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Zero Zone Inc. v. United States Department of Energy

United States Court of Appeals, Seventh Circuit

August 8, 2016

Zero Zone, Inc., et al., Petitioners,
v.
United States Department of Energy, et al., Respondents.

          Argued September 30, 2015

         On Petitions for Review of Final Regulations of the United States Department of Energy. Agency No. EERE-2010-BT-STD-0003 & Agency No. EERE-2013-BT-TP-0025

          Before Bauer, Ripple, and Rovner, Circuit Judges.

          RIPPLE, CIRCUIT JUDGE.

         TABLE OF CONTENTS

         I. Background.................................................................................5

         A. Statutory and Regulatory Context....................................5

         1. Energy Policy and Conservation Act..............................5

         2. Energy Policy Act of 2005.................................................9

         3. 2009 Final Rule.................................................................10

         4. American Energy Manufacturing Technical Corrections Act..................................................10

         B. The New Standards Rule..................................................10

         C. The 2014 Test Procedure Rule..........................................16

         D. Petitions for Review..........................................................18

         II. Discussion................................................................................18

         A. Engineering Analysis........................................................22

         1. Notice and Comment......................................................23

         2. Compressors.....................................................................26

         3.Insulation Foam Thickness.............................................29

         4.Validation.........................................................................32

         B. Economic Analysis.............................................................35

         1. Elasticity............................................................................36

         2. Environmental Benefits..................................................39

         3. Cost-Benefit Analysis......................................................41

         4. Anticompetitive Effects..................................................45

         C. Regulatory Flexibility Analysis.......................................52

         D. Cumulative Regulatory Burden......................................57

         1. EPA Significant New Alternatives Policy Program ...57

         2. ENERGY STAR Program................................................60

         E. 2014 Test Procedure Rule..................................................60

         1. Conformity to Industry Standards................................61

         2. Operation of the Rule......................................................63

         3. Procedural Challenges....................................................65

         Conclusion...................................................................................68

         The United States Department of Energy ("DOE") published two final rules aimed at improving the energy efficiency of commercial refrigeration equipment ("CRE").[1] The first rule adopted new energy efficiency standards for CRE. 79 Fed. Reg. 17, 726 (Mar. 28, 2014) (the "New Standards Rule"). The second rule, issued a month later, clarified the test procedures that DOE uses to implement those standards. 79 Fed. Reg. 22, 278 (Apr. 21, 2014) (the "2014 Test Procedure Rule").

         Petitioners Zero Zone, Inc. ("Zero Zone"), a small business specializing in CRE, and Air-Conditioning, Heating and Refrigeration Institute ("AHRI"), a trade association of CRE manufacturers, petitioned for review of both rules. Petitioner North American Association of Food Equipment Manufacturers ("NAFEM"), another trade association of CRE manufacturers, petitioned for review of the first rule. AHRI and Zero Zone moved to consolidate the cases, and we granted the motion.[2]

         Petitioners challenge both the decisionmaking process and the substance of the final rules. Upon review of those challenges, we conclude that DOE acted in a manner worthy of our deference. The New Standards Rule is premised on an analytical model that is supported by substantial evidence and is neither arbitrary nor capricious. DOE conducted a cost-benefit analysis that is within its statutory authority and is supported by substantial evidence. Its methodology and conclusions were not arbitrary or capricious. It also gave appropriate consideration to the rule's effect on small businesses and the role of other agency regulations. DOE similarly acted within its authority, and within reason, when it promulgated the 2014 Test Procedure Rule. For these reasons, we deny the petitions in their entirety.

         I

         BACKGROUND

         A. Statutory and Regulatory Context

         1. Energy Policy and Conservation Act

         The Energy Policy and Conservation Act ("EPCA"), Pub. L. No. 94-163, §§ 321-339, 89 Stat. 871, 917-32 (1975) (codified as amended at 42 U.S.C. §§ 6201-6422) was enacted in part to improve the energy efficiency of specific types of equipment and appliances. § 2(5), 89 Stat, at 874. Congress enacted the EPCA in the wake of the 1973-1974 embargo of petroleum exports to the United States by the Organization of Arab Petroleum Exporting Countries. S. Rep. No. 94-26, at 26 (1975). It viewed the embargo as presenting a need for "legislation which would facilitate the reduction of the nation's petroleum consumption through energy conservation." Id. at 27; see also H.R. Rep. No. 94-340, at 1 (1975) ("This legislation is directed to the attainment of the collective goals of increasing domestic supply, conserving and managing energy demand, and establishing standby programs for minimizing this nation's vulnerability to major interruptions in the supply of petroleum imports." (emphasis added)).

