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Owners lax on CFC conversion.

Experts estimate at least 95 percent of the city's chillers have not yet been converted to environmentally safe refrigerants. Those owners will, unfortunately, be receiving a wake-up call, as their current chloroflurocarbons (CFCs) are no longer being manufactured and the price for recycled material skyrockets.

"It's a time bomb," warned Bruce Hampson, manager of the service division in New York for the Trane Company. "When the shortage manifests there is no way the industry, in terms of manpower, can convert those machines in time. The most vulnerable facility," he continued, "is the commercial real estate industry: the commercial office building with one or two machines. They are playing Russian roulette."

CFCs are not supposed to be manufactured after December 31st, but DuPont and Allied Signal, the main suppliers, have already stopped manufacturing both CFC's R-11 and R-12, the refrigerants most widely used since the middle of the century for large buildings, food storage and automobiles.

CFCs are used in more than 3,500 applications, including accelerants for spray paint and hair spray.

"There is no prohibition on the sale of CFC's," explained Hampson. "The law just prohibits the production of new CFCs. The CFC's in the pipelines can be reclaimed, cleaned and resold without any prohibition."

Air-conditioning of city office buildings began in earnest in the 1950s, when the owners of newly air-conditioned buildings found they were able to use that as a marketing tool to lure corporate tenants.

But as scientists found the ozone layer was depleting, they blamed some of the problem on the release of the air-conditioning refrigerants.

What will also hurt some owners is that the manufacture of Freon, that was believed to be ozone-friendlier, is also being cut off at the end of this year, rather than the originally announced 2030 date, and some owners just converted their machinery to use this gas.

So those owners who made major capital investments by installing or converting to this refrigerant in the beginning of the 1990's will now be facing the very problem they believed they were avoiding.

Rockefeller Center, in fact, just spent nearly $300 million in capital improvements that included wholesale chiller replacement. And it is now facing the same headache. Industry experts say those buildings are currently on a costly service contract with a major company to ensure they will be supplied with recycled refrigerants as the need arises.

For the CFC R-12, the latest alternative is MP-39 or 134a, while for R-11, the replacement would be R-123. These replacement materials are currently running at about half the cost of the older refrigerants.

The Clean Air Act of 1990 not only detailed the phase-outs - many of which have since been moved up - but prohibits the expulsion of CFC's into the atmosphere, requires handling only by licensed contractors, and imposes a hefty excise tax.

Taxes Create Black Market

"The floor tax on some refrigerants is over $5 a pound, and goes up again in January," said Mary Martin, creative director at Sid Harvey Industries, a contractor's supply house.

While an automobile system uses about a pound of refrigerant, a typical office building could use closer to 2,700 pounds of refrigerant. Aside from the fines for leakage into the atmosphere that can go up to $25,000, a leaky system is also costly to maintain and keep filled.

Because of the taxes, a black market has developed, particularly in places like Florida, where refrigerants are sold on ships that have been to Third World ports.

While most modern countries including the United States have adopted the Montreal and Helsinki protocols to help end the depletion of the ozone layer, some Third World countries are not being as vigilant in their CFC reductions.

Owners are required by law to keep good records of their building refrigerants and those can also help to prevent losses by theft, a problem that the experts report is ongoing. "If people aren't keeping good records they can come in and steal and siphon off some of the refrigerants," Martin noted.

Said James L. Standish, PE, a principal in the consulting engineering firm, Flack + Kurtz, "If you are a major building developer with a number of older buildings, we recommend you reclaim and hold onto it."

Although owners can remove old refrigerant from one chiller undergoing conversion or replacement, have it cleaned by a reputable company, and then reuse it in another chiller, the owners should be careful when it comes to buying it from other sources.

Sid Harvey's corporate product manager, Jim Lovelace, warned, "If they get a low cost material, they have a tax that is not being paid to the Federal government and they could get indicted. They are trying to sidestep the excise tax and that is a Federal offense. Cost is not always the best deal," he added.

To protect themselves, Lovelace advised skeptical owners to ask for proof of excise tax payment.

Another problem with improperly recycled refrigerants is that they may not have been properly cleaned or even cleaned at all, and could destroy the equipment. "You don't know what you are buying," said Martin. "You might ruin your whole HVAC system. "

Prepare Now

Owners should currently be evaluating their equipment and deciding what to do. The real estate industry has not actively pursued the issue, as many people were hoping a "drop-in" refrigerant could be invented.

Such a creation would allow owners to avoid the change out of costly compressors, oil and other system components that are required to convert to the currently available alternatives. "Some folks would like to believe a fairy godmother will come down and stop this," said one expert who asked not to be quoted by name. "That's not going to happen."

Neither a fairy godmother nor new invention has appeared, so owners must begin to pursue other possibilities.

John C. Santora, senior managing director in asset management for Cushman & Wakefield, said "You need to look at the condition of the equipment and the financial condition of the property. "

"There are a lot of options," said Ernest A. Conrad, PE, president of Landmark Facilities of East Norwalk, who consults on many city office buildings.

The first thing owners should do is figure out what they have. While the chiller operators know what they have, Conrad said the decision-makers usually don't.

Where there are multiple buildings or machines, the experts say to pool resources. Some advise converting a younger machine where costs might be lower and re-use the refrigerant in older machines nearing the end of their useful life. Other experts say to convert the older machines.

"We've done all out conversion,N said Santora. "And we've done a conversion of one unit and are stockpiling CFCs."

