The end of the regional standards lawsuit may be just weeks away after parties in the case filed a joint settlement motion on Tuesday, March 11 with the U.S. Court of Appeals for the D.C. Circuit.

The settlement agreement, which now awaits court approval, would vacate the regional furnace efficiency standards and restart the rulemaking process, this time giving stakeholders more opportunities to provide input throughout the rulemaking process. The settlement would also give the industry an 18-month sell-through period to comply with the Jan. 1, 2015, efficiency standards for split-system air conditioners in order to help avoid stranded inventory. Additionally, as part of the agreement, the U.S. Department of Energy (DOE) has agreed not to penalize distributors as part of enforcement of the standard.

“Clearly, this has not been an easy process,” said Talbot Gee, executive vice president and COO, Heating, Air-conditioning, and Refrigeration Distributors International (HARDI).“However, we believe that this agreement is not only in the best interest of distributors, but of the entire industry, and it could not have been achieved without the cooperation and work of the manufacturers and contractors.”

“It’s a significant accomplishment, and it gives us the opportunity to reduce the burden on and cost to the industry,” said Stephen Yurek, president and CEO, Air-Conditioning, Heating, and Refrigeration Institute (AHRI).He added that cooperation between industry organizations helped facilitate the settlement agreement.

“We didn’t work together at the beginning, but here at the end, we did.”

A Multi-Faceted Deal

The regional standards lawsuit — which began more than two years ago when the American Public Gas Association (APGA) challenged the DOE’s rulemaking process for promulgating regional energy-efficiency standards for nonweatherized natural gas furnaces — was expected to stretch at least through the end of 2014. But now, parties in the case have agreed to a five-part settlement that would definitively end the lawsuit.

First, the January 2013 settlement agreement between the APGA and DOE to vacate the regional efficiency standards for residential nonweatherized gas furnaces, and to remand those standards for further rulemaking, remains in place.

“The basic part of the settlement builds upon the agreement that was already filed over a year ago now between APGA and DOE, which settles the furnace rulemaking by having it remanded and sent back to DOE for a rulemaking,” Yurek said. “DOE is saying it will have a notice of proposed rulemaking (NOPR) within one year of remand and a final rule one year after the NOPR is published.”

“It is our hope that the settlement is quickly approved by the court so the industry can move forward on developing an enforcement plan for central air conditioners,” ACCA president and CEO Paul Stalknecht said. “And we can restart the process of writing new standards on furnaces.”

“Under the normal rules for setting appliance standards, five years later, the compliance date kicks in,” said Charlie McCrudden, senior vice president of government relations, ACCA. “So, any new standard on furnaces won’t be enforced until 2021 at the earliest.”

Second, the DOE is pledging to review and clarify the direct final rule (DFR) process.

“DOE will essentially initiate a rulemaking to clarify aspects of the DFR process that was used in this case so there will be more guidance for stakeholders when filing comments if the expedited process is used again in the future.”

Third, the DOE will address an enforcement rulemaking for the air conditioner and heat pump standards that remain in place and are set to go into effect next year.

“The DOE pledges to initiate a negotiated rulemaking — a different process that can be expedited, and where all stakeholders come together and figure out an enforcement plan — and do so somewhat quickly so we know by Jan. 1, 2015 — or by July 1, 2016, when the grace period ends — what the [enforcement] responsibilities are for the contractors, manufacturers, and potentially for the distributors,” McCrudden said.

Fourth, DOE has allowed for an 18-month sell-through period for HVAC distributors through July 1, 2016. “We do not believe that when approving the original rule, DOE considered the cost of stranded inventory,” Gee said. “This sell-through period remedies that mistake.”

Finally, DOE has agreed not to penalize distributors as part of the enforcement of the regional standard. “We believe there is a strong legal argument that distributors should not be part of enforcement for efficiency standards and were pleased that DOE appears to share the same belief,” Gee said.

