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Labor Day Thoughts on Unemployment and Weatherization

Let’s create jobs and reduce our dependency on foreign oil by changing the way we sell and finance energy-retrofit work

Posted on Sep 6 2011 by Michael Chandler, GBA Advisor

I’ve been thinking more than usual this Labor Day weekend about putting Americans to work while solving our energy crises. If our goals are to reduce unemployment, reduce our dependence on fossil fuels, and improve all the buildings that are bleeding energy into the night sky, we need a better way to sell and finance home energy weatherization contracts.

The problem: how we sell weatherization work
Need-driven solar subsidies and PACE-type loan programs require the initiative to come from the client. But most people are not very motivated to save energy unless the improvements are free or “pay for themselves.” They aren't likely to pick up the phone and call for an energy audit, let alone schedule the small improvements that would actually have decent payback.

If, instead of a need-based subsidy, future tax credit, or any type of home-equity loan, we could sell $600 to $6,000 audit / weatherization packages as contract add-ons to the electrical connection, we could cut the paperwork and dramatically simplify the sales process. Instead of advertising to motivate customers to act, weatherization companies could target neighborhoods with door hangers and a deal where all you have to do is get a quick “energy nosebleed” audit, sign a contract agreeing to have the cost of the audit and repairs added to your monthly utility bill proportional to the anticipated cost savings, and give the utility permission to stop service for non-payment.

I can't believe what I'm seeing
I'm talking about the little “I can't believe what I'm seeing here” energy nosebleeds I see in middle-class homes and starter mansions: the disconnected, torn, or crushed AC supply ducts in the attic; the powered attic ventilators that are sucking conditioned air out of houses; the unsealed and uninsulated kitchen soffits; the inadequate attic ventilation; the tub drain cut-outs, HVAC chases, and skylight chases that are draining energy from homes. These problems don't cost much to fix, and the payback for the repair work is decent compared with solar panels and new windows.

The contract add-on would be similar to the way some cable TV and internet is sold, as an add-on to the phone bill. There would be no impact on home equity, no need for an additional credit check, as that is in place from the original utility connection. The preliminary audit would identify the “nosebleeds” that would have payback equivalent to the cost of the service during the time-frame of the agreement. Owner-occupied homes would be the logical target, but the pay-by-utility bill approach could work for rentals and light commercial properties as well.

There would have to be language in the contract to cover payment or transfer at sale of the property as well as to cover situations where service cancellation due to non-payment could damage property or occupant health.

The sales would be handled by weatherization contractors; all the utility would do is pass on the payment. Licensed energy auditors would find the nosebleeds as part of the sales team for the weatherization companies.

Quality control would be managed through state energy office, with spot checks similar to termite-treatment companies. The same energy offices could manage the financial end, as middleman between investment firms selling green investment bonds and the weatherization companies signing on to sell and install large amounts of weatherization. Community colleges could train auditors, installers, and managers.

This would allow weatherization companies to go door-to-door promoting a low-cost home energy tune-up with zero cash outlay, no impact on home equity, and minimal inconvenience to the occupants in the execution of the work — 100% financed by energy savings. This way, rather than waiting for the consumer to call and set up an appointment, a company can target whole neighborhoods and sign up a large percentage of the homes in a subdivision and reach some economies of scale and efficiencies of neighborhood implementation.

Subsidized weatherization skews the value of for-profit weatherization
I’m opposed to subsidies for solar and weatherization, because I believe they skew the value of the work, creating the impression that it “isn't worth it” unless subsidized. People will buy as much solar as the government will subsidize, and stop there. They like getting something for nothing, and if they can get up to a certain part of solar at half price, they wonder why they should pay full price for additional capacity.

Even fully subsidized “free” weatherization for low-income families is problematical, because middle-class and wealthy people live and work in buildings that can save energy with modest weatherization improvements; since some people get this work for free, it sets the expectation that the work shouldn't be expensive.