The forward-thinking facility managers have done several things, says Hampson of Trane. They have completed an upgrade of their existing equipment to prevent leaks and to eliminate loss of refrigerant through the purge of air, and put in high efficiency purges to minimize accidental or purge losses of refrigerant. They have also made the equipment as leak-proof and as tight as possible and are keeping the present charge clean and preventing accidental leakage.

"There are some facility managers who haven't done that," said Hampson. Facility managers with large critical systems -- including museums, hospitals and universities -- have been proactive and are planning for the future. Hampson said the R-123 works with low pressure equipment, while 134 is for medium pressure equipment and is used in automobiles and certain large chillers.

Some owners are changing to absorption machines which Conrad said "Makes the problem goes away." But Santora notes, sometimes the sheer size of the absorption machines prevents their use.

Standish said they are evaluating alternative refrigeration machines. These absorption chillers can be fueled by gas and oil or both and have the duel fuel capability and also the ability to use high pressure steam absorption.

For all new installations, Flack + Kurtz is recommending using the HCFCS, R-123 and 134a.

Conrad calls R-123 a "Band-Aid" because it is being phased-out by 2030, while R-134a, which is an HFC, is so far, so good, with no limitations.

But Hampson said, "The Trane company view is that R-123 is part of the solution and not part of the problem. "

That is because owners that have certain older chillers and use R-11 may be able to merely upgrade to R-123. "In the last decade, the manufacturers of R-11 saw this coming and used gaskets and seals that would be compatible," Conrad explained.

Standish says if you have machinery that is seven to eight years old, the conversion to a new equipment -- if it is efficient and tightly sealed -- would be less expensive than the conversion of an older machine where you would have to replace more components.

Other owners are buying time by signing service agreements with companies such as Trane and Carrier to continue to supply them with R-11 that has been recycled until the end of the useful life of the machinery.

"You can buy some time with a service contract and figure out what to do," said Conrad.

Santora said normally, in conjunction with an outside engineering firm, they would do studies of life expectancy and costs to operate, and then do a comparison of costs to change components or the entire system.

Some of the Cushman & Wakefield buildings replaced equipment before the code came into effect. Some took advantage of Con Ed rebates and used the conversion as part of their marketing.

"We have many others that are taking it very slow," said Santora. "We have complied with code to make sure the existing machines don't emit CFC's to the atmosphere and all of our engineers are certified. We're now looking to see what we will do out to the years 2000."

But Santora noted, "Some owners are not planning to hold the building that long. So as long as the building is tight they just go along. Because of all the different ownerships, we've seen the whole range of possibilities."

Con Ed Rebates

Locally, one option favoring conversion is that Con Edison is still offering a rebate for conversions from electric to steam, and oil to steam, and steam to more efficient steam. Much of Manhattan has steam lines available for use. There are steam absorption and gas absorption chillers as well as electric chillers that use HCFCs.

At one building, Santora says they took the opportunity to comply with the code and utilized the Con Ed rebate to get brand new machinery for a 45-year old building.

Ron Guilbeault, administrator of the air conditioner rebate program for Con Edison, said they are still taking rebate applications for 1997, but they do not know what the rebate will be yet, as the Public Service Commission has to approve those rates in January.

"We are already fully subscribed for 1996," said Guilbeault. Con Ed expects to pay out $10 million in rebates for 1995 and 1996. "We made the commitments and have them scheduled," he said. In general, the rebate is $250 a ton and some of the large jobs are 1,000 to 2,000 tons.

Con Edison has been watching the marketplace and realizes the real estate industry has not reacted to CFC changeover as much as might have been expected.

"The change-out cost is tremendous," said Guilbeault. "Those companies that have equipment that are at the end of the expected life of 20 years have been receptive, but as we are getting closer to the deadline of January 1st, we are starting to see more inquiries."

Because these changeovers involve long--term planning and large capital investments, it takes about two years to complete such an operation.

Physical Plant Issues

Depending on the chosen new refrigerant and energy choice, there are other physical plant issues to consider. Exhaust ventilation requirements have almost doubled, explained Conrad. "I have a real problem trying to find a hole in the building that's big enough [to exhaust in the older buildings]," he said.

There are also other items that are triggered, including release discharge changes, alarm systems, room construction materials and air tightness.

Michael Downey, senior vice president of Mendik Management and president of the Building Owners and Managers Association of New York (BOMA), said he is about to issue his sixth contract for conversion of a Mendik building. Many of the older buildings are turbine driven, he explained, and while they were cost-efficient when New York was full of machine shops, the current lack of local skilled machinists means maintenance can be a problem.

"Now there is no shipbuilding or trained qualified mechanics, so if you have trouble with a turbine, you have to ship it to the oil fields or upstate or Pennsylvania," he explained.

Downey has nothing but praise for the newer systems, which are more energy efficient even when running at full capacity.

"Everyone thinks equipment lasts forever," he said. "It doesn't. A lot of the buildings were built around the equipment, and in some places, you have to rebuild in place. Where it is accessible, people should have changed it out. "

Downey is also mindful of the tenants. "What good is the space at a very good value if they don't have air-conditioning in the summer?," he asked.
COPYRIGHT 1995 Hagedorn Publication
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Copyright 1995, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:chlorofluorocarbons
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Nov 1, 1995
Previous Article:Finance notice confuses some owners.
Next Article:K-Mart deal sealed at One Penn Plaza.

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