         As originally enacted, the EPCA authorized the Federal Energy Administration ("FEA")-the predecessor to DOE[3]- to implement voluntary "energy efficiency improvement tar-get[s]" that would encourage manufacturers to decrease the energy consumption of their equipment. Pub. L. No. 94-163, § 325, 89 Stat. 923-26. However, Congress determined shortly thereafter that, "[u]nder the target approach, there would be little incentive by a manufacturer to exceed a target, and to do so might place a given manufacturer at a competitive disadvantage." H.R. Rep. No. 95-496, at 45 (1977). It therefore amended the EPCA to impose mandatory energy conservation standards. National Energy Conservation Policy Act, Pub. L. No. 95-619, § 422, 92 Stat. 3206, 3259 (1978). As amended, the EPCA directs DOE to review these standards and implement new ones when appropriate. 42 U.S.C. §§ 6313(c), 6316(e), 6295(m).

         When establishing new energy conservation standards, DOE must follow certain statutory requirements. First, standards may not "increase[] the maximum allowable energy use" of any individual unit. Id. § 6295(o)(1). Second, standards must be "designed to achieve the maximum improvement in energy efficiency" and be "technologically feasible and economically justified." Id. § 6295(o)(2)(A). The EPCA explains that:

In determining whether a standard is economically justified, the Secretary shall, after receiving views and comments furnished with respect to the proposed standard, determine whether the benefits of the standard exceed its burdens by, to the greatest extent practicable, considering-
(I) the economic impact of the standard on the manufacturers and on the consumers of the products subject to such standard;
(II) the savings in operating costs throughout the estimated average life of the covered product in the type (or class) compared to any increase in the price of, or in the initial charges for, or maintenance expenses of, the covered products which are likely to result from the imposition of the standard;
(III)the total projected amount of energy, or as applicable, water, savings likely to result directly from the imposition of the standard;
(IV)any lessening of the utility or the performance of the covered products likely to result from the imposition of the standard;
(V) the impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the imposition of the standard;
(VI) the need for national energy and water conservation; and
(VII) other factors the Secretary considers relevant.

Id. § 6295(o)(2)(B)(i). The EPCA further explains that, for the purposes of determining anticompetitive effects, the Attorney General must submit his or her opinion in writing "not later than 60 days after the publication of a proposed rule" and that "[a]ny such determination and analysis shall be published by the Secretary in the Federal Register." Id. § 6295(o)(2)(B)(ii).

         The EPCA also charges DOE with establishing test procedures for measuring the energy use of covered equipment. Id. § 6314. Manufacturers must use these test procedures when determining whether their equipment complies with the applicable energy conservation standards. Id. §§ 6295(s), 6316(e)(1). According to the EPCA:

(1) The Secretary shall, not later than 3 years after the date of prescribing a test procedure under this section (and from time to time thereafter), conduct a reevaluation of such procedure and, on the basis of such reevaluation, shall determine if such test procedure should be amended. In conducting such reevaluation, the Secretary shall take into account such information as he deems relevant, including technological developments relating to the energy efficiency of the type (or class) of covered equipment involved.
(2) If the Secretary determines under paragraph (1) that a test procedure should be amended, he shall promptly publish in the Federal Register proposed test procedures incorporating such amendments and afford interested persons an opportunity to present oral and written data, views, and arguments. Such comment period shall not be less than 45 days' duration.

Id. § 6314(c).

         2. Energy Policy Act of 2005

         Congress amended the EPCA in 2005, and in doing so added CRE to the industrial equipment category. Energy Policy Act of 2005, Pub. L. No. 109-58, § 136, 119 Stat. 594, 638-39 (codified at 42 U.S.C. § 6313(c)(2)-(3)) ("EPACT"). The EPACT prescribed standards for six different classes of CRE. § 136, 119 Stat, at 639.[4] It also required DOE to set standards for additional classes of CRE that were not yet covered by the EPCA. Id.

         3. 2009 Final Rule

         Accordingly, DOE published a final rule on January 9, 2009, that prescribed energy conservation standards for thirty-eight additional equipment classes. 74 Fed. Reg. 1092. These classes were defined by a combination of the equipment's geometry (vertical, semivertical, or horizontal), door type (solid, transparent, or open), condensing-unit configuration (self-contained or remote-condensing), and operating temperature (medium, low, or ice-cream).[5]

         4. American Energy Manufacturing Technical Corrections Act

         Congress made an additional amendment to the statute in January 2012, which prescribed a specific standard for self-contained commercial refrigerators with transparent doors. American Energy Manufacturing Technical Corrections Act, Pub. L. No. 112-210, § 4, 126 Stat. 1514, 1516 (codified as amended at 42 U.S.C. § 6313(c)(4)) ("AEMTCA"). As a result, the existing energy conservation standards for CRE at the time of this rulemaking had been established by three separate sources: the EPACT, the AEMTCA, and DOE's 2009 Final Rule.

