The Geothermal Heat Pump Loop Tariff

1. The Geothermal Heat PumpLoop Tariff IGSHPA Technical Conference October 1-2, 2008 Paul Bony Director of Residential Market Development

2. The Ground Loop “Utility” • The new energy “crisis”: • Fossil fuel price shocks • Climate change • Energy independence • Consumer and government focus on renewable energy, energy efficiency and CO2 reduction • Fuel switching from propane/fuel oil/natural gas to electric resistance heating (plug-in and installed) • Placing pressure on electric utilities & rates by increasing demand for new generation and distribution • Consumer & government resistance to new generation (especially coal)

3. The Ground Loop “Utility” • Fertile ground for new efficiency products and services • Utilities can be key players and leaders! • Or not? • If not traditional utilities, then who?

4. The GSHP “Market” • The national residential market for HVAC is 6.4 million “units” per year • Geo sales are a small component of this market • New home starts are down (a lot) • Retrofits are the market drivers • $3,000 annual propane bills hurt, a lot. Fuel oil hurts more. • Natural gas prices are increasing • Retrofit customers are cash limited

5. The Ground Loop “Utility” Mass market approach for geothermal heat pumps

6. The Ground Loop “Utility” The Utility Loop Concept • Utility owns and recovers the cost of the loop, interest expense, program costs, and profit or operating margin. • Utility installs or contracts out loop construction. • Controls system design and installation quality • Electric utilities get improved load factor & incremental kWh revenue. • System load factor is even better with load control. • Future carbon credits may stay with the utility • Consumers Get: • Lower total energy bills. • Utility grade service and reliability

7. The Ground Loop “Utility”

8. The Ground Loop “Utility”

9. The Ground Loop “Utility”

10. DMEA / Customer interface

11. The Ground Loop “Utility” • DMEA Objectives • Reduce first cost barrier for GHPs • Provide members with a net positive cash flow from their GHP investment • Encourage builders & developers to use GeoExchange in new homes. • Build load factor

12. The Ground Loop “Utility” • Average margin from GeoExchange members • = $91.05/month (from AMR analysis) • Average margin for all members • = $56.83/month • Incremental margin ($91.05- $56.83) • = $34.22/mo

13. The Ground Loop “Utility” Sample of Electric Utility Value • Installed loop cost $6,000 (retail). = Premium over high end gas equipment with AC. • Generates $410.64 in annual net margins. • $12,319 total revenue over 30 years. • An IRR of 5.45%. • Co-Op return on poles & wires. • ROI 3.8%. • Investor owned utility return on equity • 10-11%

14. The Ground Loop “Utility” Value to Utilities • They can recover the cost of the loop, interest expense, program costs and earn more than their cost of funds through a loop fee. • And gain earnings from incremental electric sales. • And improve load factor w/o load control (even more with it!) • And help customers lower their total energy bill. • And reducing carbon emissions.

15. The Ground Loop “Utility” Value to Utility Customers • Piece of mind • Less volatile heating & cooling costs • Utility grade customer service • Annual energy savings of $250 to $2,000 + • Reduced or no up-front investment (using supplemental financing) • Immediate positive cash flow • They are doing their part for the environment

16. The Ground Loop “Utility” • 70 degree heating and cooling • Electric Resistance $2640 • (100% radiant/convector zoned system with 13 SEER A/C) • Propane $2474 • (91% condensing system with 13 SEER A/C) • Natural Gas $1021 • (91% ignitor condensing system with 13 SEER A/C) • GeoExchange $724 • (350% efficient system with horizontal ground loop) • Assumes: • Typical 2,000 sq foot home (48,000 Btu/hr heating load & 20,000 Btu/hr cooling load) • Average temperature design data for Montrose, CO • Energy costs: Electricity@ $.093/kWh; Propane @ $1.96/gallon; Natural Gas @ $.76/therm DMEA member value

17. The Ground Loop “Utility” • Lease (lawyer said it looked like a loan) • Loan (banks are better at it than utilities are) • Tariff • Investment will be recovered through the loop tariff and the incremental electric revenue generated

18. The Ground Loop “Utility” • H.R. 2419 • Food and Energy Security Act of 2007 (Engrossed Amendment as Agreed to by Senate) • SEC. 6108. ELECTRIC LOANS TO RURAL ELECTRIC COOPERATIVES. • “The committee notes that assistance is authorized for renewable energy including geothermal ground loops”

