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Phase number 20-1068 et al.

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American Public Gas Association Petitioner versus United States Department of Energy.

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Mr. Day for the petitioners Spire Inc.

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and Spire Missouri Inc.

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Ms.

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Wiener for the petitioner Air Conditioning Heating and Refrigeration Institute.

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Mr. Starcher for the respondent.

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Ms.

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Wu for the intervener Natural Resources Defense Council.

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Morning, Council.

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Mr. Day, please proceed when you're ready.

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Thank you.

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May it please the court, uh, Barton day for petitioners.

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I'd like to address two, uh, related reasons why the court should set the rule aside.

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My co-counsel will then address reasons why a vacator is warranted in this case.

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It's undisputed in this case that DOE could only adopt the standards at issue.

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If it made a determination based on clear and convincing evidence that the standards were economically justified.

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DOE admits that its justification for the standards was inadequate, and it was.

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Not for the reason of inadequate explanation, as DOE now suggests, but because of a basic failure to engage in recent decision-making.

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DOE claimed that the standards would provide economic benefits for consumers, and it based its

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It based its economic justification for the standards specifically on that claim.

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However, there were obvious reasons to doubt the basic premise that the standards in this case could provide economic benefits.

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Commenters argued that there was no basis to conclude that economic benefits would result.

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And DOE offered no information or argument to the contrary.

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It did provide an analysis and its analysis showed economic benefits only because it was based on a facially unreasonable assumption that grossly overstates the potential for standards to provide economic benefits to consumers.

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Commenters challenged that assumption as completely absurd and unsupported by any evidence whatsoever.

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And DOE did not even attempt to justify it on the merits.

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That's a failure to engage in recent decision-making.

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Mr. Jay, I'm sorry.

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Can you just be a little bit more specific?

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So what assumption are you talking about?

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Is this the imperfect or irrational consumer assumption?

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Is that what you're referring to?

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And the modeling is, with respect to the economic analysis, yes.

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OK.

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And I'll get back to that in a moment.

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What I'd like to do is address these issues in a little bit more detail.

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There are actually two related issues here, as I suggested.

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One is that the basic premise of efficiency regulation is that consumers are leaving economically beneficial efficiency investments on the table.

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And that's the problem to be resolved here.

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The problem is the DOE never examined that question at all.

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It simply has a standardized analysis.

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It plugs the numbers in and it crunches the numbers.

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And what actually happened here is we were all scratching our heads trying to figure out where are these benefits coming from?

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And the result, it was dug out of the,

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analysis by a consultant, it turned out that they had this assumption embedded that generated artificial economic benefits.

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But let me address the basic assumption being that they purchasers were not were not concerned with economic gains.

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More than that.

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The assumption actually, the way it plays out is that

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No matter what the economic stakes are, purchasers acting on their own are no more likely to make even the most economically beneficial efficiency investments than they are to decline them and are no more likely- They're totally indifferent to this consideration.

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I'm sorry?

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That they're totally indifferent to this consideration.

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Yes.

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Okay.

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These are partial participants.

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I'm sorry.

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They're commercial purchasers, not homeowners.

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Exactly.

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And that's the, the, the facts here are very important.

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Commercial package boiler is efficient enough to satisfy these standards are already available on the market.

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They already have a significant percentage of all product sales.

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And those investments are not necessarily beneficial for the purchaser.

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the economic outcomes of those investments very considerably.

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In some cases, they provide significant economic benefits.

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In others, they impose significant net costs.

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And as you were just pointing out, commercial package boilers are substantial pieces of equipment.

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They're typically purchased as capital investments by business or institutional purchasers that routinely consider the economics of this type of investment.

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and act in their own economic interest.

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So commenters made the obvious point, under these circumstances, there's every reason to believe that purchases of commercial packaged boilers have a tendency to make investments in these more efficient boilers when it makes economic sense to do so.

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They have a tendency to decline those investments when they would impose net costs.

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Can I ask you a question?

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Thanks.

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There is a reference in the regulatory materials to a couple of arguable market failures in the sense of informational

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asymmetry or the lack of reliable information and these misaligned incentives.

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And so my question is just a conceptual one.

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Suppose just hypothesize that we agree with you that there's a fundamental question here about the soundness of the assumption that's reflected in the use of a random array.

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But then suppose the agency were to say, well, we actually think the random array turns out to be a reasonable approximation.

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because there's no perfect information here.

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And when we look and they have a sophisticated analysis that says when we look at the degree of informational asymmetry or the unavailability of information and we take into account the misaligned incentives, we think that the random array actually gets us pretty darn close.

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And they expound upon that and say that therefore by clear and convincing evidence, we find that the findings that you think are required to be made by clear and convincing evidence are in existence.

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You don't disagree that conceptually that would be OK.

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You might disagree that factually they might not be able to make that assessment in a way that's sufficiently sound.

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But conceptually, that approach would work, right?

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Yes, that's correct.

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The problem here is that these issues were pointedly raised

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and simply ignored.

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The references that you're referring to are stock language that show up in every efficiency standards rule.

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They're not even in the economic analysis.

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They're in the part of the rule that goes through the motions of responding to executive orders indicating that agencies have to identify what the issue is that they're supposed to address.

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And if you look at that analysis in the face of all this pointed comment that there's no reason to think standards would provide economic benefits, they don't even refer in discussing those sort of generic market failures to commercial package spoilers.

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So it's a situation where in response to the suggestion that they simply failed to address these issues,

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They had no response at all.

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And again, it's difficult to understate the extent to which the assumption that purchasers never considered the economic impact of their analysis has on the analytical results.

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And in this particular case,

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There's a figure on page 56 of our opening brief that illustrates the basic problem, which is there's a wide range of economic impacts of individual investments.

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And so the justification for a standard is going to depend on what's the distribution of those outcomes that purchasers leave behind acting on their own.

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And without looking at that,

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question.

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And DOA made no effort to look at that question.

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You end up with a situation where here you've got standards that are pretty close to break even.

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And they're justified only because of these extreme outlier economic outcomes that are the most likely outcomes to be influenced by economic considerations of the purchaser.

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They used the same kind of analysis in the residential furnace rulemaking.

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And there, there was an extensive technical study done actually breaking out all the data points they used, et cetera.

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And the bottom line in that case was that over half the regulatory benefits that were being claimed were in cases where the more efficient product

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had lower installed cost.

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It was the low cost option.

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So the whole premise that standards are necessary because people only focus on initial costs didn't even apply.

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And yet- Can I ask you, Mr. Day, do you have an alternative?

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My understanding was that the sort of modeling that you all did was not supposed to be a substitute for the Monte Carlo method or whatnot.

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Are you suggesting that there's a particular kind of analysis that the government could have and should have done to capture what you say is a problem with the analysis that they did?

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Yeah, and there are many things they could have done.

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I think in this particular case, if they simply went through and said, OK, we're not going to count as as results of a standard,

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purchases where the installed cost of the more efficient product is the low cost option, I think that would probably be enough to show that the standards were not economically justified.

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Well, of course, that's not their goal.

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There might be ways that they can adjust it to reach the conclusion that you'd like to see.

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I'm just asking from the beginning.

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Are there ways that they can account for what you say is, you know, the market forces at work that they've left out of this analysis, no matter where that leads ultimately?

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Yes, they can.

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And the factor I suggested was specific to one type of outcome.

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But really, 10% for top 10 percentile.

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I'm sorry.

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Was that your suggestion of ignoring the top 10 percentile?

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No, because I don't know.

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There's no way to talk from looking at the data that they provided where where the cutoffs are.

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All I needed to do was come up with some reasonable way to account for the fact that as economic benefits get higher and higher, there's a greater chance that those investments are going to be made.

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by consumers acting on their own.

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And as net cost situations go deeper and deeper, the ads that purchases would make those decisions on their own go down.

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Right.

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And I'm just asking, do you have an idea what that reasonable way would be?

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Because we also have this concept in the statute of practicability and whether or not the government actually can do anything more to perfect its analyses.

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Is there some clear thing that they could do to capture this concern?

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Oh, absolutely.

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I mean, their model is set up to do that.

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And that's why we couldn't figure out where the problem was.

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There should be an algorithm that simply tries to capture what the model looks like, what consumer purchases look like in the absence of standards.

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And that comes down to where they assign base case efficiencies.

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And instead of having an algorithm in there that was designed to show what the market is probably like, there's just a random assignment function.

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So the fix is very easy.

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It's completely considered.

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There's nothing wrong with the model.

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It's just the garbage that went in.

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That's the problem.

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Was this a similar problem with regard to shipments?

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Now the shipment issue is different

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Because the way they do their economic analysis, they look at all these individual variations on installation.

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So they do an analysis of the economic impact of efficiency investments in a wide range of individual scenarios.

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And then they look at those individual outcomes called life cycle cost outcomes.

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and they generate an average of what the average life cycle cost impact is.

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And shipments is, it goes to the issue primary, it goes to two issues, but in determining national impacts, they simply, it's how many investments would occur as a result of the standards.

