Inspecting For

Why the Increase?

Corrections or additions?

This article by Barbara Fox was prepared for the September 3, 2003

issue of U.S. 1 Newspaper. All rights reserved.

Energy-Conscious Start-Ups

The Farmer’s Almanac promises a long cold winter and

a very hot summer. And if you thought the recent blackouts were

frightening,

wait until you see your next electric bill.

Higher utility prices may not necessarily threaten lives like

blackouts

do, but they could send shivers down the spines of billpayers who

would otherwise be sweating in the September heat. A shortage of

natural

gas is expected to send prices way up. Meanwhile the fallout from

electricity deregulation in New Jersey is certain to trigger a sharp

rise (see page 46).

But while the politicos grapple with how to price kilowatts and keep

the electricity grids humming, entrepreneurs are seizing the

opportunities

that the high costs offer.

A 26-year old company founded during the Carter administration (CMC

Energy Services) and a brand new company founded by a former dotcom

entrepreneur (NWatt) have the same idea. They see a business

opportunity

in encouraging homeowners to invest whatever it takes to make their

homes energy efficient.

NWatt was founded by Jim and E-Ping Medalia on Bertrand Drive, and

Maryland-based CMC has a New Jersey office on Princeton-Hightstown

Road. Whereas CMC’s clients are those who do engineering inspections

(see story on following page). NWatt hopes to work with homeowners

and possibly with tradesmen.

The name Jim Medalia has a familiar ring. JustBalls, his former firm

that sold balls and sports memorabilia on the Internet, was the

darling

of the venture capitalists. In 1998 U.S. 1 put a photo of Medalia

wallowing in a pile of red and yellow plastic balls on the cover,

and similar images graced the front pages of most of the other

newspapers

in Central New Jersey in 1999, the year that Medalia spoke at U.S.

1’s Technology Forum. Then came the dotcom meltdown. The company

closed

its Canal Pointe office last year. Now Medalia has a day job with

a mortgage company, Washington Mutual, and he and his wife are also

working to launch NWatt.

Says Medalia: "We want to become the brand name for energy

efficiency."

With energy costs going up, he says, there is no better time to get

the attention of the homeowner. And the best times to command

attention

are when someone is remodeling, planning to sell, or planning to

purchase

an existing home. NWatt offers to help people save money by showing

them how to spend money.

Pocketbook issues talk more loudly than environmental concerns, says

Medalia. "Homes account for 36 percent of all energy used in the

United States," he says. "But everybody has already tried

the environmental awareness approach. A big part of what we think

is unique is that we are approaching it from the financial aspect.

Improve your investment and raise the value of what is probably your

most important asset."

"We are not here to change behavior," says Medalia. "But

if somebody likes to leave their lights on all the time and the air

conditioner set low, it will cost them 40 percent less to do that.

If your energy bill is X we are going to make it Y."

The way Medalia has it worked out, energy efficient appliances

effectively

increase the value of your home. Appraisers and environmentalists

working for the government have said a home appreciates $10 to $20

for every dollar in energy saved annually. If someone saves $1,000

annually on the energy bill, the value of the home increases by

$10,000

to $20,000.

Because the changes will lower your utility bills, the

homeowner is deemed worthy of a bigger mortgage. Meanwhile the cost

of the appliances gets folded into the mortgage or home equity loan,

and the amount saved might be stashed into a college account or other

fund.

Just how will this company make money? At each step along the way

— including selling and installing the appliances and brokering

the mortgages. NWatt will franchise the concept. The NWatt brand would

go onto existing trucks, just like the Roto Rooter brand is used by

plumbers to market their services.

Is this just financial smoke and mirrors? You judge. For the

homeowner,

it works like this: All in one fell swoop, you replace the old,

inefficient

appliances in the house you own or are planning to buy. NWatt takes

care of everything, finding out what you need, making recommendations,

financing, delivery and installation.

