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Energy Management: Changes in refrigerants and energy procurement are major concerns

BY Marianne Wilson

The energy-management track at SPECS/2007 provided attendees with critical information regarding new energy regulations and cost-saving solutions, and shed light on the latest in energy-efficient technologies. Other topics discussed included the impact of Web-based connectivity on energy-management systems and the economic outlook for energy markets.

The “HVAC Technology—Countdown to the Future” workshop took on some timely issues, including ozone depletion and global warming, focusing on their impact on refrigerants.

“There are two environmental issues forcing the HVAC and refrigeration industry to look at new refrigerants: ozone depletion and global warming,” said Richard Lord, director of commercial product engineering, Carrier Corp., Charlotte, N.C., during a detailed overview of upcoming refrigerant changes.

The ozone-depletion issue has resulted in various actions globally, from the U.S. Clean Air Act to the ban on the venting of most refrigerants to the planned elimination of HCFCs (hydrochlorofluorocarbons) by 2020.

The goods news, according to Lord, is that as a result of these global initiatives, progress is being made, and the depletion of the ozone layer has reached a peak and is expected to start to recover. But, he added, it is important that efforts continue.

Future Refrigerant Selections

For new products, the likely refrigerant selections will be:

Large Centrifugal Chillers–HFC-134a & HCFC-123 (2020 limit)

Large Air- and Water- Cooled Screw Chillers–HFC-134a

Large Packaged Products and Split Systems–HFC410a

Small Packaged Products and Split Systems–HFC410a

Residential–HFC410a

Refrigeration–HFC134a, HFC404a, CO2

Longer range there likely will be other refrigerants to consider

Source: Carrier Corp.

Refrigerants also impact global warming, which is caused by the emissions of greenhouse gases into the atmosphere, resulting in trapping of solar radiation. Many greenhouse gases, including refrigerants, remain in the atmosphere for a long time.

“Greenhouse-gas concentrations are projected to reach double pre-industrial levels by about 2060,” Lord said.

For refrigerants and HVAC equipment, there are two issues with regard to global warming: direct impact due to emissions and indirect impact due to power-generation CO2 emissions.

“The direct impact comes from leakage during the manufacturing, shipping, operation and disposal of the unit,” Lord said. “Due to leakage and loss concerns, increased focus on leak checking and charge management is likely.”

In 2006, Europe implemented procedures on leak checking of units. It is likely, the speaker said, that there will be new U.S. requirements in the future.

“The systems that are getting a lot of focus are transport systems and built-up refrigeration racks,” he added.

Indirect global warming is due to the power that HVAC and refrigeration systems use, as well as emissions from power plants. Eighty-six percent of power generated in the United States comes from fossil-fuel-fired plants.

“Buildings are one of the major users of electrical power,” Lord said.

What’s your favorite part of SPECS?

Because HVAC and refrigeration are larger users of electricity, there is an increased focus on energy efficiency, which can be seen in everything from the ASHRAE 189 Green Building Standard to the LEED-certification program to packaging efficiencies in rooftop units in 2010.

Lord told attendees that all the potential new refrigerants will be high in cost, ranging from three to five times current R22 costs. They also will require the use of synthetic oils vs. mineral oils.

“Product costs are also impacted due to higher pressures, requirements for better evaluation as well as the impact of efficiency changes,” Lord added. “Most refrigerant changes are being combined with efficiency improvements.”

Although R22 and other HCFCs will be eliminated in new products, supplies will continue to be manufactured for service and with reclaim practices, supplies should be adequate for some time.

“If you use reclaimed refrigerant, make sure it meets ARI 700-2006—Specification for Fluorocarbon Refrigerants,” Lord said.

He advised retailers who plan to retrofit a refrigerant in an existing product to check with the original product manufacturers, as “there could be material compatibility issues as well as performance issues.”

Energy procurement: In the “Procurement Strategies for Deregulated Markets” session, the speaker outlined steps to help retailers manage their portfolio of direct-access electricity and natural-gas energy needs. He said in planning for procurement, a chain must first define its objectives.

“Every organization has a very different culture when it comes to procuring energy; every organization has a different appetite for risk,” said energy consultant Jim Laird, president, Multi-Site Energy, Atlanta.

‘I like that SPECS is different from most other trade shows. It’s a smaller, more intimate group, which gives you a better chance to meet new people and learn new things.

Before deciding on a strategy, it’s critical that a retailer understands its appetite for risk and defines its corporate objective. If budget certainty is a priority, for instance, it is probably accomplished by a strategy defined by low volatility, low risk, stable pricing, low procurement cost and low involvement. If, on the other hand, the objective is “best” price, it is more likely to be had through a strategy that involves high volatility, high risk, variable pricing, high procurement cost and active management.

“Once you figure out your objective, you can fill in a strategy to meet it,” Laird said.

