A recent appellate court decision supports state efforts to reduce water use by regulating residential washing machines manufactured in California, despite a U.S. Department of Energy (DOE) order refusing to waive preemption of the state regulation. On October 28, 2009 the Ninth Circuit Court of Appeals reversed the DOE's 2006 ruling that denied the California Energy Commission's (CEC) request for a waiver of preemption to establish water efficiency standards for residential clothes washers.
BACKGROUND AND ISSUES
In 2002, the California Legislature required the CEC to establish water efficiency standards for residential clothes washers, which account for some 22 percent of the water use in a typical household. The CEC developed and adopted the mandated water efficiency standards and asserted that, if implemented, the new rules would result in annual water savings "equal to the City of San Diego's current water usage." Initially scheduled to take effect in two phases, washers would have been required to perform to one standard by January 1, 2007 and a more restrictive standard by January 1, 2010.
In 2005, recognizing that the federal Energy Policy and Conservation Act (EPCA)[1] expressly preempted the CEC from regulating residential (but not commercial) clothes washers, the CEC petitioned the DOE for a rule waiving preemption. One year later, the DOE denied the petition for the following reasons:
1. the proposed regulations were to take effect on January 1, 2007 – less than the mandatory three-year minimum waiting period between a grant of a waiver and the regulation's effective date required by the EPCA;
2. the CEC did not make the requisite showing of "unusual and compelling water interest" by demonstrating that the benefits of the proposed regulations were "preferable or necessary" when measured against alternative approaches to saving water; and
3. the proposed regulation would make top-loading washers unavailable in California.
The CEC appealed to the Ninth Circuit and the California Water Association, among others, filed an amicus curiae brief in support of the CEC's appeal of the DOE decision. The Court looked to resolve the following two issues on appeal:
1. whether the Court had jurisdiction to hear the CEC appeal under the EPCA; and
2. whether the DOE's action to deny the CEC's petition could be supported by any one of the DOE's three stated reasons.
ANALYSIS
The Court first determined that it had jurisdiction to hear the CEC's petition for review. Thereafter, the Court addressed the CEC's showing in support of a waiver of preemption and reviewed the DOE's rejection of the petition under the "arbitrary and capricious" standard established by the Administrative Procedure Act.
First, the Court rejected the DOE's reasoning that a waiver could not be granted if the proposed regulations adopted a timeline for implementation that did not comport with the EPCA's three-year waiting period. Claiming that the CEC's evidence showing compelling state need was premised on a faulty timeline, the DOE refused to consider such evidence. The Court concluded that the DOE's rejection on that basis was unjustifiable.
Second, with respect to proving California's "unusual and compelling water interest," the Court concluded that the record did not support the DOE's conclusion that the CEC failed to provide sufficient data and analysis from which the DOE could determine whether the new standards were "preferable or necessary" compared to alternatives. Instead, the Court concluded that the DOE "simply did not evaluate" the CEC's data and analysis and therefore could not rely on this second ground for denying the request for waiver.
The Court also rejected the DOE's third and final basis for denying the waiver petition – that the regulations would make top-loading washers unavailable – because the DOE had only offered evidence that presently-available top-loading washers would not meet the proposed standards. The DOE failed to offer even a prediction that the industry could not achieve the proposed efficiency standards in three years.
As a result, the Court reversed the DOE's order denying the waiver petition and remanded the matter for further proceedings.
Although the CEC request for waiver was not granted at this juncture, the Ninth Circuit's reversal offers significant support for efforts undertaken by California's water utilities to address what the Ninth Circuit itself calls California's "worsening" water crisis. The decision appears to reflect the Court's dissatisfaction with the DOE's failure to meaningfully consider California's need to pursue water use efficiency measures. On remand the DOE, under the Obama administration, is likely to take a more favorable view of state regulations such as the CEC's appliance water efficiency standards. A waiver of federal preemption would lend support to the efforts of California's state agencies and water utilities to promote both water and energy conservation, including the replacement of water-inefficient appliances inside the home.
Mari R. Lane, an Associate in the San Francisco office, represents investor-owned public utilities in rate cases, rulemakings and other matters before the California Public Utilities Commission (CPUC) as a member of Nossaman's Water Law Practice Group. Ms. Lane also advises municipalities and other public agencies on project procurement and transportation issues. She can be reached at 415.438.7296 or mlane@nossaman.com.
[1] 42 U.S.C. § 6297 (2009).