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Calpine Warns of Negative Consequences If Environmental Restrictions on Emergency Diesel Generators Are Eased for “Demand Response” Resources

02/03/2012

HOUSTON--(BUSINESS WIRE)--Feb. 3, 2012-- Calpine Corporation (NYSE:CPN) today filed comments with the U.S. Environmental Protection Agency (EPA) objecting to a proposed settlement agreement between the EPA and a group of Demand Response (DR) providers that would allow emergency backup diesel generators to quadruple their allowed operating hours without having to install appropriate air emissions controls. The proposed settlement would resolve a pending federal judicial appeal of EPAregulations regarding the National Environmental Standards for Hazardous Air Pollutants (NESHAP) for Reciprocating Internal Combustion Engines (RICE).

“People tend to think of DR as a clean alternative to fossil-fueled generation when, in fact, a significant amount of DR is provided by emergency backup diesel-fueled generators that operate without air emissions controls. DR resources are typically called on during the hottest days of the year when the air quality is already at its worst. Instead of reducing their electricity consumption, many DR suppliers simply fire up their old diesel engines,” said Thad Hill , Chief Operating Officer and Executive Vice President of Calpine.

Under the current NESHAP RICE standard, emergency backup generators are permitted to operate up to 15 hours per year without any restriction on air emissions. The settlement would quadruple allowable operating hours to 60, ostensibly for emergencies but in reality for the economic gain of those generator owners and at a cost to clean air.

DR is an initiative designed to reduce electric consumption from the grid during periods of peak power demand. In the PJM market, DR providers are paid to reduce consumption during such periods at the same capacity price that power plants are paid to provide power. Some DR is met by actual reduced consumption, but it appears that about a third of the DR in PJM and adjacent markets is instead based on starting up off-the-grid emergency backup generators to supplant electric supply from the grid. In short, buildings and businesses are getting paid to turn on their emergency backup generators for economic gain rather than to respond to emergency conditions. In PJM, 14,000 MW of DR is expected to be operational by 2014. A significant portion of this is based on the aggregation of emergency generators spewing dirty exhaust for economic gain rather than true emergency response.

“As a company that has historically supported progressive clean air standards, we do not see any compelling justification for a waiver of air emissions requirements for emergency backup generators that are not actually providing local emergency service but are instead selling a capacity product into the regional wholesale electricity market,” Hill said.

Calpine’s comments point out that in addition to the direct adverse impact on air quality, allowing these dirtier units to participate in the market as capacity resources displaces investment in far cleaner and more reliable generation.

“Encouraging the operation of dirty generating resources is not sound environmental or energy policy,” Hill added. “The irony is that we may end up seeing the replacement of a meaningful portion of retired coal-fired capacity with diesel generation with no air emissions controls due to the manner in which policymakers are allowing DR to be implemented. The EPA should not allow the growth in ‘DR’ to become a ‘Diesel Renaissance.’ ”

About Calpine

Founded in 1984, Calpine Corporation is a major U.S. power company, currently capable of delivering approximately 28,000 megawatts of clean, cost-effective, reliable and fuel-efficient power from its 92 operating plants to customers and communities in 20 U.S. states and Canada. Calpine Corporation is committed to helping meet the needs of an economy that demands more and cleaner sources of electricity. Calpine owns, leases and operates primarily low-carbon, natural gas-fired and renewable geothermal power plants. Using advanced technologies, Calpine generates power in a reliable and environmentally responsible manner for the customers and communities it serves. Please visit our website at http://www.calpine.com for more information.

Forward-Looking Information

In addition to historical information, this release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words such as “believe,” “intend,” “expect,” “anticipate,” “plan,” “may,” “will” and similar expressions identify forward-looking statements. Such statements include, among others, those concerning expected financial performance and strategic and operational plans, as well as assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results to differ materially from those anticipated in the forward-looking statements. Please see the risks identified in this release or in Calpine’s reports and registration statements filed with the Securities and Exchange Commission, including, without limitation, the risk factors identified in its Annual Report on Form 10-K for the year ended Dec. 31, 2010. These filings are available by visiting the Securities and Exchange Commission’s website at http://www.sec.gov or Calpine’s website at http://www.calpine.com. Actual results or developments may differ materially from the expectations expressed or implied in the forward-looking statements, and Calpine undertakes no obligation to update any such statements.

Source: Calpine Corporation

Calpine Corporation
Media Relations:
Norma F. Dunn, 713-830-8883
norma.dunn@calpine.com
or
Investor Relations:
Bryan Kimzey, 713-830-8775
bryan.kimzey@calpine.com