I’m equally opposed to subsidies for the gas, nuclear, and coal industries. When gas goes over $3.50 a gallon, people sell gas-guzzlers and buy mopeds and hybrids, or they plan their driving so they can drive less. Once gas prices stabilize, we see new Mustangs and monster trucks on the highways.

Rather than spending stimulus money on rebuilding roads, let’s just change the way we sell weatherization. We should invest in research and education to retrain our own people to reduce our need for energy through American ingenuity. We can put people to work at the same time that we reduce the deficit.

Author's note: These opinions are mine alone and don’t necessarily reflect those of others who contribute to or frequent this site.


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Image Credits:

  1. Chad Ray
  2. M. Chandler
1.
Tue, 09/06/2011 - 07:28

Edited Tue, 09/06/2011 - 07:30.

no impact?
by John Brooks

Helpful? 1

Michael,
How can you say "There would be no impact on home equity"?
a lien is a lien...no matter who holds the paper.

What if someone made a $3,000 correction that saves $300 year....
and then sells their home in 5 years?....the seller or the buyer would still have to absorb the "burden".


2.
Tue, 09/06/2011 - 07:38

Impact
by Michael Chandler, GBA Advisor

Helpful? 0

John, the difference is that the lein is against the utility connection rather than the deed. It is still a contract obligation but not in line with the bank so it wouldn't run foul of Fanny Mae or Freddy Mac. And a customer who is "upside down" on their mortgage or who couldn't pass a credit check due to personal employment or income issues would still be able to qualify for this program so long as the "Nose Bleed" repairs would save commensurate to monthly payments.


3.
Tue, 09/06/2011 - 15:50

auditors
by 5C8rvfuWev

Helpful? 0

... and the utility companies would be in charge of vetting the auditors and installers?


4.
Tue, 09/06/2011 - 16:19

Oh boy, does this ring true:
by James Morgan

Helpful? 1

"I'm talking about the little “I can't believe what I'm seeing here” energy nosebleeds I see in middle-class homes and starter mansions: the disconnected, torn, or crushed AC supply ducts in the attic; the powered attic ventilators that are sucking conditioned air out of houses; the unsealed and uninsulated kitchen soffits; the inadequate attic ventilation; the tub drain cut-outs, HVAC chases, and skylight chases that are draining energy from homes."

We often find homeowners are spending as much as three or four hundred dollars a month on their electrical service for a mid-sized home without even realizing they have a problem. "Isn't that normal?" they ask?


5.
Tue, 09/06/2011 - 16:24

response to JoeW
by Michael Chandler, GBA Advisor

Helpful? 0

No, I am well aware that utility companies have done what they can to sabotage grid-tie solar etc. they are in the business of selling energy and collecting profits. State Energy Offices, with their knowledge of regional energy priorities, would be in charge of vetting and inspecting auditors and installers.

I go into it in a bit more detail here:
http://www.chandlerdesignbuild.com/files/Market_Driven_Weatherization_01...


6.
Tue, 09/06/2011 - 17:00

Edited Tue, 09/06/2011 - 17:03.

Get the subsidies out of the equation!
by Ted Clifton

Helpful? 1

Michael is right-on with most of the above, mainly getting the Government out of our business. There are enough good financial incentives (like saving money!) to justify even large amounts of money being invested in weatherizing our homes. Just remember to factor in the future cost of energy, the rest is easy!

Did you know that for the average homeowner in America, if you had purchased all the energy you have used for your home in the last 30 years all at once in 1973, it would only have cost you about $8,550? If you waited until 1981, and purchased it all then, it would have cost you about $28,000, but if you waited and purchased it all today, you would pay about $77,000, or more than nine times as much. Conversely, if you were to purchase your next 30 years worth of home energy (average per dwelling figures of $214 per month) today, you would spend the same $77,000, but if you purchase it on a monthly basis, allowing for energy costs to rise at their historical levels, you will spend more than $220,000 for the same amount of energy.