19. The Ground Loop “Utility” • The USDA/RUS can now provide 35 year loan funds for GHP loops (new in the Farm Bill) • The GHP loops become utility plant • Instant first cost savings for co-op members • Drives positive cash flow cash flow • New margin opportunity • Long term utility relationship and member satisfaction • Levels the electric utility playing field with natural gas • Establishes a model for Investor Owned, Municipal, and other utilities

20. The Ground Loop “Utility” • Requirements • Loop Tariff • Rate hearing for start-up and subsequent changes • Loop Policy • Member contract • Member easement • Third party GHP equipment installer contract (FUTURE)

21. The Ground Loop “Utility” • Applicable to residential and small commercial consumers currently receiving service from DMEA, for 2 to 6 ton systems. • DMEA must approve site, structures, & system design and installation specifications.

22. The Ground Loop “Utility” • Customer owns GeoExchange equipment, furnace & ductwork • DMEA owns the ground loop • Customer pays a monthly tariff to use the ground loop • Customer can cancel loop service or purchase the loop from DMEA at any time • DMEA can disconnect loop for non-payment

23. The Ground Loop “Utility” • The property owner(s) grant the utility an easement for the installation, removal, maintenance, repair and/or replacement of the ground loop. • The easement is recorded with the Clerk and Recorder in the county where the property is located. • The property owner(s) must sign the easement prior to the loop installation.

24. The Ground Loop “Utility” • Customer agrees that no structures shall be placed or built over the loop field without expressed written permission from the utility. • Customer must call for loop locates for all construction/landscaping. If they do not call, and the loop is damaged, they are liable for all loop repair costs. • If a customer calls the utility reporting that their loop is not working and the problem is not the ground loop, they are billed for a service call.

25. The Ground Loop “Utility” • If an account is transferred to a new customer, the are offered the Loop Tariff at sign-up. • The new customer is given the option to sign a service agreement confirming their acceptance of the terms of the Geo Loop Tariff. • They also have the option to purchase the loop. • They can also terminate the loop service. • DMEA will disconnect the loop and leave the service idle until the member, or a future member, elects to reconnect the loop.

26. The Ground Loop “Utility” • The member may purchase the loop at a future date for the originally installed allowance, plus a $400 processing fee. • Events which may require disconnection of the loop: • Failure by the member to stay current on their loop tariff payment. • Request by the consumer, with 30 days written notice (one year rule applies).

27. The Ground Loop “Utility” • The loop investments are recorded as utility plant and the associated income from the tariff and the electric revenue generated by the loop are recorded as utility income. • The O&M and A&G costs associated with providing the loop service are expensed as utility operating expenses.

28. The Ground Loop “Utility” • The rate is subject to change at the discretion of the DMEA Board of Directors subject to DMEA’s rate change process, procedures and bylaws. • Any Green Tags, Renewable Energy Credits, Carbon Credits, or similar incentives, if applicable now or in the future, shall be retained by DMEA. (more on this later)

29. The Ground Loop “Utility” • Loop fees • 2 ton to 6 ton loops only • Horizontal loops • $14.26 to $42.78 per month • Drilled loops • $29.56 to $88.68 per month • DMEA will pay the entire cost (up to a loop “allowance”) • If necessary, DMEA will require a one-time payment, totaling any amount over the “allowance” for the loop.

30. The Ground Loop “Utility”

31. The Ground Loop “Utility” • Annual kWh through loop 9,780 • Total revenue $948.95 • Average cost of power 67.38% • kWh sales Margin (annual) $309.55 • kWh sales Margin (monthly) $ 25.79

32. The Ground Loop “Utility” • Average loop is a 4 ton horizontal • Loop value (retail) $6,800.00 • Cost of funds 5.00% • (100% debt)

33. The Ground Loop “Utility” • kWh sales margin (monthly) $25.79 • Member tariff payment $28.52 • Total monthly income $54.31 • Simple payback 10 years • Monthly debt service $16.33 • (35 years at 5%)

34. The Ground Loop “Utility” • A loop Tariff eliminates the “higher sales price” barrier for home builders, as they can build “GeoExchange” homes, for little or no premium versus a quality gas furnace and air conditioner. • Eliminates “what if I sell in a few years” first cost barrier for home buyers.

