[00:00:00] Speaker 02:
Case number 22-1107 et al.

[00:00:03] Speaker 02:
American Public Gas Association Petitioner versus United States Department of Energy.

[00:00:09] Speaker 02:
Mr. Day for the Spire Petitioners.

[00:00:12] Speaker 02:
Mr. Neal for the Petitioner Air Conditioning Heating and Refrigeration Institute.

[00:00:16] Speaker 02:
Mr. Starcher for the Respondent.

[00:00:19] Speaker 03:
All right, Mr. Day, good morning.

[00:00:22] Speaker 06:
Good morning.

[00:00:23] Speaker 06:
May it please the court, Barton Day for Petitioners.

[00:00:26] Speaker 06:
I'll be addressing the substantive reasons why the court should set aside the standards at issue.

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My co-counsel will then address our procedural arguments and the reasons why they cater is warranted.

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I'd like to reserve four minutes of my time for rebuttal.

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Petitioners challenge DOE's determination that the standards for commercial package boilers are economically justified.

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That determination must be supported by clear and convincing evidence.

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And it was based expressly on the results of life cycle cost analyses indicating that the standards would provide economic benefits for purchasers.

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Those claim benefits were very small for what is by far the largest category of products covered by the standards.

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DOE claimed average life cycle cost savings that barely exceed one-tenth of 1%.

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Moreover, for this category of products, DOE's numbers show that the majority of all investments in standards compliant boilers are bad economic investments that would leave purchasers in the red, often by thousands of dollars, even after the entire projected 24.8 year life of the product.

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In fact, DOE's numbers show

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that significantly more purchasers would suffer net costs as a result of the standard than would benefit from it.

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Nevertheless, DOE concluded that purchasers would benefit economically if standards forced them to make the 23% of potential investments in standards compliant oilers that they're currently declining in the absence of standards.

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DOE reached that surprising conclusion because it concluded that there's a small percentage, a relatively small percentage of potential investments that have very high benefits.

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Benefits that in some cases exceed $50,000 on products that have a total installed costs that average less than $30,000.

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Still, DOE's analysis only generated benefits because it assumed that the probability that purchasers would turn down these highly beneficial investments is exactly the same as the probability that they would decline the very worst investments, including investments that would take more than 900 years to pay off just in simple payback terms.

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There are three substantive issues concerning DOE's analysis.

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First, DOE based its analysis on overstated natural gas prices.

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Second, there are trial cases with unreasonably high burner operating hours, which indicates that the benefits in some of these very high benefit cases are artificially high.

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Third, DOE's analysis was based on a random assignment methodology that unreasonably assumes that in the absence of standards, purchasers of commercial boilers have literally no tendency at all to make good investments or turn down bad investments, no matter what the economic stakes are.

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On review of the rule,

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This court found that DOE failed to address serious concerns raised by all three of those issues.

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On remand, DOE again failed to address those issues.

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It still relies on overstated natural gas prices, most obviously because it failed to account for the lower prices paid by very large consumers.

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Second, its analysis is still distorted

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by artificially high benefits in cases with unrealistically high burner operating hours.

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Most importantly, DOE failed to address the basic concern that random assignment overstates the potential for standards to provide economic benefits for consumers while understating their potential to impose net costs.

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All three of these issues warrant vacator.

[00:05:02] Speaker 06:
Well, I'll be happy to answer any questions concerning any of these issues.

[00:05:06] Speaker 06:
Council, can you hear me?

[00:05:08] Speaker 05:
Yes.

[00:05:10] Speaker 05:
Can you just address, I think, kind of factual record type issue that I'm trying to get to the bottom of on this burner operating hour point.

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And that is that the 30 BTUs per hour rule of thumb

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the respondent seems to claim in their brief, we'll hear more from them in the moment, that that number did not just come from the sources that were cited in the 2020 rule, I think at footnotes 41 and 42, but that it seems that they're implying that that number was validated

[00:06:01] Speaker 05:
by actual utility bill data, but it's not clear to me whether that's the case or not.

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Can you help elucidate that for me?

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Yeah, I don't think that the assumption is just an assumption.

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DOE claims it lines up with its numbers, but it claims a lot of things that it doesn't really explain a basis for.

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The 30 BTU per hour as a universal assumption was panned by commenters on the grounds that it makes no logical sense to have one assumption that applies in all cases.

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It's not a one size fits all kind of issue.

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The number is high.

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And most importantly, the fundamental concern was that when you use that assumption, you end up with trial cases with burner operating hours that are way too high to be realistic.

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And that indicates that

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in those trial cases, benefits were overstated.

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And the examples of that are cases, again, pointed out on the reply brief, where 40%, 40% of DOE's total benefits are in cases where they assume boilers are operating 24 hours a day, seven days a week,

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for more than seven months out of the year.

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And the nature of these products is such that, you know, they have to be able to meet peak demand so that they would never be operating continuously for that long period of time.

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So regardless of where DOE says that that particular assumption came from, the assumption was challenged as unreasonable.

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And most importantly,

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it was the results that came out of that assumption.

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The DOE's work based on that assumption produced unreasonable hours, I'm sorry, unreasonable operating conditions and apparently inflated benefits.

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I mean, I'll hear from the agency about this, but... I'm sorry, I missed the beginning.

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I'll ask the agency this question, but I didn't see any explanation

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about the 30 BTU per hour number and the supplemental submission by the agency.

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Was there anything said about it or not?

[00:09:00] Speaker 06:
No, they didn't even refer to it.

[00:09:05] Speaker 06:
Well, they may have they may have mentioned it, but they didn't really say anything substantively about it.

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All right.

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And that's the problem on remit is that they they

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talked about their methodology, but they didn't answer the questions.

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And in that case, the fundamental question was, whatever you're doing here, you're generating these trial cases that appear to be artificially inflated.

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And of course, with random assignment, it's those high extreme economic outcomes that drive the results of the analysis.

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All right.

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I don't want to take up more of your time.

[00:09:48] Speaker 06:
Thank you.

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I would like to focus on random assignment.

