For most HVACR distributors, if I asked you the question, “who is impacting your business?” your thoughts would immediately turn to the person directing your purchasing or a branch manager. But I would wager that you never would think of the bureaucrat sitting at a desk inside the Washington, D.C., Beltway. Unfortunately for our industry, the early part of 2012 has seen Federal regulators crank out rulemakings at a remarkable rate and there appears to be little end in sight.
In fact, the first quarter of 2012 has seen no fewer than six regulatory issues that will impact distributors and their businesses. For the purposes of this column, I will outline a couple of my “favorite” regulations and discuss their potential impact on distributors. As a side note, picking your favorite regulation is about as much fun as picking your favorite Rob Schneider movie.
What it means: The Environmental Protection Agency is in charge of regulating refrigerants in the United States. The EPA believes that the low cost of R-22 in 2011 and reports of stockpiling are indicators that there was too much R-22 in the system. As such, the EPA is proposing significant reductions in the amount of R-22 that can be produced and imported from 2012 to 2014.
What it means for distributors: First, there will be less R-22 in the system in 2012 and further declines in 2013 and 2014. Second, there is bound to be some market uncertainty until the EPA finalizes this rulemaking, which may not be until the summer. Ultimately, I believe the refrigerant market will stabilize, but it will probably settle in at a higher cost than pre-2012 levels. I hope that in the future the EPA would recognize that it would benefit all interested parties if it would complete the work governing a year before that year begins.
Regional Standards Enforcement
What it means: In October 2011, the Department of Energy established regional standards for gas furnaces and central air conditioners. The DOE must now define how it will enforce these regional standards. In December 2011, the DOE released its initial framework proposals for enforcement, which outlined three different approaches. All three DOE approaches would put burdensome reporting requirements upon distributors, ranging from a requirement to obtain a signed acknowledgement for every piece of qualifying equipment sold, to forcing distributors to collect the installation address from an installing contractor and report it to the DOE.
Additionally, the DOE has stated that the effective dates (May 1, 2013, for furnaces and Jan. 1, 2015, for air conditioners) are installation bans, therefore eliminating “grandfather” provisions that have marked previous standards increases and leaving distributors to liquidate inventory before the effective date or risk it being stranded with “old equipment.”
What it means for distributors: I wish I could tell you that any of this could be spun into a positive, but quite frankly, I can't. These proposals represent exactly why many people opposed regional standards in the first place. One of the few things distributors can take solace in is the fact the law clearly outlines who the DOE can include in enforcement schemes, and distributors are not listed. This line of thinking does require you to put your faith in the DOE to correctly interpret the law, which is a risky proposition. The enforcement rulemaking will finalize in January 2013, leaving distributors around 100 days to make sure their customers and staffs are up to speed on any new requirements.
I do not anticipate the speed of rulemakings to slow down this year. Many hold the view that in a presidential election year, the rate of rulemaking often increases as the administration tries to accomplish all of their goals before its term expires. While this column focused on a few of the product-specific regulations impacting distributors, I urge all businesses to keep an eye out for additional regulations that could affect the financial and human resources sides of your business, as I am sure that Beltway bureaucrats of all stripes are anxious to impact your business.
Jon Melchi is HARDI's director of government affairs. Contact him at 614/345-HEAT (4328) or jme[email protected].