This article was originally published in the March/April 1999 issue of Home Energy Magazine. Some formatting inconsistencies may be evident in older archive content.
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Home Energy Magazine Online March/April 1999
Southwest Utility Offers Energy Cost Guarantee
By Christina B. Farnsworth
Christina B. Farnsworth is one of only three life members of the National Association of Real Estate Editors. She writes for Better Homes and Gardens, HOME, and Professional Builder. Her fourth book, Alternative Building Systems,will soon be published by Fisher Books.
How can a utility hang on to its customers in a deregulated market? Tucson Electric Power hopes it can please its customers through guaranteeing their energy costs in high-performance homes.
For more than a decade, builders like Chicago's Perry Bigelow have launched similar programs that offer utility cost guarantees as a way of emphasizing their high-quality, energy-efficient construction (see Perry Bigelow: Energy Efficiency Maestro, HE Mar/Apr '94, p. 13). Other utilities have also promoted similar programs to work with builders toward more energy-efficient housing (see Trade Allies: Long Haul Partners, HE Sept/Oct '93, p. 17 and New Construction in New England: The Energy Crafted Home Program, HE Sept/Oct '92, p. 21). TEP, however, says it is the first electric utility to take up this marketing tool. There are others in the country that guarantee a dollar amount in energy savings, says contractor trainer John Tooley, but Tucson Electric Power's Heating, Cooling, and Comfort Guarantee program is unique.
TEP is betting that the owners of its Guaranteed homes will remain TEP customers even after other electricity providers enter the market. With deregulation set to begin in Arizona this year, this step is just around the corner. The benefits are large compared to TEP's expenses. With 29 Guaranteed homes built and another 36 under construction, 11 have completed their first year under the program. Of those 11, only 2 homes exceeded their Guaranteed amounts, says Wendy Erica Werden, the utility's marketing communication coordinator. For these two homes, TEP has had to pay a grand total of just $115.10 in energy cost rebates. In addition, the utility does pay some other costs: $600-$700 per home for the performance testing, plus another $100 in advertising.Program Parameters Though the homes are built to strict performance standards, TEP uses no special monitoring equipment to measure actual energy use. Thermostat settings are restricted under the guarantee to 72°F maximum in winter and 75°F minimum in summer. If the occupants find that they are not comfortable at these settings; the utility will analyze the home to find out why it is not performing up to expectations. If TEP discovers that the residents consistently set the thermostat above the maximum in winter, or below the minimum in summer, the guarantee becomes void. TEP inspects the home if owners complain that they are uncomfortable or if the bills are significantly higher than the estimate (homeowners sign a contract with TEP agreeing to allow the utility to place monitors on equipment if there is a dispute).
Under the program, TEP does not guarantee the heating and cooling costs per day, but rather the average heating and cooling costs per day over the year. That is, a house could use more than the guaranteed amount in one day, but it's average use for the year would not be above that amount. TEP uses Elite software for sizing equipment, based on the American Society of Heating Refrigeration & Air Conditioning Engineers (ASHRAE) Comfort Chart, to estimate each home's monthly electricity use expressed as a dollar-per-day figure. For example, one 1,450 ft2 home built to TEP's standards carries a guaranteed maximum HVAC operating cost of $1.19 per day, less than $40 per month (see Tables 1 and 2).
To establish baselines for non-HVAC-related energy uses within the home, TEP looks to Tucson's benign months of April and November, when heating and cooling needs are minor to nonexistent. The logical assumption is that bills in those months reflect the owners' baseline electric consumption for appliances such as refrigerators, dishwashers, and dryers; pool pumps and equipment; computers; lighting; and other uses. The billing differential between baseline months and heating and cooling months is thus the HVAC operation energy cost (see Figure 1). TEP calculates these costs annually but suggests homeowners take advantage of its budget billing program, which averages utility costs into a monthly payment plan. If the electric bill is higher than estimated, TEP refunds the difference at the end of the year.Homes on Display Some of the first homes built to the program's standards were on display in the 1998 Street of Dreams, a national program based in Portland, Oregon, that partners with custom home builders to build showcase homes for public tours. Developer Stellar Homes Arizona hosted the five Street of Dreams homes (all TEP Guaranteed) in its exclusive 128-home community in Oro Valley, a suburb of Tucson. As marketing sponsor, TEP used the Street of Dreams to call attention to its new program. The largest home, 5,200 ft2, had guaranteed heating and cooling costs of only $3.59 per day--a little more than $100 per month. The crowds touring the homes regularly remarked on this low cost.