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That's the issue.

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How many of these more efficient products are out there already?

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So you multiply the average life cycle cost result by that number of efficiency investments to get the national impact of the standard.

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And the issue we focused on is that that average life cycle cost outcome is driven by these extreme outliers that

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are likely to be influenced by the decisions consumers make on their own.

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And yet that drives the outcome that turns a marginal break-even kind of standard that if you look at how purchases are made is probably gonna be a negative LCC outcome and turns it into a positive life cycle cost outcome.

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And that's the fundamental problem with the analysis.

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Can I just ask one more question?

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I'm wondering if you ever concede any sort of irrational behavior by consumers, because it would seem to me that you would never have economic justification if consumers always acted personal, perfectly rationally, right?

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So there is some world in which we're gonna have these big institutional consumers not doing what is in

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the economic.

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Absolutely.

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And I would concede that in the case of commercial package spoilers, there are going to be some cases where consumers don't make sensible economic decisions, but it's not a binary.

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And that's the false conflict that DOE set up in responding to this.

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They said, well, we can't assume that people are making perfect decisions all the time.

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And so we're going to

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model a world in which these issues are not considered at all ever.

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And that is just ridiculous on both ends.

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I think the appropriate thing to do is to try and get a sense.

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And again, I think it's a matter in this case of simply recognizing that as the economic stakes go up, the probability that economics are gonna affect the decisions that consumers make

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goes up.

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And to your broader point, the solution is not one size fits all.

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I think you have to look at the circumstances with respect to the product at issue.

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And here, you know, we're dealing with a particular type of product where the usual sorts of factors that one would be concerned about

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in terms of justifying a standard just don't apply.

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And that's not the case for all products, not by any means.

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Thank you, Mr. Dave.

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Let me make sure we don't have further questions for you at this time.

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Thank you very much.

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Here from a colleague, Ms.

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Weiner.

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May I please the court.

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Stephanie Wiener for petitioners.

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Given that it's not disputed that the clear and convincing evidence standard applies to this rulemaking and given that the department agrees that remand is required, I'm going to focus my time today on why the final rule should be vacated.

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Vacature, which is this court's normal remedy, is required under the allied signal test for two reasons.

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First, vacatur will not be disruptive.

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It is what Congress intended should happen in this circumstance, and in fact would prevent the disruption caused by leaving the rule in place.

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Second, vacatur is necessary to remedy the department's serious legal errors, particularly in light of the statute's anti-backsliding provision.

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First, vacatur is not disruptive here.

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This is what Congress intended to happen.

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There's no disruption because the standards have not yet gone into effect.

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There's nothing to unwind here.

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There's no egg to unscramble.

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If you vacate the rule, these products will remain regulated.

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They're regulated at the efficiency level set by the Society of Engineers.

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codified previously by DOE, and those are the basis of building codes around the country.

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And that's exactly what Congress intended to happen.

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Is it not the case that the industry is taking preparatory steps on the assumption that more restrictive requirements are going to be in place?

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I think there has been an overhang over this rule due to litigation.

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And while I represent a trade association that has multiple members, I can't speak to what any individual member has done.

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But the department itself has estimated that it would cost the industry $21.2 million to bring equipment into compliance here.

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If these rules are left in place, and I believe some manufacturers want to know whether these rules are in fact unlawful, as the department says that they are, and when remand is required, we believe that that is disruptive enough and should not, the industry should not have to incur those costs for rules that the government has set unlawful and may go away on remand.

[00:20:50] Speaker 03:
Well, can I just ask you, because I was curious about your point concerning

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what Congress intended.

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If I read the statute that underlies this whole thing, Congress, it seems to me, clearly intends for these standards to be revisited and potentially revised, even when the society itself, whatever the private organization is, doesn't touch them.

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So it almost seems like maintaining the status quo is

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against the intent of Congress.

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I mean, the no rule world.

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Because Congress says every six years, we really want you to review, revisit, and potentially increase.

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So how do you reconcile that with your conception that Congress does not want change, does not want disruption in terms of the imposition of a rule?

[00:21:46] Speaker 08:
Congress clearly wanted the society standards to be reviewed and revisited, but it specifically said what needed to happen before more stringent standards could be adopted.

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And what it said was the agency had essentially two choices.

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Either it found clear and convincing evidence to support more stringent standards, in which case they could go into effect.

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But if the department failed to find that those standards more stringent than those in place around the country were not supported by clear and convincing evidence, then the default rules, the Society of Engineers standards, were to remain.

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were to remain in place.

[00:22:29] Speaker 08:
Sorry, there's a little feedback on my end.

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And that's what's happened here.

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The department has said it did not make the clear and convincing evidence standard required by the statute.

[00:22:41] Speaker 08:
And in that instance, I think the statute is quite clear that it's not the department shouldn't on remand to go back and do it correctly, but the standards should not remain in place in the meantime, because Congress was very clear about what had to happen

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before they could go into play.

[00:22:58] Speaker 03:
All right.

[00:22:58] Speaker 03:
Well, setting aside what the department is now saying about what the rule determined, the rule itself indicates in many places that the agency was making this determination that it had found economic justification by clearing convincing evidence.

[00:23:17] Speaker 03:
And so given that now, the question is whether or not

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even though we have these potentially meritorious challenges to the manner in which they found it, to their explanation for some of the data, aren't those kinds of defects readily curable such that when it goes back, we're not talking about ripping out the fundamental underpinning necessarily of the rule.

[00:23:48] Speaker 03:
And so in the interim, under allied signal and the like,

[00:23:52] Speaker 03:
Everybody's on notice.

[00:23:54] Speaker 03:
This is what the department has found and we should just keep going with the rule.

[00:24:00] Speaker 08:
Well, The department has not an RV found that these standards are supported by current convincing evidence and that's because they

[00:24:09] Speaker 08:
failed to actually apply that clear and convincing evidence to the standards that they adopted.

[00:24:15] Speaker 08:
What happened here, Your Honor, is there was a notice of proposed rulemaking that said, we tentatively conclude that these standards are supported by substantial evidence.

[00:24:25] Speaker 08:
Commenters raised arguments in the record, including those made by my co-counsel,

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which the department has yet to defend in this court, to say that there was not clear and convincing evidence for the standards.

[00:24:38] Speaker 08:
And the department, in its final rule, instead of addressing that, said, we do not believe that the clear and convincing evidence standard applies to this rulemaking after all.

[00:24:48] Speaker 08:
As to the references to clear and convincing evidence.

[00:24:50] Speaker 03:
Wait, before you leave that, before you leave that.

[00:24:53] Speaker 03:
That's not all the department says.

[00:24:55] Speaker 03:
The department says that in a footnote, but it's not clear at all

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that the department actually applies any different standard when it's doing its analysis.

[00:25:05] Speaker 03:
And there are several places in the actual final rule, JA583, JA590, 591, 658, where when it is making findings, it says we find by clear and convincing evidence X. So at a minimum, we have some sort of ambiguity about what standard

[00:25:28] Speaker 03:
they were applying, but one could argue that notwithstanding the footnote that talks about the potential for some other standard rather than clearing convincing evidence, they were in fact making findings by that standard.

[00:25:42] Speaker 05:
Or so saying anyway.

[00:25:44] Speaker 03:
Or so saying.

[00:25:46] Speaker 08:
Precisely.

[00:25:46] Speaker 08:
So with respect to those references, it is our position that particularly with the department saying that it did not actually apply the correct standard, that those references under this court's cases, referencing a standard is not the same as considering it, stating that something was found as no substitute for finding it.

[00:26:06] Speaker 08:
And while we acknowledge that there are places where that

[00:26:09] Speaker 08:
that the clear and convincing words were used, we do not believe that the department actually held itself to that standard.

[00:26:16] Speaker 08:
And I would suggest, you know, standards of evidence matter, right, as this court knows well.

[00:26:23] Speaker 08:
And one place that you could see what the department actually held itself to here is if you look at the conclusion,

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of when the department summarized the rule, which is on JA582, right, where after going through all the key findings in the record, the conclusion paragraph does not include the requisite clear and convincing evidence standard.

[00:26:51] Speaker 08:
And if you compare that, for instance, to rules that intervenors cite on page six of their brief that

[00:26:59] Speaker 08:
were held where the department did find clear and convincing evidence, those corresponding concluding paragraphs stated that expressly.

[00:27:07] Speaker 03:
Yeah, I understood, but I guess I'm confused as to what they did then, because they don't ever say another standard.

[00:27:14] Speaker 03:
And it's hard for me to wrap my mind around the argument that just because the agency failed to meet

[00:27:25] Speaker 03:
what we now all agree as the test means that they were in fact applying a different test as opposed to they just didn't get to the requisite level.

[00:27:37] Speaker 03:
In other words, it seems like you're making a separate argument that we have reversible error as a matter of law because the agency was applying a different test

[00:27:47] Speaker 03:
as evidenced by the fact that they didn't meet the applicable test, but not as evidenced by the fact that they actually said, we're applying some other thing.