Yurek added, “With all those provisions, the parties agree that all other motions, including HARDI’s motion to replace APGA and challenge the cooling standards, would be withdrawn and the whole case would be dismissed.”

Relief for Distributors

HARDI, which was represented in the lawsuit by Cause of Action, a nonprofit and nonpartisan government accountability organization, has pushed hard over the past several months to expand the lawsuit to include the efficiency standards for air conditioners and heat pumps. HARDI called the settlement agreement “a victory for HVACR distributors.”

“This settlement protects distributors from significant damage associated with stranded inventory and confirms our belief that distributors should not be penalized for the enforcement of this standard,” Steve Porter, co-chair of HARDI’s committee on government and trade relations, said. “Had HARDI not been engaged in this lawsuit, this settlement would not have been possible.”

HARDI president Royce Henderson said HARDI’s goal, from the start, has been twofold. “The first was to provide relief to our members, who faced damages as a result of DOE’s actions. The second has been to fix the process so this will never happen again. We believe the settlement accomplishes both goals to the greatest extent possible.”

Henderson added that the sell-through period would give distributors and suppliers the opportunity to sell existing inventory at a reasonable price.

“It also avoids moving inventory from one region to another, gives us time to phase in the new models, and gives us two preseason order periods to adjust our inventory,” Henderson said. “Having the right products in our warehouses in the market we serve is one of our most important services to our manufactures and our customers. This settlement gives us the capability to do that and allows us the space to have the right equipment, not obsolete product.”

Henderson said the lawsuit also helped improve communication between industry organizations. “We had meetings with AHRI, ACCA, and HARDI, and [we] feel it is important to keep that communication moving forward in the future, at least at the board level,” he said.

Manufacturer Certainty

While the settlement agreement allows distributors to continue selling equipment already in their inventory until July 1, 2016, the Jan. 1, 2015 compliance date still applies to manufacturers. But Yurek said AHRI’s members are relieved and pleased to have clarity and certainty once again.

“What this does is it provides predictability, though not as soon as [our manufacturer members] would’ve liked to have it, since we’re really coming up on the Jan. 1, 2015 implementation date,” Yurek said. “They know for sure the furnace standards are going to be gone, so they don’t have to be concerned about the next heating season and having to ship only 90 percent efficient furnaces to the North. It also gives them predictability on the cooling standards, and knowing that those standards will go into effect Jan. 1, 2015, they can start messaging their distributors and contractors and tell them what that means and what’s going to actually take place. It prevents the repeat of what happened with the furnace standard last year, when everybody was moving forward because we didn’t have a decision in the court case.”

Yurek also acknowledged ACCA’s contributions and gave a hat tip to HARDI, which he said was instrumental in the settlement.

“This is a significant accomplishment for the industry, and it wouldn’t have been possible without HARDI, ACCA, and AHRI all coming together. The leverage HARDI created with its motion to get a solution — it’s actually quite amazing, to get the DOE to agree to the terms they agreed with. It’s significant and will really help not only for today as we look at the regional standards going into effect for cooling equipment, but also for the future, for having a clearer picture of the DOE’s rulemaking process.”

Contractor Awareness

Even though the settlement contains a grace period before compliance is mandated for distributors and installers by proxy, McCrudden said the time for contractors to prepare for the new cooling standards is now.

“Contractors should begin to familiarize themselves with the new standards that go into effect for several product categories of residential heating and cooling equipment starting on Jan. 1, 2015,” he said. “While most of the focus has been on the regional standards for split system and single package air conditioners that are based on the state where the equipment is installed, there are also 10 other product categories with new national standards, including split-system heat pumps.”

At the moment, HVAC contractors appear to be largely unaware of the new standards that go into effect in 2015. In a recent survey of 472 contractors, Emerson Climate Technologies discovered that 74 percent were unaware of the changing standards for residential unitary air conditioning and heat pump systems.

Emerson’s survey also found that 18 percent of contractors had read about the transition and 16 percent had talked about the regulations with an OEM or distributor. However, only 3 percent had started developing a marketing plan for the new standards.