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I think the principle issues there are that DOE's numbers show that more consumers, more purchasers would suffer net costs as a result of the standards than would benefit from.

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And the only reason they show benefits is because they assume that purchasers never considered the economics of potential investments, regardless of the stakes involved.

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That's an absurd assumption, and DOE has never even claimed that it's valid.

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Their explanation didn't even address the concerns about the absurd impacts of random assignment

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particularly random assignment of these very high, high economic consequence trial cases, good or bad.

[00:10:51] Speaker 04:
Actually, the record don't counsel that.

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The agency on remand.

[00:10:57] Speaker 03:
Mr. Day, my colleague has a question.

[00:11:01] Speaker 04:
Go ahead.

[00:11:01] Speaker 04:
All right.

[00:11:01] Speaker 04:
So to say that they never even considered it, it's just inaccurate.

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You may disagree with its conclusion, but it did consider it and addressed it.

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It never addressed the concern about the random assignment of very high consequence trial cases.

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It simply, it talked about market failures that don't even remotely justify the random assignment of trial cases, for example, where

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the more efficient product actually costs less to install.

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So there's no rationale to say a standard is necessary to force consumers to make those investments.

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And yet, despite the abstract arguments that those cases don't exist in this context, DOE's numbers show that they claim benefits for such cases.

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That was an issue that was

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raised right from the get-go, it's been one of the most controversial issues in standards rulemaking for seven years now.

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And DOE didn't even mention it.

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They simply said, well, there are market failures and therefore purchasers don't make perfect economic decisions.

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And the conclusion that consumers don't always make perfect economic decisions based on a detailed

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economic analysis is no basis at all to conclude that purchasers literally never considered the economics of potential efficiency.

[00:12:47] Speaker 05:
Council, I think you're building a straw man to knock it down.

[00:12:50] Speaker 05:
I think that Judge Rogers' point is that, and it's in the briefing, is that they did present evidence that showed that

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there was not always correlation between the purchasing decisions and the efficiency kind of economic impact of those decisions.

[00:13:18] Speaker 05:
I think there were like three separate studies that were presented that demonstrated that fact.

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Am I wrong about that?

[00:13:27] Speaker 06:
Well, there are a variety of things that I could say in response to that.

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One is that I don't think their studies say what DOE says they say, but putting that aside, even if you assume that all of DOE's factual arguments are valid, DOE's conclusion is consumers don't always make perfect economic decisions.

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based on a detailed economic analysis.

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And that is no basis at all for random assignment of trial cases where the more efficient product costs less.

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There's no rationale for assigning cases like that randomly, and yet DOE did.

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If you want to understand this, I would refer you to the figure on page

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32 of our opening brief, which shows the entire distribution of, and these are DOE's trial cases.

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So these are DOE's on numbers.

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And what they show is first, you have to ignore that long flat line in the middle, because those aren't real results.

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They're just zeros ostensibly representing

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the 77% of potential investments consumers would make on their own.

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But if you look at the extreme ends, which is where all the action is, you see that there are a lot of bad outcomes depicted on the left side of that figure.

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And there are a couple of cases there where the payback period in simple payback terms is over 900 years.

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So over 900 years, just to break even.

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What's remarkable is not that there are two of those cases out there.

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What's remarkable is the DOE literally assumed that 77% of the purchasers that face those kinds of investments make the investment anyway.

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That's exactly the same percentage as they assume would make the very best investment.

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And on the other end of that scale, you can see that there are

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there are 84 individual trial cases that account for all of the benefits necessary to put the average above zero.

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And those 84 cases have benefits of, the range goes up to over $70,000.

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And those cases are there because DOE assumed that the probability that purchasers are acting on their own

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would turn down those highly beneficial investments is exactly the same as the probability that they would decline an investment with a 900-year payback period.

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That assumption is ludicrous.

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And there isn't any market failure that can explain that.

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And I can go through, and if you'd like, I can give you a three-minute tour of

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of why DOE's market failure arguments make no sense.

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But I think it's pretty clear on its face.

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When you look at the results of DOE's analysis, they're basically saying, okay, most of these investments are bad.

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In fact, over 60%, according to DOE's numbers, impose net costs with most of those imposing net costs in excess of $1,000 even after 24.8 years.

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And yet, because of this small percentage of highly beneficial investments, we're gonna claim that there are net benefits.

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And that only works because DOE assumes that even in those very extreme cases, there's no statistical difference in the probability that purchasers will make or decline those investments, which is absolutely ridiculous.

[00:17:41] Speaker 03:
Judge Wilkins.

[00:17:42] Speaker 06:
I see I'm out of time and I didn't want to reserve time for rebuttal.

[00:17:45] Speaker 06:
I want to respond to any questions.

[00:17:49] Speaker 03:
Mr. Day, would you please wait?

[00:17:51] Speaker 03:
You keep interrupting us.

[00:17:53] Speaker 03:
Judge Wilkins.

[00:17:54] Speaker 03:
I'm sorry.

[00:17:55] Speaker 06:
I'm not hearing, perhaps.

[00:17:56] Speaker 03:
All right.

[00:17:57] Speaker 03:
Well, Judge Wilkins, have you had your question answered?

[00:18:01] Speaker 05:
Yes, I have.

[00:18:02] Speaker 03:
All right, Judge Rogers.

[00:18:04] Speaker 03:
I'm fine.

[00:18:05] Speaker 03:
OK, you're fine.

[00:18:06] Speaker 03:
All right, Mr. Day, you have used your rebuttal time.

[00:18:10] Speaker 03:
And we will perhaps give you two minutes, notwithstanding that.

[00:18:16] Speaker 03:
We'll now hear from Mr. Neal.

[00:18:18] Speaker 06:
Thank you.

[00:18:23] Speaker 00:
May it please the court, Jason Neal for Petitioners.

[00:18:26] Speaker 00:
I'd like to make three main points about the procedural issue here and the appropriate remedy in this case.

[00:18:32] Speaker 00:
First, DOE's argument that the final rule was a mere supplement not requiring notice and comment on the agency's first ever evidence regarding actual market failures in this market is contrary to Chamber of Commerce against SEC.

