D.C. Circuit Splits on Application of Loper Bright to Furnace Regulations

Earlier this week, the D.C. Circuit issued a major decision in American Gas Ass’n v. Department of Energy, upholding energy efficiency standards for residential gas furnaces and commercial water heaters.  Although the case is obviously significant for the energy sector, it is equally noteworthy for its engagement with Loper Bright Enterprises v. Raimondo, the Supreme Court’s 2024 decision that eliminated Chevron deference and reshaped statutory interpretation in the administrative-law context.

Background: DOE’s EPCA Furnace Rules

The Energy Policy and Conservation Act (“EPCA”) gives the Department of Energy (“DOE”) authority to set energy efficiency standards for certain consumer appliances, including refrigerators, freezers, water heaters, furnaces, and television sets.  DOE also has authority to adjust those standards from time to time.  Whenever the agency proposes more stringent standards, however, it must consider whether those amendments are economically justified by analyzing direct impacts on manufacturers and consumers, operating cost savings, energy savings, the effects on competition, and other factors.  On top of that, DOE may not increase standards if an interested party shows the proposed changes would result in a “product type (or class) of performance characteristics” becoming unavailable to consumers.

In early 2015 and 2016, DOE initiated rulemakings to adopt new energy conservation standards for consumer furnaces and commercial water heaters.  As part of this process, it determined there was no meaningful difference between condensing and non-condensing appliances for purposes of EPCA.  But the agency revisited that conclusion in 2019 when it finalized an interpretative rule treating non-condensing technology as a distinct “performance-related ‘feature’” that could not be displaced through adoption of revised standards.  In 2021, DOE reversed course yet again, issuing a revised interpretative rule that reinstated its “historical interpretation” of “performance characteristics” and “features,” with the result that condensing and non-condensing appliances could (again) be treated as the same for purposes of EPCA implementation.

DOE published a pair of final rules for updated efficiency standards in late 2023.  These regulations would phase-out traditional non-condensing furnaces and water heaters in favor of newer condensing models.  Industry groups and manufactures filed suit, arguing the elimination of non-condensing appliances—which they believed qualified as having unique “performance characteristics”—was unlawful.  They also argued DOE’s economic analysis was arbitrary and capricious, and the agency failed to follow proper rulemaking procedures.

Loper Bright, Independent Judgment, and Agency Expertise

Under Loper Bright, federal judges must exercise independent judgment to reach their best reading as to the meaning of the law.  Judges have many tools at their disposal to reach that best reading, especially the traditional canons of statutory interpretation.  Yet the Loper Bright court left room for judges to afford “due respect” to the views of the Executive Branch when trying to discern the meaning of particularly obscure or difficult statutory term or phrase.  In this regard, the Court explained an agency’s interpretation might be especially relevant when it “rests on factual premises” within an agency’s scientifical or technical “expertise.”

The American Gas Ass’n panel latched on to this apparent caveat in Loper Bright to conclude that Congress gave DOE “‘a degree of discretion’ to decide what constitutes a “performance characteristic” or “feature” under EPCA.  The majority noted those terms were quite broad as a matter of plain meaning, and their practical significance—for example, as applied to condensing and non-condensing appliances—was necessarily case-specific.  That much seemed to be supported by the legislative history, too.  The Circuit ultimately concluded there was “no reason to second-guess DOE’s view, ‘especially since it “rest[ed] on the agency’s evaluations of scientific data within its area of expertise.”’”  The statutory terms at issue were capacious enough to accommodate some interpretive flexibility, and the plaintiffs had not shown, “by a preponderance of the evidence,” that DOE stepped outside the bounds of that discretion.

Judge Rao’s Dissent: “Loper Bright Avoidance”

Judge Noemi Rao dissented from the majority’s conclusions and criticized the panel’s application of Loper Bright.  In her mind, this case presented a relatively simple question of whether non-condensing appliances’ venting mechanisms qualified as a “performance characteristic” under EPCA—an issue that could be resolved by a judge with traditional tools of statutory interpretation that evaluate “ordinary, contemporary, common meaning” and the “overall statutory scheme.”  The majority’s special solicitude for DOE’s interpretation—one that troublingly “flip-flopped across administrations”—under the guise of “respecting” DOE’s supposed “expertise” amounted to “Loper Bright avoidance.”  Judge Rao wrote:

Based on the record and arguments presented by the parties, Judge Rao would have concluded “[t]he distinctive venting mechanism of non-condensing appliances is precisely the kind of ‘performance characteristic’ that condensing appliances lack and that EPCA protects from regulatory elimination” so as to avoid costly and “disruptive renovations.”  To countenance DOE’s interpretation as the “best” would fly in the face of EPCA’s “text, context, and the agency’s regulatory practice.”

