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Residential Central Air 

Conditioners and Heat Pumps 

(CAC) 

Regional Standards 

The U.S. Department of Energy (DOE) 

published Chapter 17 of the preliminary 

analysis Technical Support Document for 

central air conditioners and heat pumps. 

Chapter 17 details the regional standards 

impacts on market participants for residential 

furnaces and residential central air 

conditioners and heat pumps. (PDF 2.3 

MB) Download Adobe Reader. 

To learn more about the current standards 

rulemaking for residential furnaces see 

the Furnace and Boiler Rulemaking Web page. 

Additional details about the current standards 

rulemaking for central air conditioners will be 

available soon. 

New Rulemaking - Framework 

Document 

DOE published a Notice of Availability of 

the Frame Document (PDF 82 KB) in the 

Federal Register on June 6th, 2008 to begin 

the new rulemaking process for a Final Rule to 

be published in 2011. For more information 

on the documents for the new rulemaking see 

the Standards and Rulemaking Webpage. The 

Department will hold a Framework public 

meeting on June 12, 2008, to discuss issues 

and procedures involved in energy 

EERE Information Center

Programs and Offices 

New air conditioner standards go 

into effect January 23, 2006 

Learn more about what this means for 

consumers (PDF 51 KB). Download 

Adobe Reader. 

Appliances and Commercial Equipment Standards: Residential Central Air Conditioners ... Page 1 of 6

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EERE-2008-BT-STD-0006 COMMENT 51
conservation standards rulemaking for 

residential central air conditioners and heat 

pumps. 

Some of these documents are available as 

Adobe Acrobat PDFs. Download Adobe

Reader. 

Current Standards 

The Department published a Technical 

Amendment (PDF 80 KB) on August 17, 

2004, setting requirements for residential 

air conditioners and heat pumps 

manufactured after January 23, 2006. Learn 

more about what this means for consumers 

(PDF 51 KB). 

Final Rule 

The U.S. Department of Energy published a 

Final Rule (PDF 566 KB) on January 22, 

2001, which amends the existing energy 

conservation standards for central air 

conditioners and heat pumps. The 

regulation, which becomes effective January 

23, 2006, raises the SEER value by 30 

percent to 13 SEER. DOE had promulgated a 

12 SEER standard in 2002 (PDF 383 KB), 

but the U.S. Court of Appeals for the Second 

Circuit ruled that the Department had done 

so improperly. 

A technical amendment to incorporate the 

SEER and HSPF standards for all classes of 

air conditioners was published on August 

17, 2004 (PDF 80 KB). 

Some of the following documents are 

available as Adobe Acrobat PDFs. Download 

Adobe Reader. 

Notice of Proposed Rulemaking 

z The Department held a public meeting 

on Wednesday, August 23, 2006, to 

discuss proposed amendments to the 

test procedure for residential central 

air conditioners and heat pumps. The 

proposal implements test procedure 

changes for small-duct, high velocity 

systems, multiple-split systems, two 

capacity units, and updates 

references to the standards. Proposed 

Rule, Federal Register, July 20, 2006, 

(PDF 320 KB) The comment period for 

this NOPR ends October 20, 2006. 

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EERE-2008-BT-STD-0006 COMMENT 51
z Energy Conservation Program for 

Consumer Products: Test Procedure 

for Residential Central Air 

Conditioners and Heat Pumps; 

Correction, Federal Register, October 

10, 2006 (PDF 59 KB) 

Test Procedure 

z Energy Conservation Program for 

Consumer Products: Test Procedure 

for Residential Central Air 

Conditioners and Heat Pumps, Final 

Rule, Federal Register, October 11, 

2005, (PDF 2.1 MB) 

z Energy Conservation Program for 

Consumer Products: Test Procedure 

for Residential Central Air 

Conditioners and Heat Pumps, Final 

Rule, Federal Register, October 22, 

2007 (PDF 896 KB) 

Previous Workshop Material 

z Central Air Conditioner Test Procedure 

Public Workshop: A Technical 

Discussion on New Defaults for CC

D — 

(PowerPoint 1.31 MB) 

[NOTE: If you are using Internet 

Explorer 5.0 or above this link will 

open the presentation in the slide 

show format. If you are using 

Netscape choose the "Open" option 

after clicking on the link then hit "F5" 

to view the slide show once the 

application has opened.] 

z Draft Agenda

z Draft Residential Central Air 

Conditioner, Small Duct, High Velocity 

(SDHV) Systems Standards 

Rulemaking: Engineering Analysis 

(PDF 751 KB) 

z Draft Residential Central Air 

Conditioner, Small Duct, High Velocity 

(SDHV) Systems Standards 

Rulemaking: Calculator (Excel 1.4 

MB) — These spreadsheets show how 

DOE generated cost-efficiency curves 

for SDHV systems. Introduction on 

sheet one. 

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EERE-2008-BT-STD-0006 COMMENT 51
z Draft Residential Central Air 

Conditioner, Small Duct, High Velocity 

(SDHV) Systems Standards 

Rulemaking: Life Cycle Cost (LCC) 

Analysis (PDF 214 KB) 

z Draft Residential Central Air 

Conditioner, Small Duct, High Velocity 

(SDHV) Systems Standards 

Rulemaking: Life Cycle Cost (LCC) 

Spreadsheet (Excel 1.5 MB) — LCC 

spreadsheets perform calculations to 

determine LCC and payback periods. 

The LCC spreadsheets operate in 

Excel 2000; includes LCC (Sample 

Calc) sheet and LCC (Simulation) 

sheet with Excel add-on Crystal Ball. 

z Draft Residential Central Air 

Conditioners and Heat Pumps Test 

Procedure: Background Briefing 

Materials (PowerPoint 1.2 MB) — 

What parts of the DOE AC&HP Test 

Procedure and related CFR Sections 

should be (re-)evaluated as part of a 

limited-scope proposed rulemaking? 

Issues for comment include: cyclic 

degradation coefficient default, testing 

options, alternative rating methods, 

etc. 

z Small Duct, High Velocity (SDHV) 

System Standards and Residential 

Central Air Conditioners and Heat 

Pumps Test Procedure: Presentation 

Slides (PDF 1.3 MB) — These slides 

will be presented at the December 13, 

2002, public workshop. 

Federal Register Documents 

z Final Rule: Energy Conservation 

Program for Consumer Products: Test 

Procedure for Residential Central Air 

Conditioners and Heat Pumps, Federal 

Register, October 11, 2005 (PDF 2.1 

MB) 

z Final Rule: Finding of No Significant 

Impact, Notice: Central Air 

Conditioners and Heat Pumps Energy 

Conservation Standards, Federal 

Register, January 22, 2001 (PDF 566 

KB) 

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EERE-2008-BT-STD-0006 COMMENT 51
z Final Rule: Energy Conservation 

Program for Consumer Products; 

Central Air Conditioners and Heat 

Pumps Energy Conservation 

Standards, Federal Register, May 23, 

2002 (PDF 383 KB) 

z Finding of No Significant Impact for 

Amended Energy Conservation 

Standards for Residential Central Air 

Conditioners and Heat Pumps, Federal 

Register, May 23, 2002 (PDF 26 KB) 

Previous Federal Register Documents 

related to the Supplemental Notice of 

Proposed Rulemaking (issued July 25, 2001) 

Technical Support Document 

The TSD supports the rulemaking analyses 

by describing the assumptions and 

methodology and by presenting the 

engineering and economic results in greater 

breadth and depth. The TSD for the Final 

Rule includes all sections supporting the July 

25, 2001, supplemental proposed rule plus 

the following additions which revise previous 

information: 

z Title (PDF 65 KB) 

z Table of Contents (PDF 193 KB) 

z Appendix M: Revised Utility Impacts 

Analysis and Environmental 

Assessment (PDF 227 KB) 

Please note that Appendix M includes tables 

and figures supplementing those in TSD 

Chapter 11 and Appendices H and J. 

To view the July 25, 2001 TSD and the 

Regulatory Impact Analysis, go to SNOPR

TSD. 

If you have any comments or if you 

encounter any problems while using these 

spreadsheets and documents, please 

contact Michael G. Raymond at (202) 586-

9611 or email at 

michael.raymond@hq.doe.gov. 

Previous Rules and Documents 

Public Hearing Regarding Energy Efficiency 

Standards for Central Air Conditioners and 

Heat Pumps, was held on Tuesday, October 

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EERE-2008-BT-STD-0006 COMMENT 51
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Content Last Updated: 03/19/2010 

2, 2001. 

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EERE-2008-BT-STD-0006 COMMENT 51
CHAPTER 17. REGIONAL STANDARDS IMPACTS ON MARKET PARTICIPANTS
 

TABLE OF CONTENTS
 

17.1 Introduction..................................................................................................................... 17-1
 

17.1.1 Issues on Which DOE Seeks Comment .............................................................. 17-1
 

17.1.2 Regional Standards Overview ............................................................................. 17-2
 

17.1.2.1Regional Standards vs. National Standard............................................. 17-5
 

17.1.3 Discussion of Non Enforcement vs. Enforcement Issues.................................... 17-6
 

17.2 Market Participants ......................................................................................................... 17-7
 

17.2.1 Definition of Terms ............................................................................................. 17-7
 

17.2.1.1Distributors ............................................................................................ 17-7
 

17.2.1.2Contractors............................................................................................. 17-7
 

17.2.1.3Dealers ................................................................................................... 17-7
 

17.2.1.4Installers................................................................................................. 17-8
 

17.2.1.5Builders.................................................................................................. 17-8
 

17.3 Distribution Chain........................................................................................................... 17-8
 

17.3.1 Overview ............................................................................................................. 17-8
 

17.3.2 Vertical Integration.............................................................................................. 17-9
 

17.3.3 Distributors........................................................................................................ 17-10
 

17.3.3.1Market Overview ................................................................................. 17-10
 

17.3.3.2Distributor Business Model ................................................................. 17-10
 

17.3.4 Contractors ........................................................................................................ 17-13
 

17.3.4.1Market Overview ................................................................................. 17-13
 

17.3.4.2Business Model.................................................................................... 17-13
 

17.3.5 General Contractor ............................................................................................ 17-14
 

17.3.5.1Market Overview ................................................................................. 17-14
 

17.3.5.2Business Model.................................................................................... 17-14
 

17.3.6 Retailers............................................................................................................. 17-15
 

17.4 Discussion of Regional Standard Impacts .................................................................... 17-15
 

17.4.1 Distributor Impacts............................................................................................ 17-15
 

Non-enforcement Issues for Distributors .......................................................... 17-15
 

Enforcement Issues for Distributors.................................................................. 17-17
 

17.4.2 Contractor Impacts ............................................................................................ 17-18
 

Non-enforcement Issues for Contractors........................................................... 17-18
 

Enforcement Issues for Contractors .................................................................. 17-18
 

17.4.3 General Contractor Impacts............................................................................... 17-19
 

Non-enforcement Issues for General Contractors............................................. 17-19
 

Enforcement Issues for General Contractors..................................................... 17-19
 

17.5 Analysis of Regional Standard Impacts........................................................................ 17-19
 

17.5.1 Profitability Analysis of Regional Standard Impacts........................................ 17-20
 

17.5.1.1Data Sources ........................................................................................ 17-20
 

17.5.1.2Sample Inventory Calculation for Southeastern Border CACHP
 

Wholesaler......................................................................................................... 17-23
 

17.5.1.3CACHP Profitability Calculation ........................................................ 17-25
 

17.5.1.4Sample Furnace Inventory Calculation for Border Wholesalers......... 17-26
 

17-i 

EERE-2008-BT-STD-0006 COMMENT 51
17.5.1.5Furnace Profitability Calculation......................................................... 17-27
 

17.5.2 Preliminary Analysis of the Impacts of Regional Standards on Furnace and 

CACHP markups........................................................................................................... 17-28
 

17.5.2.1Furnace Markups ................................................................................. 17-28
 

17.5.2.2Firm Markups Far From the Border Region........................................ 17-28
 

17.5.2.3Border Region Markups....................................................................... 17-30
 

17.5.2.4Central Air Conditioners and Heat Pumps........................................... 17-32
 

17.6 Additional Distributor Data .......................................................................................... 17-32
 

17.7 Additional Contractor Data........................................................................................... 17-47
 

17.8 Additional General Contractors and Homebuilders Data ............................................. 17-57
 

LIST OF TABLES 

Table 17.1.1. States and Regions for Residential CACHP Rulemaking* ................................. 17-3
 

Table 17.6.13 Revenue and Cost Items, Typical CACHP Distributors, Hot-Humid Region and 

Table 17.6.14 Revenue and Cost Items, Typical CACHP Distributors, Hot-Dry Region and 

Table 17.1.2 States and Regions for Residential Furnaces Rulemaking* ................................. 17-4
 

Table 17.1.3 Border States by Region for CACHP Rulemaking............................................... 17-5
 

Table 17.1.4 Border States by Region for Furnaces Rulemaking.............................................. 17-6
 

Table 17.5.1 Typical Southeastern Wholesaler Assets, Liabilities, and Profitability.............. 17-22
 

Table 17.5.2 Border Wholesaler Required Inventory.............................................................. 17-24
 

Table 17.5.3 Profitability Impacts of CACHP Inventory Cost Increases............................... 17-26
 

Table 17.5.4 Return on Net Worth Impacts of CACHP Inventory Cost Increases ................ 17-26
 

Table 17.5.5 Number of Units of Inventory of Furnaces in the Border Region..................... 17-27
 

Table 17.5.6 Profitability Sensitivity Analysis for Furnaces in Border States ........................ 17-27
 

Table 17.5.7 Return on Net Worth Analysis for Furnaces in Border States............................ 17-28
 

Table 17.5.8 Northern Region Markups .................................................................................. 17-29
 

Table 17.5.9 Southern Region Markups .................................................................................. 17-29
 

Table 17.5.10 Saturation Rate of Condensing Furnaces in the Northern Border Region........ 17-30
 

Table 17.5.11 Saturation Rate of Condensing Furnaces in the Southern Border Region........ 17-31
 

Table 17.5.12 Border Region Markups.................................................................................... 17-31
 

Table 17.5.13 Central Air Conditioner and Heat Pump Markups ........................................... 17-32
 

Table 17.6.1 Distributor Enterprise Statistics for Hot-Humid Region (2002)........................ 17-33
 

Table 17.6.2 Distributor Enterprise Statistics for Hot-Dry Region (2002)............................. 17-33
 

Table 17.6.3 Distributor Enterprise Statistics for Rest of Country (2002) ............................. 17-34
 

Table 17.6.4 Establishments, Employment, and Payroll Trends in Hot-Humid Region........ 17-35
 

Table 17.6.5 Establishments, Employment, and Payroll Trends in Hot-Dry Region............. 17-35
 

Table 17.6.6 Establishments, Employment, and Payroll Trends in Rest of Country ............. 17-36
 

Table 17.6.7 Income Statement Items, Typical CACHP Distributors, Hot–Humid Region .. 17-37
 

Table 17.6.8 Balance Sheet, Typical CACHP Distributors, Hot-Humid Region................... 17-37
 

Table 17.6.9 Income Statement Items, Typical CACHP Distributors, Hot–Dry Region ....... 17-38
 

Table 17.6.10 Balance Sheet, Typical CACHP Distributors, Hot-Dry Region...................... 17-38
 

Table 17.6.11 Income Statement Items, Typical CACHP Distributors, Rest of Country ...... 17-39
 

Table 17.6.12 Balance Sheet, Typical CACHP Distributors, Rest of Country ...................... 17-39
 

Border States............................................................................................................................ 17-40
 

Border States............................................................................................................................ 17-40
 

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EERE-2008-BT-STD-0006 COMMENT 51
Table 17.6.15 Revenue and Cost Items, Typical CACHP Distributors, Rest of Country Region 

and Border States ..................................................................................................................... 17-41
 

Table 17.6.17 Geographic Area Series, Hardware, Plumbing, and Heating Equipment Merchant 

Table 17.7.1 Revenue and Cost Items, Typical CACHP Mechanical Contractors, Hot-Humid 

Table 17.7.2 Revenue and Cost Items, Typical CACHP Mechanical Contractors, Hot-Dry
 

Table 17.7.3 Revenue and Cost Items, Typical CACHP Mechanical Contractors, Rest of 

Table 17.7.8 Mechanical Contractor Establishments, Employment, and Payroll Trends, HotTable 17.7.9 Mechanical Contractor Establishments, Employment, and Payroll Trends, Hot-Dry
 

Table 17.7.10 Mechanical Contractor Establishments, Employment, and Payroll Trends, Rest of 

Table 17.8.4 General Contractor Establishments, Employment, and Payroll Trends, Hot-Humid 

Table 17.8.5 General Contractor Establishments, Employment, and Payroll Trends, Hot-Dry
 