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Second, DOE's backup position that complying with this court's deadline on remand required DOE to skip notice and comment

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is also untenable.

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Third, the substantive issues and the procedural issues here require vacatur.

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In APGA 1, the court previously declined to vacate because DOE promised a full and sound explanation on remand.

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DOE's failure to provide such an explanation here demonstrates that it does not have one and that the rule should be vacated.

[00:19:19] Speaker 00:
DOE's primary justification in the final rule for its refusal of notice and comment was that this court remanded without vacater and that the final rule is merely a supplement providing further explanation.

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The first part of that justification is irrelevant.

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Chamber of Commerce explains that notice and comment requirements still apply on remand.

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The second part of the answer distorts both the law and the facts here.

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As the court explained in Chamber of Commerce, the exception to notice and comment is for information

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that merely supplements information or data already in the rulemaking record.

[00:19:53] Speaker 00:
The final rule says that it supplements DOE's conclusions that market failures apply, but supplementing data or evidence is very different from supplementing a conclusion that the court already said was unsupported.

[00:20:06] Speaker 00:
DOE claims in its brief that the 2020 rule advanced a hypothesis and some supporting explanation, quoting in part from Building Industry Association.

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But DOE cuts off the quote.

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The Court and Building Industry Association said that the agency's proposal, quote, advanced for comment a hypothesis and some supporting data.

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Here, the notice of proposed rulemaking did not justify random assignment based on market failures.

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And the 2020 rule didn't either, except as an attack on the supposed alternative of assuming perfect rationality on behalf of all purchasers.

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Even there, the 2020 rule did so only in a conclusory

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and unsupported way as the court found in the last appeal.

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There was no evidence to supplement here.

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DOE also claims that it had good cause to skip notice and comment because of the court's 90-day deadline.

[00:21:01] Speaker 00:
Again, DOE is wrong on both the facts and the law.

[00:21:05] Speaker 00:
On the facts, DOE's complaint that 90 days would be insufficient for notice and comment is wrong and beside the point.

[00:21:12] Speaker 00:
It is wrong because DOE already knew at least as early as oral argument in APGA 1 that the court was interested in evidence of market failures given DOE's invocation of those market failures at oral argument.

[00:21:25] Speaker 00:
DOE could easily have published a request for comment providing notice of its market failure evidence and supporting data in time to meet the court's deadline.

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DOE's argument here is beside the point because the court anticipated the potential need for more time

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by giving DOE 10 days to demonstrate such a need.

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DOE declined that opportunity and did not seek any other relief that would give it more time.

[00:21:49] Speaker 00:
I think it's important to take a step back and remember how we got here.

[00:21:53] Speaker 00:
DOE urged the court not to vacate the rule by promising a full and sound explanation on remand.

[00:21:59] Speaker 00:
If DOE thought that it needed more time for a more substantive reconsideration of the rule, it shouldn't have made that representation to the court, but it did.

[00:22:07] Speaker 00:
And if DOE knew that it planned to rely on evidence of market failures, which it brought up at oral argument, it should and could have done so in compliance with the APA.

[00:22:17] Speaker 00:
And we know from the certified index to the record and we know from the final rule that as soon as two days after the court released its opinion, DOE was collecting evidence of market failures for it to use.

[00:22:28] Speaker 00:
On the law here.

[00:22:29] Speaker 03:
Mr. Neal, what do you think about DOE naming this a supplement as opposed to an amended rule

[00:22:37] Speaker 03:
a revised rule, and the title actually has a long description in response to the DC Circuit's direction.

[00:22:53] Speaker 03:
I don't know that I've seen that before.

[00:22:55] Speaker 03:
Have you?

[00:22:57] Speaker 00:
I'm not sure, Your Honor.

[00:22:59] Speaker 00:
I do believe in the Federal Register.

[00:23:01] Speaker 00:
It does still say final rule here.

[00:23:03] Speaker 00:
I could go look and check to be sure.

[00:23:06] Speaker 03:
I don't think it does.

[00:23:07] Speaker 03:
I think it's called a supplement.

[00:23:09] Speaker 03:
But OK, because I think we looked at that.

[00:23:11] Speaker 03:
I will go back and see what I'm concerned what with your well, I am concerned that your argument raises a point that

[00:23:27] Speaker 03:
This court, in the first case, in good faith, assumed that this would be not a ministerial remand, but that it would be simply to make a fuller record and that the explanation was in the record.

[00:23:48] Speaker 03:
It just wasn't.

[00:23:50] Speaker 03:
I mean, it was gathered.

[00:23:51] Speaker 03:
It just wasn't in the record.

[00:23:53] Speaker 03:
And your argument and the argument

[00:23:57] Speaker 03:
colleague is that they added all sorts of things, new evidence, new arguments, new claims, and so forth, and that you are entitled to notice and comment.

[00:24:10] Speaker 03:
And in that regard, can you expand a little bit on the prejudice that you suffer without the notice and comment?

[00:24:19] Speaker 03:
Because you've got that burden.

[00:24:23] Speaker 00:
Sure, Your Honor.

[00:24:24] Speaker 00:
Let me take those in order.

[00:24:26] Speaker 00:
So I'll start with the importance of this being labeled a supplement.

[00:24:30] Speaker 00:
I think Chamber of Commerce says when a court remands without vacant or notice and comment requirements still apply.

[00:24:37] Speaker 00:
Second to your question about was this just an explanation, I think you only need to look at the final rule.

[00:24:44] Speaker 00:
DOE admits that it collected new data and new evidence to justify the market failures that it had invoked.

[00:24:51] Speaker 00:
APGA once said there was no evidence of those market failures.

[00:24:54] Speaker 00:
I think the court was right there.

[00:24:57] Speaker 00:
Perhaps in theory, DOE could have just written the supplemental explanation to try to address the court's concerns.

[00:25:03] Speaker 00:
I don't think it could have done that in a sufficient way that would have addressed the substantive problems.

