On May 1, 2025, the U.S. Environmental Protection Agency (EPA) published a Fact Sheet and Frequently Asked Questions (FAQ) as well as a companion press release clarifying when stationary emergency backup generators may operate in nonemergency situations. While the guidance is nonbinding, it indicates a flexible approach that could have implications for companies, such as data centers, considering or already enrolled in certain demand response programs.
Regulatory Background
Under Clean Air Act regulations, EPA allows certain classes of stationary internal combustion engines to operate without an hourly limit for emergency situations but with a 100-hour annual limit for nonemergency situations.1 A nonemergency situation includes demand response as part of a financial agreement with a third party.2 These agreements enable operators to seek reimbursement for financial costs associated with nonemergency demand response uses. Under EPA regulations, backup engines may be operated pursuant to these agreements for up to 50 hours a year — which counts toward the broader 100-hour nonemergency limit — provided that five conditions are met:
- The engine is dispatched by the local balancing authority or local transmission and distribution system operator.
- The dispatch is intended to mitigate local transmission and/or distribution limitations to avoid the interruption of local power supply.
- The dispatch follows reliability and safety protocols that adhere to specific standards or guidelines.
- The power is provided only to the facility itself or to support the local transmission and distribution system.
- The owner or operator keeps adequate records.
The regulations do not provide a definition for the term “local balancing authority” or “local transmission and distribution system operator,” nor do they define “emergency” with particularity.
Key Takeaways
Many businesses — including data centers and other energy-intensive facilities — have faced challenges in determining whether and how they might operate backup engines under these demand response agreements without jeopardizing their “emergency” status under Clean Air Act regulations. EPA’s recent Fact Sheet and FAQ, which refer to an earlier letter EPA sent to an energy company, clarify two key points:
- Local balancing authorities get added flexibility. Local balancing authorities may require customers to reduce demand by starting up their backup generators pursuant to demand response agreements. By requiring customers to generate their own power for short period of times, local balancing authorities may be able to avoid load shedding.
- Expanded view of “imminent” grid emergencies. The new guidance finds that an Energy Emergency Alert Level 1 event — when grid reserves fall below prescribed thresholds — may suffice for triggering an emergency demand response if escalation to Level 2 is “imminent without further action.” This effectively relaxes the bar for demonstrating the occurrence of an emergency situation.
The press release notes that EPA is “evaluating more substantive changes” to the underlying regulations. While timing and scope remain uncertain, stakeholders should monitor for a new rulemaking that could further expand or restrict permissible activities.
EPA’s Fact Sheet and FAQ mark a shift for data centers, utilities, and environmental compliance teams navigating the intersection of grid reliability and air-quality standards. By confirming the permissible use of emergency generators and endorsing compensated demand response programs, EPA has clarified the applicability of these regulations for industries facing surging power demands from electrification and artificial intelligence. Notably, EPA’s Fact Sheet and FAQ cite the Trump administration’s goal to “ensure [that the] U.S. is the AI capital of the world” as well as Executive Order 14156 (“Declaring a National Energy Emergency”), underscoring the national significance of these changes. As the regulatory landscape evolves, businesses should assess their compliance strategies and operational protocols to ensure uninterrupted operations.
Law clerk Leena Dai* contributed to this Sidley Update.
*not admitted to practice
1 See National Emission Standards for Hazardous Air Pollutants for Stationary Reciprocating Internal Combustion Engines, 40 C.F.R. Part 63 Subpart ZZZZ; Standards of Performance for Stationary Compression Ignition Internal Combustion Engines, 40 C.F.R. Part 60 Subpart IIII; Standards of Performance for Stationary Spark Ignition Internal Combustion Engines, 40 C.F.R. Part 60 Subpart JJJJ.
2 See, e.g., 40 C.F.R. § 60.4211(f)(3).