[00:27:57] Speaker 08:
I think we are saying that they didn't actually meet the applicable test because they didn't apply the right standard, which is in the rule itself, Your Honor, not just the footnote.

[00:28:07] Speaker 08:
It says, clear and convincing standards need not be based.

[00:28:11] Speaker 08:
And this rule need not be based on clear and convincing evidence.

[00:28:14] Speaker 05:
That was something alternative.

[00:28:17] Speaker 08:
In the alternative, we believe the reference is that this is not complicated.

[00:28:21] Speaker 05:
They said they reached this conclusion by clear and convincing evidence.

[00:28:25] Speaker 05:
A later repudiation of that by a later brief is not the same as rescinding it.

[00:28:33] Speaker 05:
They've said it, it's out there.

[00:28:35] Speaker 05:
They also said an alternative, if we don't think the alternative applies, they have to meet the clear and convincing standard.

[00:28:42] Speaker 08:
We do believe they have to meet the clear and convincing standard, and we do not believe that they have done so, which is why we don't think this is- That's the only fair point that you can make.

[00:28:52] Speaker 08:
Exactly.

[00:28:52] Speaker 05:
Everything else is irrelevant.

[00:28:55] Speaker 05:
Either they did or did not meet the standard that they purported to and that we all agree, seems to agree anyway, is the appropriate standard.

[00:29:06] Speaker 08:
We believe that they did not.

[00:29:07] Speaker 08:
And that's why we believe that remand with vacatur is required because when the department goes back on remand and takes into account the concerns that my co-counsel has raised,

[00:29:20] Speaker 08:
and creates an updated record for things like gas prices, which were inaccurate.

[00:29:25] Speaker 08:
We now know.

[00:29:26] Speaker 02:
I guess the bottom line is this is different to say, and this is salient for applying allied signal.

[00:29:34] Speaker 02:
It's different to say they thought they met clear and convincing, but they didn't meet it.

[00:29:39] Speaker 02:
They didn't meet it.

[00:29:40] Speaker 02:
And then you could go on to say, and they never could, and therefore you ought to vacate.

[00:29:43] Speaker 02:
That's different from saying they thought they were applying clear and convincing and they didn't even apply it.

[00:29:49] Speaker 02:
That argument is a feature of what you're saying and it's a feature of what the government has said in its briefing too.

[00:29:57] Speaker 02:
And that one is just hard because when an agency says it's applying clear and convincing, I don't know what else to do.

[00:30:04] Speaker 02:
to infer other than that they are.

[00:30:05] Speaker 02:
Now, you might well be right that they haven't met it.

[00:30:09] Speaker 02:
They thought they'd met it and they haven't met it.

[00:30:11] Speaker 02:
But to say that they didn't even apply it is a little difficult when they tell you in the alternative that actually Clinton convincing to the extent that's the relevant standard is satisfied.

[00:30:22] Speaker 08:
We believe the department has said that they did not apply the correct standard even in their most recently.

[00:30:31] Speaker 02:
Right, they said they didn't apply the correct, which just because the correct standard is clear and convincing.

[00:30:36] Speaker 08:
Correct.

[00:30:37] Speaker 02:
The government's own argument or the agency's own argument.

[00:30:39] Speaker 02:
And the agency said in the rule that in the alternative, to the extent clear and convincing is the correct standard.

[00:30:46] Speaker 02:
We don't think it is.

[00:30:47] Speaker 02:
That's what they said at that time.

[00:30:48] Speaker 02:
But to the extent clear and convincing is the correct standard, clear and convincing is satisfied.

[00:30:53] Speaker 08:
But even if that is correct, it is argued that on the man- Why do you say even if?

[00:31:01] Speaker 02:
What's even arguable about that?

[00:31:02] Speaker 08:
Because that just- Oh, I agree.

[00:31:05] Speaker 08:
Clearly the department used the words clear and convincing evidence in the rule.

[00:31:08] Speaker 02:
Yes.

[00:31:09] Speaker 08:
I agree.

[00:31:10] Speaker 02:
You have an agency telling us that the convincing standard was met.

[00:31:15] Speaker 08:
Well, what the agency is telling you is that they did not apply it in a way that can be sustained by this court.

[00:31:22] Speaker 05:
That's not in the rulemaking.

[00:31:23] Speaker 05:
That's in a subsequent brief.

[00:31:26] Speaker 08:
The rule itself is, in our view, does not apply the correct standards because that evidence is not there to support.

[00:31:36] Speaker 05:
That's fine.

[00:31:37] Speaker 05:
Just forget the stuff about later.

[00:31:40] Speaker 08:
I believe that that is the case, that the evidence, as my co-counsel has discussed, does not support this alternative finding, whatever the department is saying now, I think is what you're directing me towards, and I believe that is the case.

[00:31:56] Speaker 08:
I also believe that when the department on remand takes up this rule, it needs to do a new rulemaking

[00:32:04] Speaker 08:
It needs to update the record.

[00:32:06] Speaker 08:
And when it does that, Your Honors, in our view and addresses the concerns raised by my co-counsel and updates the record, we do not believe that it can adopt the same standards on remand.

[00:32:18] Speaker 08:
And as a result, it would force manufacturers and the industry to incur costs for a rule that is unlawful and that would otherwise go away.

[00:32:32] Speaker 03:
to the extent.

[00:32:33] Speaker 03:
Can I just, I know that your time is out, but I'm so curious about this anti-backsliding provision argument because it seems odd coming from your side of the table to suggest that on remand, the government would not be able to, as per that provision, change the standards.

[00:32:57] Speaker 08:
So our concern is that because the anti backsliding provision is written, which you know prevents a department for relaxing standards once they are in place.

[00:33:07] Speaker 08:
Our concern is that the department or others may believe that the department

[00:33:12] Speaker 08:
cannot change these rules if they're not vacated on remand.

[00:33:17] Speaker 08:
And if that's not the department's view.

[00:33:19] Speaker 05:
If the department is revisiting them, they're still in effect, but they're doing so under a constraint of a judicial order.

[00:33:28] Speaker 05:
It seems to me that your concerns are not very weighty and they can certainly be addressed by the court's order itself.

[00:33:37] Speaker 03:
And surely that's not your position.

[00:33:40] Speaker 03:
I hear you say we are just worried that the government might take that position and therefore not change.

[00:33:46] Speaker 03:
Correct.

[00:33:47] Speaker 08:
Our concern is we don't know what the government's position is on that because it wasn't addressed in the briefing.

[00:33:54] Speaker 08:
We believe that absent without, we believe that it could be an open question.

[00:33:59] Speaker 08:
We have not found a case in which a standard was remanded without vacatur and how the anti-backsliding provision.

[00:34:06] Speaker 02:
I assume your position is that if we were to remand without vacate or your position would be, well, don't be constrained by the anti-backsliding provision.

[00:34:16] Speaker 02:
You can do whatever you'd like because you have a judicial opinion that requires you to revisit this.

[00:34:20] Speaker 08:
that if, yes, we would, our position would be that the department should follow this court's order on remand.

[00:34:26] Speaker 08:
And if the court's order said that, more broadly, we believe the department should have a clean slate on remand to conduct a new collection of evidence in the rulemaking and make the determination that the department, in our view, has not met

[00:34:43] Speaker 08:
The clear and convincing evidence that has not found sufficient clear and convincing evidence to support the more stringent standards that's what we why we believe the rule should be vacated because otherwise.

[00:34:56] Speaker 08:
you know, the entire industry will have to take steps to comply with a rule that may or may not stay in place on remand.

[00:35:07] Speaker 08:
And we believe that that is, you know, under the sports allied single test, a reason why Bakater is required, right?

[00:35:14] Speaker 08:
We need to enable the department to make the determination that was required by the statute in the first instance,

[00:35:20] Speaker 08:
without any overhang of anti-backsliding and prevent the disruption caused by leaving the rule in place.

[00:35:26] Speaker 05:
We have tried this ground several times now.

[00:35:29] Speaker 08:
And with no further questions.

[00:35:32] Speaker 02:
Thank you, Ms.

[00:35:33] Speaker 02:
Weiner.

[00:35:34] Speaker 02:
We'll hear from respondent side now.

[00:35:37] Speaker 02:
Mr. Starcher.

[00:35:38] Speaker 01:
Yes, good morning, Your Honors, and may it please the Court.

[00:35:41] Speaker 01:
As already discussed, there's agreement at this point that the clearing convincing evidence standard does, in fact, govern these kinds of rulemaking.

[00:35:47] Speaker 01:
So I think the most sensible place to start is with something that was touched on briefly during Ms.

[00:35:52] Speaker 01:
Wiedner's time, which is the adequacy of the alternative conclusion given in the rule.

[00:35:58] Speaker 01:
I certainly agree with the panel's indication that

[00:36:03] Speaker 01:
that it is an alternative conclusion, that it was presented as such, and that the court has to address that alternative conclusion and to deal with it.

[00:36:14] Speaker 03:
But as explained in- I'm sorry.

[00:36:16] Speaker 03:
I don't know that I'm persuaded that it was an alternative conclusion.

