Adapting to an increasingly legislative environment can win quality contractors a strategic advantage.
HVACR contractors must stay in touch with the legislative activity that’s taking place in Washington, D.C. and within their own states. Their very success could depend upon it.
That’s according to Talbot Gee, vice president for Heating, Airconditioning & Refrigeration Distributors International (HARDI), in a wide-ranging keynote speech during the Refrigeration Service Engineers Society (RSES) “Lean and Green” Conference in Bloomington, MN, Oct. 27-31.
Gee said HVACR contractors’ awareness and understanding of government affairs is crucial, due to the changing legislative and regulatory landscape. That landscape includes ever-increasing levels of government interest and involvement over refrigerants, health care reform, labor laws and taxes, and energy legislation.
“There’s a strategic positioning that government affairs must have in an HVACR business today, whether you’re a contractor, distributor, or manufacturer. This isn’t background noise anymore,” Gee said. “Those who understand the indicators, and position their companies the right way, will have a competitive advantage in the marketplace.”
Gee emphasized that the usual approach of lobbying federal legislators is now just a fraction of what contractors must do to operate efficiently in an era of increased legislation and regulation, brought on in part by a new Administration, and by existing and potentially new refrigerant phaseout mandates established by the Montreal Protocol or other international accords.
"This is about running your business day in and day out, and how you can use policy information to your best advantage, even though you may not agree with a lot of it,” Gee said. “And while there are challenges, there’s almost always an opportunity for quality contractors. Perhaps maybe you need to toot your horn a little bit more.” Gee said quality contractors are perhaps in the best position to benefit from what will almost certainly be a need among customers for more information and assistance related to the R-22 phaseout, refrigerant selection, and energy efficient practices and equipment.
Channel Dynamics are Changing
According to Gee, policy discussions related to climate change and other environmental issues are causing a significant change in HVACR industry channel dynamics. Today, all segments of the industry must stand up and be heard, not only the manufacturers.
“HVACR manufacturers did a phenomenal job of representing our entire industry for decades,” Gee said. “Unfortunately, a lot of the policy debates have shifted downstream. Manufacturers literally can’t represent the industry on every issue being tossed around in various policy proposals. And that’s not an indictment on them in any way. The rest of us have to step up.”
Gee said business owners must become involved at the “macro, grass tops” level educating not only lawmakers and agencies, but also our own employees; and now’s the time to do it, before key bills become laws or important regulations are finalized. “If you’re not engaged with your congressmen and senators, and helping them understand exactly how your small business will be impacted by these proposals, then shame on you,” Gee said. “These are game changers. Cap-and-trade and health care reform are perhaps the two biggest policy game changers since Medicaid and Social Security. If you’re not engaged, regardless of whether you agree or disagree, why not?”
Fortunately, not all developments in Washington are bad news, Gee said. The most favorable changes include unprecedented government energy efficiency and workforce development incentives, utility incentives, and the resultant market opportunities. “Legislation must be acknowledged, understood, fought when appropriate, and melded and shaped in the best possible way, so that it doesn’t become too burdensome, and have a negative impact on employment, profits, or growth. The way you approach your business will have to shift fundamentally as a result of this,” he said.
California Legislation a Litmus Test?
Gee told RSES attendees of some progressive refrigerant management regulations that are being considered in California. Those regulations would require the reporting of everything that takes place at a building facility, including system registrations and reviews of system service reports.
“This would have the state trying to track what’s going on in the refrigerant market, and perhaps regulating it more in the future,” Gee said. His warning to the HVACR industry: be prepared, because historically, California legislation is often a litmus test for other states. Most importantly, thanks largely to aggressive involvement over the last two years by RSES, HARDI, and others, the proposed regulations have been vastly improved since they were first drafted. These important improvements will reduce burdens on distributors and contractors, improve the effectiveness of the regulations, and provide a better refrigerant management template for the rest of the country.
Two energy-related juggernauts on everyone’s radar are the American Clean Energy and Security Act of 2009 (Waxman-Markey) in the House, and the Senate’s Clean Energy Jobs and American Power Act. Both have garnered much attention, and criticism from those who have actually taken the time to read the bills.