[00:25:07] Speaker 00:
But procedurally, perhaps it could have just written something.

[00:25:10] Speaker 00:
But that's not what it did.

[00:25:12] Speaker 00:
It provided explanation based on new economic literature that it had talked about at oral argument.

[00:25:17] Speaker 00:
And it collected new data that Judge Wilkins, you asked about.

[00:25:21] Speaker 00:
But it never provided an opportunity for us to comment on that in the record.

[00:25:25] Speaker 00:
And that brings me, I think, Judge Henderson, to your last question about prejudice.

[00:25:30] Speaker 00:
We did our level best in the March 2022 filing to anticipate the issues that we thought DOE was going to address on remand because it hadn't put anything out for public comment.

[00:25:42] Speaker 00:
I think the issues that we raised there were significant and DOE never mentioned them in the final rule.

[00:25:48] Speaker 00:
I think that itself is sufficient to establish prejudice.

[00:25:52] Speaker 00:
But the bar for prejudice under Chamber of Commerce is quite low.

[00:25:55] Speaker 00:
I think that we have something useful to say, not that we would have changed the outcome of what the agency did.

[00:26:01] Speaker 00:
We had something useful to say in the March 22 request, and we would have had more to say if DOE had made public its evidence and given us a chance to comment on it.

[00:26:10] Speaker 00:
I know I'm in my rebuttal time, so I'd like to stop there and save a minute if I can, but I'm happy to answer any further questions.

[00:26:17] Speaker 03:
All right, Judge Wilkins, do you have any questions?

[00:26:22] Speaker 05:
No.

[00:26:22] Speaker 03:
OK, Judge Rogers.

[00:26:24] Speaker 03:
No, I'm OK.

[00:26:25] Speaker 03:
OK.

[00:26:26] Speaker 03:
Then thank you, Mr. Neal.

[00:26:28] Speaker 03:
We'll give you some time in rebuttal.

[00:26:31] Speaker 03:
Mr. Starcher.

[00:26:34] Speaker 01:
Good morning, Your Honors, and may it please the court.

[00:26:36] Speaker 01:
Jack Starcher on behalf of the United States Department of Energy.

[00:26:40] Speaker 01:
I'd like to start with just addressing

[00:26:43] Speaker 01:
a few representations made in connection with the random assignment, which has been sort of the, I guess, the lead argument sort of throughout this case.

[00:26:52] Speaker 01:
And I just wanted to address two specific representations before questionings take us away from it that are inaccurate and need to be addressed from the other side.

[00:27:01] Speaker 01:
First is this suggestion by opposing counsel that there's something suspect or surprising about the fact

[00:27:07] Speaker 01:
the Department of Energy didn't specifically respond to their argument about the fact that there may be some boilers for which the cost of installing that boiler on day one, the more efficient boiler would have been the lowest cost option.

[00:27:23] Speaker 01:
There's a reason that the rule doesn't respond to that point and

[00:27:27] Speaker 01:
The reason is that that argument was never raised during notice and comment rulemaking.

[00:27:32] Speaker 01:
As we note in our brief, that argument came up only one time in a footnote to a single submission, and it wasn't made as an argument.

[00:27:40] Speaker 01:
It was just a reference to a study made in a different rulemaking involving different kinds of boilers.

[00:27:45] Speaker 01:
And in the reply brief, petitioners identify under 50.

[00:27:49] Speaker 01:
I think it's 40, 46 maybe.

[00:27:53] Speaker 01:
applications for one of the smaller subclasses of boilers, the large gas hot water boilers, for which the more efficient boiler would have been the low cost option at the date of install.

[00:28:09] Speaker 01:
But as even petitioners acknowledge in their reply brief, even if you lop off those 46 cases, that represents just about 10% of the total benefits, even for that one set of boilers.

[00:28:21] Speaker 01:
And what petitioners don't acknowledge is that

[00:28:23] Speaker 01:
data is available for all of these boiler sets, you can look at it and see that in fact for small gas hot water boilers, the largest set of boilers, that's the focus of all the charts the petitioners include in their briefs, there are no cases for which the boiler, the more efficient boiler would have been the cheapest resulted install.

[00:28:40] Speaker 01:
So this idea that that's somehow concerning or surprising is just inaccurate and obfuscates the fact that that

[00:28:47] Speaker 01:
argument was never raised during notice and comment and can't be raised for the first time in a reply brief during the second set of petitions for review.

[00:28:58] Speaker 01:
And with that, I want to turn to this recurring theme, both at argument today and in petitioners briefs, that somehow random assignment, that the modeling decisions used in this model assumed random behavior or assumed that consumers are making certain shocking or surprising decisions at certain rates.

[00:29:20] Speaker 01:
As we explained in our brief,

[00:29:23] Speaker 01:
Random assignment is a methodological description of an assumption used in the model to try to best reflect complex consumer behavior.

[00:29:34] Speaker 01:
It has nothing to do with assuming that individual consumers are behaving randomly.

[00:29:39] Speaker 01:
It has nothing to do with assuming that certain shocking outcomes are going to be occurring at any specific rate.

[00:29:51] Speaker 01:
The whole reason why you use random distribution in a case like this, and this is explained at length, particularly in the supplement, but also referenced in the original rule, is that when you know a lot about a market as we did here, the department had really good data about the kinds of boilers that were going to be shipped out absent the rule.

[00:30:13] Speaker 01:
It had really, really good data about the nature of the buildings that would be installing these boilers.

[00:30:18] Speaker 01:
absent the rule.

[00:30:20] Speaker 01:
And the department also knew a lot about how consumers in this space act, as noted in the rule and that explained in much greater detail in the supplement.

[00:30:31] Speaker 01:
Specifically in the realm of energy efficiency investments, we know for a fact, and there's lots of research out there about this, and there's also the studies cited in the supplement, we know for a fact that there are a huge number of factors that go into

[00:30:47] Speaker 01:
any individual purchasing decision.

[00:30:49] Speaker 01:
And while economic benefit is one of those factors, the ability for consumers to capture economic benefit in this space is complicated.