[00:36:19] Speaker 03:
And so can you just spell out why that seems to be your position?

[00:36:26] Speaker 01:
Right.

[00:36:28] Speaker 01:
I think the best way to get there is to look at where this discussion appears in context, and if you look at where this assertion about whether or not, I have the JS site here, this assertion about whether or not it's J591-592, I believe,

[00:36:47] Speaker 01:
This assertion about whether or not the clear and convincing evidence standard applies during these sorts of six-year look backs is provided in response.

[00:36:56] Speaker 01:
The rule first summarizes comments received from some of the petitioners here about whether or not the evidence presented to the agency was putting aside whether or not it could meet the sort of normal evidentiary standard of

[00:37:10] Speaker 01:
of preponderance of evidence, whether or not the evidence presented here could meet this heightened standard and whether or not there were certain features of the evidence in front of the agency that would render it insufficient under clear and convincing evidence.

[00:37:25] Speaker 01:
And the first response given to those comments is DOE reciting the text of the relevant six-year look back provision and then stating both above the line and in an extended footnote,

[00:37:38] Speaker 01:
there are features of this statute that indicate to the department that clear and convincing evidence is not required during the six year look back.

[00:37:46] Speaker 03:
Can I just stop you right in that point just to say that because this was a response to a comment or a question does not to me signal that in all the prior discussion and all this discussion subsequently,

[00:38:04] Speaker 03:
DOE was actually applying a different standard.

[00:38:09] Speaker 03:
It's sort of like a person pops up, they're doing something, they're talking about it, they're saying in 583 before this that they were making certain findings by clear and convincing evidence.

[00:38:22] Speaker 03:
And someone says, wait a minute, are you sure that clear and convincing evidence is applicable in the six year look back context?

[00:38:30] Speaker 03:
footnote long musing about circumstances under which it may not be, but in any event, they say, I see it as in any event rather than alternatively because I don't know what other standard they would be applying.

[00:38:45] Speaker 03:
Did they say what else they were doing in the rest of the rule?

[00:38:48] Speaker 01:
So the alternative standard is the default standard in rulemaking, which is preponderance.

[00:38:54] Speaker 01:
And again, and I think that was the sort of the thrust of these comments they were responding to was certain commenters had suggested during the comment period that when you're under a clear and convincing standard, certain kinds of evidence or certain kinds of assumptions cannot be made by the agency in engaging in rulemaking when you're subjected to that higher evidentiary standard.

[00:39:15] Speaker 01:
But I think, you know.

[00:39:18] Speaker 03:
Anywhere in the rule, do they have the two or three pages or paragraphs going on to describe preponderance in the way that they do clear and convincing?

[00:39:28] Speaker 01:
No.

[00:39:28] Speaker 01:
And I do think, you know, I think there's agreement that the court has to look, you know, whether you call this an alternative conclusion or a principle rationale, an alternative rationale or the only rationale.

[00:39:41] Speaker 01:
There's a great, you know, the department doesn't

[00:39:43] Speaker 01:
disagree that the court has to look at the adequacy of this alternative explanation, whether or not we call it alternative, the explanation that was given.

[00:39:52] Speaker 01:
And I think if you look at what is actually said about the clear and convincing evidence standard in the rule and the entirety of the rule, there are these two to three paragraphs

[00:40:05] Speaker 01:
that essentially describe in general terms what the department understands that standard to require and then proceeds to just state both in these pages that we've talked about and also the pages that the department refers the court to where later on in the rule, again, the words clear and convincing evidence are used.

[00:40:27] Speaker 01:
It's a reference to a standard and then a conclusion that the standard is met without any sort of

[00:40:32] Speaker 03:
You know, explanation or reasoning about why that standard is mad I ask you another question in a similar where else in the rule does it ever say we find by preponderance of the evidence that x.

[00:40:45] Speaker 03:
I would hear you that they're doing two different things or that this is an alternative if there's any evidence of actual application of another standard.

[00:40:54] Speaker 01:
So the pages that we focus on are the only place in the entire rule where the implications of this higher standard are discussed at all.

[00:41:05] Speaker 01:
And so it's perhaps not surprising that there's no later point in which preponderance is described or expounded upon.

[00:41:12] Speaker 01:
I would point this court, I think it's helpful,

[00:41:15] Speaker 01:
to just compare what the agency did here and its discussion of clear and convincing evidence here to the agency's discussion of clear and convincing evidence in the last time that the agency looked at commercial package boilers, which was in 2009.

[00:41:31] Speaker 01:
And there in that discussion, granted that was a finding that the clearing convincing evidence standard was not met, but in some ways you'd expect less discussion when they're finding the standard not met, when they're finding it met.

[00:41:44] Speaker 01:
But if you look at the discussion that occurs in that rule, it's not just clearing convincing evidence requires X, we believe that to be met.

[00:41:52] Speaker 01:
It's under the clearing convincing evidence standard, here are a number of specific pieces of data or factors

[00:41:59] Speaker 01:
You know, in that rule, they identified a relatively small, you know, LLC receiving, they identified things they weren't sure about.

[00:42:07] Speaker 01:
This is 74 federal register.

[00:42:09] Speaker 02:
I think, I mean, I'm sure it's right.

[00:42:12] Speaker 02:
Then you can, there's either real world situations or you can imagine situations in which the incantation, clear and convincing is repeated often.

[00:42:21] Speaker 02:
So it just brings home that clear and convincing is being applied.

[00:42:24] Speaker 02:
But the agency said,

[00:42:27] Speaker 02:
that it was applying clear and convincing.

[00:42:29] Speaker 02:
It just did.

[00:42:30] Speaker 02:
I mean, if you look at J658,

[00:42:33] Speaker 02:
The paragraph, this is a concluding paragraph.

[00:42:35] Speaker 02:
This is the end of the entire analysis before it gets a summary.

[00:42:38] Speaker 02:
After carefully considering the analysis results and weighing the benefits and burdens of TSL-2 and based on clear and convincing evidence, setting the standards represents a significant improvement that is technologically feasible and economically justified.

[00:42:50] Speaker 02:
It just says that.

[00:42:52] Speaker 02:
So it seems to me that what you're asking us to do is to say that even though the agency said that, it didn't really do it.

[00:42:59] Speaker 02:
I don't, what's the,

[00:43:03] Speaker 02:
What's the basis by which we could do that?

[00:43:05] Speaker 02:
When a jury says we find by beyond a reasonable doubt, they just concluded.

[00:43:10] Speaker 02:
Don't need to have an exegesis about why beyond a reasonable doubt, in fact, is the standard.

[00:43:15] Speaker 02:
And that's exactly what we applied.

[00:43:16] Speaker 02:
And we did something more than preponderance.

[00:43:18] Speaker 02:
They just concluded.

[00:43:19] Speaker 02:
And we just assume it to be true because they said it.

[00:43:22] Speaker 01:
But I don't disagree with any of that.

[00:43:25] Speaker 01:
But there's a line of cases that this court

[00:43:30] Speaker 01:
a line of cases that explain that there is a point at which a recitation of a standard or a statement that the agency did something is inadequate, and that there is a point at which it can be too conclusory or too unclear that the agency actually did it to the point that a court is left with the sense or the conclusion or the fear that the agency, despite stating that something was done or was met, didn't actually

[00:43:58] Speaker 01:
do the work to back it up.

[00:44:00] Speaker 02:
And I guess one way to think about this in my mind is that suppose you had the exact same conclusions that Clarence Convincing was satisfied without the ruminations on 591 to 592 about whether Clarence Convincing, in fact, is the right standard.

[00:44:16] Speaker 02:
And somebody could come along and say, well, all you have is a couple of conclusory statements that Clarence Convincing was applied.

[00:44:20] Speaker 02:
We've got these decisions that say you can't just recite a standard.

[00:44:22] Speaker 02:
You actually have to apply it.

[00:44:23] Speaker 02:
That's all we have.

[00:44:25] Speaker 02:
And I mean, I guess I would have a hard time knowing what else they were applying if they said they were applying as clear and convincing.

[00:44:31] Speaker 02:
And then you come back to the real world here and you insert the ruminations about whether clear and convincing in fact is the right standard.

[00:44:37] Speaker 02:
It seems to me that after they've engaged, after the agency engages those ruminations, it's all the more telling that they in fact say clear and convincing because they've already engaged with the possibility that they might not apply clear and convincing, but yet the conclusion says they did.

[00:44:51] Speaker 01:
I understand this concern, and I certainly agree that this is in some ways a difficult application of this line of cases about when something is too conclusory or too scant to provide the assurance that the work was actually done.

[00:45:08] Speaker 01:
But there is that line of cases, and I think while this case is different from those line of cases, particularly when coupled with the proximity of this discussion to what now everyone agrees is

[00:45:19] Speaker 01:
you know, an incorrect assertion of authority.

[00:45:22] Speaker 01:
I think the totality of this discussion that appears on 591 to 592 does fall within, you know, the kinds of concerns that animate these courts, this court's cases, which are cited in the brief, in which the concern is that there is a recitation of a standard without a meaning for application.

