Compressed Air System

Federal regulation of the compressor industry…maybe

It’s an uncertain environment, to say the least, for proposed rules about compressed air efficiency.

By Wayne Perry, Kaeser Compressors

Compressor manufacturers have been riding the regulation roller coaster, waiting for decisions to be made on proposals to regulate compressor efficiency. Proposed changes to testing procedures, possible new standards for efficiency, a change in administration, and a bevy of back-and-forth discussions have kept everyone on their toes wondering just how this would affect the compressed air industry and end users in plants across the United States. Here is an outline of where we’ve been, where we are, and where we could end up.

If you are not a regular reader of the Federal Register or a regular browser at www.regulations.gov, you may have missed the fact that several years ago, the U.S. Department of Energy (DOE) started a process to regulate the minimum efficiency of compressors. At about the same time, Europeans started a similar project known as Lot 31. The authority of the U.S. federal government to regulate the energy efficiency of certain products is based on the Energy Policy and Conservation Act of 1975, which was a response to the oil crisis of 1973. This act paved the way for establishing a strategic oil reserve and for the ban on crude oil exports (no longer in effect). It also led to such things as the corporate average fuel economy (CAFE) standards for motor vehicles.

The range of products with minimum energy efficiency requirements has expanded over the years at the DOE’s discretion. In 2016 the department determined that compressors should be addressed. By that time, the DOE had been working with compressor manufacturers for more than two years to try to understand the industry and the equipment as well as the energy that compressors consume in the United States. In addition to working with individual compressor manufacturers, the DOE sought comments from the compressed air industry’s trade association, the Compressed Air and Gas Institute (CAGI).

A bit of background

In the 1990s, the members of CAGI saw what had happened in the electric motor industry when motors were determined to be covered equipment, and took steps to try to avoid regulation of compressors. These steps included a standardized performance reporting form and third-party, independent performance verification testing of rotary screw compressors. These programs allowed consumers to do direct apples-to-apples comparisons of compressor efficiency and pushed manufacturers to improve their products. That is exactly what CAGI members had hoped would happen. Members also hoped the DOE would see that market forces were moving the industry to improve efficiency without the need for more government regulation. But for some it was not happening fast enough.

To that end, the U.S. Environmental Protection Agency and the DOE pushed a number of regulations through during President Barack Obama’s administration. Some of the regulations were a bit rushed. The compressor regulations were among those at the end of the administration’s term.

For those who have not worked with the regulatory process, a brief explanation might be in order. In the case of the compressor rules, the government has to first determine that compressors are covered equipment. Next, the government has to come up with a standardized test procedure for compressors to determine their efficiency. Finally, the DOE has to develop a minimum efficiency level to which it can hold manufacturers. The development of the test procedure and the efficiency standard appeared to be happening simultaneously.

While developing the test procedure, the DOE also compiled all of the available performance information on compressors in order to set minimum efficiency standards. As it turns out, the only verifiable performance information about compressors was for rotary-screw air compressors. There is nothing comparable to the CAGI performance verification program for any other compression technology (e.g., reciprocating and centrifugal machines). Given the apparent push from the administration to get the regulation finished and published, the DOE decided not to set efficiency standards for these other compressor classes. This also eliminated the need to develop several test procedures to cover each of the compression technologies.

To create a new regulation, the government must publish a Notice of Proposed Rulemaking (NOPR) in the Federal Register, hold public hearings, and have a period of time for accepting written public comment. The compressor manufacturers were initially opposed to any regulation, but as there seemed to be no way to prevent it, they worked to make the regulation as sensible as possible. They attended public hearings in Washington, D.C., and voiced industry concerns, wrote to the DOE, and even requested meetings to discuss specific areas of concern.

The first area of concern was the test procedure. The DOE looked at available international standards and they looked at the test procedures CAGI members had already developed and implemented for the existing performance verification program. The DOE staff members involved in writing the test procedure had no firsthand experience with testing industrial compressors, and relied on what they read about testing compressors and other products. The original procedure they developed followed ISO 1217, with some exceptions and additions. Some conditions in the procedure were lifted directly from the CAGI performance verification program without understanding that those details were site-specific for ambient conditions at the lab in Plano, TX. Compressor manufacturers would be given 180 days to publish performance information based on the new test procedures. If they couldn’t meet that 180-day deadline, they could ask for an extension, or they could simply not publish performance data.