[00:31:00] Speaker 01:
And as we noted in our brief, and petitioners really had no reply to this, even accepting their position that the rule, I guess an opening thesis of their position that

[00:31:17] Speaker 01:
that the rule under accounted for economic benefit to consumers.

[00:31:21] Speaker 01:
The problem with that is that even just taking that on its face, what does that mean?

[00:31:26] Speaker 01:
As we note in the rule, economic benefit is a conclusion that's the result of quite a complex modeling.

[00:31:35] Speaker 01:
Would it be economically beneficial for a consumer to buy a boiler that will produce a couple hundred dollars benefit

[00:31:44] Speaker 01:
over a 25 year life of a boiler if that consumer thinks maybe they won't own and operate the boiler for the entire 25 years.

[00:31:53] Speaker 01:
If the purchaser of the boiler owns a residential building where the residents of that building are going to be paying the electricity costs.

[00:32:03] Speaker 01:
For all of the reasons that are given in the supplement and also discussed in our brief,

[00:32:08] Speaker 01:
petitioner's entire argument on this front really doesn't hold together.

[00:32:11] Speaker 01:
And I think the greatest proof of that is in their reply brief, petitioners acknowledge, I think, that really what they wanted the department to do here was to randomly pick some percentage of base cases.

[00:32:24] Speaker 01:
In their reply brief, they suggest 20% based on no evidence and no citation.

[00:32:30] Speaker 01:
It seems that petitioners just wanted the department to randomly select some subset of boilers and assign those and those alone

[00:32:38] Speaker 01:
based on consideration of a single fact, which is economic benefit.

[00:32:42] Speaker 01:
But again, as discussed at length in the supplement and in our briefing, consumers aren't making these decisions based on a single fact.

[00:32:48] Speaker 01:
And we know that.

[00:32:49] Speaker 01:
And we know that not only from economic data, but from case studies that only confirm what the department said in its rulemaking.

[00:32:59] Speaker 01:
I also just want to briefly address and certainly feel free to

[00:33:04] Speaker 01:
interrupt if you want to take me in a different direction.

[00:33:06] Speaker 01:
But I think another theme in this case is petitioner's suggestion that because of the heightened standard, the heightened evidentiary standard that's at issue with this statute, the clear and convincing evidence standard, that somehow all of this court's case law, and there's a lot of it, making the kind of common sense point that in APA review, agencies are allowed

[00:33:30] Speaker 01:
to use models.

[00:33:31] Speaker 01:
They're allowed to engage in predictives.

[00:33:33] Speaker 01:
They're allowed to use data that is imperfect in certain ways, as long as they explain why the decision to do so is reasonable.

[00:33:41] Speaker 01:
Petitioners' arguments all run contrary to that precedent, and the only way that they get there, I think, is by saying that somehow clearing commencing evidence is meaningfully different in that respect.

[00:33:53] Speaker 05:
I guess I would push back on that and direct you to the whole dispute over boiler operating hours.

[00:34:01] Speaker 05:
And part of our prior decision told the agency to explain the 30 BTU per hour assumption.

[00:34:11] Speaker 05:
Do you agree that we said for the agency to do that in our prior opinion?

[00:34:15] Speaker 01:
So in the context of burner operating hours, that the thing that this court identified in its earlier decision

[00:34:23] Speaker 01:
And again, I think it's worth noting that on this issue, the court said it wasn't even clear whether this issue alone was enough to warrant remand independent of the other issues.

[00:34:33] Speaker 01:
But this court made clear that the concern, burner operating hours is an output of other factors in the analysis.

[00:34:43] Speaker 01:
And this court

[00:34:43] Speaker 01:
made clear in its decision that the concern that had been raised by commenters was that certain, and this is still, and again, I think petitioners acknowledge that this is still their argument to this day, that certain very high extreme burner operating hours were being produced in a way that should have signaled to the agency that other assumptions that the agency had made were wrong.

[00:35:06] Speaker 05:
Respectfully, Council, that's not the way that I read our opinion.

[00:35:10] Speaker 05:
Our opinion

[00:35:12] Speaker 05:
On this burner operating hours issue noted concerns that had been raised by petitioners and it listed one of them is the adoption of the rule of thumb that for every square foot of heated area a building uses 30 BTUs per hour.

[00:35:31] Speaker 05:
And then we conclude that by saying that section, we expect on remand a reasoned response to these concerns as well.

[00:35:43] Speaker 01:
So the response contained in the supplement is a reasoned response to all of the concerns raised by the court in that section of its opinion.

[00:35:53] Speaker 01:
And here's why.

[00:35:56] Speaker 01:
As explained in the supplement, all of these figures that we're talking about, so this is the burner operating hours, this is the heating load, this is the representative capacity that was used in estimating burner operating hours, as explained in the supplement, and this is, I think, most clear on JA 525 to 526, all of those figures don't meaningfully alter the actual conclusions that supported the outcome of the rule.

[00:36:25] Speaker 01:
And again, I guess to return for kind of a half second to the standard here, remember that the standard, the question for this court is, was it reasonable for the department to conclude that the heightened standards adopted are economically justified?

[00:36:42] Speaker 01:
So economic justification is the question here.

[00:36:45] Speaker 01:
And economic justification does not turn on every jot and tittle of every subcomponent of the model.

[00:36:52] Speaker 01:
As explained,

[00:36:55] Speaker 01:
in the supplement and also as noted in our brief, there were a number of economic benefits at issue here.

[00:37:01] Speaker 05:
The statute didn't require any particular quantum of consumer savings to- It seems to me, council, with respect, what you're saying is that even though the court said we wanted a response to the validity of this 30 BTU per hour heat load assumption,

[00:37:24] Speaker 05:
We didn't really have to give you a response to that because we said that that assumption wouldn't have really changed anything, that that assumption was really not relevant.

[00:37:42] Speaker 05:
And, you know, I don't know, you may or may not be right about that, but when the court tells you to explain something and you don't,

[00:37:52] Speaker 05:
and we say that that's part of what needs to be explained, then that seems to me to be a problem.