Table 17.8.6 General Contractor Establishments, Employment, and Payroll Trends, Rest of 

Table 17.6.16 Distributor Financial Data by HARDI Region for 2009.................................. 17-42
 

Wholesalers.............................................................................................................................. 17-45
 

Region...................................................................................................................................... 17-49
 

Region...................................................................................................................................... 17-50
 

Country .................................................................................................................................... 17-51
 

Table 17.7.4 Geographic Area Series, Plumbing and HVAC Constructors ........................... 17-52
 

Table 17.7.5 Enterprise Statistics on Mechanical Contractors in the Hot-Humid Region ..... 17-54
 

Table 17.7.6 Enterprise Statistics on Mechanical Contractors in the Hot-Dry Region .......... 17-54
 

Table 17.7.7 Enterprise Statistics on Mechanical Contractors in the Rest of Country........... 17-55
 

Humid Region.......................................................................................................................... 17-56
 

Region...................................................................................................................................... 17-56
 

Country Region........................................................................................................................ 17-57
 

Table 17.8.1 Enterprise Statistics on General Contractors in the Hot-Humid Region ........... 17-58
 

Table 17.8.2 Enterprise Statistics on General Contractors in the Hot-Dry Region ................ 17-59
 

Table 17.8.3 Enterprise Statistics on General Contractors in the Rest of Country................. 17-60
 

Region...................................................................................................................................... 17-61
 

Region...................................................................................................................................... 17-61
 

Country .................................................................................................................................... 17-62
 

Table 17.8.7 Revenue and Cost Items, Typical General Contractors, Hot-Humid Region 

.................................................................................................................................................. 17-63
 

Table 17.8.8 Revenue and Cost Items, Typical General Contractors, Hot-Dry Region........ 17-64
 

Table 17.8.9 Revenue and Cost Items, Typical General Contractors, Rest of Country ........ 17-65
 

LIST OF FIGURES 

Figure 17.3.1 Distribution Chain in Replacement Market........................................................ 17-9
 

Figure 17.3.2 Distribution Chain in New Construction Market ............................................... 17-9
 

17-iii 

EERE-2008-BT-STD-0006 COMMENT 51
 

 

CHAPTER 17. MARKET AND TECHNOLOGY ASSESSMENT 

17.1 INTRODUCTION 

The Energy Policy and Conservation Act (EPCA), as amended by the Energy 

Independence and Security Act of 2007 (EISA; Pub. L. 110-140), directs the U.S. Department of 

Energy (DOE) to “consider the impact of additional regional standards on consumers, 

manufacturers, and other market participants, including distributors, dealers, contractors, and 

installers,” before establishing additional regional standards.” (42 U.S.C. 6295(o)(6)(D)(ii)) This 

technical support document (TSD) chapter represents an important step in DOE’s efforts toward 

fulfilling this statutory obligation. Specifically, the language of EPCA affects the current energy 

conservation standards rulemakings for residential central air conditioners and heat pumps 

(CACHP) and furnaces. The substance of this chapter will also be included in the furnaces TSD 

because the analysis generally applies to both the CACHP and furnaces rulemakings and DOE is 

evaluating regional standards for each rulemaking. Where indicated, the analysis is specific to 

either CACHP or furnaces. The purpose of this chapter is to establish a common framework and 

understanding of the HVAC distribution chain and market dynamics to facilitate discussion of 

regional standards among DOE and interested parties. This chapter also affords the early 

opportunity for stakeholders to comment on DOE’s understanding of key market factors as well 

as DOE’s initial analytical methodology and conclusions regarding the impacts of regional 

standards. 

This chapter is structured as follows: First, DOE provides an overview of the issues 

raised by regional standards as they relate to the market participants specified in EPCA. Second, 

DOE defines the market participants and the interaction of those participants the distribution 

chain. DOE examines the general business models of the key participants in the market 

independently. Next, DOE investigates how regional standards could affect those models based 

on industry research, initial discussions with manufacturers, distributors and contractors, and the 

comments received in response to the central air conditioner and heat pump framework 

document and public meeting. Lastly, when possible given data availability, DOE quantitatively 

assesses the impacts of regional standards on the analyzed market participants, conducting two 

analyses: (1) an investigation of the impact of changes in inventory holdings on distributor 

profitability and (2) a presentation of preliminary estimates of the impact of regional standards 

on distributor and contractor (installer) markups for central air conditioners, heat pumps and 

furnaces. The markups for these products are estimated for different regions of the country, and 

based on limited available data about the current distribution of equipment efficiency and 

projected changes to equipment efficiency. These estimates will be updated as more information 

becomes available. 

17.1.1 Issues on Which DOE Seeks Comment 

DOE is particularly interested in receiving comments and views of interested parties 

concerning the following issues: 

17-1 

EERE-2008-BT-STD-0006 COMMENT 51
 

1.	 The impacts of additional regional standards on distributors, mechanical 

contractors, and general contractors 

2.	 The impact of regional standards enforcement mechanisms on the HVAC 

distribution chain 

3.	 How regional standard impacts are different from the impacts resulting from 

amended national energy conservation standards 

4.	 How DOE can best capture incorporate the impacts identified above in its analysis 

5.	 The conclusions drawn in this chapter 

17.1.2 Regional Standards Overview 

DOE is considering regional standards for residential air conditioners and heat pumps for 

two multi-state regions (Hot-Humid and Hot-Dry) in addition to a base national standard that 

would prevail in states throughout the rest of the country. For impact analysis purposes in the 

CACHP rulemaking, the rest of the country is considered a third region called Rest of Country 

(called the “North” in this chapter for simplicity). By statute, the regions must include whole, 

contiguous states. (42 U.S.C. 6295(o)(6)(C)) The states are grouped such that the populations of 

the two hot regions generally experience more than 1200 annual cooling hours (CLH), and the 

Hot-Humid region has high relative humidity while the Hot-Dry region does not 

The boundary between Hot-Humid and Rest of Country is approximately at the 4500 annual 

heating degree-day (HDD) line. The states currently included in each region in the CACHP 

rulemakings are listed in Table 17.1.1. For reasons described below, DOE distinguishes between 

states that border other regions and those that do not. States that are on the border of two regions 

are italicized in the table. All states in the Hot-Dry region have at least one border with another 

region. 

17-2 

EERE-2008-BT-STD-0006 COMMENT 51
 

 

 

 

 

 

Table 17.1.1 States and Regions for Residential CACHP Rulemaking* 

Hot-Humid Hot-Dry Rest of Country 

Alabama Arizona Alaska 

Arkansas California Colorado 

Florida Nevada Connecticut 

Georgia New Mexico Delaware 

Hawaii Dist. of Col. 

Louisiana Idaho 

Mississippi Illinois 

North Carolina Indiana 

Oklahoma Iowa 

South Carolina Kansas 

Tennessee Kentucky 

Texas Maine 

Maryland 

Massachusetts 

Michigan 

Minnesota 

Missouri 

Montana 

Nebraska 

New Hampshire 

New Jersey 

New York 

North Dakota 

Ohio 

Oregon 

Pennsylvania 

Rhode Island 

South Dakota 

Utah 

Vermont 

Virginia 

Washington 

West Virginia 

Wisconsin 

Wyoming 

* Italics indicate border state 

17-3 

EERE-2008-BT-STD-0006 COMMENT 51
 

DOE is also considering regional standards for residential furnaces — which is a separate 

rulemaking from CACHP — that would have two regions (North and South) for impact 

assessment purposes. 

The regional boundary for the states in the Furnaces rulemaking is approximately at the 

5,000 HDD line. The states included in each furnace rulemaking regions are listed in Table 

17.1.2. 

Table 17.1.2 States and Regions for Residential Furnaces Rulemaking* 

Furnaces-North Furnaces-South 

Alaska Alabama 

Colorado Arizona 

Connecticut Arkansas 

Idaho California 

Illinois Delaware 

Indiana Florida 

Iowa Georgia 

Kansas Hawaii 

Maine Kentucky 

Massachusetts Louisiana 

Michigan Maryland 

Minnesota Mississippi 

Missouri Nevada 

Montana New Mexico 

Nebraska North Carolina 

New Hampshire Oklahoma 

New Jersey South Carolina 

New York Tennessee 

North Dakota Texas 

Ohio Virginia 

Oregon 

Pennsylvania 

Rhode Island 

South Dakota 

Utah 

Vermont 

Washington 

West Virginia 

Wisconsin 

Wyoming 

* Italics indicate border state 

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EERE-2008-BT-STD-0006 COMMENT 51
 

 

 

 

 

 

17.1.2.1 Regional Standards vs. National Standard 

It is important to differentiate between the impacts of an amended national standard and 

the impact of introducing regional standards. The following sections do not assess the impact on 

market participants of more stringent energy conservation standards. Rather, this chapter focuses 

on the impacts on market participants in the HVAC distribution chain of having different 

standards affecting different geographic markets. For example, the impacts of physically larger 

HVAC units on distributors (due to a more stringent standard) are not discussed in this chapter 

because such an impact would occur under an increase in the base national standard as well. 

This chapter considers only the impacts of additional regional standards on these market 

participants. For example, the impact on a distributor of having to alter inventory systems to 

serve regions with differential efficiency levels is an impact that would be considered. 

Ultimately, DOE must determine whether regional standards are economically justified, after 

considering the impacts on market participants attributable to such standards. 

For firms located farther from the borders delineating applicability of the regional standards and 

serving only small areas, the impact of regional standards is expected to be very similar to the 

impact of a national energy conservation standard. However, firms located near the border 

between regions and serving two (or three, in the case of CACHP) regions are expected to be 

most strongly impacted because they may have to respond to different efficiency requirements 

for each region in which they operate. For example, distributors located near the border between 

standards regions may sell equipment meeting different standards in the different regions and 

need to carry more inventory or manage their inventory differently to meet the separate needs of 

customers in each region. Table 17.1.3 and Table 17.1.4 display the states on the borders of the 

CACHP and furnaces regions, respectively. 

Table 17.1.3 Border States by Region for CACHP Rulemaking 

CAC-CHP Hot-Humid CAC-CHP Hot-Dry CAC-CHP Rest of Country 

Arkansas Arizona Colorado 

North Carolina California Idaho 

Oklahoma Nevada Kansas 

Tennessee New Mexico Kentucky 

Texas Missouri 

Oregon 

Utah 

Virginia 

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EERE-2008-BT-STD-0006 COMMENT 51
 

Table 17.1.4 Border States by Region for Furnaces Rulemaking 

Furnaces North Furnaces South 

Colorado Arizona 

Idaho Arkansas 

Illinois California 

Indiana Delaware 

Kansas Kentucky 

Missouri Maryland 

New Jersey Nevada 

Ohio New Mexico 

Oregon Oklahoma 

Pennsylvania Tennessee 

Utah Virginia 

West Virginia 

17.1.3 Discussion of Non Enforcement vs. Enforcement Issues 

For the purposes of this chapter, DOE groups potential impacts of regional standards on 

market participants into two categories: (1) non-compliance issues and (2) compliance-related 

issues. Non-compliance issues are those that arise from regional standards regardless of the 

enforcement plan established by DOE. Compliance-related issues are those impacts that would 

vary depending on the enforcement path proposed by DOE (e.g., certification, verification, and 

labeling costs). 

At this stage, while DOE is considering various enforcement plans, no mechanisms or 

requirements are proposed here. As such, DOE does not attempt to quantify enforcement-related 

impacts in this chapter. EPCA requires DOE to begin an enforcement rulemaking not later than 

90 days after the issuance of a final rule establishing regional standards and complete the 

rulemaking not later than 15 months following the issuance of the rule. (42 U.S.C. 

6295(o)(6)(G)(ii)). 

17-6 

EERE-2008-BT-STD-0006 COMMENT 51
 

17.2 MARKET PARTICIPANTS 

17.2.1 Definition of Terms 

As discussed previously, EPCA directs DOE to consider the impacts of additional 

regional standards on market participants, including “distributors, dealers, contractors, and 

installers.” (42 U.S.C. 6295(o)(6)(D)(ii)) Based on DOE’s initial research and comments from 

stakeholders, some of the market participants enumerated in EPCA have overlapping or identical 

functions in the HVAC marketplace. Industry often uses the various terms interchangeably to 

describe the same market participant. Therefore, it is important to clarify what market roles are 

associated with each term for the purposes of this analysis. Below is a brief description of 

DOE’s understanding of each player in the distribution chain (for more detailed descriptions, 

refer to 17.3). 

17.2.1.1 Distributors 

Also known as ‘wholesalers,’ distributors purchase HVAC equipment directly from the 

original equipment manufacturers (OEMs). Distributors absorb short-term imbalances in supply 

and demand and sell equipment to contractors at a markup to cover operating expenses and 

profit. 

17.2.1.2 Contractors 

There are two basic types of contractors of relevance to the HVAC market: 

General contractors. In the new construction market, general contractors 

manage and oversee residential and commercial construction projects. General 

contractors often lack the necessary technical expertise to install and inspect 

HVAC systems. As a result, they hire HVAC trade specialists, or mechanical 

contractors, to install equipment. General contractors usually have no significant 

role in the residential replacement market, except for cases of major retrofits. 

Mechanical contractors. Mechanical contractors are specialized contractors that 

install and maintain HVAC systems, plumbing, wiring, etc. Mechanical 

contractors purchase HVAC systems from distributors and install them for their 

customers. Contractors often service existing HVAC systems as well. Again, in 

the new construction market, they are usually hired by general contractors. In the 

replacement market, they are hired by homeowners and are considered 

synonymous with dealers (below). 

17.2.1.3 Dealers 

Much like mechanical contractors, HVAC dealers purchase systems from distributors. 

Often they may have a more formal relationship with a manufacturer. Dealers resell the 

equipment to the end-user at a mark-up, nearly always installing the HVAC system as well. 

Dealers also inspect, maintain, and repair existing systems. 

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17.2.1.4 Installers 

The industry uses installers interchangeably with mechanical contractors and dealers. 

Because the HVAC market is very rarely a do-it-yourself market, DOE includes homeowners 

who install their own systems in this category. In general, the impact of regional standards on 

homeowners is assessed in the LCC analysis. 

17.2.1.5 Builders 

For the purposes of this chapter, builders serve the same function in the HVAC 

marketplace as general contractors. 

Given the above similarities and overlapping roles in the distribution chain, DOE 

believes that EPCA’s requirement to analyze the impacts on product distributors, dealers, 

contractors, and installers is satisfied by an analysis of the potential impact of regional standards 

on three categories of market participants: 

• Distributors 

• Mechanical contractors 

• General contractors 

The category of “mechanical contractors” includes dealers, mechanical contractors, and 

installers. The category of “general contractors” comprises builders and general contractors. In 

accordance with comments received and consistent with the markups analysis, DOE believes 

such a grouping is appropriate for this analysis and allows DOE to consider the economic impact 

of regional standards on the relevant market participants as required by EPCA. Impacts on 

manufacturers are assessed in the manufacturer impact analysis, while impacts on consumers are 

assessed in the life-cycle cost analysis. 

17.3 DISTRIBUTION CHAIN 

17.3.1 Overview 

A single distribution channel represents the vast majority of the HVAC market. Simply, 

the OEM assembles the system and sells it to a distributor; the distributor warehouses and sells 

the unit to a contractor; and the contractor sells the unit to the final consumer and performs the 

installation. The final consumer varies in the replacement and in the new construction market. 

In the replacement market, the final consumer is usually the home or business owner, as 

illustrated in Figure 17.3.1. In the new construction market, a builder or general contractor is 

effectively the final end-user, as shown in Figure 17.3.2. 

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Figure 17.3.1 Distribution Chain in Replacement Market 

Figure 17.3.2 Distribution Chain in New Construction Market 

After installation, mechanical contractors typically perform additional lifecycle service 

on the system, including inspection, maintenance, and repair. 

17.3.2 Vertical Integration 

In some cases, a single entity can perform one or more of the basic steps along the HVAC 

distribution channel. For example, most manufacturers own at least some distribution centers, 

which operate much like the independent distribution companies. In fact, all major manufacturers 

maintain at least some distribution capability in-house. In this distribution model, the OEM 

ships units to its own subsidiaries, which operate distribution centers and sell product to 

contractors. Manufacturers usually employ this strategy in areas where they have limited 

relationships with distributors for a given product line. 