How much would you save if you put the entire $77,000 into energy upgrades right now? If that would get your home to net-zero (it would for many), you would be about $82,000 ahead by the end of the 30-year period (after making the mortgage payment to finance the $77,000), and each year after that you would save another $16,655, then $17,712, then $18,800, the amount of the savings would just continue to rise.

The savings outlined above do not take into account the Mortgage Interest Deduction, or the fact that money you spend on energy is after-tax money, whereas savings are not taxed. This could save you an additional 15% to 28%, depending on your tax bracket. These savings do not take into account the 30% Federal tax credit for installing solar panels, or any of the various production incentives available in many states. They do depend on net-metering, however, and we should all be working to make that the law EVERYWHERE!

One side-note this Labor Day, did you notice the GREAT NEWS in the labor figures? While there was no net increase in jobs, there was an increase in PRIVATE SECTOR jobs, with a corresponding decrease in public sector jobs. Does anyone even remember the last time that happened? If this becomes a trend, we could actually begin to pull out of this recession.


7.
Tue, 09/06/2011 - 20:07

Edited Tue, 09/06/2011 - 20:08.

Horrible idea. Giant
by aj builder, Upstate NY Zone 6a

Helpful? -3

Horrible idea. Giant programs, giant waste. We need to switch property and state taxes to fuel taxes. Then all of us being hit with that stick will make these changes. For most, the utility bill is inconsequential in comparison to mortgage and property tax payments!


8.
Wed, 09/07/2011 - 03:40

Edited Wed, 09/07/2011 - 03:42.

Where are the cost savings ?
by Peter Hastings 4C

Helpful? 0

The notion that the cost of energy improvements can be paid for out of savings on energy bills seems optimistic in the extreme. Assume, for the sake of argument, the everyone adopts such improvements and reduces their energy consumption by 25%. So everyone's utility bill drops by 25% and the savings pay for the improvements. Not quite. The reduction in the utility bill won't be anything like 25% because the cost of the raw material is only a fraction of the costs that the utility company has to cover. So the cost savings, even assuming the utility companies play fair, will be 25% multiplied by the fraction of the overall costs represented by the raw material. Which will be small beer. Even if the utility companies can reduce their infrastructure, because they're delivering less energy, such a reduction will actually cost money to achieve unless it is by natural obsolescence - which will take way too long to appear in anyone's utility bills. Am I missing something?


9.
Wed, 09/07/2011 - 08:05

It's the nose bleeds-only approach that gets the savings
by Michael Chandler, GBA Advisor

Helpful? 1

Peter, I'm not talking about major renovations here, it's the broken duct work, open air-flow crawl to attic and really bad things I see in way too many houses that are the opportunity here. If we could do the three most egregious energy offenses in a whole bunch of houses we could put people to work and save energy. In some of these houses we'll only be talking about $1,800 to $3,000 of work plus the audit. if $3,000 can save $300 per year we can make the numbers work on a 6% contract over 15 years.

AJ, I spoke recently with a representative from our local electric company who said that in his market most people paid more for cell phone and internet than they did for electricity.

I'm in favor of raising the cost of energy, but I don't see how it solves the problems we have with unemployment and a moribund economy to eliminate state and property taxes by replacing them with energy taxes. I think the opportunity here is to use the unemployment crises to staunch energy nose bleeds without further subsidies increasing the national debt. But yes, lets also eliminate government tax breaks and subsidies for fossil fuels while we're at it. If we can get that through congress.


10.
Wed, 09/07/2011 - 14:10

The world is one market as of
by aj builder, Upstate NY Zone 6a

Helpful? -2

The world is one market as of sometime. Labor pays $1.00 per day to $8.00 per hour. In the US we do not enjoy living like star athletes on labor wages. But somehow we are way overweight and own giant flat screen TVs and we believe in Adam and Eve, Easter Bunnies, fake moon landings, bling, and Facebook.

Not sure you will capture the masses of youngsters imaginations coming up with your program Chandler.

