Winter Energy Prices to Rise
A Frigid Forecast
Contractors struggled through an abnormally warm winter last year as national temperatures averaged 36.8˚F, making it the fourth warmest winter in U.S. history, and just 0.4˚F cooler than the 1999-2000 season, the warmest winter on record. According to National Oceanic and Atmospheric Administration (NOAA) projections, the Northeast, Midwest, and South will be about 2 percent warmer than the 30-year average this season, but still 20 to 27 percent colder than last winter.
“The weather pattern will be highly influenced by Atlantic and Pacific Ocean temperatures, which are, in some ways, similar to last winter,” said Chris Orr, certified consulting meteorologist. “However, there are many new variables — probably more than I’ve seen in a dozen years. El Nino is weak right now, but it should grow stronger and more dominant in January. Another variable is that sea ice is quickly forming across the Arctic and it should be on track to be as expansive as it was last winter, which was the most we had observed since 2006.”
This winter, contractors will not only have to deal with the effects of the weather, but also the effects of energy prices. The U.S. Energy Information Association (EIA) released its “Short Term Energy and Winter Fuel Outlook” on Oct. 10. Compared to last year, the report predicts average household expenditures for heating oil will increase 19 percent; natural gas, 15 percent; propane, 13 percent; and electricity, 5 percent.
The EIA projects that costs will vary by region due to a number of factors including changes in production, pipeline supply capacity, and differences in regulatory constraints in passing price changes through to customers. Due to these factors and others, a wide array of natural gas prices will exist this season, ranging from a 3 percent decrease in the South, to a 4 percent increase in the Northeast.
John Huber, president, National Association of Oil & Energy Service Professionals (OESP), said rising prices will negatively impact consumers and the industry.
“We have worked hard to counteract this harm by encouraging efficiency measures, and the use of biofuels,” said Huber. “Both of these will help in both the long and short term to moderate price increases, and will likely result in decreased prices in the long term.”
While rising prices may alarm many, Bill Liss, managing director of End Use Solutions, Gas Technology Institute (GTI), said prices have dropped precipitously since 2008. Consumers are paying approximately 20 percent less, and commercial users are paying 25 percent less, when compared to the 2007 to 2009 period, saving as much as $25 billion per year in natural gas costs, when compared to 2008, he noted.
“Last winter was relatively warm, meaning that many consumers actually used less natural gas for heating and their total bills were lower,” said Liss. “If this winter is colder, they are likely to use relatively more natural gas than last year. However, since the wholesale cost of gas is so low, the impact of greater use will likely not be that significant to the typical consumer. This may be counterintuitive, but the way many consumers are charged — they are paying a fixed charge for the natural gas service and their incremental gas use is billed at close to the wholesale price, which is quite low.”
Jeff Pillon, director of energy assurance, National Association of State Energy Officials, encouraged homeowners and contractors to consider all forms of available assistance.
“No one likes to pay more for the costs to heat their home, and we encourage residential users to make all reasonable cost-effective investments to make their homes as energy efficient as possible,” he said. “Most state energy offices operate programs that provide residential customers with information on saving energy and other various programs that assist them, and we encourage them to pursue these resources.”
The NEWS spoke with a few contractors who said they will be significantly affected by the rising energy prices.
Hank Bloom, owner, Environmental Conditioning Systems, Mentor, Ohio, said winter temperatures dictate the seasonal schedule. As bills rise, people will proactively seek solutions, he said.
J. Scott Needham, president, Princeton Air Conditioning Inc., Princeton, N.J., said it is impractical to hope that prices will remain at historic lows forever.
“As we look ahead to winter, there are some concerns about the direction of natural gas prices. This could be a harbinger of things to come,” he said. “There are a number of factors that have caused this to happen, and many experts predict the price of gas will continue to rise. The best way to limit how much you pay for heating is to make sure your home is as energy efficient as possible.”
