U.S. Supreme Court Reopens DOE's Rarely Challenged Efficiency Standards

The U.S. Supreme Court on June 8, 2026, granted, vacated and remanded a U.S. Court of Appeals for the D.C. Circuit November 2025 decision upholding the U.S. Department of Energy's (DOE) 2023 energy conservation standards for consumer furnaces and commercial water heaters, directing the court of appeals to reconsider its ruling in light of the federal government's changed position. The order in American Gas Association v. Department of Energy (AGA), No. 25-879, is modest in form but consequential in substance. Its significance may also extend beyond the fate of two appliance standards because of what it may signal for enforcement.

For nearly five decades, DOE's interpretations of the Energy Policy and Conservation Act (EPCA) have almost never been tested in court, in no small part because DOE's approach to enforcement creates huge incentives for regulated parties to negotiate settlement with the agency – typically resulting in a nonprecedential, "black box" outcome – rather than pursue litigation. This case offers a rare challenge to DOE's interpretation of a key aspect of an EPCA standard and the first since Loper Bright Enterprises v. Raimondo (2024).

Background

EPCA authorizes DOE to set and periodically amend energy conservation standards and related test procedures for covered consumer products and commercial equipment, but it bars DOE from adopting a standard that would make unavailable products with "performance characteristics" and features "substantially the same" as those generally available. 42 U.S.C. §§ 6295(o)(4), 6313(a)(6)(B)(iii)(II)(aa). In a December 2021 interpretive rule, DOE concluded that noncondensing gas furnaces and water heaters do not offer a distinct, protected "performance characteristic" relative to their more efficient condensing counterparts, and it relied on that interpretation to issue amended standards in 2023. Because traditional noncondensing appliances cannot meet the new thresholds, the standards effectively require a shift to condensing (largely gas-free) technology, which often demands new venting and installation work for consumers to use these appliances.

Industry groups challenged the rules in the D.C. Circuit. They argued that the panel improperly deferred to DOE's reading of EPCA instead of exercising the independent statutory judgment required by Loper Bright and that the standards force consumers toward condensing appliances incompatible with existing chimneys and venting. In a 2-1 decision, the panel held that DOE permissibly concluded noncondensing appliances offer performance characteristics and features substantially the same as condensing models, reasoning that the U.S. Congress gave DOE "a degree of discretion" to define what counts as a "performance characteristic."

What the Supreme Court Did

The posture shifted decisively after a change in administration. In its April 2026 brief, Solicitor General D. John Sauer agreed with industry that the 2021 interpretive rule and 2023 standards rested on a too-narrow understanding of "performance characteristic" and a flawed reading of EPCA and represented that DOE is considering a new rulemaking to correct those errors. Democratic state attorneys general and environmental groups urged the Court to deny review, characterizing the dispute as fact-bound and consistent with Loper Bright.

The Court vacated and remanded to the D.C. Circuit "for further consideration in light of the position asserted by the Solicitor General." It did not provide any further reasoning.

An Enforcement Regime That Is Almost Never Tested

The deeper significance of the Court's decision may lie in what it represents for EPCA compliance and enforcement more broadly. EPCA confers substantial substantive authority on DOE, and the agency has historically enjoyed unusually broad latitude in interpreting and applying its standards. Yet direct, adjudicated challenges to DOE's interpretations of EPCA's operative terms are remarkably rare – far rarer than in comparable federal enforcement regimes that have operated since the late 1970s. In practice, DOE's reading of the statute it administers goes nearly unchallenged – not necessarily because regulated entities agree with it, but because the structure of EPCA enforcement makes litigation a comparatively unattractive choice to case-specific, nonprecedential settlements.

A review of reported federal challenges underscores this pattern. In more than four decades since EPCA's enforcement framework took shape, only about a dozen appliance standard disputes have reached federal courts. Spread across several decades and multiple circuits, that limited set of cases highlights how rarely DOE's standards are meaningfully challenged and, when they are, courts seldom disturb the department's underlying interpretations. Notably, none of these cases involves a litigant directly challenging a DOE interpretive position arising from an enforcement action. Instead, the few challenges that do occur arise almost exclusively in the context of rulemaking or administrative review.

Under EPCA's enforcement regime, DOE calculates civil penalties on a mechanical per-unit or per-day basis, which can quickly reach significant sums at the current rate of $575 per violation, but retains broad discretion in settlement. Under its published civil penalty and enforcement guidance, DOE often reduces maximum penalties substantially to encourage prompt resolution, meaning amounts actually paid are frequently only a small fraction of the calculated maximum – in the authors' experience, in some cases well under 10 percent. As the guidance explains, "The Department may reduce penalties as appropriate to encourage the prompt and comprehensive resolution of cases."

This structure is intentional: It creates strong incentives for manufacturers to bring products into compliance quickly rather than litigate. To pursue litigation, regulated parties must effectively forgo the settlement-specific discounts DOE makes available to encourage prompt and comprehensive resolution.

The cumulative effect, decades later, is a body of nonprecedential, confidential settlements in which DOE's interpretive positions have rarely been adjudicated and even more rarely overturned. Regulated parties may privately disagree with DOE's reading of statutory and regulatory terms but rationally choose settlement because the immediate and significant savings available through settling in practice outweigh the expected value of litigation, which also exposes the litigating party to the downside enforcement risk of the undiscounted calculated penalty amount. Whole categories of contested DOE interpretations therefore go untested. AGA is notable precisely because it puts one such interpretation – the meaning of "performance characteristic" – before a court under a post-Loper Bright framework that no longer defers to the agency's preferred construction.

Takeaways for Regulated Entities

As a practical matter, the standards remain in effect on remand, and the D.C. Circuit could in theory reach the same result. But the combination of DOE's reversal of position, a likely new rulemaking and independent judicial review of agency statutory interpretations after Loper Bright makes that outcome less likely than it would have been a year ago.

More broadly, the AGA posture in any case invites manufacturers, utilities and trade associations to reassess long-standing assumptions about which DOE interpretations are practically unreviewable. Even where settlement remains the rational near-term choice, a post-Loper Bright environment – paired with a DOE now willing to acknowledge prior interpretive overreach – may shift the cost-benefit calculus on whether and when to preserve and litigate interpretive disputes. Regulated entities evaluating compliance, enforcement or rulemaking strategy should weigh these developments as considerations bearing on how they document and, where appropriate, contest DOE's reading of operative EPCA terms.

Holland & Knight's Environmental, Regulatory and Energy teams regularly advise clients navigating complex regulatory transitions, enforcement actions and high-stakes litigation.

For more information or questions about the issues discussed in this alert, please contact the authors.

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