[00:38:01] Speaker 05:
So, again, I guess I... Because I don't see any discussion at all of the 30 BTU per hour assumption in the supplement.

[00:38:14] Speaker 01:
I believe that's correct, but again, I guess a two-part answer.

[00:38:18] Speaker 05:
Number one... How can you have a reasoned explanation

[00:38:22] Speaker 05:
about something that you don't discuss at all?

[00:38:25] Speaker 01:
In the following way, as this court noted, all of those figures that had highlighted the 30 BTU and the other assumptions that fed into boiler operating hours.

[00:38:41] Speaker 01:
As petitioners acknowledge, those figures only affect burner operating hours, or at least for purposes of their argument are relevant to these burner operating hour figures.

[00:38:51] Speaker 01:
The answer is,

[00:38:52] Speaker 01:
The burner operating hours are not concerning, even with those figures baked into them.

[00:38:57] Speaker 01:
And in any event, burner operating hours are not themselves something that feed into the conclusions that matter about the rule.

[00:39:05] Speaker 01:
Burner operating hours are primarily a result of the efficiency that was assigned to the building in the model and all of the data we had about that building.

[00:39:16] Speaker 01:
And we had a lot of data.

[00:39:16] Speaker 01:
We knew the exact square footage of these buildings that we were assigning models to.

[00:39:20] Speaker 01:
And we knew we even had energy consumption estimates for each building.

[00:39:26] Speaker 01:
The savings associated with the rule are not attributable to burner operating hours.

[00:39:35] Speaker 01:
And the concerns that this court highlighted in connection, and yes, this court mentioned the 30 BTU per hour as part of the burner operating hour problem.

[00:39:44] Speaker 01:
But the agency did respond to the burner operating hour problem and explained, as this court directed it to,

[00:39:50] Speaker 01:
why those anomalous numbers and why the high burner operating hours that were highlighted by commenters during notice and comment rulemaking were in fact not surprising or concerning.

[00:40:01] Speaker 01:
I can get into more technical, I mean this is all very technical obviously, I guess just to give a high level and this is noted in the supplement.

[00:40:13] Speaker 01:
These extreme cases that petitioners now really are focusing on, these handful of instances in which the

[00:40:20] Speaker 01:
the rule produced burner operating hours of eight months or so for something like 5% of all cases.

[00:40:27] Speaker 01:
That's a direct result of the fact that the rule utilized representative capacities for each boiler class.

[00:40:35] Speaker 01:
Essentially, each boiler class covers quite a broad range of outputs.

[00:40:40] Speaker 01:
So for example, for the small gas, small category, it's something from like 300,000 BTUs per hour all the way up to 2.5 million as a sort of

[00:40:49] Speaker 01:
helpful way to simplify things.

[00:40:50] Speaker 01:
The rule utilized representative capacities within that range.

[00:40:55] Speaker 01:
That's essentially what's producing these really high burner operating hours.

[00:40:59] Speaker 01:
But those hours aren't concerning.

[00:41:02] Speaker 01:
And if you went into the model and changed things, to the extent you were assigning higher output boilers in order to reduce burner operating hours for the high end, the fuel consumed by those boilers would be the same.

[00:41:19] Speaker 01:
And we know the amount of fuel being consumed for each building because we had actual data on that from CBEX and the residential survey data as well.

[00:41:29] Speaker 01:
So I guess there's a long way of saying.

[00:41:31] Speaker 05:
So help me understand what work does the 30 BTU per hour assumption do?

[00:41:41] Speaker 01:
As I understand it, it's a baseline figure, much like the sort of representative capacity that was used

[00:41:48] Speaker 01:
in order to calculate burner operating hours.

[00:41:52] Speaker 01:
And again, because burner operating hours weren't in.

[00:41:56] Speaker 05:
So you use the 30 BTU per hour number to calculate burner operating hours.

[00:42:02] Speaker 01:
Yes, that's my understanding.

[00:42:03] Speaker 01:
Is that both burner operating hours and, or sorry, both this 30 BTU figure.

[00:42:10] Speaker 05:
So why?

[00:42:12] Speaker 05:
isn't there some sort of a responsibility then if burner operating hours is relevant to explain one of the inputs into the calculation of how you derive the burner operating hour numbers?

[00:42:29] Speaker 01:
So that's exactly the response.

[00:42:31] Speaker 01:
Burner operating hours are not relevant.

[00:42:32] Speaker 01:
They didn't feed into

[00:42:36] Speaker 01:
What the department, again, I think this is explained in the supplement on J525, 526, what mattered was savings to consumers, right?

[00:42:47] Speaker 01:
Savings to consumers in the form of lower total fuel consumption over the life of the boiler was- Did the first panel believe that burner operating hours were irrelevant?

[00:42:57] Speaker 05:
I don't know if they believed that, but certainly, I mean, the comment- Did the opinion that they wrote conclude that burner operating hours were irrelevant?

[00:43:06] Speaker 05:
Why would they remand it if they thought that it was irrelevant?

[00:43:12] Speaker 01:
I think this is in the original opinion, although this wasn't a focus of earlier petitions.

[00:43:18] Speaker 01:
But the comment that was highlighted in the original decision, the specific comment about highlighting anomalous burner operating hours, this is the one discussed in our brief and that's discussed at length in the opinion.

[00:43:34] Speaker 01:
that a commenter commented that the median burner operating hours for all classes was over 1,000, et cetera, et cetera, et cetera.

[00:43:45] Speaker 01:
Because burner operating hours are not an input, the reason why that mattered is, and I think the panel noted this in its original decision, the reason why that mattered is because the thesis of that comment and the reason why this panel remanded on that issue was that there was a concern that

[00:44:04] Speaker 01:
some of those hours were so unrealistic that it should have flagged for the agency that certain inputs into that figure or certain other parts of the agency's model were wrong or should be reconsidered.

[00:44:19] Speaker 01:
And so the top line response is those numbers aren't surprising and therefore there was no need to go in and reassess any of the figures that fed

[00:44:29] Speaker 01:
into burner operating hours.