Historically, the degree of vertical integration has ebbed and flowed with the economic 

well-being of the industry. In good times, OEMs have historically been more likely to acquire a 

distribution presence. Conversely, in bad times, they have been more likely to seek to shed the 

costs and risks associated with the distribution function. According to the U.S. Census Bureau, 

in 2002, 74 percent of HVAC sales went through independent distributors.1

 Currently, the 

percentage of the dollar value of HVACR products that go through independent distributors is 

estimated to be around 80 percent.2 

Lennox International Inc. (LII), a large equipment manufacturer, has one of the largest 

distribution presences in the industry. It owns several subsidiaries which operate as distributors 

and even as contractors, as is the case with LII subsidiary, Service Experts.3

 While Service 

Experts is a wholly owned subsidiary, it operates independently from LII’s manufacturing 

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operations. Service Experts carries heating and cooling equipment inventory and offers service 

for HVAC equipment from various manufacturers.4 

Importantly, while some entities may have a controlling interest over multiple steps in 

the distribution chain, the costs, markups, and business processes in the distribution chain 

ultimately remain relatively equivalent. That is, the distributor and contractor markups (and the 

resulting pricing) for the manufacturer-owned distributor and contractor businesses are roughly 

equivalent to the markups that occur where those businesses operate independently. 

The business models of distributors, contractors, and general contractors are described in 

greater detail below. 

17.3.3 Distributors 

17.3.3.1 Market Overview 

The HVAC distribution market is a well-established yet fragmented industry consisting 

of approximately 1,300 distribution companies. Independent distributors are responsible for the 

majority of the business in the industry, but all major manufacturers have some type of factoryowned distribution. The vast majority of independent distributors are small, private companies. 

In 2002, there were 5,468 total distribution branches, 5,156 of which were independent 

distribution branches and 312 of which were owned by manufacturers.5 

17.3.3.2 Distributor Business Model 

Distributors link the handful of CACHP/furnace manufacturers to the tens of thousands 

of contractors. Distributors receive shipments from manufacturers and resell the equipment to 

contractors at a markup that covers distributor operating expenses and profit. Manufacturers rely 

on distributors to consolidate and forecast product demand at the regional and local levels. 

Contractors rely on distributors to hold enough inventory and parts to meet their day-to-day 

business needs. As the only player along the distribution chain that holds significant inventory, 

distributors add value by absorbing short-term imbalances in supply and demand while still 

satisfying the needs of the homeowner (and, by extension, the contractor) for fast deliveries.6 

The distributor’s warehouse is usually the only stop for HVAC equipment on the way to the final 

installation site; however, in some markets distributors utilize regional distribution centers that 

supply secondary distribution warehouses. In either case, shipments are warehoused as 

distributor inventory until sold to customers. Although it can vary widely, typically sixty to 

seventy percent of revenue comes from unitary equipment, with the remainder coming from parts 

and other supplies. 

Distribution is a highly competitive and low-margin business. The critical driver of 

profitability is the ability to manage inventory efficiently. Traditionally, distributors tended to 

receive large-volume pre-season shipments from original equipment manufacturers (OEMs). 

However, the market has migrated away from that model as industry lead times (the time it takes 

to receive an order from the OEM) have fallen. Most distributors now operate in somewhat of a 

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blend between just-in-time supply and the traditional model. To streamline inventory 

management, distributors often conduct extensive demand forecasting to estimate the timing and 

quantity of their orders. Key factors include historical demand, new construction, OEM lead 

times, new products and lines, and weather patterns. The typical lead time of an average 

residential HVAC system is 2-3 weeks, although different parts or components, as well as more 

intricate HVAC systems, may have different lead times. Some of the more advanced coils, for 

example, can have lead times of 6-8 weeks. 

Financing and credit, closely related to inventory, play a critical role in the distribution 

business model. With the high working capital requirements due to inventory needs, short-term 

credit availability is the lifeblood of many small wholesalers. Distributors typically purchase 

equipment from manufacturers on credit, with the balance being paid within 30 days, often with 

discounts for early payment. Historically, OEMs have offered financing to their distributor 

clients, but have generally exited that business. Instead, most distributors now are financed 

through local banks. In turn, distributors often extend lines of credit to certain contractors based 

on the amount business volume, profitability of the relationship, and previous experience with 

the contractor. As a result, distributors incur the carrying costs associated with the difference 

between the financing terms that they receive from their creditors and the terms they extend to 

their contractor customers. Effectively, the distributor incurs as a cost the difference between 

these two rates over the period of time after the distributor pays the OEM for the unit and until it 

receives payment from the contractor. 

Because of this dynamic, a key financial metric driving profitability is days sales 

outstanding (DSOs), a measure of the number of days it takes a company to collect revenue after 

a sale has been made. DSOs in the industry average between 40-45 days; if they grow higher, 

the increased carrying costs can threaten the thin margins under which distributors operate. In 

extending credit to their customers, distributors also assume the risks involved with floating the 

receivables (i.e., the contractor goes out of business or otherwise fails to pay). 

Changes in market dynamics, which can lead to changes in the quantity and type of 

product demanded, may cause distributors to incur one-time costs associated with temporary 

increases in inventory, inventory obsolescence, or the opportunity costs represented by the 

failure to meet customer needs. Increased market uncertainty forces distributors to hold greaterthan-usual inventory to reduce the risk of not meeting customer needs.7

 Failure to do could mean 

losing customers to competition.8 However, if certain products do not sell, distributors absorb 

the costs of unsold inventory.9

 Typically, following an initial learning curve associated with 

these market changes, distributors adjust to their customers’ demands and are able to adjust 

inventory levels accordingly.10 

The increasing use of information technology in distribution has helped wholesalers 

adapt to market transitions. Sales and orders are usually made electronically at each step along 

the distribution chain. IT systems exist that allow distributors to forecast demand, source and 

purchase supplies, manage and track inventory, streamline the supply chain, and manage various 

sales channels.11 Many distributors give contractors the ability to place orders online after-hours 

so that the orders are ready for pickup the following morning, while others give some customers 

a direct link into a computer system for automatic inventory replenishment.12 

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At the distribution center, inventory is generally organized by model and 

SEER/HSPF/AFUE rating. Units are stacked vertically and, depending on their size, may be 

transported with forklifts. The layout of warehouse and placement of product affect order 

processing and inventory efficiency.13 It is important for distributors to organize inventory in a 

manner that minimizes the order cost and minimizes mistakes that lead to costly reprocessing. 

The average cost of processing an order, from receipt of the order until payment is received, is 

$35-$45.14 Cycle counts are performed frequently to minimize and document inventory 

shrinkage. 

Beyond the manufacturer selling price (cost of goods sold), the largest cost 

considerations are those that impact inventory and transportation costs. The size of an HVAC 

system impacts both. Larger, more efficient units require more warehouse space to inventory. 

The switch from 10 SEER to 13 SEER in 2006, for example, required 35-40% more floor space 

for every condensing unit.15 Fewer units can fit on trucks and forklifts, requiring more time per 

unit for transportation and handling, absent new and upgraded equipment.16 The larger units can 

require two people to offload them instead of one.17 

Manufacturer-to-Distributor Interactions 

The relationships between manufacturers and distributors are generally well-established, 

long-term relationships. In most markets, distributors are the exclusive carrier of a given 

manufacturer product. Distributors will often carry a second brand from the same manufacturer, 

which has a different price point targeting a second market segment. 

Most manufacturers will not allow distributors to carry products from a competitor, 

unless the manufacturer does not offer a product applicable to the market. In that case, 

distributors may partner with a second manufacturer. However, the terms of agreements can 

vary significantly depending on a wide range of factors, including sales volume, the extent of 

contractor relationships, strength of the brand in the area, and projected market growth. If a 

distributor carries a product line, it also has the parts business associated with that line. 

Manufacturers are generally responsible for getting the equipment to distributors’ 

warehouses and incur the associated costs, which they embed in their prices. Manufacturers 

usually hire a shipping company to transport the equipment and pass on these costs to the 

distributors in the sales price. Almost all inbound freight shipped to distributors is shipped FOB 

Origin Freight Prepaid, which means that once the manufacturer ships the freight, the distributor 

owns it.18 This can lead to problems when items are damaged or broken upon arrival, 

representing another risk in the distributor business model.19 

Distributor-to-Contractor Interactions 

Because there is relatively low manufacturer brand loyalty among consumer end-users, 

distributors compete actively over contractor customers. While OEMs focus on general brand 

awareness and product demand, distributors are frequently involved in providing multifunctional support to their contractors. To increase competitiveness and revenues, distributors 

are increasingly offering value-added services, such as business planning help, financial 

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management classes, and support for advertising, to their contractor customers beyond their 

supply function. This is also a strategy for increasing profitability—a contractor that is 

unprofitable cannot pay the distributor in a timely fashion, if at all. Thus, successful distributors 

are heavily invested in their contractors’ success.20 

In the vast majority of cases, contractors purchase the unit over the counter at the 

distributor’s warehouse. Because most contractors do not carry much or any inventory, the 

transaction will include a specific unit needed for a single job. The contractor can generally callin, order online, or fax in an order and go pick up the needed unit on the same day. At the 

warehouse, the distributor loads the unit onto the contractor’s truck (some distributors have 

“drive through” warehouses) and contractor can be on the way to the job site in minutes. While 

business is primarily done in this over-the-counter model, distributors also make onsite deliveries 

for their customers. 

17.3.4 Contractors 

17.3.4.1 Market Overview 

The HVAC contractor market is even more fragmented than the distribution industry. 

There are 36,345 HVAC branches that specialize 51 percent or more in HVAC, 25,496 of which 

specialize entirely in the industry.21 The large majority of contractors operate as small 

businesses, as defined by the U.S. Small Business Association (see Section 17.7 for more 

information on small business contractors). Partly due to the very low barriers to entry in the 

market, the industry has resisted consolidation. Approximately 60 percent of branches in the 

industry generate less than $500,000 in revenue annually and 76 percent generate less than 

$1,000,000 annually.22 Comfort Systems USA is the larger of two public HVAC contractor 

companies that DOE was able to find. Its 2008 revenues ($1,328,465,00023) accounted for 

approximately 3 percent of the $49,425,445,00024 HVAC contractor industry (although the 

company does provide ancillary services).25 Most independent contractors work with a variety 

of HVAC brands, although some specialize in one particular brand, or have a relationship as a 

licensed dealer of a specific manufacturer. 

17.3.4.2 Business Model 

HVAC contractors primarily install and service HVAC systems. Contractors are the 

interface with the end-users, installing new HVAC systems to their specifications as well as 

inspecting, servicing, or repairing existing systems. Contractors must balance two very different 

aspects of their business to be successful. First, contractors must fulfill the technical role of 

installing and servicing the HVAC systems. This requires a staff that is knowledgeable about 

HVAC principles in general and adept at installation and service on many different HVAC units. 

Second, contractors must also operate the commercial aspects of their business. Because of the 

high level of competition, advertising, customer service, and sales skills are integral aspects of 

the contractor’s business. Rarely do HVAC companies achieve sufficient scale to have staff 

specialize in a single business practice. 

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Contractors have the largest influence on which system a consumer will purchase.26 For 

their part, contractors tend to gravitate toward the products with which they are familiar.27 

Contractors often employ a good-better-best selling philosophy to up-sell consumers on premium 

products.28 The minimum SEER model is a “good” system; there is a “better” system that is 

rated a few SEER points higher; and finally, there is a “best” system which has a very high 

SEER rating.29 A sample good-better-best set of systems might be 13 SEER-16 SEER-20 SEER; 

however, this is dependent on minimum efficiency requirements.30 Customers are more likely 

than they used to be to purchase energy-efficient and environmentally friendly products, in spite 

of the higher cost associated with them, because they have become more sensitive to the 

environment and the cost of energy.31 Increasing tax credits and utility rebates can defray some 

of the higher incremental first cost as well. 

While some contractors have exclusive relationships with manufacturers, most compete 

by offering a large variety of product offerings and by being trained to install, inspect, service, 

and repair those offerings. As with distributors, the size and weight of HVAC systems affect the 

business of contractors. While the vast majority of inventory is held by distributors, some 

contractors do carry a small amount of inventory and could be likewise affected by larger units. 

Larger systems are also more difficult to transport from the distributor to the job site, possibly 

even requiring special precautions or equipment to load or unload the unit in extreme cases. 

A contractor’s labor costs related to the installation and service of HVAC systems remain 

relatively constant regardless of the HVAC systems that the company installs and services. 32 

Once the technicians are trained, the time spent installing an HVAC unit does not vary greatly 

from system to system.33 

17.3.5 General Contractor 

17.3.5.1 Market Overview 

As discussed above, for the purposes of this chapter and consistent with comments 

received DOE considers general contractors and homebuilders to have essentially the same role 

in the distribution chain. Thus, DOE believes the two will have similar concerns and face similar 

potential impacts from regional standards. As with mechanical contractors, the general contractor 

and builder market is highly fragmented and localized. According to the U.S. Census, there 

were more than 200,000 general contractor establishments in 2002.34 

17.3.5.2 Business Model 

General contractors manage new construction and significant renovation projects. When 

supervising a project, the general contractor hires a mechanical contractor to perform the 

installation. In this situation, the general contractor functions as the final step in the distribution 

chain. The general contractor may purchase the HVAC system from the distributor and hire the 

mechanical contractor to it or purchase the system from the installing mechanical contractor. 

When projects are larger—a townhouse development, for example—a distributor may seek to 

establish a supplying relationship with the general contractor and deliver the units in bulk. The 

general contractor would then hire a mechanical contractor to perform the installation. For a 

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custom-built home or renovation, the mechanical contractor may purchase the unit to the 

specifications requested by the general contractor. 

17.3.6 Retailers 

Retailers such as Home Depot, Lowe’s and Sears can also be involved in the distribution 

process. However, DOE’s understanding of these retailers is that they function mostly as a leadgenerating system for contractors, as the HVAC market is very rarely a do-it-yourself market. 

When the so-called “Big Box” retailers are involved, customers go to a retailer and ask to be put 

into contact with a contractor. A distributor usually still supplies a contractor, who still performs 

the installation. In the end, the costs and markups reflect those in the standard distribution 

model. Furthermore, DOE believes this reflects a small portion of overall unit sales. Therefore, 

for the purposes of this analysis, DOE does not consider the role of retailers in this analysis. 

17.4 DISCUSSION OF REGIONAL STANDARD IMPACTS 

Through public notices, public meetings, and interviews with industry trade groups, DOE 

has solicited comments on the impact of regional standards on CACHP and Furnace industry 

participants. This chapter discusses DOE’s understanding of the potential impacts on key 

players in the distribution chain. 

As noted in Section 17.1.2.1, it is important to differentiate the difference between the 

impacts of a higher base national standard and of regional standards. The following sections do 

not assess the impact on market participants of an increase in the base national efficiency 

standard. Rather, this chapter focuses on the impacts of having different standards affecting 

different geographic markets. 

The impacts of regional standards are separated here into two categories: nonenforcement issues and enforcement issues. Non-enforcement issues are those issues that arise 

irrespective of the actions taken to enforce the regional standards. Enforcement issues are those 

impacts and costs that are directly related to ensuring compliance or that arise from noncompliance. Because DOE has not established an enforcement plan for regional standards, DOE 

is not able to capture any enforcement impacts in this analysis. 

17.4.1 Distributor Impacts 

Non-enforcement Issues for Distributors 

In written comments and at the CACHP framework public meeting, Heating Air 

conditioning & Refrigeration Distributors International (HARDI) raised several concerns 

regarding the implementation of regional standards and the potential impact of those standards 

on their businesses. Their concerns center largely on the premise that there will be differences 

between regional standard boundaries and existing distribution boundaries. 

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HARDI noted that EPCA requires regional boundaries to be drawn along state lines, 

which are usually different from the market boundaries for central air conditioners, heat pumps, 

and furnaces. Existing market boundaries are determined by multiple factors, including utility 

service areas, composition of building types within an area, natural climatic regions, and 

localized microclimates. HARDI identified a range of negative impacts resulting from the 

incongruence of regional standards boundaries and existing distribution boundaries (HARDI, No. 

32 at pp. 5-6): 

• Increased costs due to increased inventory complexity 

• Increased costs due to lost economies of scale in purchasing 

• Reduced sales where cooling or heating demands are modest 

• Constraints on business growth near borders 

Based on its analysis and research, DOE believes that distributors that serve multiple 

regions will be impacted by additional (i.e., differentiated) regional standards. Distributors 

serving markets entirely within a single region will not experience non-enforcement impacts 

distinguishable from a national amended energy conservation standard. 

DOE understands there to be two types of distributors that will serve multiple standard 

regions and could be affected by the differentiated regional standards: (1) central distributors 

shipping to local distributors in multiple regions and (2) local distributors selling to contractors 

in multiple regions. In general, distributors located near borders are more likely to serve 

multiple standard regions 

DOE agrees that distributors serving multiple standard regions may be compelled to 

manage more variation in demand. Under a national standard, distributors could expect the bulk 

of demand to be at the base national level (e.g., 13 SEER for CACHP). Under regional 

standards, however, distributors near boundaries may experience bimodal demand, with the one 

large portion of shipments at the national standard efficiency level (e.g., 13 SEER) and a second 

large portion at a different regional efficiency level (e.g., 14 SEER). DOE believes that this 

bimodal demand does not signify a doubling of necessary inventory, but rather a more diverse 

inventory. The resulting change in product mix for distributors serving multiple regions could 

increase inventory management costs and increase overall investment in inventory, because more 

product models of equipment are required to meet demand. 