“In addition to phasing down HFCs and capping national CO2 emissions, Waxman-Markey contains a national energy code provision, with carrots and sticks to encourage states to adopt it,” Gee explained. “States that don’t adopt and rigorously enforce the more stringent codes up to 90% compliance within nine years or risk losing Federal funding and state’s control of their energy codes.” Gee warned that the Waxman-Markey bill could do away with “consensus-based” codes, such as those found in ASHRAE Standard 90.1, and would grant unprecedented authority over states to the federal government. “It gives the Department of Energy the authority to become the standards writer for energy codes. I don’t think that’s an authority we want them to have. That’s an absolute game changer,” he said. “The concept of an energy code is fine; however, some states could be required to have an energy code that’s 30 then soon 50% more efficient than current codes, which may not have adopted by several states in the first place, and have 90% compliance in nine years. That would put a serious damper on the construction and renovation industries in those states, and proliferates enforcement and compliance issues such as the ones plaguing California contractors today.”
Gee said pending energy legislation could result in HVACR contractors needing to be more integrated with other trades. Building retrofits could be subject to energy audits, and contractors could receive incentives based on improved total building system performance. Those audits, however, could delay final payments to HVACR contractors and increase total project costs.
“Due to the energy audits that would be required, the HVAC contractor won’t necessarily be able to walk away from the project immediately after it’s completed,” Gee said. “You won’t be able to wipe your hands of it if the other trades don’t perform up to par. Your compensation could be more closely tied to the work performed by the other trades.” Regarding “green jobs” development, Gee said organizations such as RSES have a valuable message that politicians need to hear: why spend money trying to train a new green workforce when we have an existing workforce who can learn the new technologies?
Appliance Standards Could Become Law
Gee also addressed a proposed, regionalized residential appliance efficiency standard for home comfort systems. Recently, HVAC manufacturers, led by the Air Conditioning, Heating, and Refrigeration Institute (AHRI) gathered together with representatives from The American Council for an Energy-Efficient Economy (ACEEE), as well as other energy efficiency and environmental advocates, to sign an agreement that calls for regional efficiency standards for the most common residential HVAC equipment to replace a quarter century of national standards. The agreement also allows equipment more efficient than the minimum standard to be considered in more stringent building codes for new construction and major renovations. (See CB, Nov. 2009, p. 18.) “This is an agreement between those organizations at this point,” Gee cautioned.
“They’ve drafted language they will try to insert into one of the energy/climate bills that’s being debated. If passed, it would direct the Department of Energy (DOE) to adopt the terms of the agreement. However, just because they have the agreement, that doesn’t mean it’s a done deal so there will still be a continuation of the scheduled DOE rulemaking that started last summer. They’re also going to try to get terms of the agreement into the DOE’s proposed rule, however the DOE currently lacks the authority to implement all of the agreement’s terms without Congressional approval. The fact that they made the agreement is significant regardless because it signals a major shift in industry policy for appliance standards. If the terms of the agreement were passed by Congress and adopted by the DOE, the new standards for furnaces go into effect in 2013; standards for other systems would take effect in 2015. The agreement sets different standard levels for gas furnaces and central air-conditioners in three climate regions — North, South, and Southwest with the Southwest region having minimum requirements for both SEER and EER performance. Efficiency standards for other residential equipment would remain national and increase from the current standards.
Gee said many questions have yet to be answered related to how the standards would be implemented or enforced, but added that HVACR distributors and contractors and their associations will have to play a very significant role since they will be most affected.
Challenges Require Strategic Planning, Swift Response
Other issues that Gee said will continue to offer challenges to contractors include:
• The cost of doing business is increasing because of regulations. “You have to factor that in, including travel to Washington if you believe it will help,” Gee said. “If you don’t weigh in, legislation could come out worse than you expected. It could prohibit what you sell, who you sell to, and possibly, the price at which you sell it.”
• Changing codes and standards require contractor involvement in meetings that serve to establish codes and standards, such as those set by ASHRAE or AHRI.
• An uncertain business climate. “We don’t know what the final tax or labor policies will be. However, knowing about it will give you an advantage. You can understand it if you read the tea leaves and plan accordingly,” Gee advised.
In closing, Gee emphasized the importance of inter-industry collaboration and advocacy in the establishment of legislation and regulation that’s more favorable to the HVACR industry. “You have to be involved in your own industry association meetings as well as in your own state legislatures and on the Hill,” he said. “All organizations in our industry must be quicker at setting strategy, quicker in delivering information, and quicker at making decisions. We have no choice.”