[00:44:31] Speaker 01:
The burner operating hours, because they're not an input into economic benefit, could only matter to the extent they raise for the agency a red flag that would in turn cause the agency to go back and reconsider things that fed into that number.

[00:44:44] Speaker 01:
And the agency's response, and maybe we've gone full circle and I've given you a much cleaner answer to your question than I have prior, full circle

[00:44:53] Speaker 01:
The agency's response in the supplement is, burner operating hours are not surprising.

[00:44:58] Speaker 01:
There's nothing concerning here.

[00:44:59] Speaker 01:
And therefore, there is no need for us to take the next step and to reevaluate figures that fed into burner operating hours.

[00:45:08] Speaker 01:
I think this is clear from the panel's decision, the earlier decision, that burner operating hours were relevant as sort of a red flag problem, right?

[00:45:19] Speaker 01:
That something about burner operating hours was,

[00:45:22] Speaker 01:
was so unrealistic or so surprising that the agency should have recognized other problems in its model.

[00:45:28] Speaker 01:
And the supplement does.

[00:45:30] Speaker 05:
Thank you.

[00:45:30] Speaker 05:
Judge Shanderson, I'm just noting that the clock seems to be stuck at 3 minutes and 43 seconds.

[00:45:37] Speaker 05:
I don't know if the clerk can address that.

[00:45:41] Speaker 05:
Ah, there we go.

[00:45:43] Speaker 02:
It's an action issue, but I am keeping track of the time.

[00:45:47] Speaker 01:
OK, sorry, just got so engrossed in discussion of burner operating hours.

[00:45:51] Speaker 01:
I didn't even notice the time had stopped.

[00:45:54] Speaker 01:
Thank you for flagging that.

[00:45:55] Speaker 01:
I'm happy to respond to any other questions as my time runs down.

[00:46:00] Speaker 01:
I want to make sure we, there's a lot of, I know a lot of different moving parts in this case.

[00:46:06] Speaker 01:
I guess one point that I did just want to make, and this is returning us to the random assignment space, and I just want to make sure to get this out there, petitioners,

[00:46:17] Speaker 01:
Another, you know, and they said this, this was said an argument today that that somehow the rule was only economically justified because of some very, very small percentage of very high benefit cases.

[00:46:30] Speaker 01:
That that simply you can look at the data on this DOE has looked at the data, you know, just just a sort of a pressure test.

[00:46:39] Speaker 01:
For the for the small gas hot watered heaters, the biggest group of boilers that were that, you know, has been spoken about the most today.

[00:46:48] Speaker 01:
You can look at the data on this.

[00:46:49] Speaker 01:
DOE could have gone in and just ignored all of the highest benefit cases.

[00:46:54] Speaker 01:
So for example, any benefit more than $15,000.

[00:46:58] Speaker 01:
You can go in and you can just lop off all of those highest benefit cases and you still reach the same conclusion.

[00:47:04] Speaker 01:
You still show benefit to consumers, which is all the department needed to find.

[00:47:10] Speaker 01:
And again, it's not even clear under the statute that it needed to find a benefit to consumers.

[00:47:14] Speaker 01:
But the department's conclusion here, which is that this was economically justified is unchanged, even doing this totally unsupported exercise the petitioners ask the department to do, which is to arbitrarily go in and just lop off some certain number of base cases, even though it's reasonable to think

[00:47:32] Speaker 01:
those base cases exist for all of the reasons given in the rule.

[00:47:38] Speaker 01:
It simply just isn't hard to envision.

[00:47:40] Speaker 01:
I'm sorry, the clock.

[00:47:44] Speaker 01:
Finish your sentence.

[00:47:46] Speaker 01:
Thank you.

[00:47:47] Speaker 01:
It's simply for all the reasons given in the supplement, it is not hard at all to believe or to imagine

[00:47:54] Speaker 01:
examples of buildings that are, in fact, leaving huge amounts of savings on the table for all sorts of reasons.

[00:48:00] Speaker 01:
And some of them are listed in the supplement.

[00:48:03] Speaker 01:
I think, to me, the most intuitive and easy is owner of boiler does not pay gas bills because it's a rental space and someone else is paying the bills.

[00:48:13] Speaker 01:
Of course, that person is not going to internalize lower gas bills.

[00:48:16] Speaker 01:
And of course, that person is going to, in some cases at least, just buy the cheapest boiler because they don't

[00:48:23] Speaker 03:
All right, we have your argument.

[00:48:24] Speaker 03:
Thank you.

[00:48:26] Speaker 03:
Mr. Day, why don't you take two minutes?

[00:48:32] Speaker 06:
Thank you.

[00:48:32] Speaker 06:
I've got a lot to respond to here.

[00:48:36] Speaker 06:
DOE's arguments on burner operating hours are completely invalid.

[00:48:41] Speaker 06:
Burner operating hours are energy consumption, which is what drives benefits divided by the capacity of the boiler.

[00:48:50] Speaker 06:
And so if you're

[00:48:52] Speaker 06:
Energy consumption numbers are wrong.

[00:48:55] Speaker 06:
Your burner operating hour numbers are wrong.

[00:48:58] Speaker 06:
Here the reverse is what we saw visibly is that the burner operating hours were ridiculous.

[00:49:04] Speaker 06:
And so that means that either the capacity is wrong, in which case costs are low, so benefits are exaggerated, or energy consumption is high.

[00:49:16] Speaker 06:
And in that case, benefits are exaggerated.

[00:49:20] Speaker 06:
Either way, it's a problem.

[00:49:22] Speaker 06:
The fact that they don't use burner operating hours to calculate benefits is irrelevant.

[00:49:28] Speaker 06:
It's a clear indication of a problem with its analysis.

[00:49:33] Speaker 06:
The claim that owners of apartment buildings don't pay the fees for boilers is false and DOE knows it's false.

[00:49:47] Speaker 06:
Boilers provide service to the building.

[00:49:49] Speaker 06:
You cannot meter them.

[00:49:51] Speaker 06:
There is a boiler in the basement.

