The Montreal Protocol, a landmark global agreement designed to reduce and eventually eliminate chemicals identified as having potential to deplete the earth’s ozone layer, marked its 20th anniversary in September. To date, it has been ratified by more than 190 countries, including the United States, where it is implemented by the Environmental Protection Agency.
Under the Montreal Protocol, substances with high-ozone depletion, including chlorofluorocarbons (CFCs) such as R-12 and R-502, were phased out of manufacture and import Jan. 1, 1996. Other materials, including hydrochlorofluoro-carbons (HCFCs) such as R-22, have lower ozone-depletion potential and were scheduled for phaseout over a longer period of time.
As per the schedule, effective Jan. 1, 2003, HCFC production was capped at 65% of the original cap set under the U.S. Clean Air Act. The change had very little impact on retail operations, however, as the reduction was accomplished by eliminating the manufacture and import of a chemical used primarily to produce urethane foams, explained Kevin O’Shea, U.S. marketing manager, DuPont Refrigerants, Wilmington, Del., a business unit of DuPont.
The next phaseout step reduces the HCFC production cap to 35%, and will occur Jan. 1, 2010. (On Jan. 1, 2015, the HCFC cap will be reduced to 10% of the original cap, and on Jan. 1, 2020, the manufacture and import of R-22 will stop completely.) It is likely to be far more significant in terms of its retail impact, O’Shea explained, since it will be accomplished by the elimination of the manufacture and imports of R-22 for use in new equipment.
“Since the current service demand for R-22 is approximately 20% of the original cap, the 2015 reduction could have a drastic effect on R-22 users unless steps are taken to significantly reduce demand,” he said. O’Shea also noted that R-22 is still a dominant refrigerant in air conditioning, even in new equipment.
Chain Store Age spoke with O’Shea about the phaseout of HCFCs.
Chain Store Age: Will the retail industry be affected by this next phaseout step?
Kevin O’Shea: We have identified two ways in which the retail industry will be directly impacted, and the first is through regulatory requirements and penalties for noncompliance. Equipment owners that have units with greater than 50-lb. charges of CFCs or HCFCs in individual units are required by the Clean Air Act to maintain records showing that they have maintained that equipment to less than a 35% annual leak rate for refrigeration and less than a 15% annual leak rate for comfort cooling. Failure to maintain records or having excessive leak rates can result in up to a $32,000 fine for each violation.
The second way is continuity of business operations. We estimate that almost two-thirds of the installed refrigeration equipment base currently runs on HCFC-22. As the phaseout progresses, HCFC-22 will become tighter in supply and, most likely, more expensive to obtain. Companies that have a comprehensive refrigerant-management program that gradually reduces their dependence on HCFCs will be ahead of those that wait to put a plan in place until after the supply becomes tight.
CSA: What should be included in the plan?
O’Shea: A sound plan should take into consideration what we call “the six R’s”: a thorough understanding of regulations; good recordkeeping; sound repair and preventive-maintenance practices; retrofitting plans that gradually reduce the chain’s reliance on HCFCs; replacement/new equipment plans that specify the selection of non-ozone depleting refrigerants; and reclamation practices to recover, recycle and reclaim HCFCs from their stores.
CSA: How quickly should the industry begin phasing out its use of HCFCs?
O’Shea: Many companies have already started their individual phaseout process. The 2015 step-down is only 377 weeks away from Oct. 1, 2007, which means that a retailer with 800 stores operating on R-22 would have to retrofit more than two locations a week to be completely transitioned out of using R-22 when the 2015 step-down takes place.
DuPont advises retailers to consider their current level of reliance on HCFCs for operations and their potential regulatory exposure. Accurate recordkeeping and conformance to leak limits are essential. And retailers that haven’t already done so should formulate a sound refrigeration-management plan.
CSA: How difficult is it to transition to alternative refrigerants?
O’Shea: We recommend that retailers conduct a thorough engineering assessment when considering any retrofit, to ensure continuity of store operations and performance at the project’s completion. Typically, an experienced contractor can retrofit a refrigeration rack system overnight. Retrofit costs will depend largely on whether expansion valves, oil and line sizing need to be changed.
CSA: What options are currently available to retrofit existing systems?
O’Shea: DuPont ISCEON MO29 (R-422D) refrigerant offers a very easy and effective retrofit for most R-22 systems. And ISCEON MO79 (R-422A) offers the same for systems running on R-502 or HCFC-based blends such as DuPont Suva HP80 (R-402A) and R-408A. Some retailers have used HFC refrigerants like R-404A.
CSA: Are the alternative refrigerants more costly?
O’Shea: The cost gap between R-22 and alternatives continues to close. The new refrigerants are less expensive than when they were first introduced. That, combined with R-22 likely continuing to increase in price as it is phased out, means that R-22 could exceed the cost of the replacement refrigerants as we get closer to complete phaseout.
CSA: Is there a penalty for stores that don’t comply with the phaseout requirements?
O’Shea: While regulations do not set specific dates when a retailer can no longer use R-22 or other refrigerants, retailers should be aware of potential regulatory exposure for inadequate maintenance records/excessive HCFC leaks and the risk to continuity and cost of their operations as R-22 is phased out of production in 2010 and 2015.
CSA: In light of the phaseout regulations, what advice do you have for retailers opening new stores?
O’Shea: Based on the potential R-22 supply and cost issues, retailers should choose designs that use alternative refrigerants and build systems to minimize leaks. I would be very hesitant today about specifying equipment with R-22 for new installations.
Winn-Dixie team honored for turnaround
JACKSONVILLE, Fla. The team that lead Winn-Dixie Stores’ successful turnaround initiative is being honored by the Turnaround Management Association for the best ‘Mega Company Turnaround’ for 2007. Comprised of financial experts from The Blackstone Group, Skadden, Arps, Slate, Meagher & Flom and Smith Hulsey & Busey, the team helped Winn-Dixie regain the market share and profits it started to lose in the mid 1990s and early 2000s to competitors Publix and Wal-Mart.
Winn-Dixie filed for Chapter 11 bankruptcy in early 2005 after reporting year-to-date losses of $552.8 million or $3.93 per share of common stock and a decline of 4.9% in identical-store sales in its second fiscal quarter over the same period in 2004.
Despite the difficulty of achieving a succesful turnaround, Winn-Dixie began its reorganization effort, while still continuing to operate its core business and preserving jobs. According to the Turnaround Management Association, it created new common stock for five classes of unsecured creditors, with recoveries ranging from about 96% to 53%. The company emerged from bankruptcy on Nov. 21, 2006.
For its fiscal year ended June 27, Winn-Dixie reported adjusted EBITDA of $85.9 million compared to a loss of $27.8 million last year and an identical-store sales increase of 1.6%
Sears ends deal with maternity retailer
PHILADELPHIA Sears and Mothers Work, the world’s leading maternity apparel retailer, will not be renewing their agreement, Mothers Work announced today. Under their current agreement, Mothers Works operates the maternity apparel department in 502 Sears stores through the sale of its Two Hearts Maternity branded merchandise.
Mothers Work said it expects its partnership with Sears to end on June 20, 2008, when it current deal with the company is expected to expire.
Rebecca Matthias, president and ceo of Mothers Work, noted, “While we are disappointed about the end of our relationship with Sears, we feel the decision not to proceed with a renewal is in the best interest of our stockholders since we were unable to reach terms on a renewal which would be favorable for Mothers Work and our stockholders. “