In Section 17.5.1, DOE performs a sensitivity analysis that investigates the impact of 

regional standards on inventory holdings and profitability. The analysis estimates a reasonable 

range of inventory increases based on industry data and then calculates the impact of those 

inventory changes on distributor profitability based on sample distributor financials. In general, 

the analysis finds that only small inventories changes would be required for distributors to meet 

product demand for multiple regions. Additionally, the sensitivity analysis finds the potential 

changes in inventory to have only small impacts on distributor profitability. See Section 17.5.1.3 

for more details. 

Another concern for the industry is that, with a wider variation in product, the number of 

particular product models purchased will be smaller, leading to fewer volume discounts. Along 

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the same vein, national and regional distributors stated that they would face decreases in 

economies of scale due to the smaller size of regional markets. (HARDI, No. 2 at p. 2) 

Specifically, if certain products could not be sold throughout the entire country, then the cost of 

those products would be driven up. (HARDI, No. 2 at p. 2) 

In response, DOE analyzes the impact of regional standards in reducing economies of 

scale for manufacturers and leading to higher cost of goods sold for all distributors (including 

those not serving multiple regions) in its markups and national impacts analyses for both 

CACHP and furnaces. The analysis assumes that those costs are passed on down the distribution 

chain to contractors and consumers. DOE will perform additional investigation on the cost 

impacts of smaller orders on distributors through interviews with manufacturers during the MIA 

process. 

Distributors also noted that sales in areas where cooling demands are more modest would 

likely be depressed since high-efficiency cooling equipment would not be as well justified. 

(HARDI, No. 32 at 4) These comments address the issues of elasticity of demand and the 

question of how customers “roll-up” or “shift” to different efficiency levels based on the 

economics they face, given a climate. In this respect, greater uncertainty about prospective sales 

is a not a function of having different standards by region, but simply having higher standards. 

The fact that cooling and heating demand varies by location is not exacerbated by regional 

standards. The question over the new efficiency distribution for each CACHP and furnace 

distributor is the same under national and regional standards. Optimizing inventory for the new 

demand distribution will be part of the transition cost in either standards case. 

In sum, DOE does expect the transition due to amended standards to inject uncertainty 

into the market, which could temporarily cause distributors to incur higher costs. However, 

DOE believes these costs are associated with a change in standards, not the advent of additional 

regional standards. 

Enforcement Issues for Distributors 

DOE understands that many distributors do business in more than one region. 

Furthermore, the contractors to whom these distributors sell often do business in more than one 

region. In light of these facts, it may be necessary for DOE to work with participants in the 

distribution chain to document the installation of CACHP and furnace units. If such reporting is 

used to support enforcement, it is possible that distributors will incur new compliance costs as a 

result additional record-keeping and reporting related to the regional standards. This would add 

some percentage to administrative labor costs of distribution channel participants, some of which 

could vary with the number of units sold and some of which could be fixed. Any additional 

costs would be incorporated in this analysis of the impacts of regional standards. 

At this time, however, DOE is not able to accurately assess impacts of compliance 

requirements on distributors. In the Preliminary Analysis for CACHP and in this chapter, DOE 

requests comment on appropriate measures for enforcement of regional standards for CACHP 

and furnaces. 

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17.4.2 Contractor Impacts 

Non-enforcement Issues for Contractors 

Air-Conditioning Contractors of America (ACCA) commented that larger units would 

cause higher transport and handling costs and, in many cases, would not fit in the residential 

space that housed the previous unit. (ACCA, Public Meeting Transcript, No. 23 at p. 252) 

In response, DOE notes that this issue is a function of higher standards, not differential 

regional standards. As such, problems with larger units are not considered in this chapter. To 

the extent that regional standards affect cost of goods sold, above and beyond a national 

standard, DOE expects incorporate that effect in its normal markups analysis. DOE is unaware 

of any other contractor concerns with regional standards that do not involve enforcement issues. 

Enforcement Issues for Contractors 

ACCA and HARDI stated that regional standards will increase non-compliance and 

would create a major competitive disadvantage for contractors that seek to comply. (ACCA, No. 

23 at p. 2; HARDI, No. 32 at p. 5) HARDI argued that this situation already exists in California 

after implementation of Title 24 requirements. Kent & O’Connor stated that splitting a 

metropolitan area with regional standards would have a significant competitive impact, 

particularly if a price difference exists between the higher regional efficiency and the national 

standard units. (Kent & O’Connor, No. 13 at p. 231) 

As with distributors, in general DOE believes that contractors near regional borders could 

potentially be impacted by enforcement-related competitive issues surrounding differential 

regions. DOE acknowledges that non-compliance can be a problem for contractors following the 

codes and licensing requirements, as there is an incentive for non-compliance in the form of 

being able to offer unknowing homeowners a lower price point for HVAC service. DOE 

recognizes that along border regions, differential standards could exacerbate this disadvantage 

for complying contractors, particularly if the price difference between the regional-compliant 

products is significant. 

DOE acknowledges that depending on the enforcement mechanisms put in place 

following a DOE rulemaking, contractors may incur additional administrative compliance costs 

associated with regional standards, including recording keeping or verification costs. However, 

as noted above, at this point DOE cannot accurately assess any impacts of compliance due to 

regional standards because no enforcement mechanisms and compliance requirements have yet 

been established. DOE seeks comment on potential compliance and enforcement options for 

regional standards. 

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17.4.3 General Contractor Impacts 

Non-enforcement Issues for General Contractors 

DOE received no comments on any non-enforcement related regional standard impacts 

on builders and general contractors, and is not aware of any impacts. DOE seeks comment on 

any non-enforcement impacts these market players may encounter under regional standards. 

Enforcement Issues for General Contractors 

The National Association of Home Builders (NAHB) commented that a general 

contractor usually will not have any special HVAC expertise. Therefore, if regional standards 

are implemented, a builder is likely to use more time and effort double-checking that units are 

compliant. The extra cost of this effort should be included in the payback analysis, the 

cumulative regulatory burden, the employment impact analysis, and the regulatory impact 

analysis. NAHB also commented that regional standards would affect home builders, most of 

which are small businesses; as such, a regulatory flexibility analysis would be necessary. 

(NAHB, No. 21 at pp. 1, 2) 

DOE recognizes that there may be impacts on general contractors operating in two 

different regions. For instance, DOE believes general contractors working on projects near 

regional standard borders may experience greater risk of mistakenly installing non-compliant 

systems—or hiring contractors who do so—and consequently incur greater cost under regional 

standards than they would under a single national standard. Although DOE expects this impact 

to be short run in nature as contractors adjust to the new standards, DOE seeks comment on the 

likelihood of this and other impacts due to operating in multiple regions. 

17.5 ANALYSIS OF REGIONAL STANDARD IMPACTS 

The focus of this section is the impact of regional standards on distributors, particularly 

those operating near boundary regions. DOE attempts to quantify the financial implications of 

imposing different efficiency standards in multiple geographic regions. As previously noted, 

until DOE has further developed the enforcement plan for regional standards, it is not possible to 

provide detailed analysis of enforcement impacts. Two primary analyses are presented here: 

•	 Analysis of inventory cost impacts under regional standards and the consequent 

impacts on profitability for CACHP and Furnaces Distributors 

•	 Preliminary Markups Analysis on Distributors and Contractors 

The inventory and profitability cost impact analysis provides a framework for 

understanding the magnitude of inventory changes that may result from regional standards and 

the impact of those cost changes on distributor profitability. As discussed in 17.3.3, DOE 

believes the key driver of distributor profitability is inventory. Therefore, this quantitative 

analysis only addresses changes in inventory costs. 

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The second analysis investigates the impact of regional standards on product markups. 

The analysis considers the impact of regional standards on product markups far from the border 

region and near the border region. For states where there will likely be a change in distributors’ 

product mix, the analysis anticipates what the new mix will be and analyzes markups in parts of 

the country that currently have that anticipated product mix. 

17.5.1 Profitability Analysis of Regional Standard Impacts 

The following analysis provides guidance on the potential impacts of regional standards 

on profitability for distributors serving more than one standard region. The analysis has two 

components. First, the change in inventory resulting from regional standards is calculated for a 

distributor serving two regions. Second, the impact of changes in inventory holdings on 

distributor profitability is calculated. The analysis is based on an example firm’s financial data, 

which is modeled after actual distributor data from HARDI. 

In general, DOE believes distributors operating in a single standard region will not see 

any inventory impacts that are different from the impacts resulting from a change in the national 

standard. However, distributors operating in multiple regions or that are near a border may have 

to adjust to business impacts that are unique to the introduction of multiple standard regions. 

This analysis finds that the inventory impacts resulting from regional standards are likely to be 

mild. A prototypical distributor that sells to two regions is modeled to have an increase in 

inventory of less than 2 percent. The resulting impact on distributor profitability is also mild at 

the expected levels of inventory change. 

17.5.1.1 Data Sources 

This analysis of the profitability impacts of distributors relies on three sources of 

information: Heating, Air conditioning and Refrigeration Distributors International 2009 Profit 

Report (2008 Data), 2002 Economic Census, and 2007 County Business Patterns. The 

following information can be obtained from these sources: 

•	 Number of firms; total and population-weighted average sales; total and average 

employment; and firm size distribution by revenue (2002 Economic Census and 2007 

County Business Patterns). 

These values are reported for the Nation and by State. It is possible to calculate these 

values for each of the regions affected by the standard (Hot-Humid, Hot-dry, and Rest of 

Country) and for each of the 17 states that borders these regions. 

•	 Number of small businesses as defined by the Small Business Administration (SBA). 

The SBA maximum threshold to qualify as a “small business” for NAICS 42373 is one 

hundred employees. In 2002, out of 2,773 firms with 5,942 individual establishments 

nation-wide, only five firms (0.2%) had one hundred or more employees. The nationallevel data shows that the distributors are overwhelmingly small businesses. Data is not 

available at the regional level, but regional analysis would be unlikely to show a different 

result. 

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EERE-2008-BT-STD-0006 COMMENT 51
 

•	 Typical cost structure and profitability (HARDI data, 2002 Census). Variation among 

firm sizes and types (HARDI data). 

The annual HARDI reports have detailed cost structure data for typical firms, including 

pro-forma income statements and balance sheets (see sample data in Table 17.5.1and Table 

17.1.1). Data related to costs and potential markups are available at the national level and for 

seven geographic regions. The HARDI geographic regions do not match with the rule-making 

regions. However, it is possible to assign the typical income statements to firms in each state in 

the HARDI regions and then develop weighted-average balance sheets for each rule-making 

region. 

Economic Census data is not as financially detailed but has greater geographic 

specificity. It is used to indicate variation of profitability around the regional averages, and 

whether border state establishments are significantly different than the regional average. 

To see how the impact of additional standards is calculated with an estimate of additional 

inventories, consider the model of a “typical” distributor in the Southeastern United States shown 

in Table 17.5.1. 

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Table 17.5.1 Typical Southeastern Wholesaler Assets, Liabilities, and Profitability 

Profit Margin Asset Turnover 

Profit before Taxes $457,467 Total Assets $9,842,389 

Net Sales $24,077,230 Net Sales $24,077,230 

Ratio 1.9% 2.45 

Income Statement Profit Before Taxes Assets Breakdown 

Cash and Marketable 

Net Sales $24,077,230 Securities $125,202 

Cost of Goods Sold $17,793,073 Accounts Receivable $2,783,329 

Gross Margin $6,284,157 Inventory $5,287,361 

Operating Expenses $5,874,844 Other $1,435,003 

Operating Profit $409,313 Total $9,630,895 

Other Income/Expenses $48,154 

Profit Before Taxes $457,467 

Financial Leverage Return on Net Worth 

Total Assets 

Total Net Worth 

$9,630,895 

$5,065,851 

Ratio 1.90 9.0% 

Original % of Asset 

Value Original Liabilities Modified Liabilities 

$2,224,736.75 

 $587,485 

 $760,841 

$3,573,062 

 $991,982 

 $4,565,044 

$5,065,851 

Accounts Payable 

Notes Payable 

Other Current 

Liabilities

Total Current Liabilities 

Long-Term Liabilities 

Total Liabilities 

Net Worth 

23.1% 

6.1%

 7.9% 

37.1% 

10.3% 

47.4%

52.6%

$2,224,737 

 $587,485

$760,841

$3,573,062 

$991,982

 $4,565,044

 $5,065,851 

SOURCE: HARDI Profit Report 2009 

The values in the shaded cells in Table 17.5.1 can be changed in percentage terms to 

estimate the sensitivity of profitability, as defined by return on net worth. Data are not currently 

available to perform comparable calculations on the costs of record-keeping and reporting 

activities (changes in operating expenses). 

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17.5.1.2 Sample Inventory Calculation for Southeastern Border CACHP Wholesaler 

A simple illustrative example follows in which a Southeastern border wholesaler 

financially looks like the typical firm in Table 17.5.1. The wholesaler makes half of its sales in 

its home region (Hot-Humid Region) and half in a different region (Rest of Country). The 

example border wholesaler is assumed to have the following characteristics: 

•	 Sales to dealers and contractors average 200 units a week, 100 in each region. 

•	 Sales of different efficiency products have the same approximate distribution as the 

national sales of split-system air conditioners. 

•	 Sales at each efficiency level follow a Poisson statistical distribution. 

•	 The wholesaler orders monthly from the manufacturer and keeps enough inventories on 

hand to meet quarterly sales forecasts. 

Based on Table 17.5.1, known manufacturer costs, and wholesale markups for CAC and 

CHP equipment, the assumed 200 units per week is close to the sales of a “typical” HARDI 

wholesaler in the southeastern United States in 2008. Based on HARDI information, an average 

order cycle of 4 weeks and forecast period of 14 weeks are reasonable. The average lead time 

from placement of order to receiving units for inventory is about 5.1 weeks. Wholesale markup 

factors are 1.37 and estimated delivered cost of a unit of inventory is $1,200. These values are 

consistent with observations that complete units constitute 70% of sales, that average stock 

turnover is 3.6 times per year, and the values of sales and inventories in Table 17.5.1. Sales are 

distributed as follows by efficiency level based on approximate national sales of split-system air 

conditioners (numerical results are somewhat affected by the percentages, but the general 

takeaway does not change with a different efficiency mix): 

•	 SEER 13: 81.0% 

•	 SEER 14: 6.0% 

•	 SEER 15: 5.0% 

•	 SEER 16: 5.0% 

•	 SEER 18 (above 16): 3.0% 

Sales at each efficiency level follow a Poisson statistical distribution. This distribution is 

commonly used in applied statistics to characterize the probability and number of comparatively 

rare observed events (for example, purchase of air conditioning units by a household) that occur 

in repeated samples (for example, weekly totals of sales). It is used frequently in studies of 

inventory and other logistics problems. A convenient attribute of a Poisson distribution is that the 

variance of the distribution equals its mean and therefore its standard deviation equals the square 

root of the mean. 

The wholesaler orders monthly from the manufacturer and keeps enough inventories on 

hand to meet quarterly sales forecasts. Because sales vary week to-week, the wholesaler’s 

“standard of service” is that it always carries enough inventory to meet a level of quarterly sales 

of any of its offered products at least two standard deviations above the mean, plus 1 unit. This 

gives the wholesaler a 98% chance of meeting any order. 

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Four cases showing different shifts in demand for CAC and CHP equipment are 

considered, driven by a SEER 14 minimum efficiency standard. 

•	 Case 1: SEER 14 is imposed in both regions. The result is a “rollup” of demand, which 

shifts all SEER 13 demand to SEER 14 without affecting weekly demand for SEER 15, 

16, or 18. SEER 14 sales change from 5 percent to 86 percent of sales in both regions 

after the shift. SEER 15, 16, and 18 sales are unaffected 

•	 Case 2: SEER 14 is imposed only in the Hot-Humid Region, while SEER 13 remains the 

standard in the Rest of Country region. The impact on demand is a “rollup” but only in 

the Hot-Humid region. 

•	 Case 3: Same as Case 1, but the percentages of sales at levels above SEER 14 are 

significantly affected (efficiency distribution shift). The average distribution in both 

regions after the SEER 14 standard is imposed are: 

o	 SEER 13: 0.0% 

o	 SEER 14: 49.0% 

o	 SEER 15: 23.0% 

o	 SEER 16: 15.0% 

o	 SEER 18: 13.0% 

•	 Case 4: Same as Case 3, but the new after-standard sales percentage percentages apply 

only in the Hot-Humid region. 

The results of this analysis for these four cases are shown in Table 17.5.2. 