[00:49:53] Speaker 06:
It's not like a furnace where everybody in their apartment has their own furnace.

[00:49:57] Speaker 06:
There is a boiler that serves the building.

[00:49:59] Speaker 06:
The bill goes to the building.

[00:50:03] Speaker 06:
And unless there's one tenant, that bill will never go to a tenant.

[00:50:07] Speaker 06:
And that's in the record.

[00:50:08] Speaker 06:
And they make these arguments, but they don't even refer to the fact that the record shows, and this is cited in our brief, that there are very, very few cases

[00:50:21] Speaker 06:
where even the possibility of split incentives exists.

[00:50:26] Speaker 06:
And if DOE believe that there are 7% or whatever that they might be able to argue and they assume that purchasers would go to the low cost boiler and every one of those cases, what that means is you take 7% of the cases and you assign whatever the low cost product is

[00:50:50] Speaker 06:
which may or may not be the low efficiency product.

[00:50:55] Speaker 06:
So the idea that that kind of a market failure even remotely justifies random assignments is absolutely invalid.

[00:51:06] Speaker 06:
The claim that these issues, particularly the concerns about the random assignment of the cases that drive the results of

[00:51:15] Speaker 06:
DOE's analysis were not raised is just false.

[00:51:23] Speaker 06:
That issue was identified as a problem back in 2016.

[00:51:29] Speaker 06:
It was an issue I raised during the discussion with OMB when the final rules was in the works.

[00:51:37] Speaker 06:
DOE was on the line for that call.

[00:51:39] Speaker 06:
They can't claim they did not consider that.

[00:51:42] Speaker 06:
The record of that is in the administrative record cited in our brief.

[00:51:46] Speaker 06:
All right, Mr. Day, finish up your argument.

[00:51:49] Speaker 03:
Mr. Day, Mr. Day, finish your sentence.

[00:51:56] Speaker 06:
I'm sorry?

[00:51:57] Speaker 03:
Finish your sentence.

[00:52:01] Speaker 06:
The point is that the issue has been raised over and over again over the last seven years.

[00:52:07] Speaker 06:
It was raised in briefing

[00:52:09] Speaker 06:
below, it was, I raised it in oral argument and in briefing.

[00:52:13] Speaker 06:
So the idea that this is something that's a Johnny completely, she was just not correct.

[00:52:19] Speaker 03:
All right.

[00:52:19] Speaker 03:
Thank you.

[00:52:20] Speaker 03:
Mr. Neil, why don't you take two minutes?

[00:52:25] Speaker 00:
Thank you, your honor.

[00:52:26] Speaker 00:
I just like to make two quick points.

[00:52:28] Speaker 00:
First, Judge Henderson, to your specific question about whether the final rule is a final rule, JA 517, the left-hand column, the bolded word action says final rule, semicolon, supplemental response to comments.

[00:52:41] Speaker 00:
That's what I had in mind in my answer to you.

[00:52:44] Speaker 00:
Second, I want to make sure that we discuss Baketer and the appropriate remedy here, and I won't belabor the point, but I'm happy to answer questions.

[00:52:52] Speaker 00:
We've been through this process twice now.

[00:52:56] Speaker 00:
There's a long rulemaking process.

[00:52:58] Speaker 00:
We went up to this court in a PGA one.

[00:53:01] Speaker 00:
We identified fundamental defects with the rule that that have come up to today and that the court.

[00:53:06] Speaker 00:
Found that had not adequately considered or explained.

[00:53:10] Speaker 00:
I think the final rule shows that the problem in a PGA one was not that didn't write enough about these issues.

[00:53:17] Speaker 00:
It's that it's approach doesn't work and I haven't seen anything in this in the briefs or in the oral argument today that suggests that is interested in.

[00:53:25] Speaker 00:
some wholesale reconsideration of that.

[00:53:27] Speaker 00:
And so I would urge this court, if you agree with us, you need to vacate the rule, not just remand, where the agency can write more words about these things.

[00:53:36] Speaker 00:
I think these are issues where if DOE seriously reconsidered the problems that we identified, its analysis would have to run so fundamentally differently that it would be a mistake to leave the rule in place.

[00:53:50] Speaker 00:
The rule is harming the industry.

[00:53:51] Speaker 00:
It went into effect 10 days ago.

[00:53:55] Speaker 00:
manufacturers were already having to make changes in anticipation of that effective date.

[00:54:00] Speaker 00:
Many of them have made significant changes to their operations.

[00:54:03] Speaker 00:
They'd love to have the previous rule back.

[00:54:05] Speaker 00:
And that's the remedy that we're asking this court to provide.

[00:54:09] Speaker 03:
If they've made these changes, how disruptive would it be to put them back where they were before January 10th?

[00:54:21] Speaker 00:
Your Honor, I can't speak to the circumstances of any particular manufacturer, because I think it varies from one to the other.

[00:54:29] Speaker 00:
But I can say that for at least some manufacturers, they are capable, if this court orders relief fairly soon, of changing operations back, restarting lines of business that they've started to wind down.

[00:54:44] Speaker 00:
This court denied a stay, and so I think that there have been harms that have come to at least some of the manufacturers.

[00:54:51] Speaker 00:
But the industry would like to have the old rule back.

[00:54:54] Speaker 00:
And I think there would be a real benefit for that.

[00:54:57] Speaker 00:
As far as disruptive consequences go, this is just not like other cases this court has discussed where there's some effect of the rule that just can't be unwound.

[00:55:06] Speaker 00:
I'd be happy to talk about other cases.

[00:55:09] Speaker 00:
But that's the point.

[00:55:10] Speaker 00:
Fine.

[00:55:10] Speaker 00:
Thank you.

[00:55:11] Speaker 03:
Any questions, Judge Wilkins or Judge Rogers?

[00:55:16] Speaker 03:
No, thank you.

[00:55:17] Speaker 05:
No.

[00:55:18] Speaker 03:
All right.

[00:55:19] Speaker 03:
Thank you then, Madam Clerk, if you would

[00:55:21] Speaker 03:
close us down.