         B. The New Standards Rule

         DOE published a sixty-page framework document in 2010, which discussed the relevant issues and processes in determining whether to amend the CRE energy efficiency standards. 75 Fed. Reg. 24, 824, 24, 824-25 (May 6, 2010); App. R.6, Admin. R.2. DOE then published a notice of proposed rulemaking for new CRE energy efficiency standards on September 11, 2013. 78 Fed. Reg. 55, 890. The notice of proposed rulemaking listed new standards for forty-nine classes of CRE. See id. at 55, 890-92. DOE also made available a technical support document for the proposed rule. App. R.6, Admin. R.51. On October 3, 2013, DOE held a public meeting in Washington, D.C. to solicit comments and provide some preliminary responses. App. R.6, Admin. R.62. DOE also permitted the public to submit further comments until a November 12, 2013 deadline, although a few comments were submitted after that date. On March 28, 2014, DOE published the New Standards Rule, the rule before us in this proceeding.

         The New Standards Rule establishes energy conservation standards for forty-nine classes of CRE. 79 Fed. Reg. at 17, 727. Just as in DOE's earlier 2009 Final Rule, the classes were defined by a combination of the equipment's geometry, door type, condensing-unit configuration, and operating temperature. Id. at 17, 743. For each class, the maximum daily energy consumption is determined by a function of either the unit's refrigerated volume ("V") or the unit's total display area ("TDA"). Id. at 17, 727.[6] For eight equipment classes, DOE made no changes from the 2009 Final Rule. Id. at 17, 728. For the remaining forty-one equipment classes, DOE set forth a higher standard that it determined was both technologically feasible and economically justified. Id. at 17, 727-30. DOE estimated that the revised standards were likely to result in a savings of 2.89 quadrillion British thermal units of energy in 2014 -an "annualized energy savings equivalent to 0.5 percent of total U.S. commercial primary energy consumption in 2014." Id. at 17, 728, 17, 736-37.

         To determine the appropriate standard for each class of equipment, DOE used a design-option engineering analysis. Id. at 17, 745; Final Technical Support Document, App. R.6, Admin. R.102 at 5-41 to 5-68. In that analysis, DOE chose a representative unit from each class of CRE. App. R.6, Admin. R.102 at 5-1 to 5-2. DOE intentionally chose a unit that "was toward the larger end of the equipment available within that class." Id. at 5-68. DOE then, using an analytical model, estimated the cost to manufacturers of implementing more efficient components into that unit, as well as the "calculated daily energy consumption" ("CDEC") that would result from implementing those components. Id. at 5-1 to 5-3, 5-13 to 5-41. This analysis included modeling the effect of more efficient lighting, compressors, and insulation. Id. at 5-13 to 5-41. DOE then ranked the components in order of cost, and drew a cost-efficiency curve that illustrated a feasible maximum energy consumption level for a unit of that size. Id. at 5-2 to 5-3.

         This maximum energy consumption level served as an "analysis point" for DOE, which it used to establish an equation for determining a CRE unit's maximum energy consumption level. Id. at 5-68. DOE's method for establishing this equation is illustrated in the graphs below:

         (IMAGE OMITTED) Id. As the graph to the left shows, DOE first plotted the analysis point on a graph measuring the relationship between a CRE unit's CDEC and its TDA (or, in some cases, CDEC and refrigerated volume). Id. DOE then drew a line from the analysis point to the origin. Under the scheme contemplated by the left graph, a CRE unit would need to have a CDEC at or below that line. Id.

         DOE originally had intended to employ this scheme in its 2009 Final Rule, but it had received comments about the effects of such an equation on smaller equipment. Id. As the comments pointed out, drawing a line from the origin assumed that a small CRE unit with a TDA approaching zero could consume energy at a level close to zero. Id. DOE therefore chose to include an "offset" factor for each class, which allowed smaller equipment to consume more energy under the standards. Id. The offset "represents] energy consumption end effects inherent in equipment operation regardless of the size of the equipment." Id. at 5-3. As shown in the graph above on the right, the offset serves as the y-intercept for the CDEC equation. Id. at 5-68.[7]

         The resulting energy conservation standards do not compel manufacturers to use any particular components to achieve improved efficiency. Instead, as DOE explained, "should manufacturers value some features over others, they are free to use different design paths in order to attain the performance levels required." 79 Fed. Reg. at 17, 750.