“I believe more customers will start to take a serious look at replacements for their older HVAC and lighting setups,” he said. “They’ll seek savings any place they can find them, and I believe consumers will start to consider alternate energy ideas.”
OESP’s Huber said increased prices will encourage energy conservation, which encourages contractors to sell, sell, sell.
“This increase may result in increased sales of high-efficiency equipment, or intermediate and low-cost steps such as replacing thermostats,” he said. “The recession in the country and in the home industry has deterred many of these activities, but the pricing will continue to push consumers to improve efficiency.”
Huber believes HVACR contractors should offer efficiency upgrades with every tune-up or maintenance call.
“We are not doing consumers any favors by having low-efficiency equipment in the field,” he said. “And finally, we should take our eyes off the appliance and look at the whole house. An efficient furnace is great, but if the house does not have good insulation, we are not really attacking the problem.”
Ronnie Kweller, director, media relations, Alliance to Save Energy, said contractors can help combat higher heating bills by stressing the benefits of energy-efficiency equipment.
“With HVAC equipment, we recommend a yearly check-up or tune-up to ensure equipment is in good working order; adequately sealing and insulating the exterior of the house to ensure that the warm air is not being lost to leaks; keeping furnace filters clean — and, when it’s time for new equipment, encourage the purchase of the most efficient model within your budget,” she said.
Roger Grochmal, president and CBO, AtlasCare, Oakville, Ontario, Canada, is already taking advantage of the falling temperatures.
“Homeowners tend to be motivated by pain, and the pain that motivates them best is the one in the wallet,” he said. “A very mild winter with low prices last year took a lot of homeowners off the hook. If the projected increases are coupled with a return to a more normal winter weather pattern, we should see increased demand for replacement furnaces. The fall preseason is already going well and could get even better.”
The winter often brings slower workloads — especially for those in warmer climates. Rising energy costs serve as yet another hurdle in the race of profitability. Many contractors are already concocting creative measures to keep their phones ringing.
Tim Paetz, owner, Bud Anderson Heating and Cooling, Fayetteville, Ark., said he aggressively blankets his service area with winter deals and discounts.
“We do newspaper inserts, billboards, direct mail postcards, TV, and radio,” he said. “We also do direct mailers, give away gift cards, offer $50 off coupons, utilize Facebook, offer a yard sign contest, and more.
“A few years back we started a neighbor-referral program and we’ve gotten about 30 calls back since September.”
Paetz said service agreements serve as a great way of getting a technician in the door. “We stress just how much a consumer can save on utility bills through regular maintenance. We have about 5,000 club members — which is what we call our maintenance agreement participants — and that keeps us pretty busy,” he said. “These agreements are the key to getting us in the home. Once inside, we can identify all sorts of issues, and our technicians are very good at turning work over.”
Thomas Wuorio, service manager, Service Star, Tempe, Ariz., said the Southwestern climate doesn’t offer a rush of new business across seasons.
“Phoenix never gets very cold, and we don’t have to worry about units breaking down due to temperature changes. Because of that, we don’t have a real need for winter tune-ups, so it is a challenge to keep everyone busy,” he said. “Sales typically do dip starting in October or November and won’t return until spring. We do our best to combat this through reminder phone calls, emails, and postcards.”
Carissa DiMuccio, service manager, Carjon, Smithfield, R.I., said a well-balanced schedule leads to happy workers and customers.
“We all need to be ready for the weather to snap,” she said. “If you have a schedule full of tune-ups and no room for emergency repairs, it leads to angry customers. The customer whose tune-up is canceled is angry, and the customer with the emergency is upset because you can’t address the issue immediately.
“It’s important to designate specific technicians for tune-ups. Schedule those maintenance agreements a month prior to the winter season and book those technicians accordingly. Make sure you leave availability for your best ‘repair’ technicians. Only book those more-qualified technicians if the 10-day forecast allows for smooth sailing.”
Publication date: 11/5/2012