The D.C. Circuit Court of Appeals just reversed and remanded EPA’s rule allowing backup generators to operate for up to 100 hours per year as necessary for demand response. It’s an important decision that could have lessons for EPA and the regulated community across a wide range of circumstances, including eventual challenges to EPA’s proposed GHG rule.
EPA said that the rule was necessary to allow demand response programs to succeed while maintaining grid reliability. Commenters had argued that, by encouraging greater use of uncontrolled backup generators, EPA’s rule makes other generators less economic, thus creating a negative feedback loop, with less and less power generated by controlled units, resulting in greater and greater need for uncontrolled backup generators. Here’s what the Court concluded:
- EPA failed adequately to respond to the commenters’ arguments. Noting that “an agency must respond sufficiently to “enable [the court] to see what major issues of policy were ventilated,” the Court instead found that EPA “refused to engage with the commenters’ dynamic markets argument."
- To the extent EPA did respond, it was “self-contradictory”, arguing that it was not justifying the regulation on reliability grounds, even though the final rule said that it was based on reliability concerns.
- The 100-hour rule was based on faulty evidence. EPA relied on evidence that backup sources had to be available at least 60 hours to participate in a PJM “Emergency Load Response Program.” However, PJM itself noted that this minimum does not apply to individual engines.
- Finally, and perhaps most importantly, while EPA justified the rule on reliability grounds, the Court stated that:
grid reliability is not a subject of the Clean Air Act and is not the province of EPA.
This last issue is the part of the opinion that could have some bearing on judicial review of EPA’s GHG rule. The Court noted that there was no evidence that FERC or NERC had participated in the backup generator rule or provided comments to EPA. When, during the course of the rulemaking, a commenter suggested that EPA work with FERC, this was EPA’s response:
the rulemaking’s purpose was to address emissions from the emergency engines “and to minimize such pollutants within the Agency’s authority under the CAA. It 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 statement did not make the Court happy:
EPA cannot have it both ways it [sic] cannot simultaneously rely on reliability concerns and then brush off comments about those concerns as beyond its purview. EPA’s response to comments suggests that its 100-hour rule, to the extent that it impacts system reliability, is not “the product of agency expertise.”
And why is this relevant for the GHG rule?
First, because EPA had better consult with FERC and NERC, so that it can defend any statements it makes in the GHG rule about its impact, if any, on reliability. Second, it’s clear that the court will not show deference to EPA’s conclusions about reliability, since that is not within the scope of EPA’s expertise.