As reported in the April 4 issue of The NEWS, the “Implementation of National Consensus Appliance Agreements Act of 2011” (S. 398) bill was recently introduced in the U.S. Senate. The bill would enact into law several consensus agreements that Air-Conditioning, Heating, and Refrigeration Institute (AHRI) and energy efficiency advocacy groups crafted to increase the minimum efficiency standards for a number of appliances, including heating and cooling equipment.

Among other things, the agreements would set new federal efficiency standards for residential furnaces in two regions, for central air conditioners in three regions, and for central heat pumps in one, national region. While the bill specifies higher SEER cooling equipment for Southern and Southwestern states, it is silent on efficiency standards for residential furnaces, leaving it to the Department of Energy (DOE) to fill in those blanks. It is assumed that DOE - which is creating the rule for regional standards - will follow AHRI’s recommendations that 90 percent AFUE gas furnaces should be mandated in the northern U.S., while 80 percent AFUE furnaces should be allowed in the South and Southwest.

As it stands now, S. 398 was approved by the Senate Energy and Natural Resources Committee in April and could head to the Senate floor at some point in the future for a vote, while the DOE is due to release its rule at any time.

Even though the regional efficiency standards would not become effective for several years in order to allow the industry to make the transition, contractors are becoming concerned about what the new standards will be, how those standards will be enforced, and ultimately, the impact they will have on their businesses.

UNCERTAINTY AHEAD

“We are very concerned about enforcement once the regional standards go live,” said Charlie McCrudden, vice president for government relations, Air Conditioning Contractors of America (ACCA). “Our concern is due to the fact that this is essentially unprecedented. We’ve never seen a standard that has been regionalized on an appliance. When you create regional standards, you have two tests applied to the equipment: The first is that the equipment meets a minimum efficiency standard when it is manufactured, and that’s the way it’s always been. Now there’s a second test in which the equipment itself has to be installed in the proper location, and as the last ones holding the box, contractors are responsible. It is very difficult to accept an obligation like this without at least trying to recommend the best way to do this.”

Trying to find the best way to implement and enforce the regional efficiency standards is something that McCrudden has been working on tirelessly, talking extensively with the DOE, Congress, and AHRI. One of the main concerns that he and many ACCA members have is that it will be virtually impossible to stop unscrupulous contractors from installing cheaper, lower efficiency equipment that can be purchased across state lines or over the Internet.

“With Internet sales, there is no border anymore. It’s not a matter of a contractor in Ohio going into Kentucky and buying an 80 percent furnace and taking it back and installing it. Contractors in any state can find a wholesaler on the Internet and have the equipment shipped to wherever they are,” said McCrudden. “On the one hand, contractors are accepting the obligation that they will install this equipment properly; on the other hand, they have to protect themselves from being underbid from those who won’t. Enforcement is going to be very difficult.”

There is no doubt that regional standards will be a “hot mess,” if they become mandatory, said Dave Kyle, general manager, Trademasters Service Corp., Newington, Va. “You can’t stop people from going across state lines or on the Internet to buy less expensive equipment. The standards will actually provide a new incentive to do just that. In fact, it will increase that market, which is bad for the industry, bad for local suppliers, bad for the local contractor, and in the end, bad for consumer safety.”

As an example, Kyle cites the likely scenario of a homeowner in the North who wants to replace his older gas furnace and central air conditioner. To replace the equipment with a 13 SEER air conditioner and an 80 percent AFUE furnace, the cost might normally be $5,000. However, if the regional standards mandate that the homeowner purchase a 90 percent AFUE unit, it will also be necessary to upgrade the infrastructure of the home to accommodate proper venting and drainage for the condensing furnace.

“The cost for the same air conditioner and a 90 percent AFUE furnace then jumps to $8,000 or $9,000 because of the additional infrastructure required,” said Kyle. “If the homeowner is upside down in his home and doesn’t really want to buy a high-efficiency furnace to begin with, he will be more receptive to the unscrupulous contractor who says, ‘Hey, I can get you an 80 percent furnace that’s new in the box and perfectly fine, but it doesn’t meet the standard, and with the air conditioner, it will only cost $6,000.’ In other words, the contractor is doing something illegal, and he can actually increase his profit margin, because he should only charge $5,000 for that job. The homeowner is happy, because even though the new price is higher at $6,000, he is still paying at least $2,000 less than the other system, so the incentive to be dodgy is tremendous because the profits for that contractor go through the roof.”

