A three-judge panel on the D.C. Circuit Court of Appeals on Friday vacated the U.S. Department of Energy’s proposed efficiency rule on commercial package boilers because of its failure to follow the Administrative Procedure Act (APA).

Such boilers are used to heat commercial and institutional buildings including schools, hotels, office and apartment buildings and hospitals. DOE estimated it would have saved 27 trillion BTU and $2 billion in customer spending, and cut carbon emissions by 16 million metric tons.

The American Public Gas Association and American Gas Association, which both represent natural gas utilities, and gas utility Spire had challenged the rule when it was proposed in 2020, and the court remanded it to DOE in 2022. The groups had challenged the department’s data and assumptions that it used to justify the more stringent standards.

When DOE issued a new rule last year, the groups argued that the department did not properly notice it and allow for comment, violations of the APA.

DOE has to periodically update efficiency standards for such equipment, with the law requiring it to at least adopt standards developed by the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE), which is a private professional association that writes standards and guidelines for the industry. If warranted, DOE can approve more stringent rules, and if ASHRAE fails to update them for six years, then it can update them on its own.

But even under the six-year rule, DOE must have clear and convincing evidence that its standard will result in significant conservation of energy, is technologically feasible and economically justified. The case stems from DOE’s use of that part of the law.

ASHRAE has not updated the standards since 2008, and DOE worked on its proposal for several years before publishing an initial final rule in 2020, which required more efficient boilers.

The initial rule was based on modeling from DOE in which it assigned random boilers to buildings. The petitioners argued that purchasers would make more rational decisions to choose the most effective boilers for their sites. They also questioned the natural gas prices that DOE used.

The court agreed, finding that DOE failed to provide a reasoned response to such arguments.

The gas groups said that DOE’s second attempt also failed to adequately explain its reasoning and that they were denied the opportunity to comment on the proposal as required in the APA. The court again agreed, as the rule on remand relied on new studies and documentation, which made it subject to comments under the APA.

DOE supported its use of random assignment with a more detailed explanation of market failures and behavioral biases that it said leads to irrational investments such as less efficient boilers. It also cited data showing boilers of varying efficiency levels are used in a variety of building types.

The department claimed that it did not need to put the rule on remand up for comment because the new data just advanced a hypothesis and provided some supporting explanation. That new data, however, did not address deficiencies in the pre-existing data, the court said, and were entirely new and critical to the department’s determination of life-cycle costs.

Petitioners on such APA issues do not face a high burden, so those objecting to an agency’s late reference to critical documents can show “prejudice” by claiming uncertainty as to whether their comments might have changed the outcome, the court ruled.

The petitioners also raised an issue with energy prices that DOE used from the Energy Information Administration, but the court sided with DOE there, saying the new rule provided a sufficient response to their concerns.

The department argued that the rule should not be vacated because it went into effect early this year and some manufacturers have started following it.

“However, none of the DOE’s arguments demonstrate that ‘the egg has been scrambled and there is no apparent way to restore the status quo ante,’ namely the state of affairs under the prior, less stringent standards,” the court said, quoting a case in which it found that the Department of Agriculture had violated the APA but declined to vacate the department’s action.

Vacating the rule would let manufacturers produce the more efficient boilers, along with those that comply with the pre-existing efficiency standard, the gas utilities argued.

The court found that because DOE failed to comply with the initial remand order, it made sense to vacate the rule. DOE will have to conduct additional proceedings to deal with the court’s concerns if it wants to implement a new standard, it ruled.