The next area of concern was the efficiency standard, set to take effect five years after its publication in the Federal Register. That delay is intended to give manufacturers time to make changes to their products and bring them into compliance. A detailed look at the proposed efficiency level showed that 30%–40% of the rotary screw compressors on the market today would not be allowed in five years. However, most manufacturers build some equipment that would meet the proposed efficiency level. So while some models would have to be modified or dropped, it did not appear that any manufacturers would be driven out of business. It did mean that the average cost of rotary screw compressors would likely go up.

At a public meeting held in Washington concerning the NOPR, manufacturers voiced concerns about the test procedure. DOE officials and their consultants were convinced that their test procedure would be better than the procedure that was common practice in the industry. During the meeting, it was also pointed out to the DOE that the proposed efficiency standard was based on the performance of compressors that were tested in accordance with ISO 1217. If the DOE insisted on having its test procedure used, all of the data upon which the proposed efficiency standard was based would be invalid. To produce valid data would require modifications to test cells and several years of testing. This would mean a huge expense to the manufacturers and a significant delay in developing an efficiency standard.

On January 4, 2017, just before President Donald Trump took office, the DOE published its testing rules for rotary screw compressors. The new test rule reflected the comments and concerns of manufacturers and was closely based on ISO 1217. There were still some small packagers that would have to either build a test cell or send compressors to a lab that could test to ISO 1217, but the majority of the manufacturers saw this as a win and were satisfied with the new rule.

Let the games begin

The current administration made it clear that it was not regulation-friendly. It announced a policy to review all recently enacted regulations and the guideline that if a new regulation was proposed, two existing regulations would have to be dropped. Because the efficiency standard was not published before the change, it is now unlikely to be published until another administration takes power.

This presents an opportunity for the manufacturers to lobby against the testing rule. However, there is a problem with that. An old rule stipulates that if a proposed regulation is not enacted, the agency publishing the regulation cannot come up with a new regulation in the future that is “substantially” the same as the old one. What that means (we think…it’s never been tested), is that any future administration that wants to regulate compressor efficiency will have to develop a test procedure that is “substantially” different from the one that was abandoned. It seems to rule out testing based on ISO 1217. One more troublesome point is that a federal regulation trumps (no pun intended) state regulations, so if the federal government decides not to regulate compressors, states are free to do it on their own. That may lead to several different test procedures and several different efficiency standards. Not good.

So, most CAGI members and CAGI as an association have written to the DOE and to Sen. Ted Cruz’s office (Cruz proposed using the Congressional Review Act to kill this regulation) to support the testing regulation. As of August 2017, implementation of the testing regulation has been delayed by the department while it conducts a review of this and other regulations. Currently, the DOE is asking for additional public comment and has set the end of this year as the earliest time that the regulation could take effect. It is also fairly apparent that the efficiency standard will not be published during this administration.

Where does that leave the manufacturers? Concerned. If the test procedure is killed, we may see a free-for-all with states coming up with their own programs. There is some hope that the states would use the test procedure published in January, but there is no guarantee. States could also come up with their own efficiency standard. Again, they could use the standard that was published in the NOPR, or they could raise the bar a bit.

The cost of having compressors California-certified, New York-certified, Wisconsin-certified, etc., could be absorbed by the larger manufacturers, but some of the smaller packagers would likely be restricted to selling in states that did not adopt testing and efficiency standards. The loss of some competition would likely lead to higher prices for some compressors.

If the states do not develop their own programs, it is likely that a different administration would. And it may not be able to use ISO 1217 as a basis for the regulation. As odd as it may seem, after weighing all of the factors, most compressor manufacturers are now hoping that they will see this regulation survive.

Where does this leave end users? With the bill. Mandates for better efficiency necessitate manufacturers spending more money to design and build more-efficient compressors. These increased costs will naturally be passed on to the end user. It remains to be seen if the higher purchase price will be meaningfully offset by the potential energy savings resulting from increased efficiency. Additionally, there could be less selection available to end users as smaller manufacturers may not be able to keep up with and afford the necessary improvements to meet the efficiency standard. Even larger manufacturers will likely eliminate some models from their product offerings. Fewer compressors on the market means less competition and possibly less incentive to keep pricing competitive.

If this regulation process has taught us anything, it’s that nothing is for certain and things may change overnight. For now, it’s a matter of hurry up and wait. Or at least, wait and see what tomorrow brings.