Table 17.5.2 Border Wholesaler Required Inventory 

Scenario No. Units in Inventory 

Base Case 3380 

Case 1 3355 

Case 2 3400 

Case 3 3400 

Case 4 3425 

Impact of Regional Standards on Value of Inventories 

Rollup (Case 2 / Case 1) 1.3 % Increase 

Shift (Case 4 / Case 3) 0.7 % Increase 

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The base case scenario shows the inventory holdings required if there are no changes in 

the efficiency standard. The wholesaler must hold 3380 units in inventory in order to meet the 

“standard of service” conditions of the model. 

Case 1 shows the impact of a single national standard with a rollup scenario. In this case, 

SEER 13 units are no longer sold, and it is no longer necessary to stock them. There is some 

compensating increase in inventory for SEER 14 units, but the overall inventory service is 

simpler and the inventory stock drops. 

 Case 2 corresponds to a regional standard with a rollup scenario. It is still necessary for 

the border wholesaler to stock slightly more than half as many SEER 13 units as before to serve 

the Rest of Country, although these units can no longer be sold in the Hot-Humid region. In 

addition, more SEER 14 inventory must be carried to serve both regions. The net difference of 

Case 1 from the Base Case is 0.7 percent less inventory in this example due to the savings of 

SEER 13 inventory; however, Case 2 (regional standard) requires about 1.3 percent more 

inventory than Case 1 (national standard). 

Case 3 corresponds to a single national standard with a market shift scenario. The 

national standard in Case 3 spreads the increases in sales of efficient equipment over several 

efficiency levels that previously had low sales, so the overall required inventories go up slightly 

compared with the Base Case (about 0.6 percent). 

Case 4 corresponds to a regional standard with a market shift scenario. This case requires 

0.7 percent more inventory than Case 3. 

17.5.1.3 CACHP Profitability Calculation 

The increases in required physical units of inventory thus appear to be on the order of 1 

to 2 percent higher for a regional standard than with a national standard for distributors serving 

two regions. Table 17.5.3 and Table 17.5.4 present the modeled impacts of these inventory 

changes on ‘profit as a percentage of total sales’ and on ‘return on net worth,’ respectively. The 

tables also present the impacts of changes in inventory changes that are twice as large (4 percent 

increase) and five times as large (10 percent increase) to demonstrate the sensitivity of 

profitability to such changes. 

The values in Table 17.5.3 and Table 17.5.4 are derived from the model in Table 17.5.1 by 

assuming increases to inventory and the associated increase in interest expense necessary to 

finance that additional working capital. Additionally, for illustrative purposes, DOE applied a 

range of interest rates for the capital required to finance the additional inventory. 

Table 17.5.3 indicates that the impacts of additional inventory on profitability are not 

observable at one percent and two percent inventory change, except at the highest modeled 

interest rates. Table 17.5.3 also indicates that an inventory increase of 10 percent financed at 12 

percent interest could reduce pretax margins by approximately 20 basis points, a decline of 

approximately 10 percent. 

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Table 17.5.3 Profitability Impacts of CACHP Inventory Cost Increases 

Profit before Taxes (% of Sales) 

% Change in Inventory 

Interest Rate for Inventory 0% 1% 2% 4% 10% 

6% 1.9% 1.9% 1.9% 1.8% 1.8% 

8% 1.9% 1.9% 1.9% 1.8% 1.7%

10% 1.9% 1.9% 1.9% 1.8% 1.7%

12% 1.9% 1.9% 1.8% 1.8% 1.7%

 Table 17.5.4 shows the impact of inventory changes on distributor Return on Net Worth, 

which is calculated as pretax profit divided by net worth, where net worth equals assets less 

liabilities. At the expected one to two percent inventory change, impacts on return on net worth 

are again small. However, the impacts could be significant for distributors with high borrowing 

costs and where there are significantly higher inventory requirements. 

Table 17.5.4 Return on Net Worth Impacts of CACHP Inventory Cost Increases 

Return on Net Worth 

% Change in Inventory 

Interest Rate for Inventory 0% 1% 2% 4% 10% 

6% 9.0% 9.0% 8.9% 8.8% 8.4% 

8% 9.0% 8.9% 8.9% 8.7% 8.2%

10% 9.0% 8.9% 8.8% 8.6% 8.0%

12% 9.0% 8.9% 8.8% 8.5% 7.5%

17.5.1.4 Sample Furnace Inventory Calculation for Border Wholesalers 

Following the methodology above, it is possible to estimate changes in Furnace inventory 

in the border region resulting from both national and regional standards based on HARDI 

financial data. As shown in Table 17.5.5, this approach suggests that a regional standard will not 

significantly increase Furnace inventories. 

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Table 17.5.5 Number of Units of Inventory of Furnaces in the Border Region 

Base Case National Standard 

Case 

Regional Standard 

Case 

Condensing 852 1667 1667 

Non-Condensing 2476 1667 1667 

Total 3328 3334 3334 

Source: HARDI Profit Report 2009 , “Regional Analysis” distributors 

As the standard increases beyond 80% AFUE, there is a significant change in the inventory 

ratio of condensing to non-condensing furnace units. However, the introduction of regional 

standards does not require inventories that are different from a national standard. 

17.5.1.5 Furnace Profitability Calculation 

DOE conducted an additional sensitivity analysis of the impact of a change in 

distributors’ inventory needs. Based on Table 17.6.16 and Table 17.6.17, DOE estimated the 

financial expenditure and profit figures for furnace distributors operating in border states. Then, 

following the process outlined in Section 17.5.1.3 “CACHP Profitability Calculation,” the 

impact of inventory changes on firm profitability (measured as pretax income/sales and return on 

net worth) are examined at a range of interest rates. 

 Table 17.5.6 and Table 17.5.7 provide detailed estimates of the distributor profitability 

impact of inventory cost changes. Generally, this analysis suggests that carrying a slightly larger 

inventory may slightly decrease firm pre-tax profits and return on net worth in the short run. 

Table 17.5.6 Profitability Sensitivity Analysis for Furnaces in Border States 

Pretax Income (% of Sales) 

% Change in Inventory 

Interest Rate for Inventory 0% 1% 2% 4% 10% 

6% 1.7% 1.7% 1.7% 1.7% 1.6% 

8% 1.7% 1.7% 1.7% 1.7% 1.6%

10% 1.7% 1.7% 1.7% 1.6% 1.5%

12% 1.7% 1.7% 1.7% 1.6% 1.5%

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Table 17.5.7 Return on Net Worth Analysis for Furnaces in Border States 

Return on Net Worth 

% Change in Inventory 

Interest Rate for Inventory 0% 1% 2% 4% 10% 

6% 12.9% 12.8% 12.7% 12.6% 12.1% 

8% 12.9% 12.8% 12.7% 12.5% 11.8%

10% 12.9% 12.8% 12.6% 12.4% 11.5%

12% 12.9% 12.7% 12.6% 12.3% 11.3%

17.5.2	 Preliminary Analysis of the Impacts of Regional Standards on Furnace and CACHP 

markups 

17.5.2.1 Furnace Markups 

During the 2007 Furnace rulemaking, DOE proposed two regional standards for furnaces, 

divided between north and south. The Northern region represents those states with average HDD 

greater or equal to 5,000 and southern region represents those states with average HDD less than 

5,000. In the preliminary analysis, distributors and contractors in the furnace industry are divided 

into north, south and border region subgroups. The impact of regional standards is expected to be 

stronger on distributors and contractors located close to the border region than on firms located 

far from the border region. Thus, for the purpose of addressing the impact of differentiated 

regional standards, we focus on the change in markups to firms located (1) far from the border 

and (2) near the border. 

17.5.2.2 Firm Markups Far From the Border Region 

In the section, DOE analyzes how markups might change for firms located far from border 

regions. DOE first addresses such firms in the northern region and then looks at those in the 

southern region. According to a report published by Energy Center of Wisconsin in 1997, the 

percentage of high efficiency furnaces sold in Wisconsin was approximately 70% of all units 

1996.a

 The historical data from GAMA 2005 also supports this statement, indicating that 

Wisconsin has the highest average saturation rate of condensing furnaces in the country.b

 Since 

high efficiency furnaces currently dominate the Wisconsin market to a degree expected in the 

rest of the Northern Region following regional standards, markups in Wisconsin are used to 

predict markups in the rest of the Northern region. Table 17.5.8 below compares the weighted 

average baseline markup in the Northern region and in Wisconsin. 

a

 For this report, high efficiency furnace has an AFUE of at least 90%. 

b

 In GAMA report, condensing furnace is defined as those having an AFUE of at least 88%. 

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Table 17.5.8 Northern Region Markups 

Region Distributor 

Markup 

Mechanical Contractor 

Markup 

General Contractor 

Markup 

Northern Region 1.38 1.36 1.21 

Wisconsin 1.37 1.33 1.16 

Source: HARDI Profit Report 1999, 2002, 2005, 2008, 2009, “Regional Analysis” distributors and 2002 US 

Economic Census 

The average baseline markup in Wisconsin is lower than the baseline markup in the 

Northern region for distributors, mechanical contractors and general contractors. DOE assumes 

that Wisconsin has completed a transition from providing a mix of low and high efficiency 

furnaces in the past to providing primarily high efficiency furnaces today. As a result, 

Wisconsin firms have lower markups than firms in other Northern states. Assuming a future 

regional standard that requires high-efficiency furnaces in the north like those that exist in 

Wisconsin, DOE expects that all firms in the Northern region will have inventories and markups 

similar to those currently in Wisconsin. 

In Southern States, high efficiency furnaces are not as widely used as in Northern states. 

The condensing furnace saturation rate in the South already reaches 14% and this saturation rate 

is not expected to change after regional standards take effect.35 Thus, higher standards in the 

South are not expected to have a significant impact on firm inventories or markups in that region. 

Here Oklahoma is used as a reference case; 15% of the furnaces sold in Oklahoma are 

condensing furnaces, similar to the expected saturation of the South after regional standards take 

effect. Table 17.5.9 summarizes the results: 

Table 17.5.9 Southern Region Markups 

Region Distributor 

Markup 

Mechanical Contractor 

Markup 

General Contractor 

Markup 

Southern Region 1.35 1.35 1.24 

Oklahoma 1.35 1.35 1.24 

 Source: HARDI Profit Report 2008, “Regional Analysis” distributors and 2002 US Economic Census 

As shown above, there is currently no difference between markups in Oklahoma and the 

rest of the Southern region. This implies that regional standards are not likely to impose 

significant impacts on the Southern region because the existing mixture of condensing and noncondensing furnaces already sufficiently reflects the steady state of long run impact. 

We conclude that the regional standards will not greatly impact firms located in far from 

the border region. In both the Northern and Southern regions, this analysis indicates that 

standards will not require higher inventories and therefore are not likely to bring about changes 

in markups. 

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17.5.2.3 Border Region Markups 

Under regional standards, distributors located near the border between standards regions 

may have to sell equipment meeting different standards in the two regions and need to carry 

more inventories or manage their inventory differently to meet the separate needs of customers in 

each region. DOE highlights these impacts by assuming that firms located in the border region 

of each State have sales, inventories, and markup practices similar to those of firms in the rest of 

that State. 

Based on the data below, DOE assumes most of the firms in the northern part of the border 

region already maintain a mix of more high efficiency and less low efficiency furnaces, so 

regional standards are unlikely to impose any additional changes on inventory costs to these 

firms. Saturation rates of condensing furnaces in the Northern border region from GAMA Report 

2005 (Table 17.5.10) show that the sale of condensing furnaces in these States increased 

noticeably from 1997 to 2003. Therefore, the current markups in this region could be considered 

as the upper bound of the future markups because of the possible simplification of inventories 

resulting from regional standards. Only firms in the southern part of the border region are likely 

to be significantly affected by the standards. These firms currently sell mostly low efficiency 

furnaces and new regional standards could force them to carry a mix of more high efficiency (to 

serve their cross-border market) and fewer low efficiency furnaces, as shown in Table 17.5.11. 

As a result, they may incur higher inventory costs from storing more high efficiency furnaces. 

Table 17.5.10 Saturation Rate of Condensing Furnaces in the Northern Border Region 

State 1997 1998 1999 2000 2001 2002 2003 

PA 45.26% 46.79% 43.20% 45.54% 49.12% 50.45% 55.28% 

IN 25.69% 28.60% 27.51% 29.61% 35.83% 35.29% 44.87% 

IL 27.40% 26.91% 26.96% 23.71% 32.23% 32.50% 36.15% 

UT 30.41% 27.57% 26.68% 25.99% 29.93% 27.43% 28.24% 

KS 24.12% 23.64% 21.87% 23.86% 32.90% 26.11% 29.59% 

NJ 23.15% 25.11% 26.91% 23.52% 28.42% 31.96% 40.68% 

ID 22.14% 22.53% 23.90% 25.58% 30.18% 30.85% 35.58% 

OR 21.95% 22.18% 21.11% 20.88% 26.96% 27.04% 28.45% 

MO 27.63% 29.28% 29.11% 28.65% 4.11% 2.85% 2.46% 

CO 9.74% 9.07% 9.96% 9.70% 14.43% 15.96% 21.77% 

Source: GAMA Report 2005 

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Table 17.5.11 Saturation Rate of Condensing Furnaces in the Southern Border Region 

State 1997 1998 1999 2000 2001 2002 2003 

KY 34.00% 32.73% 32.09% 34.17% 39.86% 39.05% 46.72% 

AZ 8.73% 9.55% 8.33% 9.14% 10.71% 15.27% 15.67% 

CA 9.27% 6.34% 6.08% 6.33% 11.14% 11.19% 12.04% 

OK 4.55% 5.49% 6.91% 6.55% 10.09% 9.21% 10.39% 

NV 7.36% 5.45% 6.09% 5.12% 6.57% 10.45% 12.32% 

AR 5.21% 2.97% 2.77% 3.01% 4.86% 5.36% 6.27% 

NM 4.82% 2.86% 3.13% 1.77% 2.61% 3.18% 5.14% 

Source: GAMA Report 2005 

Table 17.5.12 Border Region Markups 

Region Distributor 

Markup 

Mechanical Contractor 

Markup 

General Contractor 

Markup 

Northern part of the 

border region 

1.38 1.36 1.21 

Southern part of the 

border region 

1.35 1.35 1.24 

Average border region 1.36 1.36 1.27 

Source: HARDI Profit Report 1999, 2002, 2005, 2008, 2009, “Regional Analysis” distributors and 2002 US 

Economic Census 

The average border region markups shown in Table 17.5.12 are the weighted average 

markups using the fractions of distributors and contractors located in the metropolitan areas 

within the designed border region in each border state. The numbers shown here reflect existing 

markups instead of predicted markups; however, the differences with northern border region 

markups and southern border regional markups provide a sense of what the potential impact will 

be in these two sub-border regions respectively. Based on the analysis above, markups in the 

Northern part of the border region are expected to remain the same as the rest of the current 

Northern region markups in the short run. As for the Southern part of the border region, markups 

are expected to increase due to higher inventory costs from having to serve a greater mix of 

product. In the long run, markups in both parts of the border are expected to converge to one 

single border markup. Markups in the Northern part of the border may stay at the current upper 

bound level or slightly decrease to the level that meets the long-term southern border region 

markups due to the possible product simplification in the North. Thus, the future border region 

markups are predicted to be bounded between current northern border markups and southern 

border markups. 

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17.5.2.4 Central Air Conditioners and Heat Pumps 

In the CACHP rulemaking, DOE described potential regional standards for three climatic 

regions: Hot-Humid, Hot-Dry and Rest of the country. Theoretically, an analogical method 

similar to that used for furnaces above could be adopted for CACHP. However, DOE lacks the 

regional CACHP efficiency data needed to conduct that analysis. DOE calculated regional 

markups for distributors, mechanical contractors and general contractors in the CACHP market, 

and the results are summarized in Table 17.5.13. DOE requests comment on how these markets 

will change for regional standards. 

Table 17.5.13 Central Air Conditioner and Heat Pump Markups 

Region Distributor 

Markup 

Mechanical Contractor 

Markup 

General Contractor 

Markup 

Hot-Humid 1.33 1.34 1.24 

Hot-Dry 1.37 1.37 1.22 

Rest of the country 1.37 1.36 1.23 

Source: HARDI Profit Report 1999, 2002, 2005, 2008, 2009, “Regional Analysis” distributors and 2002 US 

Economic Census 

17.6 ADDITIONAL DISTRIBUTOR DATA 

Tables detailing the number of establishments, total and average sales, and total and 

average employment (2002 Economic Census) follow for each region. Sample distributors data 

are shown in Table 17.6.16. Please note that the basis for the count of establishments and all 

other associated data concepts is based on self-reporting for the Economic Census, while there is 

some reliance on administrative records for County Business patterns. Thus these two data 

sources may report different values for the same data concept in the same year. For example, the 

Census Bureau notes that: “some large companies report different activities at the same location 

as separate profit centers. The County Business Patterns program treats each profit center as a 

separate establishment. The 2002 Economic Census may combine the profit centers into one 

establishment. This results in establishment count differences.” Thus, data for the number of 

establishments, employment per establishment, and payroll in Table 17.6.4 do not necessarily 

match those in Table 17.6.13 for 2002. Similar comparability issues arise in other tables where 

Economic Census and County Business Patterns data overlap. 

