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Companies that deal in surplus HVAC equipment are seeing business opportunities in the new U.S. Department of Energy (DOE) energy efficiency minimums for single-phase residential air-conditioners.

Chris Forth, vice president of codes, standards, and environmental affairs at Johnson Controls Inc., said the fate of noncompliant a/c units in the Southeast and Southwest is a hot topic in the industry right now.

Forth said he is aware of stranded equipment in those regions. Though he isn’t sure how much, Forth wrote in an email, there is enough that “we at JCI are helping our channel partners find homes for this equipment in the North and Canada.”

Officials at companies like Surplus City Liquidators and Lazco Corp. are in the market for unused a/c equipment that may be “stranded” at contracting, distribution, or manufacturing companies because it can’t be legally installed in the Southeast or Southwest under the 2023 DOE standards (see sidebar).

Surplus City Liquidators.

ACRES OF STORAGE: Surplus City Liquidators, in Lebanon, Indiana, has about 300,000 square feet of warehouse space, and plans to expand into other states. (Courtesy of Surplus City Liquidators)

“We’re definitely being vigilant and ... looking at how we can support our market during a time of transition,” said Tom Lehman, the CEO of Surplus City, which is based in Lebanon, Indiana.

Founded in 1975, Surplus City deals in unused surplus HVAC equipment as well as unused surplus plumbing and electrical equipment, accessories, tools, and appliances. Lehman said the company is focused on selling HVAC to contractors, dealers, distributors, and exporters.

Steven Lazar, the president of Lazco, in Clarksdale, Arizon, has been in the HVAC business for more than 40 years — his father ran a contracting business and his grandfather a fuel company, both in the Chicago area — and trades in unused residential equipment and unused and gently used large commercial equipment, such as chillers and rooftop units.

“We can provide a very good solution for both the distributor and the manufacturer,” said Lazar.


Market Strategies

“The consumer dictates what the contractor is going to sell.”
- Steven Lazar
President, Lazco Corp.

Forth said that large distributors with multiple locations have the ability to move noncompliant a/c products in the Southeast and Southwest to Northern states and Canada.

For other companies, though, Lazco and Surplus City might provide an alternative.

“We are interested in large-volume purchases,” said Lehman.

Surplus City has about 300,000 square feet of warehouse space and Lehman said the company has room for many truckloads of incoming surplus. The company, he said, plans to open a location in another state by the middle of this year, and in two additional states by the end of next year. Lehman said Surplus City sells all over the world.

Some surplus companies might sell directly to the public, which most in the HVAC industry discourage due to concerns about unsafe installations and product warranties that are voided if equipment is not installed by qualified technicians. However, there is no doubt that surplus can be a good tool for contractors.

Lazar, who used to warehouse his resale products, now takes a different approach: Leveraging industry contacts across the country, he finds buyers for what he’s peddling before he buys it, and the equipment is shipped directly from his seller to his buyer.

Lazar’s first surplus HVAC deal came in the early 1980s after a Westinghouse factory in Norman, Oklahoma, was sold and the new company shed the Westinghouse inventory — a thousand 120,000-Btu gas furnaces that Lazar resold around the country.

“I don’t do onsies, twosies,” Lazar said. “I sell in truckloads.”

Forth, however, added a cautionary note about the surplus market: Distributors in the North, in anticipation of the new regulations, stocked up on SEER 13 a/c units (the former minimum in the North), knowing they could still be installed this year in those states and in Canada. Though supply-chain issues limited the volume those distributors bought, Forth said, it may take a while for those stocks to be depleted.

“This means any surplus stranded inventory from the South (14 SEER a/c) may not immediately find a home, or those Southern distributors and contractors may need to sell at deep discounts to get any buyers at the moment,” Forth said.

But Lazar figures the rules for the Southeast and Southwest, along with public awareness of the new DOE standards, will drive consumers toward higher-efficiency a/c products.

“The consumer dictates what the contractor is going to sell,” Lazar said. That, he said, could leave some companies stuck with unwanted surplus.


New Regulations

The new DOE new regulations, which took effect January 1, not only increased the mandatory efficiency minimums for residential a/c units and heat pumps, but established new methods of measuring efficiencies and new terms to describe those measurements. Instead of EER, SEER, and HSPF (Energy Efficiency Ratio, Seasonal Energy Efficiency Ratio, and Heating Seasonal Performance Factor), the new terms are EER2, SEER2, and HSPF2.

In the Southeast and Southwest, the minimum for split a/c units under 45,000 Btuh is SEER2 14.3, and the minimum for split a/c units of 45,000 Btuh or more is SEER2 13.8. In the Southwest, split a/c units must also meet EER2 minimums: EER2 11.7 for those under 45,000 Btuh and EER2 11.2 for those 45,000 Btuh and over. For split a/c units in both output categories that are rated SEER2 15.2 or above, the EER2 minimum drops to 9.8 in the Southwest.

Packaged a/c units in the Southeast and Southwest must meet a minimum SEER2 of 13.4, and in the Southwest they also require a minimum EER2 rating of 10.6. The Southeast and Southwest regions comprise 20 states, Washington, D.C, and the U.S. territories.

In the 30 Northern states, the new minimum rating for both packaged and split a/c units is SEER2 13.4.

However, in the Southeast and Southwest, a/c units must now meet or exceed the new minimums in order to be legally installed, while in the North, a/c products that were manufactured through 2022, and meet or exceed the minimum ratings in place at the time they were made, can be still be installed this year. While there is no official DOE “crosswalk” between the SEER, HSPF, and EER metrics and the new SEER2, HSPF2, and EER2 metrics, each manufacturer has conversion methods that apply to its products, and manufacturers must be able to inform contractors which of the a/c units that were rated under the old system can be legally installed in the Southeast and Southwest.

(The new minimum for heat pumps, SEER2 14.3, applies nationwide; heat pumps are “date of manufacture” products, meaning those made last year under the old regulations can still be legally installed.)