Supreme Court Ruling Makes Comfort Affordable

July 30, 2007
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TABLE 1. Note: This chart is for example only: rate increase size and frequency will vary upon location. (Click on the chart for an enlarged view.)

We’ve known for years that growing demand for electricity, aging power plants, and inadequate distribution facilities were going to cause electric bills to increase over time. However, a recent decision by the United States Supreme Court will supercharge rate increases and could easily double the cost to cool your customers’ home over the life of their new comfort system.

On April 2, 2007, the United States Supreme Court ruled that greenhouse gases are pollutants and can be regulated under the Clean Air Act. The Environmental Protection Agency (EPA) will be required to limit the amount of carbon dioxide (CO2) and other greenhouse gases emitted into the atmosphere. Greenhouse gases have been scientifically linked to global warming. Recently six of the eight leading industrial nations promised to decrease greenhouse emissions by 50 percent by 2050. The United States agreed to consider similar cuts.

Coal-burning power plants are America’s No. 1 source of greenhouse gases. The fastest way to reduce power plant emitted greenhouse gases is to switch from burning coal to natural gas. This strategy immediately reduces the granddaddy of all greenhouse gases, CO2, by 44 percent.

Most electric companies already use natural gas-fired power to meet peak summer air conditioning demand. Switching from coal to gas for additional “base load” power won’t be a problem for most utilities. Unfortunately for consumers, fuel is the single largest cost of providing electricity and natural gas costs substantially more than coal. In most cases, higher costs for gas will be immediately added to consumers’ electric bills as a fuel adjustment charge.



NATURAL GAS 101

“Impacted largely by the skyrocketing prices for natural gas, Arizona Public Service (APS) announced plans today to request a 20 percent rate increase for its retail customers.”
- APS News Release, Nov. 4, 2005

The law of supply and demand controls natural gas prices. When demand outpaces supply, prices rise. The wider the supply and demand spread, the higher the price. To help your customers make the best buying decision, it’s vital to help them understand how natural gas prices affect their ever-increasing cost to stay comfortable.



Natural gas rig drilling below 15,000 feet. Natural gas is projected to be the primary fossil fuel used for electricity generation.

DEMAND

“50 percent more U.S. homes, offices, and shops will be added in the next 25 years.”
- Brookings Institution

Even before the Supreme Court ruling, the Energy Information Agency predicted demand for natural gas would increase 30 percent. The generation of electricity will account for over one-half the new demand for gas.

Over the next 15 years we’ll need to add about 400,000 MW of new electricity, about the equivalent of 40 nuclear power plants. Ninety percent of all new power plants will be fueled by natural gas.

Ethanol, considered by some to be America’s “home grown oil,” will also drive the demand and price of natural gas. The Energy Policy Act of 2005 will double the use of ethanol by 2012. According to the U.S. Department of Energy, it takes 740,000 fossil energy Btu’s to produce 1 million ethanol Btu’s. The lion’s share of fossil energy is natural gas to fuel 95 percent of our ethanol distilleries and produces 100 percent of all American-made nitrogen fertilizer.

SUPPLY

“U.S. natural gas production peaked in 1973 and started a long period of decline.”
- U.S. Energy Information Administration

Former U.S. Federal Reserve Chairman Alan Greenspan said in 2005, “The recent surge in oil and gas prices appears to be a long lasting phenomenon. Natural gas has doubled from $2.50 in 1999 to $5 today and its supply has been constrained by the inability to import significant gas supplies other than from Canada.”

To meet growing demand, the National Petroleum Council estimates America needs to import at least 17 percent more natural gas from outside North America within 20 years. The answer to growing demand is imported liquefied natural gas (LNG).

Natural gas is cooled to –258°F compressing the energy in 625 cubic feet of vapor into one cubic foot of liquid. Fears of an LNG explosion have affected LNG terminal construction and limited America’s future supply of natural gas. Of the two-dozen terminals planned, only one has been built in the last 27 years.



SELLING PREMIUM COMFORT

Features that provide the greatest comfort also produce the lowest electric bills. New EPA regulations, rising fuel costs, and new energy infrastructure will cause your customers’ electric bills to increase several times over the life of their new comfort system. Ongoing rate increases have an effect similar to compound interest, the larger the rate, the faster it grows. Every rate increase makes premium comfort more affordable. Here’s how it works:

If the air conditioning portion of the buyers’ electric bills is $600/year with a 13 SEER system, how much would they have saved with an 18 SEER system? As seen in Table 1 on page 18, the first year savings of $175 is pretty much a yawn - but potential system-life savings of $5,203 helps make premium comfort extremely affordable.

The exciting thing about selling comfort in the era of exponential price increases is your customers have a choice. They can invest in premium comfort and save thousands of dollars over 20 years or buy a lower-cost, less-comfortable solution and end up paying for a premium system in higher than necessary energy bills. The more you help buyers understand all the benefits of premium comfort, including system-life-savings, the more likely they are to invest in you and your premium system today.



Sidebar: Energy Facts

• One-seventh of all electricity in the United States is used to air condition buildings.

• Maximum efficiency comfort equipment reduces energy bills, prevents pollution and reduces buyer’s carbon footprint.

• Seventy percent of all new homes will be heated with natural gas.

• Nitrogen fertilizer production currently accounts for over 3 percent of all natural gas consumed in America.

• The United States is the largest importer of natural gas in the world.

Publication Date: 07/30/2007

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