[00:45:41] Speaker 03:
But that being said- Can I also focus our attention on what he's actually said about

[00:45:48] Speaker 03:
the possibility of another standard.

[00:45:51] Speaker 03:
You would expect that in this 591 text, before we get to the footnote or around the footnote, they would say the statutory text indicates that the standard need not be clear in convincing evidence.

[00:46:07] Speaker 03:
And indeed, with respect to our consideration of the evidence at issue here, we have not so applied that standard.

[00:46:17] Speaker 03:
However, if it is, you know, footnote explain why they didn't do it.

[00:46:23] Speaker 03:
If it is, then we would say that clear and convincing, even, you know, applies under these terms, I see no affirmative representation.

[00:46:34] Speaker 03:
that the agency is doing anything other than applying clear and convincing evidence.

[00:46:39] Speaker 03:
And in fact, the footnote just muses on the possibility that they really didn't need to go as far as they actually did.

[00:46:48] Speaker 01:
That's how I read that.

[00:46:51] Speaker 01:
I don't disagree that what the footnote and the statement above the line were intended to do is to some extent ambiguous.

[00:46:57] Speaker 01:
But again, I just return to those were the first level responses given to a series of comments about the clear and convincing evidence standard.

[00:47:04] Speaker 01:
I don't think there's any disagreement that the court does, in fact, have to grapple with the statement that clear and convincing evidence was satisfied.

[00:47:10] Speaker 01:
I am happy that I see my time is out, and I do want to move on to some of the other features in this case, particularly.

[00:47:18] Speaker 03:
Well, talk about the remand.

[00:47:20] Speaker 03:
So fine.

[00:47:21] Speaker 03:
Let's say we agree with you.

[00:47:23] Speaker 03:
Why does that have implications for whether we vacate, whether we don't?

[00:47:28] Speaker 03:
You say don't vacate.

[00:47:31] Speaker 03:
But does that mean that on remand you would do the kind of fulsome whole start from scratch review that Ms.

[00:47:39] Speaker 03:
Wiener is talking about, or are you just going to go back and like insert the right standard or cross out footnote 21?

[00:47:47] Speaker 01:
So I can't definitively commit to anything that the agency would or wouldn't do on remand.

[00:47:52] Speaker 01:
I think if you look at this court's decision in EMA Homer versus EPA, there's a discussion at the end of that decision that is a case for remand without vacatur.

[00:48:01] Speaker 01:
was utilized at the end of that decision, you know, the court notes that what happens in Remand Without Vagator is on remand, the agency, petitioners, other parties, you know, can do a lot of different things.

[00:48:14] Speaker 01:
They can stick to the exact same record and just provide more explanation.

[00:48:18] Speaker 01:
They can engage in further comment.

[00:48:21] Speaker 01:
They can update figures to reflect changes that have occurred since the rulemaking took place.

[00:48:27] Speaker 01:
And so any or all of those things could happen

[00:48:31] Speaker 01:
here, which is I think precisely why, and I think this is equally true for the sort of methodological challenges that petitioners raise, you know, this is a rule that if the rule be sent back to the agency without vague at her, you know, different additional things could be said, different explanation could be given about why the methodological choices that have been, you know, the focus of petitioners challenges here are in fact justified,

[00:49:01] Speaker 01:
I'm happy to talk about those issues hurt you and not help you.

[00:49:06] Speaker 03:
Right.

[00:49:06] Speaker 03:
Why doesn't the uncertainty make it worse from the government's perspective of you should leave the rule in place is winner says we have people who are relying on this.

[00:49:15] Speaker 03:
We have people who are spending millions of dollars.

[00:49:19] Speaker 03:
So maybe

[00:49:20] Speaker 03:
I don't know if she's saying this, but maybe, Your Honors, if the government commits to just sending it back and scratching out rule 21, you know, footnote 21, then it makes sense to keep the rule in place.

[00:49:35] Speaker 03:
But if they could come back and redo the whole thing, then you should actually wipe it off the books because it's not fair to us and we've got reliance interest.

[00:49:45] Speaker 01:
Right.

[00:49:45] Speaker 01:
So to be clear, the sort of ambiguity I was talking about or the uncertainty I was referring to is not uncertainty from the agency's perspective and the ultimate conclusion that will be reached.

[00:49:55] Speaker 01:
So this is, you know, as represented in the agency supplemental brief, you know, at this time, the agency does have full confidence in the record.

[00:50:04] Speaker 01:
understands the sort of challenges that have been raised in this litigation, but does fully expect on remand to ultimately reach the same conclusion.

[00:50:13] Speaker 01:
What I was referring to in uncertainty is exactly how will they get to the same conclusion.

[00:50:19] Speaker 01:
Will it be, as you suggest, sort of crossing a paragraph or a footnote 21 and then providing additional explanation of clear and convincing?

[00:50:28] Speaker 01:
Will there be changes made to the model?

[00:50:29] Speaker 01:
I mean, those those are questions that that that I can't answer.

[00:50:33] Speaker 05:
But but again, the pre judged it and they'll figure out a way to support.

[00:50:37] Speaker 01:
Certainly not.

[00:50:39] Speaker 01:
Again, that's why I can't speak definitively.

[00:50:41] Speaker 01:
But but of course, this is, you know, this court deploys remand without vacatur frequently.

[00:50:46] Speaker 01:
certainly not infrequently in environmental cases, in cases that touch on environmental impacts in particular.

[00:50:53] Speaker 02:
Brian, in some ways, it's not just that you're predicting that the agency would reach the same conclusion in terms of thinking that more stringent standards are justified.

[00:51:02] Speaker 02:
It's that you're predicting that the agency would reach the same conclusion that the more stringent standards are justified by clear and convincing evidence, because that's what they said they did.

[00:51:11] Speaker 02:
So, the fact the recitation of clear convincing evidence actually adds meat to the bone on whether they're likely to meet arrive at the same conclusion.

[00:51:21] Speaker 02:
Right.

[00:51:22] Speaker 02:
Oh, sorry.

[00:51:23] Speaker 02:
Let me ask you this question for them to do for the agency to do that.

[00:51:27] Speaker 02:
Let's just engage in this hypothesis.

[00:51:30] Speaker 02:
Suppose we were to agree, not of a saying we necessarily would, but suppose we were to agree with the challenge that petitioners make to the main underlying assumption about the random array and whether it's fair to just impose a random array rather than one that takes into account the possibility that purchasers actually make informed decisions that are acting in their beneficial self-interest.

[00:51:49] Speaker 02:
If we were to agree with that,

[00:51:52] Speaker 02:
And we were to disagree with you that the agency, in fact, didn't even apply a clear and convincing standard, but rather they said they did.

[00:52:01] Speaker 02:
And so we just assumed that they did.

[00:52:03] Speaker 02:
Do you have a substantive defense of the rule?

[00:52:08] Speaker 01:
Yes.

[00:52:08] Speaker 01:
I mean, yes.

[00:52:10] Speaker 01:
I think that that substantive defense largely tracks what petitioner, or sorry, respondent interveners laid out in their brief.

[00:52:17] Speaker 01:
But it's also reflected in the rule itself.

[00:52:19] Speaker 01:
I mean, I guess beginning with

[00:52:21] Speaker 01:
with the sort of challenge that took up the majority of petitioners time, which is the choice to randomly distribute base case models across base case instances during the Monte Carlo analysis.

[00:52:35] Speaker 01:
A number of responses, and feel free to cut me off if I'm too far over time here, but a number of responses to the points that petitioners make, many of which are in respondent and intervener's brief.

[00:52:48] Speaker 01:
The first of which is this assertion

[00:52:50] Speaker 01:
that the choice to engage in a random distribution is effectively an affirmative assertion that consumers never engage or never consider economic benefits.

[00:53:02] Speaker 02:
One second.

[00:53:05] Speaker 02:
Sorry, but I do want to hear the summary, the top line summary of the points, but I just want to make sure I understand that the government's position is that if we disagree with you that Clinton convincing was only in Canada and not applied at all, that even though you don't have a substantive defense in the brief that you actually do want us to go ahead and

[00:53:23] Speaker 02:
rather than remand for the agency to supply a more elaborate explanation of the rule, you actually want us to go ahead and sustain the rule.

[00:53:35] Speaker 01:
If the court were to get past the, yes, short answer is yes.

[00:53:39] Speaker 01:
Once you get past, I think the only disagreement between the department and respondent interveners at this stage is the disagreement that we've discussed earlier, which is the alternative explanation sort of topic.

[00:53:52] Speaker 01:
On the random distribution point, at a high level, the issue here, the issue that petitioners are highlighting is an issue that is not uncommon to Department of Energy rulemakings or really to any other agency rulemaking, which is that oftentimes in rulemaking, you reach a point where there just is no further data to allow further refinement of a model.

[00:54:19] Speaker 01:
That is what happened here.

[00:54:22] Speaker 01:
The department did have a lot of data that helped inform its base case assignments.