Now if you can tie it in to Groupon, Facebook, Twitter, with some smartphone bling bling app that rewards winners with a makeover and some cosmetic surgery... yaa got a winner!

Otherwise... it just a big...

Fail. (our latest popular word, LOL)

just sayin, Chandler....


11.
Wed, 09/07/2011 - 20:40

Interesting blog entry
by Brian O' Hanlon

Helpful? 0

I must get around to reading this thoroughly later Michael. Thanks for posting it up.


12.
Wed, 09/14/2011 - 01:40

Edited Wed, 09/14/2011 - 01:41.

I like the direction of this.
by albert rooks

Helpful? 0

Michael,

"When gas goes over $3.50 a gallon, people sell gas-guzzlers and buy mopeds and hybrids, or they plan their driving so they can drive less. Once gas prices stabilize, we see new Mustangs and monster trucks on the highways."

I could not agree more! It's the cost that drives the consumer. In this country improvements are made for better comfort or to avoid cost. Getting a subsidy while possible to an extent, is not as effective as "the pain of pricing".

Energy needs to cost more. There is no way around it. Systemic repairs due to climate change should be financed by a tax on energy consumption.

Keep pushing the idea however it evolves. Thanks Michael. Keep bloggin.


13.
Thu, 09/15/2011 - 10:41

Great posts Albert and Cliff.
by aj builder, Upstate NY Zone 6a

Helpful? 0

Great posts Albert and Cliff. Expensive fossil energy is the way to reduce the use of it.


14.
Thu, 09/22/2011 - 11:44

Cost per Unit and Reality
by Peter Hastings 4C

Helpful? 0

In some of these houses we'll only be talking about $1,800 to $3,000 of work plus the audit. if $3,000 can save $300 per year we can make the numbers work on a 6% contract over 15 years.

Those $300 per year savings only exist if the cost per unit does not rise. If the number of units used falls then the cost per unit has to rise to cover the fixed costs borne by the utilities. Just ask the good people of Denver - at a time of water shortage they were asked to economise and, by concerted effort, reduced their useage by (from memory) 40%. The water utility had to raise their prices per unit accordingly and the water bills stayed pretty much where they were. Astonishingly, the good people of Denver were surprised and indignant when this happened. The only way you can make savings in this way is if you reduce your own consumption and nobody else does. We can't be advocating that surely ?


15.
Fri, 09/23/2011 - 08:35

Peter, I am expecting the cost of energy to go up.
by Michael Chandler, GBA Advisor

Helpful? 0

This is different than the water issue, which has also happened here in Raleigh NC. The cost to provide clean water goes up per unit as people conserve, the cost to add new taps for population expansion goes down as people conserve so conservation sponsors population growth and prevents economic stagnation but doesn't save the user much, if any, money as they are really just paying for the overall infrastructure to supply the water to the homes.

The demand for power overall will not go down as a result of this proposal but would simply increase less rapidly. It would save the utilities some of their peak power demand which they have to meet with more expensive generation capacity so it would help them control costs. Also the cost of coal or natural gas burned to produce electricity is a significant part of consumer cost esp as compared to the cost of the untreated water in the overall municipal water bill.

As unit prices for power inevitably increase the savings would become more significant so people who took advantage of this program early and would see their savings increase in comparison to what they would be paying if they had not taken part in the program.

Additionally, many of these low cost improvements are in bulk air leakage so they would see indoor humidity and house hold dust improvements that go along with cutting down on uncontrolled out door air leakage.


16.
Mon, 01/09/2012 - 00:14

Further discussion on this at Resnet.US
by Michael Chandler, GBA Advisor

Helpful? 0

The LinkedIn group "Resnet.US" under the guidance of Steve Baden has a pretty interesting discussion going on this topic for those looking for further opinion from folks with a LOT of experience in the home weatherization industry. Join the group and look for "On Bill Financing - Why Isn't Everybody Doing It?"


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