ENERGY STAR – An Enabler to Sell Natural Gas to Builders

ENERGY STAR Participants MeetingMay 11, 2005

Mark Butler

OverviewOverview

Background on the development of a new industry

Current status of the market

Residential New Construction market in New Brunswick

The role of ENERGY STAR

4

990215 M&NP.ppt

Atlantic Ocean

Sydney

Interconnect withSable Offshore Energy Project at Goldboro,

Nova Scotia

Interconnect withTennessee Gas at Dracut, MA

Map not to scale

NQuebec

NovaScotia

NewBrunswick

PrinceEdwardIsland

Maine

MA

NewHampshire

VT

Cape BretonIsland

Sable Island

Quebec City

Boston

Dracut

Haverhill

Portsmouth

Wells

Portland

Westbrook

Augusta

WatervilleBangor

Bucksport

Old Town

Millinocket

Lincoln

GrandFalls

Edmundston

Campbellton

BathurstTracadie

Miramichi

Dalhousie

Florenceville

Nackawic

Fredericton

Sussex

MonctonAmherst

Oxford

Charlottetown

Truro

Halifax

Yarmouth

Trenton

Stellarton

PortBickerton

Antingonish

Point Tupper

GlaceBay

Goldboro

Port

Springhill

CalaisSaint JohnSkowhegan

St. Stephen

Hawkesbury

BackgroundBackground Based on the “unbundled” model

– Predicated on a vibrant downstream service industry

Focus:– EGNB as a “Pipes” company:

• Build the distribution system - maximize access

• Others would bring in the business

First customers served in 2001– Focus on serving the retrofit market– Building infrastructure on speculation– Facilitating the development of the industry

BackgroundBackground

It took until May 2003 to convince the New Brunswick government that the unbundled model wasn’t working.

New regulations were put in place to allow us to provide customer services and gas supply.

EGNB had to become an aggressive sales focused organization providing sales, installation and service as well as gas commodity.

As a result, the distribution revenue signed in 2004 was 3.5 times greater than 2003.

The lack of industry participation has forced EGNB The lack of industry participation has forced EGNB to play a leadership role in all aspects of the to play a leadership role in all aspects of the

industry.industry.

Current StatusCurrent Status

Serving seven municipalities

390 km of Gas Mains

3,300 active customers

13,700 potential customers have access to natural gas

Retail InfrastructureRetail Infrastructure

Still underdeveloped and fragile:– Heating contractors:

• None dedicated to natural gas

– Lack of focus and skills

• Small unsophisticated contractors

– No financial strength

– Limited marketing/sales effort

– Limited after sales service

– Similar issues with the rest of the value chain:

equipment/parts distributors, marketers, etc.

The New Brunswick New The New Brunswick New Construction MarketConstruction Market

Electric – The Current Choice for Space Electric – The Current Choice for Space Heating Heating

100% of new homes heat with electricity, most of which

are baseboard.

15%

85%

Heat Pumps

Baseboard

Builders consider the cost of installing Builders consider the cost of installing baseboard heating to be negligible.baseboard heating to be negligible.

Operating Cost ComparisonOperating Cost Comparison

Residential electric rates are subsidized by commercial rates and promote the use of electricity for heating with a declining block structure.

Annual Operating Costs Heat & Hot Water

$0

$500

$1,000

$1,500

$2,000

$2,500

Heat Pump Natural Gas Baseboard

Based on 2004 gas & electric rates

Space Heating

Carbon Dioxide Emissions

4

10

17

-

2

4

6

8

10

12

14

16

18

Natural Gas Heat Pump Baseboard

To

nn

es

Sulphur Dioxide

-

20

40

60

80

100

120

140

160

180

200

Natural Gas Heat Pump Baseboard

Kg

Oxides of Nitrogen

-

10

20

30

40

50

60

Natural Gas Heat Pump Baseboard

Kg

New Brunswick New Construction MarketNew Brunswick New Construction Market

Single Detached

Semi- Detached

Row House

Total

Saint John 78 20 6 104 Moncton 416 142 36 594 Fredericton 170 6 68 244

Total 664 168 110 942

2004 Housing Starts

Even though it’s a relatively small market we still can’t Even though it’s a relatively small market we still can’t provide service to all new subdivisionsprovide service to all new subdivisions

Marketing to BuildersMarketing to Builders

Began marketing to builders in Nov. 2003

Hill Brothers - our first early adopter– recognized as an innovative builder– leader in the industry– voted “Builder of the Year” by the New Brunswick

Homebuilders Association in 2003.

After a concerted effort we sold the builder but then had to sell the homebuyer.

ChallengesChallenges

A multitude of relationships requiring education and direction.– Developers– Builders– Real Estate agents– Homebuyers– HVAC contractors– Construction trades– Architects

Significant effort required for each individual sale, Significant effort required for each individual sale, which should diminish over timewhich should diminish over time

Timing Is EverythingTiming Is Everything

In most markets new construction is planned well in advance– decisions builders are making today are for homes

that will be built in 4 months or more.– programs you sell today can’t be delivered for

several months

New Brunswick experience has been the opposite!New Brunswick experience has been the opposite!

TimingTiming

The long and complex sales cycle hasn’t given us the lead time we would like to plan our construction.– Often can’t give our Planning and Construction

staff the go ahead until the “last minute”.– The first sales were made to homes already under

construction.– The problem wasn’t changing the planned heating

system to forced-air natural gas, it was getting the

gas there before the closing date.

ChallengesChallenges

Relatively large number of builders building a small number of houses.

Half of the homes built that had access to natural

gas installed electric heat.

ResultsResults Convinced 30 builders (24 subdivisions) to install

155 natural gas heating systems

100% of these were ENERGY STAR qualified

furnaces.

ENERGY STAR®

Selling a premium heating system– Two stage heating (50% of sales)

• Temperature control

• Quiet operation

– Variable speed fan motors (39% of sales)– Humidification– Air filtration– Cooling– ENERGY STAR

• Low operating costs

• Environmental benefits

The The ENERGY STARENERGY STAR symbol provides credibility and symbol provides credibility and acknowledges the superlative quality of our value proposition. acknowledges the superlative quality of our value proposition.

IncentivesIncentives

The primary barrier to natural gas is the capital cost – incentives are essential!incentives are essential!

Incremental cost over baseboard = $3500-$5000 with incentives

Cash Incentives– $800 for ENERGY STAR qualified furnace ($300

NRCan $500 EGNB)– $500 for the water heater

Deferred financing on cost of installed equipment– 0% interest and no payments until home is sold

IncentivesIncentives

Model homes– Preferred pricing on ENERGY STAR qualified

heating system– Appliances on loan

• range, refrigerator, dishwasher, cloths washer &

dryer

– Cash incentives• $250/month

– Advertising to promote model home

ConclusionConclusion The ENERGY STAR symbol supports our sales

strategy and value proposition– Quality product– Comfort– Indoor air quality– Environmental advantages

We have laid the groundwork to capture an increasing portion of the market in the future– 450 new homes in 2005 (170 already signed)

Have we already transformed the market?– ENERGY STAR is the standard and will continue to be,

providing we can transform the electric heating market

to natural gas.

Contact InformationContact Information

Mark ButlerManager Business Development

Enbridge Gas New Brunswick

506-457-7721

mark.butler@enbridge.com