35. The Ground Loop “Utility” New Construction - Natural Gas Average Installed Cost, including ductwork $22,000 (4-ton Horizontal) Example: 2,000 sq ft home, forced air, $0.81/ccf natural gas Equipment/Installation Premium $00.00/month 4 Ton Horizontal Loop Tariff $28.52/month Total equipment costs $28.52/month Monthly savings over natural gas $32.00/month Total savings over natural gas $3.48/month

36. The Ground Loop “Utility” New Construction - Propane Average Installed Cost, including ductwork $22,000 (4-ton Horizontal) (Example: 2,000 sq ft home, forced air, $2.30/gallon propane) Equipment/Installation Premium $00.00/month 4 Ton Horizontal Loop Tariff $28.52/month Total equipment costs $28.52/month Monthly savings over propane $177.00/month Total savings over propane $148.48/month

37. The Ground Loop “Utility” Retrofit Homes Outdoor Split

38. The Ground Loop “Utility” Propane Retrofit Price $14,000 (4-ton Horizontal) on an existing forced-air furnace (Example: 2,000 sq ft home, forced air, $2.30/gallon propane) Equip./installation $7,181.00 for 30 years @ 7.5% $50.21/month 4 Ton Loop Tariff (Allowance $6,819.00) $28.52/month Total monthly cost $78.73/month Monthly savings vs. propane $177.00/month Total savings over propane $ 98.27/month Propane @ $1.21/gallon would result in a “break-even” scenario

39. The Ground Loop “Utility” Natural Gas Retrofit Price $14,000 (4-ton Horizontal) on an existing forced-air furnace (Example: 2000 sq ft home, forced air, $0.81/ccf natural gas) Equip./installation $7,181.00 for 30 years @ 7.5% $50.21/month 4 Ton Horizontal Loop Tariff $28.52/month Total equipment costs $78.73/month Monthly natural gas savings $32.00/month Total savings over natural gas -$46.73/month * Natural Gas @ $1.35/ccf would result in a “break-even” scenario

40. The Ground Loop “Utility” • DOE is working to officially designate GSHPs as a renewable energy resource. • Utilities will be able to obtain credit for CO2 savings from GSHP programs.

41. The Ground Loop “Utility” • Geothermal heat pumps produce the lowest carbon dioxide emissions, including all source effects, of all available space-conditioning technologies(EPA, 1993). • A GeoExchange systems saves CO2 on par with an equivalent investment in solar PV. • Based on DMEA’s electric energy carbon load and weather data. • Your results will vary (and will probably be better).

42. The Ground Loop “Utility” Geothermal Heat Pumps are the Most Efficient way to use Green Electricity for Heating, Cooling & Water Heating

43. The Ground Loop “Utility” • In Montrose, Colorado, an average residential ground source heat pump will save 10 Tonnes of CO2 per year using all green power when replacing conventional gas/propane heating & cooling. • How much is an annual ton of CO2 worth? • $35/ton would cover the loop cost

44. The Ground Loop “Utility” Annual Tonnes of CO2 (equivalent) savings A Geothermal heat pump saves 43% more CO2 than an equivalent investment in solar PV (OPT Colorado kWh carbon load and Montrose weather data.)

45. The Ground Loop “Utility” • What if electric utilities are not interested? • Natural gas utilities? • Joint Statement of the American Gas Association and the Natural Resources Defense Council Submitted to the National Association of Regulatory Utility Commissioners July 2004

46. The Ground Loop “Utility” • “traditional utility rate practices fail to align the interests of utility shareholders with those of utility customers and society as a whole. This need not be the case. Public utility commissions should consider utility rate proposals and other innovative programs that reward utilities for encouraging conservation and managing customer bills ….” • “We also support performance-based incentives designed to allow utilities to share in independently verified savings associated with cost-effective energy efficiency programs”

47. The Ground Loop “Utility” • Business Offering:REnU Bringing Solar to Your Home. Citizenrē launches the pilot phase of its REnU Offering for the residential sector. • Packaged Approach Utility Price Parity Fixed-Rate Performance Guarantee No Investment Risk

48. The Ground Loop “Utility” • The renewable energy utility • Builders • Loop installers • New opportunity companies • Anyone in this room?

49. The Ground Loop “Utility” • http://www.usda.gov/rus/electric/engineering/2006/en-in-06.pdf

50. Thank You For Your Attention!Questions? If you ever need a hand you can reach me at: Paul Bony paulsbony@yahoo.com 970-