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Table 17.6.1 Distributor Enterprise Statistics for Hot-Humid Region (2002) 

Region Number of 

Establishments* 

Total Sales 

($1,000) 

Sales per 

Establishment 

($1,000) 

Total 

Employment 

Average 

Employment 

per 

Establishment 

Hot-Humid 

Region 

1,608 8,727,826 5,428 17,284 10.7 

Border States 916 6,528,439 7,127 11,762 12.8 

Texas 472 3,503,698 7,423 5,144 10.9 

Oklahoma 79 N/A N/A N/A N/A 

Arkansas 61 821,723 13,471 610 10.0 

Tennessee 152 1,422,277 9,357 4,042 26.6 

North Carolina 231 780,741 3,380 1,966 8.5 

*Because Alabama, Georgia and Oklahoma are incomplete data sets, they have been excluded from the total count of 

establishments. 

SOURCE: 2002 Economic Census 

Table 17.6.2 Distributor Enterprise Statistics for Hot-Dry Region (2002) 

Region Number of 

Establishments 

Total Sales 

($1,000) 

Sales per 

Establishment 

($1,000) 

Total 

Employment 

Average 

Employment 

per 

Establishment 

Hot-Dry 

region 

556 2,415,481 4,344 5,502 9.9 

Border 

States 

556 2,415,481 4,344 5,502 9.9 

Arizona 94 475,254 5,056 1,168 12.4 

California 391 1,707,447 4,367 3,777 9.7 

Nevada 46 172,035 3,740 430 9.3 

New 

Mexico 

25 60,745 2,430 127 5.1 

SOURCE: 2002 Economic Census 

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Table 17.6.3 Distributor Enterprise Statistics for Rest of Country (2002) 

Region Number of 

Establishments* 

Total Sales 

($1,000) 

Sales per 

Establishment 

($1,000) 

Total 

Employment 

Average 

Employment 

per 

Establishment 

Rest of 

Country 

2,480 9,669,627 3,899 24,504 9.9 

Border 

States 

615 2,807,946 4,566 6,362 10.3 

Colorado 75 466,041 6,214 804 10.7 

Idaho 30 63,920 2,131 180 6.0 

Kansas 47 163,282 3,474 541 11.5 

Kentucky 87 364,016 4,184 1,045 12.0 

Missouri 122 709,542 5,816 1,407 11.5 

Oregon 50 354,704 7,094 562 11.2 

Utah 48 170,744 3,557 492 10.3 

Virginia 156 515,697 3,306 1,331 8.5 

*Because Iowa, Massachusetts, New Jersey, New Hampshire, North Dakota, and Rhode Island are incomplete data sets, they 

have been excluded from the total count of establishments. 

SOURCE: 2002 Economic Census 

17-34 

EERE-2008-BT-STD-0006 COMMENT 51
 

 

 

 

Table 17.6.4 Establishments, Employment, and Payroll Trends in Hot-Humid Region 

Region Number of 

Establishments* 

Employment per 

Establishment 

Payroll per 

Establishment 

($1,000) 

2002 2007 2002 2007 2002 2007 

Hot-Humid 

Region 

2,057 2,017 11 10 461 502 

Border States 1,007 1,032 13 10 570 552 

 Texas 532 498 12 12 550 674 

 Oklahoma 94 77 7 6 277 266 

 Arkansas 55 78 N/A 7 N/A 307 

 Tennessee 145 166 27 11 1,177 575 

North 

Carolina 

236 213 9 8 361 443 

*Because Arkansas is an incomplete data set, it has been excluded from the total count of establishments 

Table 17.6.5 Establishments, Employment, and Payroll Trends in Hot-Dry Region 

Region Number of 

Establishments* 

Employment per 

Establishment 

Payroll per 

Establishment 

($1,000) 

2002 2007 2002 2007 2002 2007 

Hot-Dry region 544 545 10.1 11.9 508 636 

Border States 544 545 10.1 11.9 508 636 

Arizona 88 93 13.2 12.8 603 701 

California 415 387 9.5 10.9 493 608 

Nevada 41 43 10.1 21.8 463 835 

New Mexico 24 22 N/A 6.7 N/A 452 

*Because New Mexico is an incomplete data set, it has been excluded from the total count of establishments 

17-35 

EERE-2008-BT-STD-0006 COMMENT 51
 

 

Table 17.6.6 Establishments, Employment, and Payroll Trends in Rest of Country 

Region 

Number of 

Establishments* 

Employment per 

Establishment 

Payroll per 

Establishment 

($1,000) 

2002 2007 2002 2007 2002 2007 

Rest of 

Country 

2857 2851 10.1 10.2 499 574 

Border States 657 606 10.1 10.8 470 577 

Colorado 83 70 10.9 10.7 537 614 

Idaho 31 24 6.6 8.8 237 164 

Kansas 56 56 10.8 12.0 508 434 

Kentucky 110 86 11.5 12.8 470 659 

Missouri 121 129 11.1 10.2 603 616 

Oregon 56 47 11.3 14.3 526 715 

Utah 42 48 9.5 11.9 439 573 

Virginia 158 146 8.1 8.7 352 432 

*Because Iowa, Massachusetts, New Jersey, New Hampshire, North Dakota, and Rhode Island are incomplete data sets, they 

have been excluded from the total count of establishments. 

Cost structure and profitability for distributors vary among the regions as shown in Table 17.6.7 

through Table 17.6.12 are derived from 2008 HARDI data. Variation also occurs within the 

regions among subareas, e.g. border states (2002 Census), as illustrated in Table 17.6.13 through 

Table 17.6.15. 

17-36 

EERE-2008-BT-STD-0006 COMMENT 51
 

 

   

Table 17.6.7 Income Statement Items, Typical CACHP Distributors, Hot–Humid Region 

Income Statement 

Net Sales $21,818,352 

Cost of Goods Sold $16,094,671 

Gross Margin $5,723,681 

Operating Expenses $5,343,678 

Operating Profit $380,003 

Other Income/Expenses $109,092 

Profit Before Taxes $378,185 

Profit as a % of Sales 1.7% 

SOURCE: HARDI Data 

Table 17.6.8 Balance Sheet, Typical CACHP Distributors, Hot-Humid Region 

Assets Liabilities 

Cash $130,254 Accounts Payable $1,670,615 

Accounts Receivable $2,423,599 Notes Payable $1,036,908 

Inventory $4,854,516 Other Current Liabilities $633,707 

Other $162,451 Total Current Liabilities $3,341,230 

Total $8,781,157 Long-Term Liabilities $717,860 

Total Liabilities $4,059,090 

Net Worth $4,722,067 

Profit as a % of Net Worth 8.0% 

SOURCE: HARDI Data 

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EERE-2008-BT-STD-0006 COMMENT 51
 

 

   

Table 17.6.9 Income Statement Items, Typical CACHP Distributors, Hot–Dry Region 

Income Statement 

Net Sales $16,811,857 

Cost of Goods Sold $12,085,323 

Gross Margin $4,726,533 

Operating Expenses $4,309,599 

Operating Profit $466,529 

Other Income/Expenses $109,757 

Profit Before Taxes $416,093 

Profit as a % of Sales 2.5% 

SOURCE: HARDI Data 

Table 17.6.10 Balance Sheet, Typical CACHP Distributors, Hot-Dry Region 

Assets Liabilities 

Cash $219,485 Accounts Payable $835,161 

Accounts Receivable $1,666,602 Notes Payable $1,225,771 

Inventory $3,731,253 Other Current Liabilities $308,768 

Other $182,285 Total Current Liabilities $2,369,699 

Total $7,440,186 Long-Term Liabilities $370,149 

Total Liabilities $2,739,849 

Net Worth $4,700,338 

Profit as a % of Net Worth 8.9% 

SOURCE: HARDI Data 

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EERE-2008-BT-STD-0006 COMMENT 51
 

 

   

Table 17.6.11 Income Statement Items, Typical CACHP Distributors, Rest of Country 

Income Statement 

Net Sales $28,362,901 

Cost of Goods Sold $20,506,377 

Gross Margin $7,856,524 

Operating Expenses $7,005,637 

Operating Profit $703,400 

Other Income/Expenses $198,540 

Profit Before Taxes $650,726 

Profit as a % of Sales 2.29% 

SOURCE: HARDI Data 

Table 17.6.12 Balance Sheet, Typical CACHP Distributors, Rest of Country 

Assets Liabilities 

Cash $208,790 Accounts Payable $1,391,081 

Accounts Receivable $2,913,118 Notes Payable $1,153,316 

Inventory $5,488,196 Other Current Liabilities $725,794 

Other $208,790 Total Current Liabilities $3,121,908 

Total $9,942,383 Long-Term Liabilities $60,648,537 

Total Liabilities $3,728,394 

Net Worth $6,213,989 

Profit as a % of Net Worth 10.472% 

SOURCE: HARDI Data 

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EERE-2008-BT-STD-0006 COMMENT 51
 

 

Table 17.6.13 Revenue and Cost Items, Typical CACHP Distributors, Hot-Humid Region 

and Border States 

Region Average Sales 

per 

Establishment 

($1,000) 

Average 

Payroll 

Costs 

($1,000) 

Average 

Operating 

Costs 

($1,000) 

Average 

Inventory 

($1,000) 

Hot-Humid Region 5,428 453 822 545 

Border States 7,127 553 1,035 664 

 Texas 7,423 496 982 584 

 Oklahoma N/A N/A N/A N/A

 Arkansas 13,471 396 663 300 

 Tennessee 9,357 1,112 2,077 1,528 

 North Carolina 3,380 342 557 352 

*Because Alabama, Georgia and Oklahoma are incomplete data sets, they have been excluded from the total count of 

establishments. 

SOURCE: Economic Census Data 

Table 17.6.14 Revenue and Cost Items, Typical CACHP Distributors, Hot-Dry Region and 

Border States 

Region Average 

Sales per 

Establishment 

($1,000) 

Average 

Payroll 

Costs 

($1,000) 

Average 

Operating 

Costs 

($1,000) 

Average 

Inventory 

($1,000) 

Hot-Dry region 4,344 483 810 520 

Border States 4,344 483 810 520 

Arizona 5,056 548 875 774 

California 4,367 490 837 478 

Nevada 3,740 409 687 467 

New Mexico 2,430 252 365 307 

SOURCE: Economic Census Data 

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EERE-2008-BT-STD-0006 COMMENT 51
 

Table 17.6.15 Revenue and Cost Items, Typical CACHP Distributors, Rest of Country 

Region and Border States 

Region Average 

Sales per 

Establishment 

($1,000) 

Average 

Payroll 

Costs 

($1,000) 

Average 

Operating 

Costs 

($1,000) 

Average 

Inventory 

($1,000) 

Rest of Country 3,899 450 755 437 

Border States 4,566 456 781 460 

Colorado 6,214 514 1,003 477 

Idaho 2,131 225 428 259 

Kansas 3,474 537 801 344 

Kentucky 4,184 435 721 365 

Missouri 5,816 614 1,018 640 

Oregon 7,094 478 854 664 

Utah 3,557 448 675 416 

Virginia 3,306 330 591 437 

*Because District of Columbia, Iowa, Massachusetts, Minnesota, New Jersey, New Hampshire, North Dakota, and Rhode Island 

are incomplete data sets, they have been excluded from the total count of establishments. 

SOURCE: Economic Census Data 

17-41 

EERE-2008-BT-STD-0006 COMMENT 51
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 17.6.16 Distributor Financial Data by HARDI Region for 2009 

South South 

North Eastern Mid-Atlantic Eastern Great Lakes Central Western Western 

Number of Firms Reporting 8 16 10 19 27 8 6 

Typical Sales Volume $19,851,509 $42,068,508 $24,077,238 $20,107,850 $28,362,901 $17,946,312 $16,762,766 

Sales Change (2007-2008) -0.60% -0.10% -2.60% 1.20% 0.50% 0.20% -3.70% 

Strategic Profit Model Ratios 

Profit Margin 1.00% 1.60% 1.90% 2.20% 3.10% 1.10% 3.10% 

Asset Turnover 2.9 3 2.5 2.5 2.4 2.6 2.2 

Return on Assets 2.90% 4.80% 4.70% 5.50% 7.40% 2.90% 6.80% 

Financial Leverage 2.3 2.2 1.9 2.1 1.6 1.9 1.5 

Return on Net Worth 6.70% 10.60% 8.00% 11.50% 11.80% 5.50% 10.20% 

Income Statement 

Net Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 

Cost of Goods Sold 70.3 73.9 73.9 72.2 72.3 74.3 70.7 

Gross Margin 29.7 26.1 26.1 27.8 27.7 25.7 29.3 

Payroll Expenses 

Executive Salaries & Bonuses 2.1 1.5 2.1 2.1 2.1 2.2 1.8 

Branch Manager Salaries & 

Bonuses 1.3 1.1 1.2 1.3 1.3 1.8 1.4 

Sales Executive Salaries & 

Commissions 0.8 0.5 0 0.3 0.3 0.9 0.5 

Outside Sales Salaries & 

Commissions 2.7 2.1 2.3 2.3 2.3 1.8 1.7 

Inside/Counter Sales Wages 2.1 2.5 2.9 2.8 2.6 2.2 2.9 

Purchasing Salaries/Wages 0.5 0.4 0.5 0.4 0.5 0.5 0.6 

Credit Salaries/Wages 0.3 0.2 0.1 0.1 0.2 0.2 0.2 

IT Salaries/Wages 0 0.2 0 0.1 0.2 0.1 0.2 

Warehouse Salaries/Wages 2.3 1.4 2.1 1.6 1.3 1.5 1.7 

Accounting Salaries/Wages 0.6 0.4 0.6 0.4 0.6 0.4 0.7 

Delivery Salaries/Wages 1.1 1.2 0.7 0.7 0.8 0.8 1 

All Other Salaries/Wages & 

Bonuses 0.8 0.9 0.6 0.8 0.6 0.7 0.5 

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EERE-2008-BT-STD-0006 COMMENT 51
 

 

 

 

 

 

 

 

 

 

 

 Total Salaries, Wages, 

Bonuses 14.6 12.6 13.1 12.9 12.8 13.1 13.2 

Payroll Taxes (FICA, unemp., 

workers' comp.) 1.5 1 1.2 1.1 1.1 1 1.1 

Group Insurance (medical, 

hospitalization, etc.) 1.2 1.5 1.1 1.2 1.1 1 1.2 

Benefit Plans (profit sharing, 

pension, etc.) 1 0.4 0.3 0.3 0.7 0.3 0.5 

Total Payroll Expenses 18.3 15.3 15.7 15.5 15.7 15.4 16 

Occupancy Expenses 

Utilities (heat, light, power, 

water) 0.5 0.4 0.4 0.5 0.4 0.4 0.4 

Telephone 0.3 0.3 0.4 0.4 0.3 0.3 0.5 

Building Repairs & 

Maintenance 0.3 0.2 0.2 0.4 0.2 0.2 0.2 

Rent or Ownership I Real 

Estate 2.6 2.6 2.3 2.6 2.6 2.4 3.1 

Total Occupancy 

Expenses 3.7 3.5 3.3 3.9 3.5 3.3 4.2 

Other Operating Expenses 

Sales Expenses 1.1 0.4 0.5 1 1 0.5 1 

Insurance 0.1 0.2 0.3 0.2 0.2 0.2 0.2 

Depreciation 0.5 0.3 0.2 0.4 0.3 0.3 0.3 

Vehicle Expenses 1.9 1.3 1.2 1.3 1.2 1.4 1.3 

Personal Property 

Taxes/Licenses 0.1 0.1 0.1 0.1 0.1 0.4 0.2 

Collection Expenses 0.2 0.2 0.2 0.3 0.2 0.3 0.6 

Bad Debit Losses 0.8 0.5 0.5 0.3 0.4 0.5 0.6 

Data Processing 0.1 0.1 0.2 0.3 0.1 0.2 0.3 

Employee Training 0.1 0 0.1 0.1 0 0 0 

All Other Operating Expenses 1.5 2.4 2.1 1.7 2 1.8 1.2 

Total Other Operating 

Expenses 6.4 5.5 5.4 5.7 5.5 5.6 5.7 

Total Operating Expenses 28.4 24.3 24.4 25.1 24.7 24.3 25.9 

Operating Profit 1.3 1.8 1.7 2.7 3 1.4 3.4 

Other Income 0.7 0.4 0.6 0.85 0.7 0.3 0.6 

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EERE-2008-BT-STD-0006 COMMENT 51
Interest Expense 0.7 0.6 0.4 0.9 0.6 0.6 0.9 

