Regional Standards Take Effect; DOE Considers Enforcement
Enforcement Final Rule Expected in Early 2015 for Split-system Central Air Conditioners
In just a few short days, new regional energy conservation standards will take effect for split-system and single package central air conditioners sold and installed throughout the U.S. The standards, which are a result of the regional standards settlement agreement finalized earlier this year, go into effect Jan. 1, 2015, and divide the country into three regions — North, Southeast, and Southwest — each with unique minimum SEER and EER performance requirements.
Meanwhile, industry leaders have been working with the U.S. Department of Energy (DOE) over the past several months to negotiate a rulemaking governing enforcement of the new regional standards. And, while some are concerned the DOE may overstep its bounds again, others are hopeful the agency will continue to accept industry input and guidance as it develops its final rule.
As of Jan. 1, 2015, minimum effeciency requirements for split-system central air conditioners will remain 13 SEER in the North; must achieve at least 14 SEER in the Southeast; and must be 14 SEER and 12.2 EER for systems smaller than 45,000 Btu and 14 SEER and 11.7 EER for systems larger than 45,000 Btu in the Southwest. Because this is the first time DOE has regionalized energy-efficiency standards for HVACR equipment, enforcement has been a major concern for many in the industry.
As part of the regional standards settlement agreement, the DOE was required to work directly with industry stakeholders to develop an enforcement plan for regional standards enforcement through a negotiated rulemaking. On Dec. 1, and after seven weeks of meetings and discussions, the DOE’s Appliance Standards and Rulemaking Federal Advisory Committee (ASRAC) approved the enforcement plan drafted by the Regional Standards Enforcement Working Group, which included ACCA; Heating, Air-conditioning, and Refrigeration Distributors International (HARDI); Air-Conditioning, Heating, and Refrigeration Institute (AHRI); and many other interested parties.
“ASRAC approved the term sheet [on Dec. 1, 2014] and submitted it to the DOE,” said Charlie McCrudden, senior vice president of government relations, ACCA. “They could make some changes, and it’s unlikely they will, but it’s still a possibility. There were two somewhat contentious issues that we couldn’t come to an agreement on.”
The next step is for DOE to publish its negotiated rule and hold a comment period, which will likely be shorter than normal since the working group included mostly industry representatives, said Jon Melchi, director of government affairs for HARDI.
“There may be a 45-day comment period, or it may be longer,” Melchi said. “I’m sure there are going to be a couple more people interested in commenting on the rule and the process, but we’re pretty confident in an accelerated timeline.”
Karim Amrane, senior vice president of regulatory and international policy for AHRI, also predicted an accelerated comment period and rulemaking. “At the earliest, we can expect a final rule in February or March of next year,” he added.
However, even though there is no enforcement rule in place at the moment, it is still vital that contractors, manufacturers, and distributors understand the new standards.
“The tricky part of all this is the standards for the equipment go into effect Jan. 1, 2015, but the enforcement plan won’t be finalized and official until after that date — probably sometime in the first quarter,” McCrudden said. “It’s important for contractors to familiarize themselves with the new standards and what their responsibilities will be under enforcement and that there will be this lag.”
Amrane said the sell-through period — an 18-month period during which distributors will be allowed to sell noncompliant equipment as long as it was manufactured before Jan. 1, 2015 — has caused confusion for many in the industry when it comes to enforcement. “I think manufacturers, distributors, and contractors should be aware that, yes, there are new standards in effect, and that equipment sold in the Southeast and Southwest will have to meet the different SEER and EER levels. People need to be aware,” Amrane said.
Melchi encouraged decision makers to play it safe and abide by the new standards as if the enforcement rule was already in effect. “There is no approved enforcement right now, and until it’s approved, I’m not exactly sure how that process plays out,” he said. “I would wholeheartedly recommend not being the first person to try to find out.”
For manufacturers, the standards will largely impact the future of their product lines.
“We have a completely new platform we’re launching in preparation,” said Karen Meyers, vice president of government affairs, Rheem Mfg. Co. “It’s a completely new product look for Rheem and Ruud. We’re going to have a wide range of cooling efficiencies, and we are changing the whole unit configuration to increase the installability, serviceability, and reliability. We did that in preparation for the regional standards. That was one of the drivers — to meet those minimum efficiency standards.”
