Laws and Legislation
Brian Bovio, an HVAC provider in New Jersey and chair of Efficiency First, testified June 4 to a House subcommittee in support of the HOMES Act (HR 2128), which would offer homeowners incentives to help cover the cost of efficiency improvements. Bovio said that while many of the market players needed for an economically sustainable home performance industry exist today, they are not yet to scale. Legislation like the HOMES Act can help enable transformation in the residential energy efficiency market.
The HOMES Act, bipartisan legislation authored by Rep. David McKinley (R-WV) and Peter Welch (D-VT), would create a home performance-based rebate program that would provide incentives to homeowners (or contractors if they transfer the rebate) of $2,000-$8,000 based on predicted energy savings of 20%-50%. The bill emphasizes a technology-neutral approach based on performance with a quality assurance requirement.
Meanwhile, the Senate's bipartisan Energy Savings and Industrial Competitiveness Act (the Shaheen Portman bill) could "run aground under a host of unrelated amendments," reports Politico. Companies and groups including DuPont and the National Electrical Manufacturers Association are pushing the Senate to vote on the bill soon.
At the state level, Maine is moving forward on a comprehensive energy reform bill. The bill identifies Maine's electric bills as the 12th highest in the United States, with a plan to lower electric bills by an estimated $100 million to $200 million per year after implementation.
By pursuing energy efficiency initiatives, Louisiana could save billions in energy costs while adding thousands of jobs. "Successful programs in New Orleans are already delivering results and could be expanded to benefit the rest of the state," said Maggie Molina, senior manager at ACEEE and lead author of the Louisiana report. "Greater access to energy efficiency could help customers lower their energy usage and save money, while improving the energy system at large through greater reliability and lower costs."
How can you track all this legislation, and then some? From researchers at Colorado State University, you can use the Advanced Energy Legislation Tracker. The tool serves as a clearinghouse for energy-policy information in all 50 U.S. States. The group's website also provides national trend data and analysis.
Products and Manufacturers
The attorney who led class-action lawsuits against Chinese drywall makers is behind federal lawsuits in several states against spray polyurethane foam (SPF) due to health problems among affected homeowners Owens Corning has acquired Thermafiber, another insulation provider.
People and Practices
To better sell home performance, "Get to know the client better and accommodate the client's particular needs." Thus Don Otto offers Green Building for Tough Times, his thoughtful piece in Home Energy magazine. Also: Use the "simple payback" calculation, writes Christopher Morin on Home Energy Pros.
Alternatively, eliminate the ROI wait time altogether. Here's a novel concept from a startup that wants to pay for home improvements, then sell the loans to investors.
Hands-on: What's wrong with these roof details related to energy efficiency and durability? How would you insulate this problematic entryway? And why isn't a 3-ton air conditioner really a 3-ton air-conditioner? The latter is by Alison Bailes, by the way, who delivers a webinar on the AC refrigeration cycle on June 12.
Along with old newspapers used as insulation, a 1938 comic book valued at more than $100,000 was found in the walls of a Minnesota home being remodeled. The number of LED lamps and fixtures in the US have increased 10-fold in the last two years, while the cost of an average LED replacement bulb has fallen by 54 percent. However, Americans stink at recycling, at least compared to Europeans. According to the Center for American Progress, Americans recycle only 24 percent of their waste, while European countries recycle an average of 57 percent.
NHPC white paper proposes a planning process and outlines a "straw person" plan
Federal stimulus spending impelled rapid growth in the home performance industry: thousands of contractors learned about and received training in building science, new programs emerged across the country, and more whole-house upgrades were completed than ever before. Now that the ARRA dollars are almost all spent, how can the industry continue growing toward both profitability and a scale that will create thousands of new jobs while reducing the energy consumption of U.S. homes?
The industry needs a long-term plan for focusing its resources on the projects with the greatest potential impact on industry growth. As a step towards meeting this need, the National Home Performance Council released a new report Bringing on the Boom and Beating the Bust: A Framework for Developing a Roadmap to a Successful Home Performance Industry in April at ACI's national conference in Denver.
The NHPC white paper argues that, to be meaningful, a roadmap needs broad support from the full spectrum of industry stakeholders, and therefore should be developed through a deliberate, consultative process. Because this process has not yet occurred, the paper does not offer a roadmap. Instead, it outlines a process that could serve as a framework for creating a roadmap, and advances a "straw person" proposal designed to spark discussion and serve as a starting point for the roadmapping process.
