emissions from HEDD units. The proposed rule will use several strategies to address Pennsylvania’s specific HEDD issues.

13. Use of CAIR allowances • With regard to trading under the CAIR program, EPA will not allow States to take SIP credit when CAIR allowances are part of a compliance option for units falling outside the applicability of the NOx SIP Call.

14. Pennsylvania HEDD Strategies Pennsylvania’s strategy could include the following elements: • Daily NOx emission caps on HEDD units; • Exemption standards; • Daily caps on behind the meter units. While taking advantage of programs already underway for: • Energy efficiency; and • Demand reduction.

15. Pennsylvania’s Regulatory HEDD Concepts Proposed Applicability • HEDD units that operate or generate electricity less than 1200 hours per ozone season for two consecutive ozone seasons. (Editors Note: Owners and operators have a choice to maintain the unit under an emergency generator status, become an HEDD unit or operate more than 1200 hours to avoid HEDD status. The Department is considering 2010 and 2011 as the initial relevant ozone seasons.) • Include units with a rated generation capacity of 0.5 MW or greater or any group of units under a common control with a cumulative total capacity of over 1 MW. • Only include HEDD units that emit NOx at a rate greater than 0.2 lbs. of NOx per mmbtu of heat input

16. Concepts continued… Units emitting more than 0.2 lbs/mmbtu receive a daily cap. • Based upon emissions for the highest heat input rate for any ozone season day over three baseline ozone seasons. The Department is considering 2007, 2008, and 2009 as potential baseline years. • The daily cap will be reduced over time for larger units. • The daily cap will remain constant for smaller units.

17. Concepts - Summary of Exempted Units • Any generator or generation unit used only for emergency purposes. • Units operated under the PJM Emergency Load Response Program (ELRP) that are only used as emergency generators. • Any HEDD unit that emits NOx at less than 0.2 lbs./mmbtu of heat input or 2 lbs. per MW-hr of gross electrical output. • Any unit whose hourly uncontrolled emission rate is or has been reduced by 80%.

18. Why does capping HEDD unit daily emissions translate into NOx reductions? • Reductions are achieved through the Alternate Energy Portfolio Standards Act (73 P.S. §§ 1648.1-1648.8) • Requires a percentage of the electric energy sold to be from Tier 1 sources and increases that total by 0.5% each year. • Uncontrolled fossil fuel fired HEDD units are utilized less while cleaner base load units are better able to adjust capacity to meet changing demand.

19. Why does capping HEDD Unit Daily Emissions translate into NOx Reductions? • Reductions are also achieved through Act 129 : • Requires the Public Utility Commission to adopt an energy efficiency and conservation program. • Require utilities to adopt and implement cost effective plans to reduce electric consumption 1% by May 1, 2011 and 3% by May 31, 2013. • Utilities must also implement plans by May 31, 2013 to reduce electric demand by 4.5% during peak electric demand periods. • Daily CAPs on HEDD units will ensure those demand reductions and associated NOx reductions are not lost due to the use of high emitting and uncontrolled behind the meter generation. • Caps will also enable the Department to quantify reductions for SIP reduction purposes.

20. How does capping HEDD unit daily emissions translate into NOx reductions? • Reductions are also achieved by: (Editors Note: A CAP reduction is not necessary to achieve emission reductions but instead insures a particular level of reduction for which the Department can take SIP credit.) • Reducing the daily cap over time for units over 2 MW. The Department’s proposal is 10 percent per year for 8 years. • Allows cleaner units to compete in the generation market since owners and operators now need to consider emissions from HEDD units in pricing their generation. • Allows owners and operators of uncontrolled units to adjust operations, control units or reduce emissions over a long period of time without putting the grid at risk.

21. Estimated Emission Reductions from Pennsylvania’s HEDD Proposal • Estimated ozone season NOx emission reduction from HEDD Units less than 25 MW is 2,544 tons of NOx. • That is an average reduction of 16.6 tons of NOx per day over the ozone season.

22. Estimated Emission Reductions from Pennsylvania’s HEDD Proposal • Estimated ozone season NOx emission reduction from HEDD units rated 25 MW or greater is 624 tons. • That equates to an average reduction of 4 tons of NOx per day over the ozone season. • Total NOx reduction would be 20.6 tons per day during the ozone season.

23. Pennsylvania’s Approach vs. Rules in Other States • Pennsylvania’s approach: • Daily NOx caps based upon highest historic usage; • Units that exceed their daily cap level would lose the cap for subsequent years; • Exempts clean units; • Exempts emergency generators; and • Exempts ELRP units;

24. New Jersey’s HEDD Rule • Final HEDD Rule published April, 2009 • HEDD units over 15 MW and whose emission rate >0.15 lb/mmbtu. • Requires owners of HEDD units to prepare a 2009 HEDD compliance demonstration protocol to meet regulatory emission rates in 2015.

25. Maryland • Distributed Generation Rule. • Allows units to purchase and retire CAIR allowances for excess emissions. • Maryland does not get SIP credit for this rule.

26. Connecticut • No formal rule but indicates it will get reductions by: • Demand Reduction; • Energy Efficiency; • Renewable Energy Initiatives; • Tightening controls on “reliability must run” units.

27. Delaware • 4.1 Beginning May 1, 2009, no existing stationary combustion turbine electric generating unit subject to this regulation shall exceed the NOx emissions limitations shown in Table 4-1 of this regulation during the ozone season, inclusive of any year: Table 4-1 Fuel TypeNOx Emissions Limit (ppmv) • Gaseous Fuel 42 (ppmv) • Liquid Fuel 88 (ppmv)

28. New York • New York is working on a rule but we do not have details at this time.

29. ACTAC Recommendations? • Does AQTAC: • Want to suggest any alternative methodologies that the Department could consider? • Have any suggestions and recommendations for the Department on its current direction concerning HEDD units?

30. Open Discussion • Let me thank the AQTAC Committee for allowing us an opportunity to present our ideas on the HEDD issue. We look forward to your input. • If you have any comments or thoughts that you would like to share, please contact Randy Bordner at 717-772-3921 or by e-mail at ranbordner@state.pa.us.