Unknown to many manufacturers of appliances, energy-consuming devices and water fixtures, there are a host of energy conservation standards that regulate the performance of these products. While the energy conservation standards originated with the Energy Policy and Conservation Act of 1975 (EPCA), which invested the U.S. Department of Energy (DOE) with the authority to issue and enforce energy and water conservation regulations,1 the DOE has only taken significant enforcement action within the last few years. The DOE published a notice of this enforcement initiative in the Federal Register on October 14, 2009. Since then the level of activity by the DOE has escalated and is capable of exacting a huge impact on companies that become the target of an enforcement program effort. This Alert highlights key details of these energy-conservation enforcement regulations of which manufacturers of appliances, energy-consuming devices and water fixtures should be aware.
These regulations apply to both U.S. and foreign manufacturers of products, but they do not affect consumers or retail-market inventories. They cover large numbers of consumer and commercial products.2
Both domestic and foreign manufacturers of covered products must certify to the DOE that their covered products comply with the applicable energy conservation standards. Certification of the covered product is necessary before the manufacturer distributes its covered product in commerce in the United States, and must be renewed annually. According to the EPCA, to distribute a product in commerce means "to sell in commerce, to import, to introduce or deliver for introduction into commerce, or to hold for sale or distribution after introduction into commerce."3 Certification requires the manufacturer to have the covered product tested by a DOE-accredited testing facility and to submit those test results, along with a certification report and compliance statement to the DOE for review and approval.
As mentioned above, the DOE can exercise its enforcement authority when a manufacturer has strayed from careful compliance with these regulations. The DOE uses third-party buyers and testers to purchase and evaluate covered products that are distributed in commerce. If the DOE finds that a covered product is not certified, or otherwise does not meet the energy conservation standards, the DOE can issue to the manufacturer a Notice of Noncompliance Determination, which requires the manufacturer to cease the distribution of the covered product, provide notification of the determination to all entities to whom it has shipped the covered product and supply the DOE with significant amounts of data concerning such distribution. Additionally, the DOE may seek civil penalties of up to a maximum amount of $200 per unit distributed in commerce per day, which can quickly accumulate where thousands of units have been sold over a number of years—leading to an assessment in the millions of dollars. The $200 per-unit penalty applies to all covered products, from the inexpensive fluorescent lamp to the very-expensive commercial air conditioning unit. The potential for extremely large penalty assessments is real and apparent from the actions already taken by the DOE against domestic and foreign manufacturing companies.4
However, when assessing and setting a civil penalty, the DOE has issued advisory guidance that indicates that it will take into account the manufacturer's specific circumstances, such as the company's size, reason for noncompliance, compliance history, ability to pay, self-reporting and corrective actions taken. Where a manufacturer can demonstrate that it possesses one or more of these potentially mitigating circumstances, the DOE can reduce maximum penalty amounts for settlement purposes. Some examples include $1,499,600 to $82,478 for fluorescent lamp ballasts; $56,761,200 to $4,562,838 for refrigerators and freezers; and $1,191,400 to $31,400 for air conditioners. Nevertheless, the risk of large penalties exists and options to appeal the penalty are limited (i.e., federal court proceeding).