What happens to my inventory on May 1, 2013?

According to a recent guidance document from the Department of Energy (DOE), it will be illegal to install a nonqualifying furnace in the northern region on May 1, 2013. Therefore, unless you live near a state where it is legal to install these products, you must either sell the product to someone who can distribute or install the product legally or write off a substantial loss.

It is worth noting that in developing the regulation, which established regional efficiency standards, the DOE did not indicate that this rule would carry an installation ban and did not assess the potential fiscal harm to distributors who may have significant losses due to stranded inventory. HARDI has continued to remind the DOE that if they do intend to make this an installation ban, they must change the language in the rule and do a thorough financial analysis of its impact.

Does the new standard only apply to new home construction?

No. This rule applies to both new construction and residential retrofits.

Will there be a waiver to allow for the installation of nonqualifying furnaces in a retrofit setting?

There are some parties who are currently promoting a “waiver” that would allow for the installation of a nonqualifying furnace in certain circumstances. To my knowledge, what exactly these circumstances are remains to be seen. Some have proposed basing the waiver purely on structural criteria, while others have indicated that the basis should be the financial wealth of the homeowner. The DOE, which has never allowed a consumer-based waiver and may lack the authority to do so, would be the ultimate judge on who can exercise a waiver.

The potential waiver poses many difficulties for distributors. The first is that there is no practical way to project sales basing it upon a waiver that has never existed and criteria that doesn’t exist. If the requirements to obtain a waiver were very difficult, it is likely that most distributors would not plan on carrying inventory, which they may never liquidate. However, if the criteria are very loose or not enforceable, the DOE may inadvertently create a major loophole that would force distributors to stock inventory, while living in fear that the DOE may pull the rug out at any moment (Re: the concerns many have with carrying “Dry” R-22 condensing units).

How will the DOE enforce this?

Good question, and as I write this, I am not sure. The DOE did lay out a framework document that contained three different enforcement scenarios, all of which included distributors. They ranged from obtaining signatures from contractors, whereby they (the contractors) acknowledge the law and promise not to break it, to acquiring installation information from the installing contractor and then submitting it to the DOE. HARDI has maintained that the DOE should not include distributors in the enforcement proposals of the DOE, because it lacks the legal authority to do so.

Most troubling is the fact that the DOE probably won’t finish their

enforcement rulemaking until more than 100 days from the effective date in the northern region. This means that the many small businesses that will be impacted will have just over three months to plan for an entirely new enforcement scheme.

Isn’t there a lawsuit?

HARDI and ACCA joined a lawsuit initiated by the American Public Gas Association in opposition to the procedures the DOE used during the rulemaking that established the regional efficiency standards. This suit is ongoing and probably won’t produce a ruling until late 2012 or early 2013. If the lawsuit is successful, the DOE may have to begin the rulemaking process all over again, this time using proper procedures.

So what should I do?

I advise all impacted distributors to plan for the May 1, 2013, date in the northern region. Additionally, you should plan for this date as an installation ban. If you have customers who service homes or condominiums, who utilize furnaces that are less than 90 percent AFUE, I would highly recommend discussing this matter with them in the near future. If a contractor delays doing so, they may just find a distributor with no inventory in the warehouse.

Jon Melchi is HARDI’s director of government affairs. Contact him at 614/345-HEAT (4328) or jmelchi@hardinet.org.