Appliance Manufacturers and Importers Should Prepare for Increased DOE Enforcement Activity in 2023

As the Biden Administration enters its third year, now with a party split in Congress, it seems likely that the Administration will redouble its focus on executive branch regulatory tools that can be used to achieve energy-related policy objectives, including with respect to energy efficiency and reducing carbon emissions. For manufacturers and importers of appliances and certain other consumer, lighting, plumbing and commercial and industrial products, that means the potential for additional scrutiny of their products’ compliance with the Department of Energy’s (DOE) conservation standards for energy and water efficiency. It also likely means a commensurate increase in DOE enforcement activity for non-compliance with the applicable efficiency standards or the associated test procedures required to demonstrate compliance, as well as registration and labeling requirements. Given the magnitude of the penalties associated with violating efficiency standards, currently $503 per violation, which can quickly run into multiple millions of dollars across noncompliant units, manufacturers and importers should consider refamiliarizing themselves with DOE’s conservation standards regime.

Background

The Energy Policy and Conservation Act (EPCA), as amended, authorizes DOE to set mandatory energy and water efficiency standards for over 60 consumer and commercial/industrial products, on everything from external power supplies and battery charges to refrigerators, microwave ovens and refrigerators—even exit signs. They also cover a number of lighting and plumbing products. Each efficiency standard has two components: a conservation standard that sets a product’s minimum efficiency, and a test procedure, which the manufacturer or importer must apply in demonstrating compliance with that conservation standard. By law, DOE must update its efficiency standards every six years, and the agency is not permitted to weaken its standards; it can only raise the standards.

Enforcement

Understanding whether a product is covered by EPCA and if you have complied with the applicable certification and conservation standard is essential for any manufacturer or importer of potentially covered products to understand their compliance risk. Currently, DOE has the authority to issue a civil penalty of up to $503 for each noncompliant unit introduced in to the stream of commerce—i.e., sold or made available for sale. These penalties can add up to millions, if not tens or hundreds of millions, of dollars. In addition to the DOE’s civil penalty authority, the agency can also require manufacturers or importers of noncompliant products to discontinue the sale of products and remove them from the stream of commerce.

Understanding how to respond if you discover noncompliance or find yourself subject to a DOE enforcement action can help minimize enforcement risk. The agency’s penalty guidelines and Crowell’s practical experience provide some basic principles for companies to consider: (i) self-reporting violations can be an effective means of limiting enforcement penalty amounts and maintaining goodwill with the agency; (ii) DOE may consider reducing penalties where the company has taken well documented corrective action before DOE has opened an investigation into allegations of noncompliance; and (iii) early and consistent engagement with the agency, including requesting any testing performed by DOE personnel, can help companies identify DOE’s mistakes. It is therefore also important that companies compile any applicable testing or other relevant materials in their own possession, which can be valuable tools in demonstrating compliance with EPCA’s regime and/or in narrowing the scope of DOE’s inquiry. Finally, consult with your SEC attorneys if you are a public company. If the possible penalty is sufficiently large, you may be required to publicly disclose the proposed or final penalty.

Conclusion

Given the likely increase in enforcement activity, manufacturers and importers of covered products should consider refamiliarizing themselves with the EPCA regime. Those regulated companies that do not already have robust compliance programs should consider whether to implement testing and certification regimes, and those that do have compliance programs should consider whether to bolster those regimes in light of evolving regulatory requirements.