Werden says that production and custom builders are not the only builders involved in the program. Primavera and Habitat for Humanity, programs that help the working poor build and own housing, also participate. Their 1,200 ft2 homes sell for $50,000 and guarantee heating and cooling cost averaging no more than 81¢ per day.Higher Standards Although the TEP program will carry a U.S. Energy Star Homes program designation, it actually exceeds Energy Star standards, as well as those of the Southern Company's Good Cents program. The TEP standards also exceed those of the Pima County/Tucson Model Energy Code (MEC), which is based on 1995 MEC standards. For example, while 1995 MEC calls for a 10-SEER heat pump and less than 25% duct leakage, TEP's program calls for a 12-SEER or higher heat pump with less than 3% duct leakage.
Other differences in TEP's program are the care taken to size equipment properly; air balancing and pressure balancing with additional air returns inside the home; and mechanical ventilation systems to introduce healthy amounts of fresh air without wasting energy. These measures create more uniform temperatures throughout the home; prevent backdrafting when water heaters, fireplaces, or vent fans are in use; reduce air infiltration; and keep indoor air fresh and healthfull.
Careless construction techniques often create situations in which energy efficient materials perform little better than their inefficient counterparts. Therefore, TEP's program calls for and checks framing improvements, such as wall blocking, so that poor construction doesn't undermine energy-saving measures. TEP inspectors check all the following areas to ensure that appropriate blocking or capping is present: rim joists, floor system, cantilevers, flues and chimneys, cavities and chases, soffits connected to exterior walls, dropped ceilings, garage attic connections to conditioned space, parapet walls, furred walls, split-level wall connections, beam pockets, wiring and plumbing penetrations, and stairwells.
Insulation inspections verify that the entire cavity is properly insulated with no voids or compression, and that the insulation is split around wires and plumbing. TEP inspects to make sure that all ponywalls, kneewalls, stairwells, skylight shafts, and so on are properly insulated, and that insulation is secured in place (no friction batt unless it is properly secured). The inspectors also verify that the insulation in all areas touches the appropriate air barrier.House Rules Load calculations are completed for each model home in a subdivision before contracting with a builder to build them. Builders are given two ways to qualify for the Btu per hour requirement maximums: Either they can use the prescriptive list of measures and limit glass areas in the home to the prescribed amount (see Table 3), or they can use the performance method and increase ceiling insulation, wall insulation, window U-value, window shading, and so forth and use more glass. All builders participating so far have opted to submit plans ahead of time and use the second method. This leaves them more room to design the home the way they would like and still meet TEP standards.
Requirements for insulation are R-30 for ceilings and R-19 for walls, but this can vary if the standards are based on performance. Insulation may be either blown in or blanket cellulose or a combination of R-13 batts and R-4 rigid foam board. Crawlspaces or basements (which are uncommon in Tucson) must have R-7 insulation, and the floors over these unconditioned spaces must have R-19 insulation. Concrete slabs must have perimeter insulation. Although these insulation standards aren't necessarily higher than those of other programs, the attention paid to construction details that affect thermal performance results in a more efficient home, the utility says.
Under the prescriptive method, the windows can comprise a maximum of 15% of the conditioned floor area. The program also requires energy-efficient, double-glazed, NFRC-rated windows that are thoroughly caulked and sealed with nonexpandable foam; well-sealed sill plates and exterior-wall utility outlets; the use of mastic to seal R-6 insulated ductwork; a 12 SEER air conditioner; and a 7.8-8 HSPF heat pump.
The water heater must also be electric. The utility feels that insisting on electric water heaters is easier than requiring builders to build a sealed combustion, power-vented compartment for a gas water heater, and it feels that the higher cost of electric water heaters is greatly offset by the other energy efficiency measures in the homes. It also offers a special rate to customers to offset the costs. Buyers may choose gas cooking equipment and fireplaces if they wish. If buyers choose to have a fireplace, whether wood-burning or gas, it must draw outside makeup air for combustion. In addition, qualifying houses must conform to certain thermal performance standards (see Table 4). Furnaces must also be high efficiency electric heat pumps. It is fair to point out that these features of the program are likely to draw attention to the utility's particular interest in promoting electric appliances.
There are three required TEP inspections: two during construction and one to verify equipment installation. Along with the requirement that duct leakage not exceed 3% of the house floor area is a requirement that connections be sealed with mastic sealant and that the returns be ducted. Inspectors also locate ducted return air paths from all major rooms and locate the fresh-air ventilation system to verify installation. Air balancing is used to ensure proper air flow to every room, HVAC equipment is sized appropriately, and ventilation is controlled to ensure that enough fresh air enters the well-sealed home. All these are noteworthy examples of how the TEP Guarantee program exceeds the national Good Cents program.