Other Non-operating Expenses 0 0 0 0.41 0 0 0 

Profit Before Taxes &
 

Discretionary Bonuses 1.3 1.6 1.9 2.2 3.1 1.1 3.1 

Owners' & Officers' 

Discretionary Bonus 0.3 0 0 0 0 0 0 

Profit Before Taxes 1.00% 1.60% 1.90% 2.20% 3.10% 1.10% 3.10% 

Source: HARDI Profit Report 2009 

17-44 

EERE-2008-BT-STD-0006 COMMENT 51
Table 17.6.17 Geographic Area Series, Hardware, Plumbing, and Heating Equipment 

Merchant Wholesalers 

State Number of 

establishments 

Sales 

($1,000) 

Annual 

payroll 

($1,000) 

Operating 

expenses 

($1,000) 

Beginning 

of Year 

Inventory 

($1,000) 

Alabama 306 1,223,718 126,231 219,926 163,992 

Alaska 31 184,756 18,121 30,881 17,215 

Arizona 344 1,555,529 144,201 262,373 207,328 

Arkansas 169 1,577,287 68,528 112,045 91,665 

California 2,093 9,770,865 1,035,007 1,859,068 1,255,661 

Colorado 322 1,593,598 158,231 279,359 163,671 

Connecticut 241 1,238,563 159,154 279,517 109,123 

Florida 1,280 3,918,873 421,244 760,139 578,251 

Hawaii 73 206,004 23,882 44,417 24,540 

Idaho 102 219,215 23,060 45,551 29,404 

Illinois 938 5,750,240 546,503 982,350 711,919 

Indiana 414 3,396,118 208,166 357,442 230,198 

Iowa 183 559,770 72,145 126,079 90,495 

Kentucky 211 738,568 81,571 141,007 72,962 

Louisiana 255 620,835 77,327 133,347 71,160 

Maine 78 280,267 33,846 50,711 36,874 

Maryland 343 1,440,771 175,311 300,946 157,414 

Massachusetts 418 1,626,690 230,519 372,701 205,585 

Michigan 624 2,455,784 307,000 554,638 346,760 

Minnesota 353 1,730,533 188,264 320,040 206,794 

Mississippi 142 290,404 32,238 53,345 33,450 

Missouri 373 1,904,740 190,634 342,332 204,189 

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EERE-2008-BT-STD-0006 COMMENT 51
Montana 60 188,933 22,151 37,160 25,178 

Nebraska 135 476,152 55,311 91,961 62,781 

Nevada 143 581,330 63,655 112,143 76,965 

New Mexico 97 222,570 24,992 40,809 26,685 

New York 1,150 3,890,419 477,194 827,149 490,905 

North Carolina 653 2,529,035 275,455 519,139 339,490 

North Dakota 51 246,502 19,359 33,087 29,214 

Ohio 797 3,506,149 411,644 772,598 470,068 

Oklahoma 259 1,811,538 114,841 163,518 89,065 

Oregon 232 1,024,631 95,172 179,566 103,318 

Pennsylvania 830 3,013,246 377,209 662,680 387,216 

Rhode Island 65 553,057 39,277 119,343 71,139 

South Carolina 275 1,469,195 105,672 218,044 150,214 

South Dakota 62 187,376 22,113 37,867 31,395 

Tennessee 379 2,315,179 275,360 482,817 285,502 

Texas 1,470 6,923,744 627,464 1,151,278 729,352 

Utah 172 659,361 75,092 122,588 56,829 

Vermont 43 145,259 15,814 31,678 22,770 

Virginia 444 1,696,293 173,599 334,708 184,142 

Washington 443 1,630,891 181,491 306,265 199,740 

West Virginia 90 216,126 23,579 42,842 30,321 

Wisconsin 349 2,175,191 199,934 380,668 233,187 

Wyoming 23 34,617 3,355 6,475 3,018 

Source: 2002 U.S. Economic Census, Geographic Area Series, Hardware, Plumbing & Heating Equipment & Supply Merchant 

Wholesalers 

17-46 

EERE-2008-BT-STD-0006 COMMENT 51
 

 

17.7 ADDITIONAL CONTRACTOR DATA 

The analysis of general and mechanical contractors relies on the 2002 Economic Census 

and 2007 County Business Patterns as sources of information. As discussed previously, general 

contractors and mechanical contractors have different roles in the distribution channels for CAC 

and CHP equipment. Data is reported separately for general contractors and for mechanical 

contractors so that the economic impact of regional efficiency standards and their enforcement 

can be better judged for each contractor type. The following information can be obtained from 

these sources: 

•	 Total and average sales, total and average employment (2002 Census of Business and 

County Business Patterns). 

No industry-published equivalent of the HARDI data appears to exist for 

dealers/contractors/installers. These values are reported for the 2002 Economic Census 

and 2007 County Business Patterns for 2007 for the Nation, each region (Hot-Humid, 

Hot-dry, and Rest of Country), and for each of the 17 states that lie on the border of one 

region with another. 

Data from the 2002 Economic Census includes all plumbing, heating, and airconditioning contractors. The total industry accounted for $118,740,885,000 of business 

in 2002, of which $49,425,445,000 was attributed to the HVAC contractor subsector.36 

Data from the entire plumbing, heating, and air-conditioning contractors industry was 

used, as the 2002 Economic Census provided state-level data for this industry but not for 

the HVAC contractor subsector. The 2002 Economic Census state-level data for all of 

the construction industry (NAICS 2-digit level) shows, among other things, which states’ 

construction industry sales are in other states as compared with the home state 

(construction in Kentucky by Ohio construction establishments). This data is used to 

indicate where cross-border sales are important for the three CAC analysis regions. 

•	 Number of small businesses (SBA definition and size distribution). 

The SBA definition of small business defines $33.5 million in annual sales as the 

maximum for building contractors (both residential and commercial, which together are 

the general contractors of interest for CAC and CHP rulemaking) and $14 million in 

annual sales as the maximum for plumbing, heating, and A/C contractors. Among 

general contractors’ residential construction establishments counted nationally by the 

Census Bureau in 2002, only 3,648 establishments out of the total of 171,652 (2.1%) had 

more than $10 million in sales, one-third of the small business cutoff value. Residential 

builders are overwhelmingly small businesses. Among commercial builders, the figures 

are 4,415 out of 37,208 (11.9%) with sales more than $10 million. Clearly, commercial 

contractors also are predominantly small businesses, although not by as large a margin as 

residential construction firms. Mechanical contractors have a lower small business sales 

cutoff value, but nationally in 2002, only 1,832 out 87,501 mechanical contractors (2.1%) 

had sales of at least $10 million. As with general contractors, it is clear from the 

national-level data that the mechanical contractor sector is overwhelming composed of 

17-47 

EERE-2008-BT-STD-0006 COMMENT 51
small businesses. Regional analysis of this question is not possible, but it is also 

unnecessary, as DOE expects the same results. 

• Cost structure and profitability (2002 Census). 

The 2002 Economic Census provides some detail on the cost structure of construction 

firms, although in less detail than that provided by the HARDI data for wholesale 

distributors. Air Conditioning Contractors of America 2005 publication Financial 

Analysis for the HVACR Contracting Industry is another source for financial data for 

contractors that is less detailed than the 2002 Economic Census. The Economic Census 

data includes sales (value of business, value of construction work, net value of 

construction work), employment, payroll, costs of materials, costs of subcontractors, total 

rental costs, capital expenditures excluding land, and total value of assets. This data 

allows a rough computation of the profitability of construction firms (general and 

mechanical contractors) at the regional level, which can be compared with the more 

detailed industry data at the national level (see U.S. Census Bureau, 2002: Plumbing, 

Heating, and Air-Conditioning Contractors: 2002. Report EC02-231-238220, Table 4, 

Detailed Statistics for Establishments: 2002 and Commercial and Institutional Building 

Construction: 2002. Report EC02-231-236220, Table 4, Detailed Statistics for 

Establishments: 2002). Geographic Series data on NAICS subsectors do not include 

costs of selected purchased services and do not include depreciation. Profits cannot be 

computed directly. 

Selected basic supporting data is shown inTable 17.6.17. Selected data for General 

Contractors is shown in Table 17.7.4. 

17-48 

EERE-2008-BT-STD-0006 COMMENT 51
 

 

 

 

Table 17.7.1 Revenue and Cost Items, Typical CACHP Mechanical Contractors, HotHumid Region 

Region Average Value 

of Construction 

Work per 

Establishment 

($1,000) 

Average 

Payroll 

Costs 

($1,000) 

Cost of 

materials, 

components 

and Fuels 

Operating 

Costs 

($1,000) 

Cost of Work 

Subcontracted 

Out 

($1,000) 

Rental Costs 

($) 

End of 

Year 

Gross 

Value of 

Assets 

($1,000) 

Hot-Humid 

Region 

1212 355 437 121 20 171 

Border 

States 

1253 373 452 122 20 174 

 Texas 1426 434 511 143 22 182 

 Oklahoma 783 222 295 67 12 117 

 Arkansas 765 201 292 63 13 137 

 Tennessee 1674 468 618 147 27 231 

North

 Carolina 

1085 334 379 114 19 166 

SOURCE: Economic Census Data 

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EERE-2008-BT-STD-0006 COMMENT 51
 

 

 

Table 17.7.2 Revenue and Cost Items, Typical CACHP Mechanical Contractors, Hot-Dry 

Region 

Region Average Value 

of Construction 

Work per 

Establishment 

($1,000) 

Average 

Payroll 

Costs 

($1,000) 

Cost of 

materials, 

components 

and Fuels 

Operating 

Costs 

($1,000) 

Cost of Work 

Subcontracted 

Out 

($1,000) 

Rental Costs 

($) 

End of 

Year 

Gross 

Value of 

Assets 

($1,000) 

Hot-Dry 

region 

1614 496 540 146 28 190 

Border 

States 

1614 496 540 146 28 190 

Arizona 1297 387 514 94 23 180 

California 1698 529 553 161 30 197 

Nevada 2195 653 705 157 34 184 

New Mexico 908 247 320 85 14 135 

SOURCE: Economic Census Data 

17-50 

EERE-2008-BT-STD-0006 COMMENT 51
 

 

 

Table 17.7.3 Revenue and Cost Items, Typical CACHP Mechanical Contractors, Rest of 

Country 

Region Average Value 

of Construction 

Work per 

Establishment 

($1,000) 

Average 

Payroll 

Costs 

($1,000) 

Cost of 

materials, 

components 

and Fuels 

Operating 

Costs 

($1,000) 

Cost of Work 

Subcontracted 

Out 

($1,000) 

Rental Costs 

($) 

End of 

Year 

Gross 

Value of 

Assets 

($1,000) 

Rest of 

Country 

1367 421 439 152 22 168 

Border 

States 

1231 386 430 122 19 159 

Colorado 1168 374 408 117 20 138 

Idaho 920 287 356 80 15 116 

Kansas 1269 380 447 160 18 163 

Kentucky 1113 335 385 100 19 175 

Missouri 1398 442 468 152 18 174 

Oregon 1397 461 491 129 22 152 

Utah 1133 304 397 128 19 143 

Virginia 1192 393 422 100 19 157 

SOURCE: Economic Census Data 

17-51 

EERE-2008-BT-STD-0006 COMMENT 51
 

Table 17.7.4 Geographic Area Series, Plumbing and HVAC Constructors 

State* Number of 

Establishments 

Value of 

Business 

Done 

($1,000) 

Cost of 

Materials 

($1,000) 

Construction 

Work 

Subcontracted 

Out ($1,000) 

Total 

Payroll 

($1,000) 

Alabama 1,425 1,517,258 547,075 151,240 430,252 

Arizona 1,510 1,967,940 776,733 141,885 584,412 

Arkansas 1,045 809,435 305,198 65,491 209,991 

California 7,272 12,409,267 4,018,408 1,172,183 3,845,532 

Colorado 2,015 2,382,111 821,432 235,012 753,883 

Connecticut 1,321 1,593,622 505,340 156,607 466,149 

Delaware 306 464,881 150,096 42,001 156,056 

Florida 5,069 6,314,034 2,270,555 616,097 1,828,108 

Georgia 2,534 3,459,031 1,226,368 380,819 944,212 

Hawaii 280 363,486 129,870 36,053 96,844 

Idaho 594 558,889 211,341 47,466 170,635 

Illinois 3,848 6,135,124 1,770,254 605,868 2,054,379 

Indiana 1,867 2,993,560 869,816 418,904 991,316 

Iowa 1,066 1,216,575 428,842 133,934 371,492 

Kansas 966 1,236,292 431,331 155,011 367,519 

Kentucky 1,219 1,363,485 469,639 121,960 408,927 

Louisiana 1,469 1,448,482 497,169 174,283 419,948 

Maine 458 399,172 138,587 36,149 114,586 

Maryland 2,024 3,925,032 1,251,986 583,237 1,130,739 

Massachusetts 2,520 3,545,394 1,038,151 503,155 1,007,916 

Michigan 3,051 4,369,139 1,338,229 492,957 1,319,863 

Minnesota 1,635 2,893,239 958,849 280,556 838,879 

Mississippi 655 757,148 283,993 70,985 184,163 

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EERE-2008-BT-STD-0006 COMMENT 51
Missouri 1,816 2,559,173 849,770 276,621 802,027 

Montana 432 362,598 135,009 44,987 92,496 

Nebraska 683 825,160 321,124 90,582 236,196 

Nevada 498 1,098,147 350,851 78,259 325,164 

New Hampshire 531 540,005 179,259 52,209 179,570 

New Jersey 3,551 4,229,237 1,230,617 466,668 1,321,095 

New Mexico 599 546,210 191,757 51,116 148,012 

New York 5,750 7,601,402 2,335,220 949,038 2,308,194 

North Carolina 2,978 3,258,502 1,127,518 339,388 993,337 

North Dakota 272 293,910 105,405 34,971 87,633 

Ohio 3,514 4,646,807 1,470,907 502,061 1,442,425 

Oklahoma 1,158 913,670 341,921 77,207 256,922 

Oregon 1,031 1,459,251 506,559 132,523 475,266 

Pennsylvania 3,653 5,971,127 1,766,004 639,074 1,639,278 

Rhode Island 397 491,915 171,994 60,217 136,580 

South Carolina 1,472 1,401,320 518,386 111,394 461,409 

South Dakota 337 337,590 141,297 22,754 83,704 

Tennessee 1,370 2,301,759 846,426 201,748 641,092 

Texas 5,653 8,131,851 2,889,320 807,501 2,451,016 

Utah 892 1,014,532 353,958 113,775 270,911 

Vermont 282 210,388 77,251 19,987 62,090 

Virginia 2,547 3,068,896 1,074,309 254,085 1,000,173 

Washington 1,602 2,378,599 773,211 222,282 772,633 

Wisconsin 1,839 2,643,604 941,806 193,399 855,624 

Source: 2002 U.S. Economic Census, Geographic Area Series, NAICS: 2382 Plumbing and HVAC Constructors by State 

*Note: AK, DC, WV, WY are left out in this analysis because of limited data provided from Census. 

