Combined Heat & Power Legal • Institutional • Regulatory WSUCEEP01-013 Combined Heat & Power Legal • Institutional • Regulatory March 2001 WSUCEEP01-013 R. Gordon Bloomquist, Ph.D. Washington State University Cooperative Extension Energy Program John Nimmons John Nimmons & Associates Mark Spurr Kattner/FVB Washington State University Cooperative Extension Energy Program 925 Plum Street SE P.O. Box 43165 Olympia, WA 98504-3165 © 2001 Washington State University Cooperative Extension Energy Program. This case study contains material written and produced for public distribution. You may reprint this written material, provided you do not use it to endorse a commercial product. Please reference by title and credit Washington State University Cooperative Extension Energy Program and the Commuter Challenge. Issued by Washington State University Cooperative Extension and the U.S. Department of Agriculture in furtherance of the Acts of May 8 and June 30, 1914. 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WSUCEEP01013 Table of Contents State Electricity Restructuring and CHP/DG Development....................................................................................... 1 Introduction.......................................................................................................... 1 CHP/DG Characteristics Relevant to Regulation .......................................... 2 Energy Inputs to CHP/DG Conversion Process ..................................... 2 Energy Outputs from CHP/DG Conversion Process.............................. 2 Why Regulation Matters for CHP/DG .................................................... 3 Traditional Regulatory Framework.................................................................. 4 Monopoly Providers and Captive Ratepayers......................................... 4 Emerging Regulatory Framework.................................................................... 6 Competitive Generation Markets and Customer Choice........................ 6 Broadening Wholesale Competition........................................................ 6 Moving Toward Retail Competition: ...................................................... 7 Status of State Electricity Restructuring ........................................................ 8 Different Strokes for Different States...................................................... 8 Key Restructuring Issues Affecting CHP/DG................................................. 9 When Restructuring Starts, How it Works, and Its Impact on Rates.............................................................................. 9 Implementation of Retail Choice............................................................ 9 Separation of Utility Generation Functions and Divestiture of Assets .......................................................................... 12 Open Access and Comparability for Utility Distribution Services ..... 14 Utility’s Obligation to Serve and its Status as ‘Default Provider’....... 16 Special Treatment for CHP/DG, Renewables, and Other Technologies ............................................................................ 18 Transitional Rate Reductions and Post-Transition Rates..................... 21 Summary and Conclusions..............................................................................22 Federal Environmental Requirements ................................................ 24 Federal Environmental Guidelines................................................................. 24 Environmental Protection Agency......................................................... 24 National Environmental Policy Act of 1969......................................... 24 Preparing Environmental Impact Statements........................................24 Incorporating by Reference (40 C.F.R. 1502.4) ................................... 26 Supplementing (40 C.F.R. 1502.9(c)) ................................................... 26 Using Another Agency's EIS (40 C.F.R. 1506.3)................................. 27 Tiering (40 C.F.R. 1508.28)................................................................... 27 Water Quality..................................................................................................... 28 Federal Water Pollution Control Act (WPCA)..................................... 28 New Source Performance Standards ..................................................... 28 National Pollutant Discharge Elimination System Permit................... 28 CHP Guide Solid and Hazardous Waste............................................................................29 Resource Conservation and Recovery Act (RCRA)............................. 29 Other Federal Environmental Regulations................................................... 30 Endangered Species Act of 1973...........................................................30 Air Emissions Permitting Guidance....................................................... 32 Introduction........................................................................................................ 32 Overview of the Clean Air Act........................................................................ 32 Structure of the Clean Air Act ............................................................... 33 Air Quality Standards and State Implementation Plans ........................... 33 New Source Review ............................................................................... 34 Direct Federal Controls .......................................................................... 34 New Source Performance Standards ..................................................... 35 Operating Permits ................................................................................... 35 Prevention of Significant Deterioration (PSD) ............................................ 35 Location in Attainment Area.................................................................. 35 Major Source or Major Modification .................................................... 36 Emissions Netting................................................................................... 38 Netting Issues for CHP........................................................................... 42 Best Available Control Technology (BACT) ....................................... 43 Air Quality Analysis........................................................................................... 44 NAAQS and PSD Increments................................................................ 44 Class I, II and III Areas ..........................................................................44 Unique Analyses Required..................................................................... 45 Ambient Data Requirements.................................................................. 45 Air Quality Modeling ............................................................................. 46 Additional Impacts Analysis.................................................................. 46 Non-Attainment Area (NAA)........................................................................... 47 Location................................................................................................... 47 Definition of Source ............................................................................... 47 Applicability Thresholds........................................................................ 48 Lowest Achievable Emissions Rate (LAER)........................................ 48 Emissions Offsets ................................................................................... 49 New Source Performance Standards (NSPS).............................................. 49 Introduction............................................................................................. 49 Recent revisions to NSPS....................................................................... 50 Quantifying Output in CHP facilities.................................................... 51 Emissions Trading ..................................................................................................... 51 Cap and Trade Systems .......................................................................... 51 Sulfur Dioxide Trading .......................................................................... 52 Nitrogen Oxides...................................................................................... 52 Other Emission Trading Initiatives........................................................52 Permitting Process............................................................................................ 53 References.......................................................................................................... 55 CHP Guide Siting of Electricity-Generating Facilities......................................... 57 Introduction........................................................................................................ 57 Facility Siting...................................................................................................... 58 Scope and Definition of Terms.............................................................. 58 Approach............................................................................................................