Energy Appliance Victory! (DC Circuit vs. DOE)

From MasterResource

By Mark Krebs — July 10, 2023

“The ‘wheels of justice turn slowly,’ but they indeed turned, even within the District of Columbia’s ‘uni-party.’ As for holding on to this victory, it is far from a slam-dunk for preserving consumer choice and free markets. I expect the struggle to escalate in Biden’s all-of-government war against natural gas and other fossil fuels.”

Beleaguered energy consumers were just handed a far-reaching victory by the United States Court of Appeals for the District of Columbia (DC Circuit). The ruling vacated a Final Rule from the U.S, Department of Energy (DOE) that would have banned the manufacture and sale of non-condensing boilers for use in commercial applications. DOE’s rule was challenged several years ago by natural gas interests–and later joined with a separate but similar case brought by the Air-Conditioning, Heating, and Refrigeration Institute (AHRI).

For those fluent in legalese, the Court’s historical review and logic can be downloaded here. The Court found that DOE failed to meet the standards of “clear and convincing evidence” necessary for DOE to mandate more stringent minimum efficiency standards. Such evidence is required by the Energy Policy and Conservation Act (EPCA). 

DOE’s failures were major and numerous. Previously, the Court had afforded DOE ample opportunities to rectify them, but they didn’t. Ultimately (reading in between the lines), it appears that the Court lost its patience with “the Agency” (DOE). One of the far-reaching results of this victory is that it undermines a veritable super-weapon of the administrative state: the Chevron Deference. This aspect will be discussed in more detail further down.

DC Circuit has set a precedent that illustrates how DOE routinely bends the rules to achieve its “administrative state” objectives. Consequently, DOE should exercise more care and transparency going forward with both present and future developments of appliance minimum efficiency standards.  However, it is probably more likely that DOE will find ways to get around it; perhaps drastically.

Over the years, I’ve provided updates via MasterResource on the status of these issues. Some of the most relevant to this “victory” are as follows:

• Energy Efficiency under Biden’s DOE: An Update
• Mark Krebs on Energy Efficiency under Biden’s DOE (Part IV of IV: More Issues)
• Mark Krebs on Energy Efficiency under Biden’s DOE (Part II of IV: EERE Modeling)
• Mark Krebs on Energy Efficiency under Biden’s DOE (Part I of IV: “Deep Decarbonization” Reigns)
• Energy Efficiency Policy Under Trump (Part III: Litigation)

The last link shows the extent that the gas industry went to politely provide DOE the opportunity to do the right thing. This started with a February 12, 2017, request for error correction that was ignored by DOE. The reason it was ignored was because it went beyond correcting a mere typo. Rather, it was aimed at correcting a major conceptual error in EERE’s Monte Carlo analyses. That error effectively assumed consumers (even commercial ones) NEVER make rational economic decisions. That error also cascades through subsequent analysis to render the DOE conclusions meaningless.

The end-result of this (amid many other analytical biases discussed in the Court ruling) is fatally skewed economic “determinations” that almost always favor stricter standards, regardless of the true economics.. As a result of this Court Order, such routine biases are now on public display to demonstrate the full intent of regulatory failures that occur within the intentionally opaque bureaucratic processes to ostensibly overcome so-called market failures. 

Page 2 of the Court’s July 7, 2023 decision, is a list of the “usual suspects” who attempted to thwart us, mostly other government entities. Why such a show of force? Perhaps because their Chevron Deference was and is vulnerable to the reality of their analytical misdeeds? And if you can’t trust the government to deal fairly with the “small stuff,” why should you trust them to get the “big stuff” right?

The “wheels of justice turn slowly,” but they indeed turned, even within the District of Columbia’s “uni-party” (Democrats and pliable Republicans). As for holding on to this victory, it is far from a slam-dunk for preserving consumer choice and free markets. I expect the struggle to escalate in Biden’s all-of-government war against natural gas and other fossil fuels. 

Where do we go from here?

It is too early for consumers and the natural gas industry to declare victory, although the evidentiary record is now ensconced and the DC Circuit is a major court. It is time to build on what is a superior case. Specific recommendations follow:

• The spanking DOE took on the random base case modeling assignment approach provides an opportunity to argue for DOE to revise its entire consumer cost analysis approach. This does not mean an abandonment of Monte Carlo-based probability-based analyses. The full implications of this decision as it extends to all DOE “covered products” needs to be publicly debated and especially for rulemakings already well underway and approaching the Final Rule stage.
• Fossil-fuel providers need to independently develop and maintain  fuel price information that reflects marginal energy costs, the costs that consumers actually pay, for key markets rather than rely on average estimates from the Energy Information Administration.
• DOE should be required to develop a public process to take recommendations on revising its consumer life cycle cost analysis approach.
• Fossil fuel industries must work together and fund together continued and robust efforts to fight anti-consumer government actions and for their own future. We may win some and lose some, but that’s a far sight better than losing everything. Losing everything is still a real if not increasing possibility in a winner-take-all scenario that appears to be unfolding. Case-in-point: The U.N. Is Planning To Seize Global ‘Emergency’ Powers With Biden’s Support. What constitutes a global emergency? The most obvious are pandemics and climate change.
• Most important of all, fossil fuel industries should exploit this victory to illustrate just how fallible government agencies can be.
  This decision goes far beyond the particulars of packaged commercial boilers. It goes to the heart of the question of government agency standing relative to actual stakeholders. Ever since the “Chevron Deference” was put in place in 1984, federal courts have deferred to an agency’s ostensibly unique “subject matter expertise” for interpretating ambiguous statutes. Such is clearly the case when reviewing regulatory actions like promulgating rulemaking for mandating minimum energy efficiency standards for appliances. On May 1, 2023, the U.S. Supreme Court granted review in Loper Bright Enterprises v. Raimondo, No. 22-451, on whether to overturn or limit Chevron Deference. Subsequently, perhaps the most important victory in this case is that it becomes a “poster child” for why the administrative state’s abuse of the Chevron Deference should end. At least in this instance, the Courts found DOE to be not worthy of deference.  Perhaps SCOTUS will follow their lead.

In closing, I want to acknowledge Tom Tanton for his wise help in fine-tuning this article. I also want to acknowledge the legal expertise of Barton Day, as well as Spire’s Mark Darrell, for their unfaltering perseverance throughout this multi-year struggle.

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Mark Krebs, a mechanical engineer and energy policy consultant, has been involved with energy efficiency design and program evaluation for over thirty years. Mark has served as an expert witness in dozens of State energy efficiency proceedings, has been an advisor to DOE and has submitted scores of Federal energy-efficiency filings. His many MasterResource posts on natural gas vs. electricity and “Deep Decarbonization” federal policy can be found here. Mark’s first article was in Public Utilities Fortnightly, titled “It’s a War Out There: A Gas Man Questions Electric Efficiency” (December 1996). Recently retired from Spire Inc., Krebs has formed an energy policy consultancy (Gas Analytic & Advocacy Services) with other veteran energy analysts.