Increased regulatory burden hurts innovation

America’s nearly 1 million employees in the plumbing, heating and cooling industry have been working in the most challenging economic climate since the Great Depression. Like contractors, manufacturers of water heating and HVAC equipment have also been navigating through a tough business environment — and these companies have also been on the front lines of some sweeping regulation that is impacting every step in our supply chain.

Keith Bienvenu, president of the Plumbing-Heating-Cooling Contractors — National Association, pointed out in the February 2012 issue of Contractor that the current Administration has made a shift to move its agenda through the regulatory process instead of the legislative process. The result: lawmakers elected by voters are, essentially, removed from the rulemaking process and, in turn, regulatory bodies such as the U.S. Department of Energy (DOE) and the U.S. Environmental Protection Agency (EPA), take a driving role in developing regulations that impact entire industries. These regulatory agencies aren’t tied to standard lawmaking processes, which means agenda items can get pushed through more quickly — sometimes without properly vetting the consequences of how the new regulation will impact the day-to-day operations of an industry.

In January 2012, the DOE had eight pending rulemakings on its docket that affected the heating, cooling and water heating industries. From Rheem’s standpoint — since we manufacture heating, cooling, and water heating systems — we’ve noticed that rulemakings on the DOE’s agenda are really running the gamut. Topics range from the enforcement of new regional efficiency standards for residential furnaces, air conditioners and heat pumps to finalization of the proposed R-22 allocation rule for 2012-2014, which is still under discussion one-quarter into 2012, to new certification/verification testing processes with the EPA’s ENERGY STAR program, and more.

In the past 12 to 15 months, the number of rulemakings that the DOE and other regulatory bodies have issued to manufacturers has spiked dramatically. The sheer amount of urging, educating, reasoning, negotiating and even pleading from trade associations, manufacturers, distributors and contractors involved with each rulemaking is an enormous and exhaustive effort. Unfortunately, the constantly changing nature of today’s regulatory environment doesn’t even give manufacturers and trade associations enough time to respond to regulators’ demands, which greatly hinders a collaborative rulemaking process.

For example, one issue that does not take both the contractor and manufacturers’ perspectives into consideration is the 2015 water heating-specific changes to the National Appliance Energy Conservation Act (NAECA). These changes require gas-fired and electric storage water heaters larger than 55 gallons to employ heat pump technology for electric storage products and condensing technology for gas storage products.

Rheem knows that heat pump and condensing technologies are supremely efficient measures for water heating. However, these technologies are often at the highest end of a contractor’s portfolio and, given today’s economic climate, contractors have found that consumers aren’t trending toward high-end water heaters; they’re likely buying either value-oriented products or ones that provide a measurable, quick payback.

Forcing manufacturers to focus R&D efforts on meeting NAECA standards that likely aren’t even going to resonate financially with today’s consumer greatly hinders other positive industry innovations that could drive more efficient product development at price points that homeowners can handle. Rheem, for instance, last year introduced the Rheem XR90 Extreme Recovery Gas Water Heater, which is a 29-gal. water heater that delivers more hot water, faster and more efficiently than a standard 50-gal. (0.58 EF and 40,000 Btu/h) gas water heater. This unit has an EF of 0.70 and costs 17% less to operate annually than a 50-gal. gas unit — only $217 for the Rheem XR90 versus $315 for the 50-gal. gas model, based on DOE annual operating cost figures.

While the Rheem XR90 exceeds NAECA’s 2015 requirements specific to water heaters, the company did not create this product to meet a mandated regulation. Rheem developed the XR90 so that contractors could leverage a competitive solution that meets consumers’ demands for energy efficiency. This is just one example of the kind of innovation that could be augmented if manufacturers don’t have to focus the majority of their R&D efforts on meeting mandated regulations.

As the industry navigates this unusual regulatory climate, it’ll be more important than ever that manufacturers, distributors and contractors initiate open dialogues about the ramifications of significant regulations, and work together — along with our respective trade associations — to continue urging the DOE and other regulatory bodies to reconsider imposing so many rulings that could have dramatic consequences on these industries.

Karen Meyers is corporate director, government relations, for Rheem. She is on several AHRI committees and chairs the Unitary Regulatory Committee, which negotiated the consensus agreement on regional standards with the energy advocates; serves on the Government Affairs Committee; the Certification Programs and Policy Committee; and the Water Heater Regulatory and Policy Committee. She can be reached at[email protected]

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