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New DOE Enforcement Actions Serve Notice to Covered Manufacturers
June 3, 2010
Since late 2009, the U.S. Department of Energy has undertaken a new initiative to aggressively enforce energy efficiency and water conservation standards for a variety of products, including air conditioning and heating systems, kitchen and other household appliances, televisions, lighting, bathroom fixtures, dehumidifiers and battery chargers. Using its enforcement authority, DOE has already issued civil penalties and testing orders for covered products from several manufacturers. It would be prudent for companies that manufacture covered products to take proactive steps to prepare for this stark change in DOE’s enforcement attitude. These steps may include the following:
- Careful review of current relevant energy efficiency and water conservation standards and certification requirements, including participation in current efforts to update such standards;
- Institution of internal certification and testing procedures for covered products;
- Analysis of DOE's enforcement process;
- Assignment of internal responsibility for compliance with standards and potential interactions with DOE.
DOE regulations require manufacturers of products covered under the Energy Policy and Conservation Act (EPCA) to submit compliance statements and file certification reports to DOE verifying that the products meet the relevant energy efficiency or water conservation standard. In late 2009, DOE's Office of the General Counsel (OGC) issued a new legal interpretation of its enforcement authority under the EPCA which viewed improper certifications or failure to file certifications as EPCA violations "subject to enforcement action, including the imposition of civil penalties." Concurrent with this announcement, DOE formed a new enforcement team of attorneys within OGC and initiated a program to randomly review manufacturers' compliance with DOE certification requirements.
Enforcement Actions to Date
Following an initial 30-day grace period allowing manufacturers to file updated certification reports, OGC quickly began initiating enforcement actions. The following is a list of notable actions taken by OGC to date:
- On January 28, 2010, OGC issued notices of proposed civil penalties in excess of $3 million to four showerhead manufacturers for failure to submit certification reports. OGC later announced that it was requesting data from certain of these manufacturers to investigate potential violations of water conservation standards.
- On February 4, 2010, OGC issued a notice of proposed civil penalty to AeroSys, Inc., a manufacturer of heat pumps and air conditioners, for $1.2 million for failing to file certification reports and for filing faulty data. OGC later issued an order requiring AeroSys, Inc. to stop distributing two models which DOE testing had found to be in violation of energy efficiency standards.
- On March 26, 2010, OGC opened an investigation into Air Con International to determine whether its air conditioners and heat pumps are in violation of the energy efficiency standards.
- On April 12, 2010, OGC issued a subpoena and two data requests to three refrigerator-freezer manufacturing companies in response to allegations indicating possible violations of energy efficiency standards.
- April 21, 2010, OGC issued Notices of proposed civil penalty to Westinghouse Lighting Corporation and Mitsubishi Electric & Electronics USA, Inc. for failing to submit certification reports. Westinghouse's proposed penalty for failure to certify more than 71 types of light bulbs is $350,400. Mitsubishi's proposed penalty for failure to certify 16 models of air conditioners and heat pumps is $124,100.
- May 7, 2010, OGC initiated enforcement actions against four showerhead manufacturers. Hudson-Reed Limited was issued a notice of proposed penalty for $1.9 million. The company was also issued a request for test data, as were three other manufacturers.
DOE Enforcement Process
Upon determining that a violation of the certification requirements has occurred, based on its actions in the cases to date, OGC has issued manufacturers a Notice of Proposed Civil Penalty, a draft Compromise Agreement, and a draft Adopting Order. The Notice informs respondents that they have two options: (1) elect to have DOE issue an order assessing the civil penalty, at which point the respondent must pay the penalty within 60 days or DOE can refer the order to the U.S. District Court for enforcement; or (2) elect to have DOE refer the matter to an Administrative Law Judge (ALJ) for an agency hearing on the record. Should the ALJ find a violation, a penalty would be issued and the respondent may appeal the order to the relevant U.S. Court of Appeals. The Notice also states that respondents can seek a settlement with DOE at any time regardless of which option they choose.
DOE's October 2009 guidance explicitly confirmed that manufacturers must submit certification reports that are both accurate and in accordance with the regulations. Improperly certifying a covered product is also a violation and DOE "need not test an improperly certified product or otherwise determine its noncompliance with the applicable standard before seeking an injunction or assessing civil penalties."
DOE also clarified that a failure to certify any covered product in accordance with its rules is an "independent violation" of EPCA and DOE's implementing regulations, and thus, subject to a separate enforcement action and penalty. Finally, these regulations do not prohibit DOE from seeking other penalties or injunctive relief for "prohibited acts that are not dependent upon testing or a determination of noncompliance."
On May 7, 2010, OGC released new guidance on the imposition of civil penalties for violations of EPCA and certification obligations. This guidance clarified that manufacturers who knowingly distribute covered products in violation of EPCA energy efficiency or water conservation standards will be assessed the maximum civil penalty of $200 per unit distributed in commerce. For violations of certification requirements, DOE indicated that, in general, penalties for violations of certification requirements will be assessed at $7,300 per basic model for one year (i.e., below the $200 maximum level). However, recognizing that some manufacturers may have a high number of basic models (which could lead to a disproportionately large penalty), DOE indicated that it would adopt a penalty structure that would decrease in amount as the number of models increases up to a maximum cap of $500,000. Additionally, DOE indicated that it would look at factors that could impact the penalty amount, such as: size of manufacturer, ability to pay, extent of deviation from EPCA requirements, self-reporting, and history of compliance or non-compliance.
To date, DOE has not publicly indicated whether any enforcement matters have been referred to an ALJ. However, OGC has indicated that agency hearings would be modeled on similar proceedings before the Federal Energy Regulatory Commission (FERC) and that a more DOE-specific guide for hearings is in development. The FERC procedural rules, set forth in 18 CFR §§ 385.401-716, describe the procedures for a hearing before an ALJ. The rules thoroughly describe: (1) the procedures for and scope of discovery allowed; (2) the procedures during the hearing; (3) settlement options and procedures; and (4) the rendering of decisions by an ALJ.
Request for Information
On May 7, 2010, DOE issued a Request for Information (RFI) to help improve its energy efficiency certification and enforcement regulations. The RFI asks for comment on three broad conceptual lines: certification, enforcement testing and adjudication, and verification testing. Written comments and information are requested on or before June 7, 2010.
Given DOE’s aggressive enforcement attitude and its assessment of millions in penalties over the past five months, we expect more enforcement actions and potentially higher penalties in the future. Additionally, despite the fact that the DOE has yet to refer a matter to the ALJ, DOE’s active enforcement posture suggests that such a case is only a matter of time. Accordingly, the requirements of EPCA for certification and compliance warrant renewed attention by manufacturers of covered products. Coordination with attorneys on these matters is an important component to protecting the company before and after the DOE comes calling.