“Contractors cannot afford to be unprepared for these regulatory updates,” Frank Landwehr, vice president of air conditioning marketing at Emerson Climate Technologies, said. “They need to be researching the changes that are coming to their region; talking to OEMs, wholesalers, and manufacturers; and identifying opportunities for their businesses. Now is the time for contractors to be actively seeking information from trustworthy sources.”

McCrudden said ACCA has plans to help bring its contractor members the most up-to-date information.

“There is a lot of uncertainty and confusion about these new equipment standards due to the fact that they have been the focus of an ongoing legal challenge,” he said. “Once the legal challenge is resolved and the settlement is accepted by the court, ACCA will immediately inform its members about the standards and where they are applicable. ACCA will also alert its members about the responsibilities they face as part of the enforcement of any regional standards.”

Not Yet Official

While the settlement has been filed with the consent of all parties involved, the fate of the lawsuit ultimately lies in the hands of the court, which could still choose, for whatever reason, not to accept the settlement agreement in part or in whole.

“This is probably the best possible outcome, besides overturning the whole concept of regional standards, though it’s still important for the industry to understand that there is still much to be worked out in subsequent rulemakings by the DOE,” Gee said. “The industry is by no means completely assured of an ultimately perfect conclusion to regionalization.”

McCrudden added that it could be weeks, or perhaps even longer, before the court makes a decision.

“This isn’t done until the court issues an order accepting the settlement,’” he said. “That’s when it’s official.”

To view a timeline of events in the regional standards case, visit http://bit.ly/RegionalStandards.

SIDEBAR: Regional Standards Settlement Facts

•The energy-efficiency standards for residential nonweatherized gas furnaces in the North have been remanded; the DOE will begin developing a new standard, this time using a more transparent process.

•It is likely that a new furnace standard will not take effect until 2021-2022. Until a new standard is issued, a national standard of 78 percent AFUE is in effect for residential nonweatherized natural gas furnaces, until Nov. 19, 2015, when it is raised to 80 percent.

•Distributors in the South and Southwest will have 18 months (until July 1, 2016) to sell any inventory of 13 SEER equipment manufactured before Jan. 1, 2015. DOE agrees not to hold distributors liable when enforcing the new standard.

•DOE will present a proposal for a negotiated rulemaking regarding the enforcement of the regional standards to the Appliance Standards and Rulemaking Federal Advisory Committee (ASRAC). If approved by ASRAC, DOE will attempt to use a negotiated rulemaking as a means to determine an effective enforcement scheme by engaging all interested parties, gathering data, and attempting to reach consensus among stakeholders.

•DOE agrees to evaluate and clarify its direct final rule (DFR) process, which was the focus of the lawsuit against the DOE.

Information courtesy of HARDI.

SIDEBAR: 2015 Efficiency Standards

The following regional and national energy-efficiency standards go into effect on Jan. 1, 2015.

•The national efficiency standard for nonweatherized oil-fired furnaces (not including mobile home furnaces) will be 83 percent AFUE as of Jan. 1, 2015; the national efficiency standard for mobile home oil-fired furnaces will be 75 percent AFUE as of Jan. 1, 2015; the national efficiency standard for weatherized gas furnaces will be 81 percent AFUE as of Jan. 1, 2015; and the national efficiency standard for both weatherized oil-fired furnaces and electric furnaces will be 78 percent as of Jan. 1, 2015.

•The efficiency standard for split-system central air conditioners in the South will be 14 SEER as of Jan. 1, 2015; the efficiency standard for split-system central air conditioners in the North will remain 13 SEER; and, as of Jan. 1, 2015, the efficiency standard for split-system central air conditioners in the Southwest will 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.

•As of Jan. 1, 2015, regional energy-efficiency standards for single-package air conditioners will be 14 SEER in the North, 14 SEER in the Southeast, and 14 SEER and 11 EER in the Southwest.

• As of Jan. 1, 2015, 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.

Information courtesy of ACCA.

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