Matt Barga, portfolio manager — a/c and coils, Ingersoll Rand, said Ingersoll Rand has also altered its product line in preparation for the standards.
“We have worked to make changes across our product line, and we’re preparing to phase out the product prohibited from sale,” Barga said. “We’ve had some special models we’ve had to create, and we’ve also released a new heat pump and air handler to meet new national efficiency requirements.”
A new labeling rule for outdoor condensing units will also impact manufacturers.
“This is a voluntary label that the industry offered as a way to ensure that enforcement would be better,” Amrane said. “It’s on condensing units that are rated below 14 SEER, and that label is basically going to say where in the U.S. that product is and isn’t eligible for sale. That’s something manufacturers will voluntarily be doing.”
“We’re prepared,” Meyers said. “The effective day to comply is March 1, 2015, but we’ll be ready by Jan. 1, 2015.”
Many manufacturers, including Trane and Rheem, have been providing training for their distribution channels and will continue to do so after the standards are in effect.
“Trane started a series of webinars back in the middle of the year,” Barga said. “We’re doing those every two to four weeks with our distributors and company-owned distributors. We’ve issued communication, and we have a lot of dealer meetings. We’ve prepared pretty significant communication about the standards, their enforcement, their requirements, the new products we’ve launched, and how they comply with those new standards. You’ll see us more out in the field to get close to the dealers to help eliminate some of the uncertainty of some of the standards.”
“We have what we call Lunch and Learns — 60- to 90-minute webinars we offer through our training programs, Rheem Academy and Ruud University, where we’ve gone over the enforcement plan for regional standards to make sure everyone is aware and in compliance,” Meyers said. “We’ve also had several calls and meetings within our organization to educate and make changes to business processes as needed. The training we’ve been doing has gone well beyond the traditional sales team.”
AHRI also stressed the importance of training and informing the entire supply chain about the regional standards’ enforcement requirements. “DOE will do its part, but, as an industry, we all agree we will have to do webinars to educate the distributors and contractors, particularly about the energy-efficiency requirements and the enforcement requirements,” Amrane said. “We intend to do that.”
Manufacturers’ Cost to Comply
For manufacturers, there have already been costs associated with the new regional energy-efficiency standards due to the amount of research and development, marketing, and training required to comply.
“We’ve never had a federal minimum-efficiency change be effective based on the date of installation [instead of the date of manufacture], so that was the big twist in all of this,” Meyers said. “When it was a national standard, you didn’t need a sell-through period because it’s all based on the date of manufacture. You could sell anything in your inventory. Now, if you have a unit in your inventory, it may have been legal when it was built, but it may no longer be legal to install. There is the [18-month] sell-through period [for distributors], but that’s just to help clear out inventory. There’s the whole inventory management piece that everyone is dealing with, but, once we get through this, I think it’s probably not going to be as complicated as we all think it’s going to be.”
For some manufacturers, the most burdensome part of enforcement will be the EER requirement in the Southwest.
“That has become the biggest burden,” Barga said. “The challenge is, when we design a 14 SEER system, if we have any ratings on that product below that 12.2 EER, we can’t sell that model in the Southwest. So, we have to create different designs and models — sometimes with different costs — to meet those EER requirements. And those two levels, EER and SEER, don’t necessarily align.”
Meyers added that, even once the supply chain has acclimated to the new standards, that doesn’t mean the work is done.
“Everyone now knows the plan for regional standards, but there’s much more to come. There are rulemakings going on for commercial air conditioners, gas furnaces, commercial water heaters, and more, and the DOE has already started the rulemaking for the next residential air conditioner standards,” she said. “We also have the EPA phasing out high-GWP [global warming potential] refrigerants, so you’re looking at doing analysis for the next minimum-efficiency rulemaking using units that use refrigerants that may not even be legal by the time the rule comes down. There’s a lot going on, and it adds up to an unprecedented level of regulatory burden — especially for manufacturers that make many of the affected products.”
But, utilizing the negotiated rulemaking process for promulgating the enforcement rule is a step in the right direction, Meyers said. “Negotiated rulemakings usually get you to a better place. There’s more understanding on both sides of the table when it’s done that way.”