[00:54:30] Speaker 01:
I think it's important to keep in mind that this was a random distribution, but a bounded random distribution in at least the following very significant way, which is the department actually knew what types and efficiency levels of boilers were being shipped out to consumers

[00:54:46] Speaker 01:
for two of the eight categories, because the industry provided that data.

[00:54:51] Speaker 01:
For the other six categories, it actually knew total numbers of boilers being shipped and average efficiency levels of those boilers, but did not know efficiency distributions.

[00:55:03] Speaker 01:
And that's something that petitioners challenge.

[00:55:04] Speaker 01:
But the point being is that the boilers that were being randomly assigned out, the department has a lot of confidence that that

[00:55:15] Speaker 01:
set of boilers is an accurate reflection of what is in the market.

[00:55:19] Speaker 01:
And then the question becomes, how do you assign those boilers to individual base cases when there is no additional information, as the agency explains at J622, that would allow the agency to engage in this sort of complex consumer choice model that petitioners now urge.

[00:55:40] Speaker 01:
But I think as the panel sort of hinted at,

[00:55:45] Speaker 01:
at no time, including in the briefing before this court, have petitioners ever really come up with any concrete way to actually actualize the idea that you would somehow need to account for this kind of consumer behavior.

[00:56:00] Speaker 01:
And I think it's important.

[00:56:02] Speaker 01:
Petitioners really are relying solely on a common sense, I think intuitively appealing sense of, oh, well, this is a commercial market.

[00:56:11] Speaker 01:
We know consumers must be behaving rationally.

[00:56:14] Speaker 01:
And therefore, this is some sort of gross overstatement of economic benefits, but I think, as the department pointed out, there are a large number of reasons that English petitioners don't contest, to think that, in fact, consumers in this market, both commercial and residential consumers in this market, are frequently, we don't know exactly how frequently, but frequently

[00:56:36] Speaker 01:
engaging in behavior that is not strictly economically beneficial.

[00:56:43] Speaker 02:
We have responded in Venus to hear from.

[00:56:45] Speaker 02:
Is there an explanation that you think they haven't made that the government has?

[00:56:52] Speaker 02:
If so, can you just give the top-line summary of that?

[00:56:56] Speaker 01:
Certainly.

[00:56:57] Speaker 01:
The top-line response is there's lots of literature out there about

[00:57:02] Speaker 01:
The reality, I think the Nobel Prize in economics in 2017 was actually one for this.

[00:57:07] Speaker 01:
The reality that consumers in many markets do not behave strictly rationally, that there are a number of things in this market in particular for just to give one example, a huge amount of the boilers that go out every year are replacement boilers.

[00:57:21] Speaker 01:
So it's like, I think 20 to 25% of any given market is new construction where people are buying these things in the first instance and making informed power possibly

[00:57:32] Speaker 01:
economic decisions, but a huge amount of the boilers going out every year are replacement boilers and a huge number of those are what's known as emergency replacement boilers, which is, in other words, a boiler fails in the middle of winter in Wisconsin.

[00:57:45] Speaker 01:
It's absurd to think that in those circumstances,

[00:57:48] Speaker 01:
the owner of that commercial real estate building is really engaging in this careful process to replace the boiler.

[00:57:56] Speaker 01:
There's evidence and research showing that most emergency replacement and replacements are like for like, which is to say that when a boiler fails, you don't engage in a search for a new one really, you just ask someone to come in and install a new version of the one that you had.

[00:58:13] Speaker 01:
So that's one example.

[00:58:14] Speaker 02:
Okay, that's that's helpful.

[00:58:17] Speaker 02:
Let me make sure my colleagues don't have additional questions.

[00:58:20] Speaker 05:
Yeah, sure.

[00:58:24] Speaker 05:
The secondary literature suggesting that, and empirical literature, that remands without vacatur often results in essentially no further action being taken.

[00:58:38] Speaker 05:
The agency has no incentive to take the matter up again.

[00:58:41] Speaker 05:
And so these things languish for years and again, sometimes never revisited at all.

[00:58:48] Speaker 05:
And there's a host of examples involving just the EPA.

[00:58:52] Speaker 05:
And here we have the rule going into effect if it does without vacatur in 2023.

[00:59:00] Speaker 05:
Don't you think we ought to, if we abide by your request not to vacate and remanded instead that we ought to put a deadline on the agency to issue its revised regulation or whatever it's going to do expeditiously before all this money is spent and the matter is effectively moot.

[00:59:21] Speaker 01:
That's certainly something this court has the authority to do.

[00:59:25] Speaker 01:
It has done that in past remand without vacatur cases.

[00:59:29] Speaker 05:
How long do you think the agency needs here?

[00:59:33] Speaker 01:
Again, I think precisely because of the pre-decisional problem.

[00:59:40] Speaker 01:
I can't give an exact number, but I think if the court were to impose

[00:59:45] Speaker 01:
a deadline, a reasonable deadline or to direct the agency to move with alacrity or whatnot, the agency would certainly abide by this court's order.

[00:59:56] Speaker 05:
What if we just said 90 days unless you all come in the next 10 days and show us why you need more time than that?

[01:00:04] Speaker 01:
Without running that by the client, I can't make any representations about whether or not the agency

[01:00:08] Speaker 01:
would be able to meet that short of the deadline.

[01:00:11] Speaker 05:
You mean they couldn't within 10 days tell us that they need more than 90 days?

[01:00:15] Speaker 01:
Oh, I'm sorry.

[01:00:17] Speaker 05:
Clearly they could do that.

[01:00:20] Speaker 01:
Yes, likely they would be able to.

[01:00:22] Speaker 05:
So that we have a possible resolution of that problem, potential problem.

[01:00:27] Speaker 03:
Dr. Sartre, can you tell us where in the record, if at all, the emergency boiler point comes up?

[01:00:34] Speaker 01:
So there's, sorry.

[01:00:38] Speaker 01:
So there's in one of the technical support documents, I don't know that I have this particular, I have many JA sites, but not this particular one handy.

[01:00:47] Speaker 01:
There is discussion about the reality that in the market, new shipments account for only like 20 to 25, again, depending on which category you're looking at.

[01:00:58] Speaker 01:
I think the specific detail about emergency replacements, I don't

[01:01:05] Speaker 01:
believe is specifically pulled out in the technical support documents.

[01:01:09] Speaker 01:
But of course, this court has lots of case law reflecting the reality that when an agency regulates any kind of market, there is some amount of deference due to just the agency's familiarity with the realities of that industry.

[01:01:22] Speaker 01:
And so I'm not sure that that, again, because the agency did explicitly say there are lots of market failures here and listed a few

[01:01:31] Speaker 01:
I'm not sure the agency was in fact required to list every market failure it could have thought of.

[01:01:37] Speaker 03:
Was the agency required to provide some support for the listings?

[01:01:44] Speaker 03:
Yes, the agency listed a number of potential market failure issues, but they remain purely hypothetical, I would suppose, unless the agency also includes in the record

[01:01:58] Speaker 03:
some support for it.

[01:01:59] Speaker 03:
And here's a study that shows that this sort of thing happens in this environment.

[01:02:04] Speaker 01:
For some of these market failures, I'm sure that literature exists.

[01:02:09] Speaker 01:
But I think that question actually highlights an important point to keep in mind, that there was no evidence in the record either about the percentage of consumers, commercial or residential or otherwise, who were actually making the kinds of strictly economically beneficial decisions that petitioners were raising.

[01:02:26] Speaker 01:
This was in response to an assumption made about how consumers behave provided by petitioners.

[01:02:33] Speaker 01:
DOE's response was, we can also come up with a lot of assumptions, but you've given us no data that would allow us to actualize the assumption that you're making and to actually place it in our model.

[01:02:44] Speaker 01:
And of course, this court has a lot of cases dealing with challenges such as this, where really the challenge boils down to an assertion that the agency didn't have perfect information

[01:02:55] Speaker 01:
or should have pushed further to develop more perfect information or better information and did it.

[01:03:02] Speaker 01:
And this court has repeatedly said that's not a challenge that this court will count.

[01:03:05] Speaker 01:
And an agency isn't required to go down every rabbit hole if it's satisfied that the evidence it has is adequate.

[01:03:14] Speaker 02:
Okay, let me make sure my colleagues don't have additional questions for you.

[01:03:16] Speaker 02:
Thank you, Mr. Starcher.

[01:03:19] Speaker 02:
Ms.

[01:03:19] Speaker 02:
Wu, we'll hear from you.

[01:03:26] Speaker 07:
May it please the court, Michelle Wu from the Natural Resources Defense Council for Respondent Interveners.

[01:03:32] Speaker 07:
This court should deny the petitions for review because the department reasonably concluded that it was highly probable that the standards were economically justified.

[01:03:40] Speaker 07:
And I'd like to pick up on some of the colloquy you had with Mr. Starcher about why the department's method of modeling consumer choices was reasonable.