Another problem for contractors is that there may be times when a condensing furnace simply cannot be installed, said Laura DiFilippo, vice president, DiFilippo’s Service Co., Paoli, Pa. “What do we do with a condominium that sits in the middle of the row with a porch in front and a deck in the back? All homes are different, and we are going to find situations where it is impossible to get the PVC flue pipe outside. In most situations, the installation of a condensing furnace will at least require additional work, meaning a higher cost for the consumer.”

An even bigger question for DiFilippo is who will be making sure the mandated higher SEER cooling systems contain matched components? “And who is going to make sure that the work is being done properly so that the correct efficiency is achieved? These are the unknown variables,” she said.

Other unknown variables that contractors have mentioned include: How will manufacturers handle warranties on equipment installed in the wrong region? Will the standard lead more consumers to repair rather than replace, given the larger cost for high-efficiency equipment? What penalties will contractors face if they install the wrong equipment?

WORKING ON ENFORCEMENT

Francis Dietz, vice president of public affairs, AHRI, knows all about these concerns, and he stressed that the organization does not have an interest in making life more difficult for contractors. “We’re aware of all these issues, and we’re working with our friends at ACCA and HARDI to try to make this as smooth and painless as possible for everyone involved.”

To that end, AHRI is working together with ACCA and HARDI at the request of the DOE to come up with a suggested enforcement scheme. Dietz noted that while enforcement may be a challenge, it will not be as difficult as enforcing EPA’s Section 608 of the Clean Air Act (recovering and recycling refrigerant), which has been somewhat problematic.

“If a contractor knew of a situation where somebody had illegally installed a 13 SEER unit in Virginia, that would easily be verified by making them produce a certificate. If you can’t produce a certificate from AHRI, you’re in violation,” said Dietz.

To keep unscrupulous contractors from printing off bogus certificates, AHRI is considering modifying its certification directory to include a zip code test that will ensure equipment is being installed in the appropriate region. For example, a contractor in Virginia could not issue a certificate for an installation that takes place in Maryland.

Certificates from AHRI are not legally required, although they may be one part of an enforcement system, said McCrudden. “Right now contractors print certificates for tax credit purposes, and homeowners need those certificates on file in case they’re audited; however, homeowners do not have to submit the certificate with their IRS form. This would essentially be a similar situation. One idea would be for the homeowner and contractor to keep the certificate on file to prove the equipment achieves the minimum efficiency level, but that wouldn’t necessarily help with the outlaws.”

As a contractor in a tri-state area, DiFilippo noted that many contractors will be able to buy from distributors with branches in more than one region. “This will make it easy for contractors to buy systems that are non-compliant for one of the regions they serve and install them anywhere they want. These instances will tip the playing field, benefiting the unscrupulous contractor who will be able to easily obtain equipment.”

Dietz admitted that some people will always scheme to break the law but that AHRI and its partners will come up with rules that will reduce the number of scofflaws. “Getting around the rules is as old as the human race itself, and there are only so many steps you can take to try to make sure that everybody plays by the rules. Even now, 13 SEER systems are required, but there are still plenty of contractors who will install a new outdoor unit with an existing indoor coil and call it 13 SEER. To us, that’s cheating. But there’s only so much you can do, which is why we’re working together to try to come up with an enforcement scheme that will make it as difficult as possible for people to break the rules.”

Jamie Gerdsen, president, Apollo Heating, Cooling, and Plumbing, Cincinnati, really hopes that is the case. “I think the regional standards are a good idea, and as with all legislative changes, there are potential opportunities; however, they’re unenforceable. Consider that there are probably 125,000 pieces of residential heating and cooling equipment that move through the city of Cincinnati every year, yet only 3,000 permits are pulled. This shows that even the existing rules that have been on the books for a long time aren’t being enforced. If you keep adding legislation and new laws or standards, and you can’t enforce the ones you already have, why would you think the new ones will be enforced? It’s very unlikely that would happen. So in the end, what’s going to change?”

Publication date: 05/30/2011