The Big Stick: California Proposes Stringent Enforcement Rules on Appliance Efficiency

September 2014

Industry should pay attention to regulations that the California Energy Commission (CEC) is proposing to enforce its Appliance Efficiency Regulations.  If adopted, the enforcement regulations would expose industry to administrative civil penalties more than ten times those under the U.S. Department of Energy's (DOE) appliance efficiency program.

Industry should consider participation in the CEC proceedings to protect its interests.  And, it should be prepared to deal with whatever CEC adopts.

The proposal will be considered at a CEC public hearing on October 20, 2014; written comments are due the same day.  See http://www.energy.ca.gov/appliances/enforcement/documents/index.html.

Violations Subject to Administrative Civil Penalties.  Violations subject to administrative civil penalties under the CEC proposal include:

1. Any person who sells or offers for sale an appliance that is not listed in CEC's Appliance Efficiency Database may be subject to a penalty for each unit that was sold or is offered for sale.
   
   
2. Any person who manufactures, imports, or distributes an appliance that is subsequently sold or offered for sale by another person for end use in California, when (i) the manufacturer has not tested, marked, or certified the appliance, in violation of CEC requirements, or (ii) the appliance does not meet specified CEC efficiency standards, may be subject to a penalty for each unit of the appliance that was sold or is offered for sale.  There is an exception where that person can demonstrate both that (i) the appliance was intended for shipment and use outside of California, and (ii) it took reasonably prudent precautions to assure that the appliance would not be sold or offered for sale in California .
   
   
3. Any person who knowingly provides materially false information to CEC in a statement made pursuant to the applicable CEC regulations that includes a declaration, executed under penalty of perjury, may be subject to a penalty.  This would cover declarations submitted to CEC relating to its Appliance Efficiency Database.  This penalty may be in addition to any penalty assessed pursuant to 1 or 2 above.

Penalty Amounts.  An administrative civil penalty of up to the maximum amount provided statutorily, currently $2,500, may be assessed (i) for each unit that was sold or is offered for sale in California in violation of the specified CEC requirements, or (ii) for each false statement as discussed in 3 above.  The statutory maximum dwarfs the $200 per violation civil penalty that DOE can impose for violations of its appliance efficiency program.

If more than one person is responsible for a sale or offer for sale in violation of the CEC rules, CEC may apportion liability amongst the persons responsible for the violation.

In determining the amount of an administrative civil penalty for each violation, CEC is to consider the following factors:

• The nature and seriousness of the violation.
• The persistence of the violation, meaning a responsible person's history of past violations of CEC requirements over the previous seven years, and the number of such violations.
• The length of time over which the violation occurred.
• The willfulness of the persons responsible for the violation.
• The harm to consumers and to the state that resulted from the amount of energy wasted due to the violation.
• The number of persons responsible for the violation.
• The efforts of the persons responsible for the violation to correct the violation prior to initiation of an enforcement action by CEC.
• The cooperation, by persons responsible for the violation, with CEC during its investigation.
• The assets, liabilities, and net worth of the persons responsible for the violation.

Procedure for Assessing Administrative Civil Penalties.  CEC is to send a written Notice of Violation to any violator.  The agency may at any time issue a decision by settlement.  The settlement agreement may include appropriate sanctions and remedies to address violations and promote compliance.

No earlier than 30 days after issuing a Notice of Violation, CEC may initiate an adjudicative proceeding to impose civil penalties if it determines that the responsible person has not made sufficient progress in addressing the violations identified in the Notice of Violation.  After the hearing, the agency is to issue or adopt a decision on whether a violation has been committed and assess appropriate penalties.  CEC may take other such actions as are authorized by statute and CEC regulations to address or prevent any act or omission addressed in its Appliance Efficiency Regulations.

A CEC order imposing an administrative civil penalty is to be subject to judicial review. 

Issues.  The magnitude of the potential penalties under the proposal is a major issue.  Per unit penalties of $2,500 can be disproportional and crushing and are an invitation to prosecutorial abuse.  The governing statute, Cal. Pub. Resources Code § 25402.11, does not require that a violation be measured on a per-unit basis.  A cap on penalties also would be consistent with the statute and would promote fairness—as would a confidential warning and opportunity to resolve the matter before issuance of a Notice of Violation.

Another important issue is the extent to which the proposal is preempted by federal law.  A key policy under the federal Energy Policy and Conservation Act is preemption of state requirements.  See 42 U.S.C. § 6297.  CEC states that its Appliance Efficiency Regulations “are enforceable only to the extent they are not preempted by federal law,” including DOE's appliance efficiency regulations.  CEC Initial Statement of Reasons, Appliance Efficiency Standards Enforcement Regulations, Aug. 25, 2014, at 14.  It goes on to assert that “the proposed regulations do not duplicate or conflict with federal law.”  Id.  That is by no means clear on the face of the proposal.

For example, under the CEC proposal (see proposed § 1609(a)(2)) a penalty may be imposed if an appliance does not meet various efficiency standards, including those referenced in Section 1608(a)(4) of the regulations.  Section 1608(a)(4) refers to federal standards for federally regulated appliances, i.e., Section 1605.2, which refers to Section 1605.1 (“Federal and State Standards for Federally-Regulated Appliances”).  This seems to mean that CEC could try to impose a penalty for failure to meet federal standards, which would fly in the face of federal preemption policy.

Another example raising preemption concerns is where an entity declares to CEC, relating to the agency's Appliance Efficiency Database, that the appliance complies with a federal standard, and the appliance is determined not to meet the standard.  CEC might potentially try to impose a penalty on the entity for providing “materially false information” to CEC about compliance with the federal standard; this amounts to state enforcement of federal standards.