         DOE then considered whether its new standards were economically justified. Id. at 17, 737. It developed five potential "trial standard levels" of energy efficiency requirements for each class and considered the costs and benefits at each level. Id. at 17, 738, 17, 803-11. DOE initially proposed that the standards be set at the second-highest level. 78 Fed. Reg. at 55, 948. However, after the notice and comment period, DOE determined that the third-highest level "will offer the maximum improvement in efficiency that is technologically feasible and economically justified and will result in the significant conservation of energy." 79 Fed. Reg. at 17, 810.

         As part of this economic analysis, DOE requested a letter on September 24, 2013 from the United States Department of Justice ("DOJ") that would assess the rule's anticompetitive effect. DOJ did not respond until November 25, 2013, when the Assistant Attorney General for Antitrust sent a letter to DOE. App. R.6, Admin. R.106. According to DOJ, the new rule would not have anticompetitive effects. Id. DOE added this letter to the record on June 17, 2014-several months after the public hearing on the rule. See id. DOE also published this letter in the Federal Register on July 28, 2015-over a year after the Final Rule had been published and one day before it filed its appellate brief in this case. 80 Fed. Reg. 44, 892.

         After receiving the DOJ letter and other sources, DOE concluded in the Final Rule, published on March 28, 2014, that the new standards would result in lower energy use and thus produce a net benefit to consumers between $4.93 and $11.74 billion. 79 Fed. Reg. at 17, 728, 17, 810. In addition, DOE noted the monetary benefits of the reductions in greenhouse gas emissions. Id. at 17, 811. DOE then determined that the development of new CRE would cost manufacturers between $93.9 and $165 million. Id. at 17, 810. DOE concluded that the benefits outweighed the costs and that the standards therefore would be economically justified. Id. at 17, 810-11.

         C. The 2014 Test Procedure Rule

         The New Standards Rule noted that "[t]he test procedure amendments established in the 2012 test procedure final rule are required to be used in conjunction with the amended standards promulgated in this ... final rule." 79 Fed. Reg. at 17, 735. In that 2012 Test Procedure Rule, DOE incorporated the method for calculating the TDA of CRE required by statute. 77 Fed. Reg. 10, 292, 10, 318 (Feb. 21, 2012). As shown above, the maximum allowable daily energy consumption for some units is dependent on their TDA.

         To measure the TDA of a CRE unit, one must take certain measurements of the unit and enter those measurements into a general equation.[8] One of those measurements is the "Length of Commercial Refrigerated Display Merchandiser" ("L"). 79 Fed. Reg. at 22, 299. Under DOE's energy efficiency standards, "L" is directly proportional to a CRE unit's maximum energy consumption level: the longer the display on a CRE unit, the more energy a CRE unit is allowed to consume on a daily basis. Therefore, the precise definition of "L" will impact the energy efficiency standards. However, the 2012 Test Procedure "contain[ed] no figures or illustrations instructing a user how to perform this measurement." Id.

         DOE issued a notice of proposed rulemaking on October 28, 2013, which proposed a clarification on the meaning of "L" in the 2012 Test Procedure Rule. 78 Fed. Reg. 64, 296, 64, 309-12.[9] That definition would have corresponded to the total length of the transparent area on CRE but would have not included any opaque or non-transparent areas. Id. at 64, 309-10. Several companies, however, submitted comments, contending that the "industry has always treated the length 'L' as the 'length of the commercial refrigerated display merchandiser' from inside wall to inside wall, disregarding the presence of non-transparent mullions[10] and door frames." 79 Fed. Reg. at 22, 300.

         A little less than a month after the CRE standards were published, on April 21, 2014, DOE published a CRE test procedure that clarified how energy efficiency was to be measured. Id. at 22, 278. In light of the comments it received, DOE departed from its proposed rule and published a CRE test procedure that was "consistent with and clarifie[d] current industry practice and the existing provisions of the DOE test procedure." Id. at 22, 301. According to this final rule, "L" was defined "as the interior length of the CRE model, provided no more than 10 percent of that length consists of non-transparent material." Id. The rule provided further clarification on measuring "L" for units where more than ten percent of the surface was not transparent. Id.

         D. Petitions for Review

         NAFEM timely filed a petition for review on May 23, 2014, challenging the New Standards Rule. Four days later, on May 27, 2014, AHRI and Zero Zone filed a petition similarly challenging the New Standards Rule. AHRI and Zero Zone then filed a petition challenging the 2014 Test Procedure Rule on June 19, 2014. Upon AHRI's and Zero Zone's motion, we consolidated the petitions.

         II

...


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