The Annual Tax Extenders Dance in Washington
Tax credits on the chopping block that impact your business
Originally published: 07.01.11 by Charlie McCrudden
Our industry has been anxiously awaiting the release of a new federal government rule that sets the minimum AFUE, SEER, and HSPF values for residential HVAC appliances. That wait ended on June 27 when the Department of Energy (DOE) Office of Energy Efficiency and Renewable Energy published the Direct Final Rule and the Notice of Proposed Rulemaking for the Energy Conservation Standards for Residential Furnaces and Central Air Conditioners and Heat Pumps in the Federal Register.
Without a doubt, contractors, distributors, and manufacturers can expect this new rule to bring significant changes to the way the HVAC industry operates. This process started back in 2008 when DOE began considering separate new minimum standard rules for central air conditioners and heat pumps. At that time, changes in the rules for residential furnaces were already under consideration.
Last year, DOE combined the two rulemakings. By law, DOE must routinely review energy conservation standards for HVAC appliances. The DOE must consider raising the standards (but never lowering them) if an increase is technologically feasible and economically justified. These periodic reviews follow a process that takes years to complete.
Typically, the first step is the publication of an Advanced
Finally, the agency publishes a Final Rule and effective date. The significance of this particular rulemaking is that it’s the first since Congress, through the Energy Independence and Security Act of 2007 (EISA), authorized DOE to create regional standards for residential HVAC equipment. This was the first time in history that any type of appliance would have separate, regional energy-conservation standards.
EISA also created a new process called a Direct Final Rule to expedite an energy-conservation rulemaking. Under this new scenario, if qualified interested stakeholders jointly submit a proposed rule, the Secretary can issue a “Direct Final Rule” by simultaneously releasing the penultimate (Notice of Proposed Rulemaking) and ultimate step (Final Rule) in the rulemaking process.
The expedited process allows stakeholders 110 days to file comments on the Direct Final Rule. In 2010, AHRI and several energy efficiency advocacy groups submitted a consensus agreement that created regional standards to DOE as qualified stakeholders. If the DOE receives adverse comments and determines that such comments may provide a reasonable basis for withdrawing the Direct Final Rule, it may be withdrawn and the Proposed Rule process will proceed.
Most of the industry expected DOE to accept the consensus agreement and implement regional standards for HVAC appliances. The new rule creates two standards for heating appliances: one National Standard (think of this as the “base” standard) and one Northern Region standard. The rule also creates three regions for central air conditioners: a National standard, a Southeastern Region standard, and a Southwestern Region standard. The National standard and Southeastern Region cooling standards use a single SEER value, while the Southwestern Region cooling standard must meet a minimum SEER and EER value. Heat pumps won’t have a regional standard, just a single national standard. The implementation dates for the new furnace and central air conditioner and heat pump standards are different, which may cause some confusion.
Starting May 1, 2013, gas furnaces installed in the Northern Region will have to be at least 90% AFUE. The states included in the Northern Region are: Alaska, Colorado, Connecticut, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming. Gas furnaces installed in all other states must be at least 80% AFUE.
Starting January 1, 2015, split system central air conditioners installed in the Southeastern Region must be at least 14 SEER. The Southeastern Region includes: Alabama, Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia.
Starting January 1, 2015, split systems central air conditioners installed in the Southwestern Region must be a minimum 14 SEER and 12.2 EER. The Southeastern Region contains the states of Arizona, California, Nevada, and New Mexico.
Starting January 1, 2015, split system central air conditioners installed in all other states must meet 13 SEER.
Starting January 1, 2015, the new minimum efficiency standard for split system heat pumps is 14 SEER and 8.2 HSPF, but there are no regional standards for heat pumps, only one national standard. The pending rulemaking will create two new and unique issues for HVAC contractors.
First, the new rule requires the installation of condensing furnaces in the Northern-heating region. As contractors know, it’s more difficult, expensive, (or in some cases impossible) to accommodate the venting and condensate requirements when installing condensing furnaces. ACCA and several other groups filed comments to DOE during the rulemaking process that this would be a serious problem, especially in the Northeast. Many homeowners will probably choose to repair rather than replace when faced with the costs and inconveniences involved. Or they might turn to someone who will just avoid the law.
Which brings us to the second issue — enforcement. Expect to see a rise in the sale and installation of illegal equipment all across the country. It will be nearly impossible to stop unscrupulous contractors from obtaining lower-efficient equipment and using it to under bid law-abiding contractors. The condensing furnace issue is a key example.
When Congress proposed regional standards, ACCA and our allies in Congress expressed serious concerns about illegal activity along the borders between regions. Consider the border between Ohio, where condensing furnaces are required; and Kentucky, where the minimum AFUE is 80%.
There won’t be much to keep the 80% furnaces from ending up installed in Ohio or Indiana by moonlighters who promise to do the job cheaply and “without all the extras that other guy said you needed.”
But lately my concerns about “illegal” equipment ending up in the wrong area have grown exponentially. Many contractors have told me that they get calls weekly that start off with, “I just bought a new furnace on the Internet. How much will you charge to install it?”
The sale of equipment on the Internet will make any part of the country vulnerable to illegal installs. It’s something Congress never could have foreseen when it first authorized regional standards. And unfortunately, Congress punted on enforcement, directing the DOE to initiate a rulemaking on regional standards enforcement within 90 days of the issuance of a final rule that includes regional standards. The regional standards enforcement rule must be concluded within 15 months of the final rule establishing regional standards. So it's possible the enforcement rulemaking could be as short as one year or as long as 15 months, depending on when DOE opens the enforcement rulemaking.
And you can be assured that ACCA will be providing comments then too.
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