Every single home in TEP's program receives a detailed inspection upon completion, including a blower door test, duct testing, diagnostic work, and an air-flow test. The homes must pass inspection before they can receive the TEP Guarantee.IAQ Measures Experts agree that a home's indoor air quality (IAQ) is often worse than outdoor air quality. Off-gassing from volatile organic compounds (VOCs) in paints, formaldehyde, and other chemicals in manufactured wood products and carpets can combine with moisture and room deodorants or cleaning products to create an unhealthy indoor living environment (see Occupants Pollute Healthy Homes,HE Sept/Oct '98, p. 6).
Even what looks clean in a home isn't always so. A 1996 study by a manufacturer of home ventilation products found that air analysis of new, clean-looking homes turned up formaldehyde, VOCs, carbon monoxide, nitrogen dioxide, and sulfur compounds, as well as pet dander and dust.
Moisture can also be a problem. The American Lung Association says that a family of four can generate 1 cup of moisture per hour just from breathing and perspiring. Add moisture from bathing, cooking, and cleaning, and a family of four will generate more than 18 gallons of water per week, creating mold, mildew, and a haven for dust mites if the relative humidity becomes high enough.
The solution to moisture and IAQ problems is a whole-house mechanical ventilation system that exhausts stale air and brings in fresh air without wasting energy dollars. The Heating, Cooling & Comfort Guarantee homes require these systems. TEP does not advocate any particular system--as long as each home passes the final diagnostics tests, the utility isn't concerned with which system the HVAC contractor chooses.Buyer Choices TEP's comparison chart, using the utilities standard residential rate schedule, says that a 1,850 ft2 home built to meet the 1995 MEC could expect annual heating and cooling costs of about $1,200, compared to about $730 for a Good Cents home and just $630 for a TEP Guarantee home of the same design built to the stricter TEP standards. TEP offers an option for these guaranteed homes that saves homeowners even more--it becomes $560 in annual heating and cooling costs using the basic 201 pricing plan.
The basic 201 pricing plan (Option A) saves a typical customer 12% over the standard electrical rate, but two further options can save still more. Option B is a time-of-use (TOU) plan that lowers rates at night and other off peak times (customers do not pay for the TOU meter). This saves up to 18% over the standard. Option C throws in solar or heat pump water heating (or both), saving the customer up to 22% more than the standard.Higher Costs No Problem It does cost more to build such energy-efficient homes, but how much more depends on the standards the participating builder is already following. Vickie Boes, TEP's builder key accounts manager, estimates that it may cost up to $2,000 more to build a new home to TEP Heating, Cooling & Comfort Guarantee standards than it would cost to build a typical MEC house. The fresh-air ventilation system alone often costs $800 to $1,000 and also calls for more ductwork to properly balance air flow in the house. Proper sizing of equipment can save some construction costs, reducing overall cost increases. TEP points out that such higher net costs are balanced out in energy savings. For example, if homebuyers save 40% on their heating and cooling utility bills, they can afford a little more house, because their total out-of-pocket expenses for mortgage and utilities are the same or less. Thus, first cost is not the bottom line. TEP feels that educated, new-home buyers look for healthy living features and are willing to pay a little more up front to reduce long term energy costs. Builders & Lenders Join In Pioneering Tucson builders C&C Construction, Miramonte Homes, and The Kemmerly Company were among the first firms to join the Heating, Cooling & Comfort Guarantee program. One benefit for these builders has been the marketing value of enthusiastic third-party endorsement of their high-quality building practices. While this endorsement from TEP helps homeowners to understand how building techniques that are largely hidden within the walls will ensure better air quality and lower their utility bills, the builders have not had to make huge changes. We were doing a lot of this already, says Larry Eplinger, construction manager for Miramonte Homes. Another great benefit to builders is the opportunity to get their workers and contractors trained in the high-quality workmanship that goes hand-in-hand with the whole-house approach (see Training is Crucial).
Some local lenders recognize that lower energy bills mean lower cost of homeownership, and are promoting the energy-efficient mortgages (EEMs) that qualify buyers for larger loans. For example, Commercial Federal Mortgage offers these mortgages plus a $200 discount on closing costs to the buyers of TEP Guarantee homes. Commercial will also qualify buyers for loans up to 5% higher than those they would otherwise get. Thus a buyer who qualified for a $150,000 loan on an ordinary home might qualify for a $157,500 loan on a Guarantee home. The lender also gives borrowers a 0.25% reduction in points and down payment options as low as 3%. This means that the buyer of a qualified $157,500 home needs a down payment of just $4,725. Since many consumers make enough money to make mortgage payments but don't have much in savings, such plans can open the door to homeownership.
By promoting this kind of plan and partnering with builders, TEP feels it can benefit in this era of increasing competition. And while the utility hopes to keep its competitive edge in the battle for customers, builders can benefit also--even in times of high construction activity. In the eyes of consumers, a program like the TEP Guarantee certifies not just energy savings but also construction quality. Moreover, such a program enables consumers to choose a home that may have a slightly higher selling price but offers dramatically lower operating costs.
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