One of the most significant problems with planning efforts is that the participants inevitably come up with more good projects than can be implemented with existing resources. Accordingly, the NHPC white paper recommends that a road-mapping process focus on identifying strategies that could help the industry grow to scale, and then undertake the hard work of prioritizing them. The highest-priority projects need to be matched both with parties capable of taking responsibility for implementing them, and the resources necessary to implement them.
Because the home performance industry still does not have a clear strategy for growing to a significantly larger scale, a roadmap may involve untried approaches and projects. If it does, it is crucial that processes for monitoring, testing and evaluating new approaches be incorporated into the planning process, so that methods that demonstrate success can be replicated, and ones that don't can be abandoned at a minimal cost.
In addition to describing a roadmapping process, the NHPC white paper outlines a "straw person" proposal (or proposals) designed to move planning efforts forward rapidly. A national, multi-stakeholder discussion that begins with a blank slate could take a long time to formulate a draft roadmap, and there is risk that the document would – with no disrespect to camels intended – resemble the proverbial horse created by committee. A straw person document could provide a way to start a discussion, provided that stakeholders have full liberty to make as many changes as necessary, even to the point of completely re-writing the initial draft.
NHPC's proposed "straw person" proposal draws a distinction between the consumer (homeowner) and "resource" markets. The home performance industry produces a product – the whole house energy upgrade – that is valuable to two very different types of buyers. The first market consists of homeowners, who are interested in purchasing a bundle of benefits from an upgrade that includes energy savings, comfort, better air quality, and improved health and safety. The second market consists of buyers that value reductions in energy consumption because they meet energy, capacity, carbon or other needs. These two markets are closely linked, with the homeowner market driving the creation of the energy savings that can then be sold to various resource markets. However, it is important to differentiate them, because the strategies needed to develop each market differ significantly.
The fundamental problem with the consumer market is a lack of effective demand, which is largely a result of the weakness of the value proposition for homeowners. The paper makes a number of recommendations to enhance the value proposition, including strategies to ensure that energy upgrades are recognized and fully valued in real estate transactions, methods for predicting and measuring energy savings more accurately, and (in the short term) well-designed incentives or rebates. The paper also recommends ways to reduce the homeowner's financial and time-and-hassle-related costs that include tapping "reactive" markets and "staging" energy upgrades over time so that improvements are made as equipment fails or opportunities for shell improvements occur, and so that demands on the homeowner's budget are reduced.
The paper emphasizes the importance of contractors as the driver of home performance upgrades. It advocates strategies that reduce reporting and other burdens on contractors, and that harmonize the upgrade process with contractors' traditional business practices.
The paper makes a number of suggestions to make resource markets more accessible to energy efficiency programs, including efforts to reform the cost-effectiveness test process through implementation of best practices and other approaches, efforts to expand capacity and other resource markets, and efforts to address utility incentives.
The Bringing on the Boom and Beating the Bust white paper is one of several recent efforts to promote better planning and a clear vision for the home performance industry. NHPC supports these efforts, and looks forward to working with a wide range of stakeholders to develop a roadmap that can guide the industry to a scale that allows energy efficiency to realize its full potential as America's cleanest and least expensive future.
The full report is available on the NHPC website (www.nhpci.org)
The question comes up nearly everywhere I go. "Tom, how do you define a successful company?" Now that's a pretty broad question. Do you look at the quality of work, customer service, bottom line profits, community perspective or what? After working with over 15,000 contractors across the country, I have finally come up with a definition I'm comfortable with. It incorporates three core areas - covering costs, customer expectations, and overall net profit margins.
Let's begin with covering costs. A successful company will ensure that its "real" costs of doing business are covered, from a cash flow perspective, as opposed to accounting. Basic costs include things like rent, utilities, insurance, gas, maintenance, and a slew of others that must be paid before the company makes a dime. However, covering the basic costs from a cash flow perspective (cash flow means actual dollars flowing in and out of the company) is only the beginning. There are two huge but often forgotten costs of doing business that must also be covered.
The single highest cost of doing business is the cost of non-billable time. Non-billable time is the time accrued by the tech that cannot be charged to the customer, or at least not directly. The typical service technician can only bill the customer for about half of his or her time. If your tech is making $18.00/hour in base pay, and then you add company matching taxes to the rate, you are looking at about $20.00/hour. If the service tech has 1000 non-billable hours a year, that means the cost of non-billable time for one (1) tech is about $20,000/year. If your company has four service techs then the cost of non-billable time alone is roughly $80,000 per year. That number needs to be added to the basic costs of doing business.