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Table 17.7.5 Enterprise Statistics on Mechanical Contractors in the Hot-Humid Region 

Region Number of 

Establishments 

Total Value of 

Construction 

Work Done 

($1000) 

Sales per 

Establishment 

($1,000) 

Total 

Employment 

Average 

Employment 

per 

Establishment 

Hot-Humid 

Region 

25,108 30,423,332 1,212 276,994 11.0 

Border States 12,204 15,291,654 1,253 139,797 11.5 

 Texas 5,653 8,061,607 1,426 72,778 12.9 

 Oklahoma 1,158 906,621 783 8,403 7.3 

 Arkansas 1,045 799,157 765 7,757 7.4 

 Tennessee 1,370 2,292,875 1,674 19,547 14.3 

North

 Carolina 

2,978 3,231,394 1,085 31,312 10.5 

SOURCE: 2002 Economic Census Data 

Table 17.7.6 Enterprise Statistics on Mechanical Contractors in the Hot-Dry Region 

Region Number of 

Establishments 

Total Value of 

Construction 

Work Done 

($1000) 

Sales per 

Establishment 

($1,000) 

Total 

Employment 

Average 

Employment 

per 

Establishment 

Hot-Humid 

Region 

25,108 30,423,332 1,212 276,994 11.0 

Border States 12,204 15,291,654 1,253 139,797 11.5 

 Texas 5,653 8,061,607 1,426 72,778 12.9 

 Oklahoma 1,158 906,621 783 8,403 7.3 

 Arkansas 1,045 799,157 765 7,757 7.4 

 Tennessee 1,370 2,292,875 1,674 19,547 14.3 

North

 Carolina 

2,978 3,231,394 1,085 31,312 10.5 

SOURCE: 2002 Economic Census Data 

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Table 17.7.7 Enterprise Statistics on Mechanical Contractors in the Rest of Country 

Region Number of 

Establishments 

Total Value of 

Construction Work 

Done ($1000) 

Sales per 

Establishment 

($1,000) 

Total 

Employment 

Average 

Employment 

per 

Establishment 

Rest of 

Country 

52,019 71,109,956 1,367 546,642 10.5 

Border States 9,065 11,155,228 1,231 97,279 10.7 

Colorado 2,015 2,354,183 1,168 20,146 10.0 

Idaho 594 546,349 920 5,313 8.9 

Kansas 966 1,225,986 1,269 10,036 10.4 

Kentucky 1,219 1,357,063 1,113 12,557 10.3 

Missouri 1,816 2,538,706 1,398 19,847 10.9 

Oregon 1,031 1,440,390 1,397 11,598 11.2 

Utah 892 1,010,317 1,133 8,374 9.4 

Virginia 2,547 3,036,417 1,192 29,554 11.6 

SOURCE: 2002 Economic Census Data 

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EERE-2008-BT-STD-0006 COMMENT 51
 

 

 

 

Table 17.7.8 Mechanical Contractor Establishments, Employment, and Payroll Trends, 

Hot-Humid Region 

Region Number of 

Establishments 

Employment per 

Establishment 

Payroll per 

Establishment 

($1,000) 

2002 2007 2002 2007 2002 2007 

Hot-Humid 

Region 

26,017 29,671 10 11 333 425 

Border States 12,922 13,981 11 11 349 449 

 Texas 5,866 6,384 12 12 400 510 

 Oklahoma 1,218 1,332 7 7 208 273 

 Arkansas 903 996 8 9 231 310 

 Tennessee 1,523 1,679 13 12 406 473 

 North Carolina 3,412 3,590 10 11 317 435 

Table 17.7.9 Mechanical Contractor Establishments, Employment, and Payroll Trends, 

Hot-Dry Region 

Region Number of 

Establishments 

Employment per 

Establishment 

Payroll per 

Establishment 

($1,000) 

2002 2007 2002 2007 2002 2007 

Hot-Dry region 10,406 12,495 11.1 12.1 463.5 578.0 

Border States 10,406 12,495 11.1 12.1 463.5 578.0 

Arizona 1,610 2,062 11.0 12.7 363.2 489.1 

California 7,641 9,001 11.1 11.6 490.9 584.4 

Nevada 524 720 15.7 19.2 637.2 979.0 

New Mexico 631 712 7.7 9.1 243.5 349.2 

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Table 17.7.10 Mechanical Contractor Establishments, Employment, and Payroll Trends, 

Rest of Country Region 

Region Number of 

Establishments 

Employment per 

Establishment 

Payroll per 

Establishment 

($1,000) 

2002 2007 2002 2007 2002 2007 

Rest of 

Country 

53,918 58,640 9.2 9.2 395.6 465.9 

Border States 11,470 12,923 9.3 11.9 392.9 486.3 

Colorado 2,064 2,339 9.1 8.4 362.1 388.2 

Idaho 606 831 7.5 8.0 245.3 286.0 

Kansas 1,006 1,049 8.9 10.3 352.7 421.0 

Kentucky 1,288 1,278 9.5 9.5 312.0 380.2 

Missouri 1,884 2,014 9.7 9.4 428.0 476.3 

Oregon 1,134 1,346 8.7 9.5 372.9 453.2 

Utah 936 1,209 7.9 8.4 276.9 348.5 

Virginia 2,552 2,857 10.6 11.3 375.1 490.3 

Cost structure and profitability vary among subareas (i.e., border states) for mechanical 

contractors. Selected data required to generate net operating profit estimates is not available on 

subsectors of construction at the regional level (specifically, Total Purchased Services, 

Depreciation), although the data is available nationally. 

17.8 ADDITIONAL GENERAL CONTRACTORS AND HOMEBUILDERS DATA 

Statistical tables follow for General Contractors in each region. Selected data for General 

Contractors are shown in Table 17.7.4. 

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Table 17.8.1 Enterprise Statistics on General Contractors in the Hot-Humid Region 

Region Number of 

Establishments* 

Total Value 

of 

Construction 

Work Done 

($1,000) 

Sales per 

Establishment 

($1,000) 

Total 

Employment 

Average 

Employment 

per 

Establishment 

HotHumid 

Region 

58,480 168,947,696 2,889 484,826 8.3 

Border 

States 

32,894 96,197,405 2,924 277,605 8.4 

 Texas 9,625 39,038,019 4,056 95,829 10.0 

Oklahoma 

1,942 1,454,942 749 12,445 6.4 

Arkansas 

10,716 36,945,606 3,448 90,624 8.5 

Tennessee 

2,982 3,173,248 1,064 27,440 9.2 

North 

Carolina 

7,629 15,585,590 2,043 51,267 6.7 

*Because Mississippi is an incomplete data set, the state has been excluded from the total count of establishments 

SOURCE: 2002 Economic Census 

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EERE-2008-BT-STD-0006 COMMENT 51
 

 

Table 17.8.2 Enterprise Statistics on General Contractors in the Hot-Dry Region 

Region Number of 

Establishments 

Total Value 

of 

Construction 

Work Done 

($1,000) 

Sales per 

Establishment 

($1,000) 

Total 

Employment 

Average 

Employment 

per 

Establishment 

Hot-Dry 

region 

28,405 84,436,053 2,973 255,534 9.0 

Border 

States 

28,405 84,436,053 2,973 255,534 9.0 

Arizona 3,574 13,737,839 3,844 33,276 9.3 

California 21,671 63,504,624 2,930 193,975 9.0 

Nevada 1,400 4,671,330 3,337 17,627 12.6 

New 

Mexico 

1,760 2,522,260 1,433 10,656 6.1 

SOURCE: 2002 Economic Census 

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EERE-2008-BT-STD-0006 COMMENT 51
 

 

 

Table 17.8.3 Enterprise Statistics on General Contractors in the Rest of Country 

Region Number of 

Establishments* 

Total Value 

of 

Construction 

Work Done 

($1000) 

Sales per 

Establishment 

($1,000) 

Total 

Employment 

Average 

Employment 

per 

Establishment 

Rest of 

Country 

127,558 221,929,611 1,740 883,611 6.9 

Border 

States 

27,031 45,794,848 1,694 197,421 7.3 

Colorado 5,223 8,969,090 1,717 37,926 7.3 

Idaho 1,638 N/A N/A 8,412 5.1 

Kansas 2,185 3,792,200 1,736 13,467 6.2 

Kentucky 2,336 4,985,602 2,134 17,810 7.6 

Missouri 4,714 4,060,799 861 39,744 8.4 

Oregon 4,098 5,980,885 1,459 23,426 5.7 

Utah 2,200 2,251,069 1,023 15,178 6.9 

Virginia 6,275 15,755,203 2,511 49,870 7.9 

*Because Idaho and the District of Columbia are incomplete data sets, they have been excluded from the total count of 

establishments used in other calculations. 

SOURCE: 2002 Economic Census 

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Table 17.8.4 General Contractor Establishments, Employment, and Payroll Trends, HotHumid Region 

Region Number of 

Establishments 

Employment per 

Establishment 

Payroll per 

Establishment 

2002 2007 2002 2007 2002 2007 

Hot-Humid 

Region 

50,365 61,077 7.7 7.2 297 344 

Border States 23,783 27,140 7.6 7.4 296 359 

 Texas 9,686 10,914 9.1 8.9 402 474 

 Oklahoma 1,829 2,075 6.3 5.8 188 221 

 Arkansas 1,488 1,740 6.9 6.2 203 229 

 Tennessee 3,124 3,524 7.4 7.9 275 374 

 North Carolina 7,656 8,887 6.2 6.0 213 270 

Table 17.8.5 General Contractor Establishments, Employment, and Payroll Trends, HotDry Region 

Region Number of 

Establishments 

Employment per 

Establishment 

Payroll per 

Establishment 

($1,000) 

2002 2007 2002 2007 2002 2007 

Hot-Dry 

region 

28,374 34,143 7.9 8.4 343.7 443.8 

Border 

States 

28,374 34,143 7.9 8.4 343.7 443.8 

Arizona 3,752 4,729 8.3 9.3 337.7 476.2 

California 21,564 25,624 7.7 8.1 343.1 435.1 

Nevada 1,350 1,647 12.0 12.8 571.5 757.7 

New 

Mexico 

1,708 2,143 6.3 6.4 183.9 234.8 

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EERE-2008-BT-STD-0006 COMMENT 51
 

 

 

Table 17.8.6 General Contractor Establishments, Employment, and Payroll Trends, Rest 

of Country 

Region Number of 

Establishments

Employment per 

Establishment 

Payroll per 

Establishment 

 ($1,000) 

2002 2007 2002 2007 2002 2007 

Rest of 

Country 

131,205 145,679 6.0 5.8 249.9 288.9 

Border 

States 

29,265 34,360 6.1 5.8 240.3 283.6 

Colorado 5,121 5,598 6.4 6.2 290.3 327.5 

Idaho 1,759 2,661 2.6 4.8 75.1 164.7 

Kansas 2,153 2,288 6.4 5.7 218.1 232.4 

Kentucky 2,348 2,421 7.4 7.4 242.6 287.2 

Missouri 4,452 4,752 7.1 7.8 283.0 369.0 

Oregon 4,186 5,174 4.3 4.8 157.9 206.3 

Utah 2,633 3,224 5.4 6.2 183.7 247.2 

Virginia 6,613 8,242 7.0 6.4 271.1 308.0 

Cost structure and profitability varies among subareas (e.g. border states) for General 

Contractors. Selected data required to generate net operating profit estimates are not available on 

subsectors of construction at the regional level (Total Purchased Services, Depreciation), but 

they are available nationally. 

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Table 17.8.7 Revenue and Cost Items, Typical General Contractors, Hot-Humid Region 

Region Average 

Value of 

Construction 

Work per 

Establishment 

($1,000)* 

Average 

Payroll 

Costs 

($1000) 

Cost of 

materials, 

components 

and Fuels 

Operating 

Costs 

($1,000) 

Cost of Work 

Subcontracted 

Out ($1,000) 

Rental 

Costs 

($1,000) 

End of 

Year 

Gross 

Value 

of 

Assets 

($1,000) 

HotHumid 

Region 

2889 306 720 1,327 19 153 

Border 

States 

2924 313 742 1,367 19 158 

 Texas 4056 398 951 1,750 24 167 

Oklahoma 

749 183 531 882 13 117 

Arkansas 

3448 321 762 1,512 19 174 

Tennessee 

1064 335 598 1,222 21 149 

North 

Carolina 

2043 216 558 859 14 137 

*Because Mississippi is an incomplete data set, the state has been excluded from the total count of establishments used in other 

calculations. 

SOURCE: 2002 Economic Census 

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Table 17.8.8 Revenue and Cost Items, Typical General Contractors, Hot-Dry Region 

Region Average 

Value of 

Construction 

Work per 

Establishment 

($1,000) 

Average 

Payroll 

Costs 

($1000) 

Cost of 

materials, 

components 

and Fuels 

Operating 

Costs 

($1,000) 

Cost of Work 

Subcontracted 

Out ($1,000) 

Rental 

Costs 

($1,000) 

End of 

Year 

Gross 

Value 

of 

Assets 

($1,000) 

Hot-Dry 

region 

2973 357 473 1,429 21 120 

Border 

States 

2973 357 473 1,429 21 120 

Arizona 3844 337 580 1,931 23 128 

California 2930 364 465 1,417 22 122 

Nevada 3337 534 493 1,350 16 121 

New 

Mexico 

1433 172 329 630 9 81 

SOURCE: Economic Census 

17-64 

EERE-2008-BT-STD-0006 COMMENT 51
 

Table 17.8.9 Revenue and Cost Items, Typical General Contractors, Rest of Country 

Region Average 

Value of 

Construction 

Work per 

Establishment 

($1,000)* 

Average 

Payroll 

Costs 

($1000) 

Cost of 

materials, 

components 

and Fuels 

Operating 

Costs 

($1,000) 

Cost of Work 

Subcontracted 

Out ($1,000) 

Rental 

Costs 

($1,000) 

End of 

Year 

Gross 

Value 

of 

Assets 

($1,000) 

Rest of 

Country 

1740 255 447 899 15 114 

Border 

States 

1694 262 492 947 15 117 

Colorado 1717 285 423 700 17 123 

Idaho N/A 149 416 666 9 84 

Kansas 1736 196 469 790 14 118 

Kentucky 2134 245 577 945 14 149 

Missouri 861 304 489 1,281 12 139 

Oregon 1459 201 350 703 10 64 

Utah 1023 232 576 1,057 17 112 

Virginia 2511 292 592 1,080 20 121 

*Because Idaho and the District of Columbia are incomplete data sets, they have been excluded from the total count of 

establishments used in other calculations. 

SOURCE: Economic Census 

17-65 

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1

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3 http://www.alliedair.com/ (Last accessed: February 8, 2010) 

4 http://www.serviceexperts.com/Services/HVAC-Repair-Service.aspx (Last accessed: February
 

8, 2010) 

5

 IBID 1
 

6

http://www1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/fb_fr_tsd/chapter_
 

7

 Hall, John R. “Consultants Address Inventory Issues: Adjusting Inventory Levels to Current 

Conditions Is the Name of the Game.” Air Conditioning, Heating & Refrigeration News July
 

2007: pp. 14. Web. 04 Nov. 2009. 

11 Maynard, Michael. “Standing Tall for Distributors.” HVACR Distribution Business Feb. 2008: 

pp. 22. Web. 04 Nov. 2009. 

12 Maynard, Michael. “National Presence, Local Service-Grainger Makes It Easy for the 

Customer.” HVACR Distribution Business June 2006: pp. 22-23. Web. 04 Nov. 2009. 

13 Trimbach, Jason. “Benchmarking Time Allocation for Warehouse Employees: Part 1: Use of 

Warehouse Capacity.” HVACR Distribution Business August 2007: pp. 44. Web. 04 Nov. 2009 

14 Stratman, Scott. “Cycle Counting: Penicillin for Distributors.” HVACR Distribution Business
 

April 2005: pp. 28. Web. 04 Nov. 2009. 

15 Peric’, Tom S. “A View from the Top.” HVACR Distribution Business Feb. 2006: pp. 48. 

Web. 04 Nov. 2009. 

5.pdf pp. 5-2 

8

 IBID 7
 

9

 IBID 7
 

10 IBID 7
 

16 IBID 7
 

17 IBID 7
 

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EERE-2008-BT-STD-0006 COMMENT 51
 

 

18 Toler, Greg. “Inbound Freight: Are We Paying Close Attention?” HVACR Distribution 

Business Aug 2008: pp. 39. Web. 04 Nov. 2009. 

19 “Inbound Freight: Are We Paying Close Attention?” pp. 39 

20 Maynard, Michael. “Staying Ahead of the Technology Curve.” HVACR Distribution Business 

June 2007: pp. 17. Web. 04 Nov. 2009. 

21US Census Bureau. Plumbing, Heating, and Air-Conditioning Contractors: 2002. 

22 US Census Bureau. Plumbing, Heating, and Air-Conditioning Contractors: 2002. 

23 http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9MzMyMTA2fENoaWxkSUQ9MzE0MzY5fFR5cG 

U9MQ==&t=1 pp. 55 

24 US Census Bureau, Plumbing, Heating, and Air-Conditioning Contractors: 2002. 

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U9MQ==&t=1 pp. 14 

26 “Sanyo HVAC Solutions is World-Class.” pp. 18. 

27 “Sanyo HVAC Solutions is World-Class.” pp. 18. 

28 Harris, Angela D. “Economics Challenge Contractors: Workforce Issues and Home Building
 

Slowdown.” Air Conditioning, Heating & Refrigeration News March 2007: pp. 20. Web. 04 

Nov. 2009. 

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30 “Economics Challenge Contractors: Workforce Issues and Home Building Slowdown.” pp. 28. 

31 “Staying Ahead of the Technology Curve.” pp. 17. 

32 Ciuffreda, Albert. “Getting a Handle on Your Overhead.” Air Conditioning, Heating &
 

Refrigerating News 237.16 (2009): pp. 20. Business & Company Resource Center. Web. 27 Oct. 

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33 “Getting a Handle on Your Overhead.” pp. 20. 

34 IBID 1
 

35 Sources from GAMA Report 2005 

36 US Census Bureau, Plumbing, Heating, and Air-Conditioning Contractors: 2002. 

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