He noted that supply-side energy management requires a financial approach, as opposed to demand-side management, which is mostly about engineering.

“All financial purchases require a game plan,” Laird said. “Analyze the market to determine what to buy, when to buy, how much to buy and how long to buy.”

What do you like best about SPECS?

Team approach: A procurement team, which should include internal and external resources, needs to take into account an array of concerns, including sourcing, risk, credit, accessibility, contracting, corporate policy and authorization. Market requirements and market conditions also need to be factored in.

“All of this combines for substantial data-management and coordination requirements,” Laird said.

Data requirements are a critical necessity for the procurement team.

“You need to know your site listing, contract-status summary and site details, unique conditions, market-by-market requirements, market assessment, and procurement time line,” Laird explained. “The market assessment is really key because it will feed your strategy.”

When it comes to sourcing, the procurement team should have a registered supplier listing that details the company’s financial strength, industry reputation, client credit requirements and contracting practices.

“Work with suppliers in advance to share information about your credit,” Laird recommended.

The goal of portfolio-style management is to manage energy costs within a target range under dynamic market conditions. Integrating all the purchases into one well-diversified national plan lets you focus on what’s important, the speaker told attendees.

“In developing a procurement strategy, you first have to establish your corporate objectives, select a procurement strategy, put a procurement team in place and monitor program results,” Laird said.

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Weekly Retail Fix

BY CSA STAFF

THE NEWS: SAM’S REALIGNS STORE-LEVEL MANAGEMENT

BENTONVILLE, ARK. Sam’s Club is changing the management structure in its stores. In the realignment, approximately 250 positions will be eliminated, Wal-Mart Stores announced last week. The company said it’s replacing five lower level management positions at each Sam’s Club location with three new higher level and higher paying assistant manager positions.

“This is not a cost cutting effort. We expect a slight increase in payroll upon completion of this change,” said Sharon Orlopp, senior vp of Sam’s people division.

THE FIX: Differentiation would better help Sam’s

Since Sam’s decided that its refocus on the business customer was too narrow, it has sought to find ways to make its clubs more attractive to primary shoppers, i.e., women. And that’s a pretty tough row to hoe, as Costco has done a pretty good job at satisfying the club customer in general and BJ’s has been going after female shoppers for several years now, with some success.

Having fewer managers with more direct responsibility could create a tighter knit club-level management and shorten lines of responsibility and accountability. Yet, without differentiating the offering, execution isn’t going to overcome all of Sam’s challenges.

That being said, a store-level management realignment might be overlooked at other retailers, but, this being Wal-Mart, everyone has to make a big deal about it. But that’s the price you pay as the big guy on the block.

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BY CSA STAFF

THE NEWS: TOYS ‘R’ US EARNINGS GAIN 40.1%

WAYNE, N.J. Toys “R” Us today posted net earnings of $199 million for its critical fourth quarter, which meant it turned a profit for the fiscal year ended Feb. 3. But special charges and gains had an impact on its numbers.

Sales for the previous fiscal annum were $142 million, the difference translating into a net earnings increase of 40.1% year over year. For the last fiscal year, Toys “R” Us posted net earnings of $85 million versus a net loss of $384 million for the previous period.

Operating earnings in the fiscal 2006 fourth quarter gained 53.1% to $571 million versus $373 million for the fourth quarter of fiscal 2005. For the last fiscal year, operating earnings were $649 million versus an operating loss of $142 million for the previous period.

THE FIX: Improved shopper experience ups comps

Of course, any observer has to take into consideration special financial circumstances. Fiscal 2006 operating earnings were positively impacted by $96 million from gains on property sales, slightly offset by restructuring and other charges. In fiscal 2005, operating earnings were negatively impacted by $410 million in costs relating to the merger of the company, as well as $58 million of costs and charges relating to contract settlement fees, restructuring and other charges.

Still, sales were trending up at last year’s end. Net sales gained 15.8% to $5.7 billion. In the full fiscal year, net sales advanced to $13 billion, up 15.2%.

Comparable-store sales for the Toys “R” Us’ U.S. division gained 0.6% in fiscal 2006, and that represents the division’s first comps increase in six years. Comps at Babies “R” Us were up 4.8% and those at Toys “R” Us international were up 2.6% for the fiscal year.

Jerry Storch, chairman and ceo of Toys “R” Us, said the company is “pleased with the strides we made in fiscal 2006 to improve at all levels of the organization and reposition the company for profitable growth over the long term.”

He said the company’s new management team has been focusing on executing a strategy that would turn the retailer into a global toy and baby products authority.

“This translated into higher overall sales, positive comparable-store sales, improved gross margins and strong operating earnings growth for the 2006 fiscal year,” Storch asserted. “The key to our strategy has been improving the customer shopping experience in our stores. We are accomplishing this by delivering a more compelling merchandise selection, better service and a cleaner and more comfortable shopping environment.”

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