Confronting “Loper Bright Avoidance”

The phenomenon of “Loper Bright avoidance,” as Judge Rao phrased it, is hardly unexpected. Many commentators predicted it could become a problem.  When Chief Justice John Roberts emphasized that overturning Chevron deference would not foreclose judges affording “respect” to an agency’s view of the law, he left the precise bounds of such “respect” undefined.  That lack of precision is perhaps a major source of the mischief in American Gas Ass’n.

On the one hand, when considering an agency interpretation that was “issued roughly contemporaneously with enactment” of a statute and that has “remained consistent over time,” judicial “respect” is easiest understand as involving straightforward application of the traditional contemporanea expositio and interpres consuetudo canons.  (I previously explored this when discussing the Supreme Court’s October 2024 term and the potential for a revitalized Skidmore “deference.”)  So long as such “respect” is guided by these canons, and the focus remains on the extent to which an agency’s position is probative of the original public meaning of the law, then Loper Bright’s expectation of independent judgment is honored.

The limits of “due respect” are tricker, however, when confronting interpretations that rest solely on “factual premises within [the agency’s] expertise,” as the Loper Bright court termed it.  That is, where the contemporanea exposition and interpres consuetudo canons are inapt.  For starters, what sort of “expert” interpretations trigger “respect”?  It is possible the Supreme Court had in mind those interpretations requiring the application of “broad statutory term[s] . . . to specific facts”—in other words, classic mixed questions of law-and-fact.  Yet the Chief Justice’s cited authority when discussing “factual premises” and “expertise” was Bureau of Alcohol, Tobacco and Firearms v. Federal Labor Relations Authority—a case that presumed an underlying express delegation of policy-making authority.  Under Loper Bright’s own terms, an express delegation triggers deferential hard-look review, rather than de novo “independent judgment.”  The need for “respect” is that sort of case is entirely obviated by the existence of a delegation; respect is displaced by deferential review.  Justice Kagan, for her part, highlighted this arguable confusion in her dissent in Loper Bright,when she observed the majority’s apparent attempt to preserve some kind of deference for mixed questions risked creating an exception that swallows the rule.

The American Gas Ass’n decision exhibits similar confusion.  The majority at once claimed “DOE’s interpretation of EPCA does not bind us,” and the DOE’s interpretation was only “especially informative” with the ‘power to persuade,” while simultaneously holding the capaciousness of “performance characteristic” indicated “Congress gave DOE ‘a degree of discretion’ to decide what” that term should mean.  Are these positions not irreconcilable?  Either Congress delegated interpretative authority to DOE to flesh-out an undefined term in EPCA—an interpretation that would then be reviewed under an arbitrary-and-capricious standard—or DOE’s interpretation should only be given “due respect” (whatever that might mean) under Loper Bright’s default de novo standard.

American Gas Ass’n, like Loper Bright and other recent decisions, also leaves unanswered the question of how courts practically consider the persuasiveness of “expert” interpretations.  Earlier this year in Seven County Infrastructure Coalition v. Eagle County, Justice Kavanaugh opined it was still “[b]lack-letter administrative law” that courts are to be “most deferential” when dealing with an agency’s “predictive or scientific judgments.”  This is so-called Baltimore Gas deference.  Yet such “deference” seems in tension with Loper Bright.  And, again, as a practical matter, how should courts evaluate the persuasiveness of agency expertise that does not arise in the context of an express delegation of policy-making discretion?  These are pressing questions.  Until the Supreme Court provides further clarification, it is likely the lower courts will continue to struggle to identify what level of “scientific” or “technical” complexity is sufficient to trigger deference—in practice, if not in name—to an agency’s reading of the law.  And that, in turn, might lead to even more “Loper Bright avoidance.”

Ryan P. Mulvey is senior policy counsel at Americans for Prosperity Foundation.