Not every single contractor will necessarily be impacted by the new standards, but those who will be need to understand which equipment is legal to install, and where and when it can be implemented.
“The first question to ask is, ‘Do I install equipment in the Southeast or Southwest states?’ If the answer is no, then there really is very little responsibility for that contractor. But, if the answer is yes, even if it’s just one piece of equipment, then they’ll need to familiarize themselves with the requirements,” McCrudden said. “If you have equipment that was manufactured before Jan. 1, 2015, to the previous 13 SEER standard, it is legal to install in the Southeast and Southwest until June 30, 2016. Based on the date of manufacture, some 13 SEER equipment will be allowed to be installed in the Southeast and Southwest — and some won’t. I think that’s going to be the most confusing part.”
The recordkeeping requirement is yet another aspect of enforcement contractors need to be aware of, McCrudden said.
“Records don’t have to be kept electronically or in any specific format, and the only time the records will be requested by DOE is if there’s a question about an installation. The DOE doesn’t want this information on every job submitted to them — they just want contractors to keep this information so if there’s an alleged violation, DOE can trace back through the system where the equipment came from and who installed that equipment to determine whether they committed a violation.”
Contractors who are found to be in violation of the standards may be allowed to resolve the violation without consequences, depending on the situation. “Mistakes happen, especially along the border states,” McCrudden said. “A piece of equipment could be mistakenly installed because the wrong box was put on the truck and the technician didn’t even notice. If a violation is alleged, a contractor can remediate before an investigation closes and avoid the public notice of violation.”
Contractors can also help with enforcement of the new standards, McCrudden said. “If a contractor finds a unit he or she believes is illegally installed, there will be ways to report that violation to the DOE so that the contractor or the individual who installed that product can be found in violation and face the penalties that apply.”
HVAC distributors will arguably have the most bookkeeping duties to comply with the upcoming enforcement rule. Distributors now have to retain information on the condensing units that are sold, as well as to whom they are sold, for four and a half years — something that many distributors do not already do.
“The recordkeeping is, by far, the main thing,” Melchi said. “It’s a significant thing because it impacts distributors nationwide, whereas the contractor requirement only impacts them in the Southeast and Southwest. The DOE really felt it had to have the distributors participating in this. Certainly, it wasn’t our preference, but, given some of their concerns, it was a give we had to make.”
Like contractors, distributors do not have to submit their records to DOE unless it’s part of an investigation. And for the distributors who do not abide by the new standards and knowingly sell noncompliant equipment manufactured after the rules go into effect, the consequences could be severe.
“If it is found that you’re colluding with someone to violate the standard, and you’re knowingly doing so, you will be liable for replacing the product or risk being labeled a routine violator, which could see you cut off from product,” Melchi said. “That’s a very real threat.”
Distributors along borders between the North and two southern regions will have the most work to do to ensure they remain complaint to the new standards. And that, Melchi said, is going to require a significant effort by many.
“There are a lot of moving parts and pieces that will make implementation interesting,” he added.
Potential Hiccups in Enforcement
Even though the Regional Standards Enforcement Working Group’s recommendations were approved by ASRAC, two somewhat contentious items included in the recommendation may look different in the final rule. The first is the basic definition of “product.”
“DOE interprets the term ‘product’ to mean any product in the central air conditioner or heat pump product category,” McCrudden explained. “That’s split-system and single-package air conditioners, which are subject to regional standards, but it also includes heat pumps; space-constrained; and small-duct, high-velocity systems. They’re not subject to regional standards, but, under this definition, if you’re found to be a routine violator of the new regional standards, manufacturers can’t sell you any air conditioner or heat pump products, so that means you’re out of the cooling business. So, we felt this was too broad, and that the rule should be limited to the products that would violate the regional standards.
“We could not come to a conclusion on this, and we felt this is something DOE was interpreting too broadly, so you’ll likely see comments from manufacturers and others on this aspect of the rule when the negotiated rule comes out for comment.”
“DOE’s interpretation of ‘product’ is everything,” Melchi agreed. “If you’re seen as a routine violator and don’t try to correct it, you’re in trouble.”
The second item being questioned is whether enforcement should include additional prohibited acts. Currently, only manufacturers can commit a prohibited act — which can carry a civil penalty — by knowingly selling to a distributor or contractor that sells noncompliant equipment.
