On April 17, 2023, a three judge panel for the Ninth Circuit issued an Opinion in California Restaurant Association v. City of Berkeley finding that the Energy Policy and Conservation Act (EPCA) preempts a City of Berkeley’s ordinance that prohibits the installation of natural gas plumbing in new construction. This opinion is far reaching in its implication for local government authority to adopt municipal code language and amendments to state building codes in California, particularly where these amendments electrify end-uses that are “covered products” for consumer products and commercial products (e.g., hot water heaters, space heaters, driers, cooking appliances, etc.) regulated by the Department of Energy under the EPCA.

This is the first part of a series of blogs looking at the implications of this decision on local government and state authority to regulate natural gas use in buildings, natural gas infrastructure, and Clean Air Act (CAA) and related state air quality authority to regulate natural gas emissions from buildings.

The California Restaurant Association (CRA) filed a complaint for declaratory and injunctive relief in United States District Court for the Northern District of California on November 21, 2019 (CRA v. City of Berkeley, Case No. 3:19-cv-07668). The complaint alleged that the City of Berkeley’s Ordinance No. 7,672-N.S. (Adopted on August 6, 2019), which added a new chapter to the Berkeley Municipal Code prohibiting the installation of natural gas plumbing in new construction, was preempted: 1) by the EPCA; 2) by California law as an unenforceable exercise of police power; 3) for conflicting with California Building Standards Code; and 4) for conflicting with the California Energy Code. The complaint also sought an injunction against enforcement and declaratory relief.

On July 6, 2021, the District Court granted in part and denied in part the City of Berkeley’s motion to dismiss. The partial dismissal was based on a narrow view of EPCA preemption that limits EPCA application to facially regulating or mandating types of appliances or setting efficiency standards for covered products. The Court found that Berkeley’s ordinance may have an indirect effect on appliances available to consumers without causing preemption and its ordinance was a valid exercise of its authority to regulate local distribution of natural gas. It dismissed with prejudice the federal EPCA cause of action and declined to exercise judgment on the state-law claims. The California Restaurant Association filed an appeal to the Ninth Circuit challenging this order.

The Ninth Circuit three judge panel reversed the District Court’s order and remanded the case to issue an order consistent with its opinion and to reinstitute the state-law claims. The Ninth Circuit opinion states that the City of Berkeley cannot avoid preemption under the EPCA by “banning natural gas piping within buildings rather than banning natural gas products themselves” (CRA v. City of Berkeley, Ninth Circuit, Case No. 21-16278, p. 24, hereinafter CRA Case). The Ninth Circuit based this on a broad reading of the EPCA finding that it preempts states and local governments from directly or indirectly setting energy efficiency standards or determining the energy use of covered products through buildings codes. Consequently, preventing covered appliances from using natural gas through a natural gas plumbing ban or moratorium is an indirect regulation of a covered product under the EPCA. This ensures the full intent of the EPCA in setting efficiency standards nationwide and preventing a patchwork of local or state appliance standards and energy uses regulations. Key findings are listed below:

• EPCA preemption is not limited to direct or facial regulations of covered products:
  • A regulation’s indirect effect on a covered product that limits or prevents energy use at point of use is preempted;
  • State and local governments are preempted from both regulating covered products themselves and the on-site infrastructure for their use of natural gas.
    • The legislative intent to include indirect regulation under EPCA preemption is supported by the existence of the limited carve out for state or local government new construction building codes that meet requirements under 42 U.S.C. § 6297(f)(1)-(3) and 42 U.S.C. § 6316(b)(2)(B), which allow state and local regulations to superseding EPCA requirements for new construction.
  • The state waiver provision under 42 U.S.C. § 6297(d)(1)(B)-(C) that would allow state regulation for “unusual and compelling state or local energy interest” using the Berkeley ordinance would likely not meet this requirement when weighed against the burden on manufacturing, marketing, distribution, sale, or service of the covered product on a national basis under 42 U.S.C. § 6297(d)(3).
  • Berkeley’s ability to regulate non-covered products through its ordinance does not limit the preemptive scope of the EPCA as it relates to covered products.
  • The Natural Gas Act does not conflict with EPCA preemption of building codes that prevent usage of natural gas appliances;
    • The EPCA prevents Berkeley from banning the extension of natural gas piping within a newly constructed building from the point of delivery at the gas meter;
    • However, the EPCA and the Natural Gas Act do not determine whether a local government must maintain or expand the availability of a utility’s delivery of natural gas to meters.

From this opinion, there is a significant impact in California because of the use of mandates on new construction that require all-electric construction. Local government ordinances that adopt natural gas bans either directly or indirectly without meeting the 42 U.S.C. § 6297(f)(1)-(3) and 42 U.S.C. § 6316(b)(2)(B) carve outs are preempted. This likely affects all natural gas plumbing related ordinances as well as all all-electric new construction requirements that apply to covered products because these local codes either directly or indirectly effect the natural gas energy use of covered product by prohibiting – by definition­ – the installation of onsite natural gas plumbing. It does not likely affect ordinances and building codes that use California Reach Code authority to adopt more stringent building efficiency and energy standards than state code minimums because reach codes generally do not prohibit the installation of natural gas covered products but instead allow permit applicants flexibility to choose how they will comply.

Reach Codes must be cost-effective, result in energy savings, result in no more building energy consumption than Title 24, and comply with the California Environmental Quality Act. Reach Codes preserve flexibility by allowing the applicant to comply with a covered product, which often results in energy or efficiency savings coming from another part of the design to meet the reach code. Because flexibility is preserved, an applicant may comply with a reach code by using an appliance with higher efficiency than a federal covered product, even if this appliance cannot be mandated by local or state building code because of federal preemption. This has the effect of preferring all-electric design as building efficiency and energy standards become more stringent. Finally, Reach Codes are a common pathway with a long track record of superseding EPCA preemption by complying with 42 U.S.C. § 6297(f)(1)-(3) for consumer products and 42 U.S.C. § 6316(b)(2)(B) for commercial products.

The City of Berkeley filed and was granted an extension until May 31, 2023 to file a request for rehearing. If filed, this sets in motion a 21 day period that can be extended to 35 days for the Ninth Circuit to deny rehearing by doing nothing, request that the original three judge panel determine whether they want to rehear, or call for an en banc vote for rehearing that requires a majority vote of 15 of the 29 sitting judges. Please review an explanation and flowchart on the Ninth Circuit en banc process for more detailed information.

The next blogs in this series will address local and state authority over intrastate natural gas distribution pipelines followed by use of the Clean Air Act and state air quality authority to prohibit natural gas appliances that emit criteria pollutants.