The second highest cost of doing business is the cost of equipment replacement. Let's assume a service van will last you three more years. For example, three years from today, the net cost of replacement which is replacement cost less trade-in, is $30,000. If you divide the $30,000 replacement cost by three years, you'll find that you need to build in $10,000 a year for equipment replacement costs. Now think about the number of vehicles and/or major pieces of equipment you have. Wow, the number is huge!
So covering our basic costs of doing business includes all of the normal overhead costs plus the cost of non-billable time plus equipment replacement costs. However there are a few other costs that need to be covered before we can say our "basic costs of doing business" are covered.
Let's add a few more dollars to the mix. To be successful the company also needs to be able to pay the owner a reasonable and regular salary. That may sound like a no-brainer but most owners simply live off of what's left. Well if you don't include rent or utilities in your pricing they won't be covered. The same holds true for the owner's salary.
Finally, there is one more basic cost of doing business that needs to be covered - providing a retirement plan for the owner and all of the employees.
Now let's review. To be considered a successful company "all" of your costs of doing business need to be covered, from a cash flow perspective. That includes the basic fixed and variable overhead costs, the cost of non-billable time, the cost of equipment replacement, paying the owner a reasonable and regular salary, and providing a retirement plan for the owner and all the employees. How are you doing so far?
The second area is shorter by description, but just as important as the first. To be considered a successful company, you must consistently meet, and hopefully exceed, your customer's expectations. That is no small task, if it is done consistently.
Additionally, to be considered successful, the company should be generating at least a 3% to 7% overall net profit. Yes, I can hear you. "Tom, a 3% to 7% net profit isn't worth it. I could make that much with a good savings account." Well the fact is most savings accounts today earn less than a half of a percent, but you get the point. However, if I could get the "industry" to average a 3% to 7% net profit, that would be a significant improvement for most contractors.
There you have it, my definition of a "successful" company. Now is that what you should be shooting for? Absolutely not! The goal for contractors in the trades industry should look more like this.
When it comes to track homes (new construction) if you can make any profit, congratulations. That has always been, and probably always will be, a tough market in which to make money. The only good thing about new construction is that it covers a huge amount of the fixed overhead costs, therefore allowing other departments to be profitable.
How about retrofits or replacement of equipment? I would suggest you shoot for an overall net profit of 10-12%. The last area is service. Service should be the most profitable department within your company. A well run service department should generate a 15-20% net profit. If you are on flat rate pricing that number can easily jump to an overall 20% to 25% net profit. Take a good look at your company and see how you measure up.
If you would like to take a really good look at what successful companies do check out this month's website special. The detailed full-day seminar manual and short overview CD entitled "Fifteen Things All Successful Companies Have In Common" is bundled together for only $75.00.
Congratulations to Charley Cormany of Beanstalk Energy in Sonoma, CA for solving the mystery of moisture accumulation!
As a reminder, the homeowner of a two story colonial with finished basement in Loudon County, Virginia had noticed the sporadic accumulation of moisture in his kitchen. It was determined that the moisture wasn't coming from a nearby bay window, nor was any moisture found in the basement ceiling. After using an infrared camera and moisture meter, the source of the moisture was still undetermined. Finally, a duct supply line was discovered two bays away from the damaged area, and a dryer vent next to the supply line.
To solve the problem, Charley came up with a plan to ask the home owner how much laundry they did. Charley suspected that the warm air from the dryer was causing condensation on the outside of the dryer vent duct. Since the duct slopes downward toward the exterior of the home, water would roll down the outside of the duct, and pool at the end. It would then be wicked up by the fiberglass insulation, and then wicked up by the floor, causing the sporadic accumulation.
Charley suggests that insulating the dryer duct and ensuring that the insulation on the nearby supply is still in good shape would solve the problem. Sealing these two areas would prevent heated air from escaping, and prevent future issues.
Thanks to everyone who submitted an answer to last month's Stump the Chump!
What's Wrong with this Picture?
The image below was taken by Matt Schwoegler, a thermographer and infrared instructor with the Snell Group. Matt was on location in Vermont, helping to train a weatherization crew from the Champlain Valley Office of Economic Opportunity (CVOEO) which was already working on the home. The room in question was used by the homeowner as a three-season porch/bedroom. Matt explains that this portion of the home appeared to be an addition to the original structure, and was likely moved to the home's location where it was connected to the main house.
During the infrared training and building inspection, which was taking place in warm weather conditions, Matt found what appeared to be an insulation level on the wall in this room. While the ceiling appeared to be uninsulated, what was happening with the wall was not as clear.
So, what's wrong with this picture?