[01:03:49] Speaker 07:
In addition to the emergency replacement issue that Mr. Starcher pointed out,

[01:03:53] Speaker 07:
The department did explain that there are also other sorts of market failures that are impeding purchasers from capturing the full benefit of efficiency investments.

[01:04:01] Speaker 07:
That includes, for example, as the department explained, a situation in which a developer purchases a building and can thereafter sell it for a profit.

[01:04:10] Speaker 07:
It also includes, as we pointed out in our brief, situations in which landlords are purchasing boilers and can pass on the operating costs to tenants.

[01:04:18] Speaker 07:
So there are many reasons to think that

[01:04:21] Speaker 07:
people are that purchasers of commercial package spoilers aren't identifying the most economically beneficial investments.

[01:04:27] Speaker 03:
But as a matter of agency responsibility under, you know, arbitrary capricious review and whatnot, to what extent is the agency required to not just theorize about these circumstances, but actually, to some extent, establish that these distortions

[01:04:48] Speaker 03:
of the types that you're talking about are in fact happening in this market.

[01:04:52] Speaker 03:
Do they have that responsibility?

[01:04:54] Speaker 03:
And did they do that in this case?

[01:04:58] Speaker 07:
Well, Your Honor, again, as Mr. Starcher pointed out, there is case law that suggests agencies can rely on their background regulatory experience and their knowledge of the market that they regulate.

[01:05:08] Speaker 07:
And in this case, the background of Congress's mandate to set

[01:05:14] Speaker 07:
mandatory energy conservation standards is the idea that voluntary market forces are inadequate to advance energy efficiency in the way that Congress wanted.

[01:05:23] Speaker 07:
So that's the background of this type of regulation.

[01:05:27] Speaker 07:
And then as far as things in the record, I think one thing that supports the agency's assumption of imperfect information or insufficient information is the nature of the Monte Carlo model itself.

[01:05:39] Speaker 07:
There are numerous inputs that feed into the agency's model

[01:05:43] Speaker 07:
separate from the ones that petitioners have identified and show that whether a boiler is economically beneficial for a particular consumer depends on a whole range of assumptions and future values.

[01:05:53] Speaker 07:
And even well-informed, rational consumers would have a difficult time identifying which boilers are economically beneficial in the long run.

[01:06:03] Speaker 07:
As for misaligned incentives, petitioners' own evidence suggests that in 75% of cases, the person who purchases the boiler

[01:06:13] Speaker 07:
It also is the person who's paying the operating costs, but that still leaves 25% of purchasers in commercial buildings, not to mention 12% or all residential buildings, which constitute 12% of commercial packaged boiler shipments, where there is more of a problem with misaligned incentives.

[01:06:30] Speaker 02:
So the misaligned incentives and the informational issue, which are the market failures that you're pointing to,

[01:06:35] Speaker 02:
Am I right that the only place mentioned of that is made in the rule is that J 660 in the section that deals with procedural issues and regulatory review review under the executive orders.

[01:06:46] Speaker 07:
And there are two other places, your honor, where the agency discusses that the agency, for example, rejected a model put forth or an alternative put forth by petitioners that would have

[01:06:57] Speaker 07:
assigned base case efficiencies based solely on economic criteria, and it said that that reflects an overly optimistic and unrealistic working market and presumes information that may not be available to all consumers.

[01:07:07] Speaker 07:
That's at J621.

[01:07:09] Speaker 07:
And then the second point is that at J622, the agency explained that developing a model that would have accounted for

[01:07:17] Speaker 07:
economic criteria, which petitioners have suggested the agency needed to do would also require accounting for all the other factors that influence purchasing decisions, including green behavior, government incentives, and things like whether the purchaser is a landlord or a tenant.

[01:07:32] Speaker 07:
And that's at J622.

[01:07:32] Speaker 05:
They just said it'd be too difficult, right?

[01:07:37] Speaker 07:
Well, they said it would require information that isn't available and

[01:07:43] Speaker 07:
data that isn't available and a way to recognize all of the other factors that influence consumer choice separate from the economic criteria that petitioners have identified.

[01:07:53] Speaker 03:
Can I go back to your answer to my question about the agency's responsibility to show its work and actually amass evidence of the kinds of things that they think are happening?

[01:08:07] Speaker 03:
When we're talking about clear and convincing evidence as the standard,

[01:08:11] Speaker 03:
and a statutory requirement that they evaluate factors to the maximum extent practicable.

[01:08:17] Speaker 03:
Does that give them more of a responsibility to not just rely on their own background principles, but actually figure out the extent to which these kinds of distortions are happening in the context of this market?

[01:08:31] Speaker 07:
Well, your honor, of course we agree that the clear and convincing evidence threshold is higher than the prompt ponderance threshold, and the agency did recognize that as well, and it said it concluded that that higher standard was met, it needed to conclude that it was highly likely that the standards would provide economic benefits.

[01:08:47] Speaker 07:
But as far as how the clear and convincing evidence threshold comes in.

[01:08:52] Speaker 07:
Two responses to that.

[01:08:53] Speaker 07:
The first is that, as you pointed out, the agency is required to conclude whether the standards are economically justified by clearing convincing evidence, but only to the maximum extent practicable.

[01:09:04] Speaker 07:
And that's because Congress recognized that this is an inherently predictive exercise that requires the agency to make predictions about future savings and consumer savings based on information that is uncertain.

[01:09:15] Speaker 07:
And then the second point is that Supreme Court has indicated that evidence to meet the clear and convincing threshold may not be mathematically precise or based on definite present or future conditions and that approximations and reasonable estimates are necessary.

[01:09:28] Speaker 07:
And that's from the 2018 Florida versus Georgia case at 2527.

[01:09:33] Speaker 05:
This will this predictive judgments, which of course are necessary.

[01:09:38] Speaker 05:
We have a record in which the agency predicted gas prices for five years, which have now elapsed.

[01:09:44] Speaker 05:
We know the predictions were erroneous.

[01:09:46] Speaker 05:
Are they obligated now to make new predictions for the next five years or whatever it is?

[01:09:52] Speaker 05:
Or can they rely on facts that we know have been disproved?

[01:09:56] Speaker 07:
Well, as for the question of the adequacy of this rule, I don't think the agency needs to look at what actually happened with gas prices because the agency can supply a more comprehensive explanation, you know, if it wanted to revisit it to justify this rule based on the record at the time and the decision at the time.

[01:10:13] Speaker 07:
And that would be an entirely appropriate.

[01:10:15] Speaker 05:
And when that's challenged and subject to review, we could find that there was someone could reasonably believe that was clear and convincing evidence when they knew it was in fact untrue.

[01:10:26] Speaker 07:
at the time in 2016.

[01:10:28] Speaker 07:
The agency relied on the best available data that it had about gas prices.

[01:10:33] Speaker 05:
That's a very low bar.

[01:10:33] Speaker 05:
I mean, the Congress has set this thing up so that it's not just ordinary, you know, minimally necessary evidence.

[01:10:44] Speaker 07:
Well, the agency looked at the best data that was available in 2016 from the Energy Information Administration.

[01:10:50] Speaker 05:
Once we remand, the record is potentially reopened.

[01:10:53] Speaker 07:
Well, it could be, but another option, though, and what the agency has requested is an opportunity to provide a better explanation on this record.

[01:11:02] Speaker 05:
The failure to reopen the record, knowing that the data on which it relied are incorrect, make it hard then to be upheld as having clear and convincing evidence.

[01:11:11] Speaker 07:
No, Your Honor, I think because the rule would still be assessed based on the record at the time.

[01:11:17] Speaker 07:
An agency has an option on remand of just providing a better explanation based on the record at the time.

[01:11:22] Speaker 07:
But on the point of a remand, I do want to emphasize that.

[01:11:26] Speaker 05:
If we remand it, it's all open.

[01:11:29] Speaker 07:
Well, this court also has the option of structuring the remedy in a particular way.

[01:11:35] Speaker 07:
For example, this court could direct the agency to provide the more comprehensive explanation it's asked for an opportunity to provide.

[01:11:42] Speaker 07:
It could, as Your Honor suggested, impose a deadline on that explanation, such as 90 days.

[01:11:48] Speaker 07:
And then it could adjudicate those with the benefit of the agency's fuller explanation.

[01:11:53] Speaker 07:
And that would also mitigate petitioner's concern.

[01:11:56] Speaker 07:
Right, and that would mitigate petitioners concerns about the compliance deadline as well because this court would be able to rule on the motion or on the case expeditiously.

[01:12:06] Speaker 07:
And I also just want to make the point that it's critical that any sort of remand be without vacator in this case under the court's allied signal test.

[01:12:16] Speaker 07:
Vacator would be both disruptive and environmentally harmful.

[01:12:19] Speaker 07:
As far as the disruptive consequences, Petitioner's own declaration from one manufacturer indicates that it will take three years to adapt operations to come into compliance with these standards.

[01:12:29] Speaker 07:
Because this 2023 deadline is on the books, and nope, Your Honor, I see my time has elapsed.

[01:12:34] Speaker 07:
May I briefly conclude?

[01:12:36] Speaker 02:
You can finish the thought.