“There was quite a bit of discussion about what should be a prohibited act and whether the distributors should be accountable for knowingly selling a noncompliant product to a contractor,” Amrane said. “Right now, the way the regulations are written, that’s only a prohibited act for manufacturers, and that’s how we left it because the distributors don’t want to agree to that — or the contractors, either. So, right now, the prohibited act is for manufacturers who knowingly sell to a noncompliant distributor or contractor.”
These two issues could both change in the DOE’s negotiated rule, McCrudden said. “They could relax the interpretation of ‘product’ more easily,” though it would be “very difficult for the DOE to add a prohibited act without either direction from the industry or direction from Congress,” he said. “But, barring adverse comments that cannot be resolved by DOE, this is likely what we’ll see published as the final rule.”
Melchi said he is not anticipating any major changes in the negotiated rule. “Once the ASRAC approves it, and once it’s in the Federal Register, barring anything crazy, I don’t anticipate any changes,” he said. “So, if that’s the case, folks need to start preparing for what’s coming.”
SIDEBAR: 2015 Efficiency Standards
As of Jan. 1, 2015:
• Minimum efficiencies for split-system central air conditioners installed in the North will remain 13 SEER;
• Split-system central air conditioners in the Southeast and Southwest must achieve at least 14 SEER;
• Split-system central air conditioners in the Southwest must be 14 SEER and 12.2 EER for systems smaller than 45,000 Btu and 14 SEER and 11.7 EER for systems larger than 45,000 Btu.
Additionally, the following energy conservation standards are effective Jan. 1, 2015:
• Minimum efficiency standards for single-package air conditioners will be 14 SEER in the North and Southeast and 14 SEER and 11 EER in the Southwest;
• National efficiency standards will be 14 SEER and 8.2 HSPF for split-system heat pumps; 14 SEER and 8.0 HSPF for single-package heat pumps; 13 SEER and 7.7 HSPF for small duct, high velocity systems; 12 SEER for space-constrained air conditioners; and 12 SEER and 7.4 EER for space-constrained heat pumps; and
• National efficiency standard will be 83 percent AFUE for nonweatherized oil-fired furnaces (not including mobile home furnaces), 75 percent for mobile home oil-fired furnaces, 81 percent AFUE for weatherized gas furnaces, and 78 percent for both weatherized oil-fired furnaces and electric furnaces.
— Information courtesy of ACCA
SIDEBAR: What About Furnaces?
As members of the supply chain adjust to their various responsibilities regarding the new air conditioner standards, the rulemaking process for the highly contentious regional standards for residential nonweatherized natural gas furnaces has already begun again.
“The furnace standard went back to DOE as part of the regional standards settlement agreement earlier this year, so the DOE started the rulemaking process again,” said Karim Amrane, senior vice president of regulatory and international policy for Air-Conditioning, Heating, and Refrigeration Institute (AHRI). “DOE has already published some preliminary analysis on the furnace standards, so that’s already out. I think it will be done by 2016.”
“As part of the settlement, the DOE has to collect data and agree to be a little more transparent with stakeholders in regard to the data collection, and it also has to give stakeholders an opportunity to comment. So that’s ongoing,” said Jon Melchi, director of government affairs for Heating, Air-conditioning, and Refrigeration Distributors International (HARDI). “The DOE’s goal is to have this rulemaking done by spring of 2016.”
SIDEBAR: Proposed Enforcement Plan
The Regional Standards Enforcement Working Group met several times this fall in order to negotiate an enforcement plan, which was approved Dec. 1, 2014, by the Appliance Standards and Rulemaking Federal Advisory Committee (ASRAC) and submitted to the U.S. Department of Energy (DOE). The DOE will now draft its negotiated rule and hold a comment period for interested stakeholders who wish to give input on the plan.
The working group’s enforcement plan includes detailed information on training, reporting guidelines, recordkeeping requirements, violations, routine violations, investigations into violations, appeal and remediation, labeling, manufacturer responsibilities, noncompliant products, and public awareness and reporting. While the plan is not the final enforcement rule, it provides an overview of what enforcement will likely look like. To view the detailed proposed enforcement plan, visit http://bit.ly/RegionalStandardsEnforcement.
Publication date: 12/29/2014