[01:12:39] Speaker 07:
And because this 2023 deadline is on the books and nobody has thought of stay, presumably manufacturers across the country are already beginning to adapt their operations to comply with these standards.

[01:12:50] Speaker 07:
And it would be environmentally harmful because it would leave less efficient boilers on the market for longer, locking in for those boilers more harmful pollutant emissions and higher utility bill costs over the course of their 25 year lifetimes and postponing the benefits to consumers

[01:13:05] Speaker 07:
of emissions reductions, even though these standards are already long overdue.

[01:13:09] Speaker 07:
They were finalized in 2016.

[01:13:12] Speaker 05:
There are boilers on the market that would meet the standard today, correct?

[01:13:17] Speaker 05:
I mean, the new standard.

[01:13:18] Speaker 07:
Correct.

[01:13:19] Speaker 05:
Would it be possible, just in principle, for the industry to comply with the rule by simply removing some of its existing offerings from the market?

[01:13:32] Speaker 07:
Um, I'm not sure the answer to that market, those that would be compliant.

[01:13:39] Speaker 07:
I believe, I believe the compliance deadline applies to boilers that are manufactured after that particular date.

[01:13:45] Speaker 07:
So I don't know that the rule requires them to move, remove anything from the market.

[01:13:51] Speaker 05:
If they have some models that cannot meet that standard, they couldn't go on producing them after the deadline, right?

[01:13:57] Speaker 07:
Correct.

[01:13:57] Speaker 07:
after the compliance.

[01:13:59] Speaker 05:
We don't know, but that might mean they just discontinue those models and stay with the ones that do comply.

[01:14:05] Speaker 07:
That do comply, yes.

[01:14:06] Speaker 07:
And presumably, again, manufacturers are already making those decisions and may have already made those decisions now.

[01:14:12] Speaker 05:
Well, as I say, they may have decided to do nothing.

[01:14:15] Speaker 05:
And then they'll take them off the market if the rule goes into effect.

[01:14:18] Speaker 07:
Yes, they could.

[01:14:23] Speaker 02:
Let me make sure that there's no additional questions for you, Ms.

[01:14:25] Speaker 02:
Wu.

[01:14:27] Speaker 02:
Thank you.

[01:14:29] Speaker 02:
We'll hear from petitioners to rebuttal.

[01:14:31] Speaker 02:
We'll give you three minutes to wrap up.

[01:14:33] Speaker 02:
And I don't know which one of you is doing the rebuttal.

[01:14:42] Speaker 04:
This is Barton Day for petitioners.

[01:14:45] Speaker 04:
Again, I'd like to respond to a couple of the issues raised about random assignment, because there are some serious red herrings here.

[01:14:55] Speaker 04:
Nobody, the petitioners have not argued that there's some need for complex modeling or anything else.

[01:15:03] Speaker 04:
DOE has addressed consumer purchasing behavior in the context of fuel switching analysis in other rulemakings.

[01:15:13] Speaker 04:
It's not a big deal.

[01:15:14] Speaker 04:
It's simple.

[01:15:16] Speaker 04:
And it's something DOE has done.

[01:15:19] Speaker 04:
The idea that there needs to be some elaborate model that accounts for every conceivable

[01:15:25] Speaker 04:
consideration is simply an effort to make the unnecessarily complicated the enemy of the reasonable.

[01:15:35] Speaker 04:
What DOE did in terms of its random assignment approach isn't reasonable.

[01:15:40] Speaker 04:
It's not remotely reasonable.

[01:15:42] Speaker 04:
It grossly overstates the potential for standards to provide economic benefits for consumers.

[01:15:51] Speaker 04:
to an extent that I think it's improbable, very improbable, that DOE could justify these standards based on the same record.

[01:16:02] Speaker 04:
And if it has to reopen the record, which of course it should, obviously they relied on a huge increase in the price of natural gas to justify these standards, and that didn't occur.

[01:16:17] Speaker 04:
the idea that this randomness.

[01:16:20] Speaker 03:
I just want to make sure that I'm clear on what you're saying.

[01:16:23] Speaker 03:
So your position is that basically the major failure here is we don't know where all this data came from.

[01:16:32] Speaker 03:
They haven't taken into account the certain relevant assumptions, but that it's not going to require a whole new rulemaking from scratch necessarily if we were to rename.

[01:16:46] Speaker 04:
No, I'm suggesting they have serious issues they have to address.

[01:16:54] Speaker 04:
The context is important here.

[01:16:55] Speaker 04:
DOE started out this rulemaking, acknowledging that it needed clear and convincing evidence.

[01:17:02] Speaker 04:
And then it received comments pointing to all the holes in the record, of which there were many.

[01:17:07] Speaker 04:
And its response to that was to say, completely unprompted, because no one raised the issue.

[01:17:13] Speaker 04:
It was a completely settled issue.

[01:17:14] Speaker 04:
And DOE suddenly blurts out, oh, the standard doesn't apply.

[01:17:19] Speaker 04:
And then it announces an interpretation of the standard that focuses on its subjective level of confidence rather than evidence in the record.

[01:17:31] Speaker 04:
DOE's response to the fact that it didn't have evidence in the record was to say, we reject DC Circuit precedent saying that we have to have our key evidence in the record

[01:17:43] Speaker 04:
so that it can be exposed to refutation during the notice and comment process.

[01:17:47] Speaker 04:
I mean, the idea that they needed to have evidence in the record to support their standards was not something DOE accepted in concept.

[01:17:58] Speaker 04:
And so they're going to have to look at issues like natural gas prices, like the use assumptions where they cobbled together something that resulted in

[01:18:13] Speaker 04:
increasing these high benefit spikes that drive the average results that they rely on.

[01:18:24] Speaker 04:
So they're gonna have to do some work.

[01:18:26] Speaker 04:
That's not to say that this process has to be all that lengthy, but there are some specific issues where they do not have the record to address these issues in an appropriate way.

[01:18:38] Speaker 04:
And again, core issue that they didn't even consider

[01:18:42] Speaker 04:
whether there's a need for standards and whether they would provide any economic benefits at all, you know, that can be addressed by looking at what the factual circumstances and trying to come up with an approach that's reasonable as it has done in the context where it's looking at

[01:19:01] Speaker 04:
the circumstances under which purchasers would move from a gas product to an electric product, for example.

[01:19:09] Speaker 02:
Okay, let me make sure my colleagues don't have additional questions for you in your rebuttal time.

[01:19:15] Speaker 02:
Okay, thank you, counsel.

[01:19:18] Speaker 02:
Ms.

[01:19:19] Speaker 02:
Weiner, you're opening your mouth a little bit.

[01:19:22] Speaker 08:
I misunderstood that I had a little time on rebuttal to talk about disruption, but if the court is ready to... We can give you a minute to give your rebuttal.

[01:19:34] Speaker 02:
I didn't have the direction beforehand about who was taking rebuttal, but go ahead.

[01:19:38] Speaker 02:
Why don't you take a minute?

[01:19:39] Speaker 08:
I appreciate it, Your Honor.

[01:19:41] Speaker 08:
And just real quickly, I do think, you know, what the government has said, it's not clear what happens on remand here.

[01:19:49] Speaker 08:
We do think what happens on remand is the government needs to update their record to at a minimum use current evidence, as well as address the concerns raised by my co-counsel.

[01:19:59] Speaker 08:
That means that there is inevitable disruption in the industry that will have to take steps to comply with this new rule on remand.

[01:20:06] Speaker 08:
And that, to your question,

[01:20:08] Speaker 08:
when a new standard goes into effect, manufacturers have to redesign their products, retest them, and certify them to the new standard.

[01:20:19] Speaker 08:
So it is quite an undertaking.

[01:20:21] Speaker 08:
Contrast that with the lack of disruption from vacating the standards, particularly if the department were to act quickly on a new rulemaking, you know, while environmental concerns

[01:20:33] Speaker 08:
are at issue, there's no exception that says environmental concerns are disruptive.

[01:20:39] Speaker 08:
And in those cases, petitioners, including the ones studying by the government, petitioners have agreed that vacating would be disruptive.

[01:20:46] Speaker 08:
We don't agree here.

[01:20:47] Speaker 08:
We don't think it would be disruptive.

[01:20:49] Speaker 08:
In fact, we live the opposite of the case.

[01:20:51] Speaker 08:
Thank you.

[01:20:51] Speaker 05:
Let me just make sure I understand that.

[01:20:54] Speaker 05:
So if they have a model now that they say is compliant with the, would be compliant with the proposed standard,

[01:21:02] Speaker 05:
they would have to get that officially certified should the standard come into effect.

[01:21:07] Speaker 08:
There are annual certification requirements that happen.

[01:21:10] Speaker 08:
And so those would apply to even existing products on the marketplace today.

[01:21:15] Speaker 02:
All right, thank you.

[01:21:17] Speaker 02:
Thank you, council.

[01:21:18] Speaker 02:
Thank you to all council this morning.

[01:21:20] Speaker 02:
We'll take this case under submission.