Anyone can use the energy saving ideas, but to make it worthwhile

to pay for NWatt’s service, a home’s energy bill needs to be about

$300 monthly or $3,600 a year. This probably presupposes an air

conditioned

house with four to six occupants.

Here is a hypothetical example. Let’s say you pay NWatt $23,000, a

sum that Jim Medalia calls an "energy investment," to change

a bunch of appliances and improve your HVAC system. He arranges for

about $5,000 of rebates or incentives, which reduces the mortgage

to $18,000.

That year your $500 monthly utility bill drops by half, saving $3,000

a year. The annual savings (and the compound interest on it) increase.

After five years you have saved more than $16,000. After 10 years,

more than $36,000. Stack that up against an investment cost of $25,500

after five years, or $32,700 in 10 years.

So after 10 years you have done better than breaking even on direct

costs. Now factor in the assumption that your investment caused your

property value to increase by $30,000 in the first year.

By these calculations, you really come out ahead, and you also have

enjoyed an up-to-date home.

Current competitors are few, though many builders construct new energy

efficient homes, and most home improvement stores offer single

energy-saving

items. One potential competitor, a national siding firm, is reportedly

trying to come up with its own holistic solution, and the federal

department of energy has a pilot program to train and certify

tradesmen

to perform audits and do the replacement work.

"There is plenty of work for everyone," says Medalia.

"More

companies need to enter the market to give credibility to the market

place. We’re the first company with a standardized product and set

of services. We’re the first company that will finance the operation

and manage the operation for the homeowner. We have a solution, the

financing for the solution, and the manpower to install and maintain

the solution. No one was doing existing homes in a meaningful uniform

way."

Nervous about doing a beta test in an occupied home,

the couple bought a four bedroom, 2 1/2 bath house on .87 acre on

Poe Road to use as a prototype. The finished product is listed by

Colleen Hall of N.T. Callaway for $875,000.

The 40-year-old home was in "original condition," meaning

nothing had been done to it in years. "I went out on a limb to

prove that you can be energy efficient and not sacrifice quality of

life," says E-Ping Medalia, who added many designer touches.

"I

erred on the side of good design."

She had energy efficient siding installed and added the following

new items: hot water heater, furnace, attic fan, and a compressor

for the central air conditioner. She replaced everything in the

bathrooms,

laundry, and kitchen with top of the line appliances.

She also installed compact fluorescent lights, often in recessed

fixtures

and where "dimmers" were not needed for atmosphere.

NWatt’s business plan does not include any work on windows and doors,

because this would involve construction, but it does recommend and

get siding installed. It might also recommend devices such as motion

and occupancy sensors, appliance timers, programmed thermostats,

on-demand

water headers, and air quality monitors. It also recommends changing

even the lowly light bulb. Lighting represents six percent of your

electric bill, and using compact fluorescent light bulbs will save

half of that.

NWatt has good backing. Medalia found a senior loan consultant at

Washington Mutual, John Goedecke, who agreed with his concept. Now

Medalia, as a Washington Mutual mortgage representative, can work

with homeowners to get the NWatt costs folded into the mortgage.

Medalia

believes the solution can pay itself back within a year. "The

value it adds equates to the cost of adding the appliances."

Only if all the appliances are replaced at the same time will a

meaningful

difference show on the energy bill. "The savings on buying just

one new appliance is incremental," says E-Ping. "It will not

have an appreciative effect. "

Medalia grew up in the Boston area, the son of a research chemist

and an educator. He majored in film at the University of Cincinnati,

and worked in Manhattan for 20 years before starting JustBalls. His

wife, Hong-Kong born E-Ping, is trained as both an attorney and an

electrical lighting designer. The daughter of an engineer and a

kindergarten

teacher, she went to the University of Wisconsin, Class of 1975, and

Brooklyn Law School, but soon went into technology. They have a

teenaged

daughter.

"This is probably one of the biggest risks we have ever

taken,"

says Jim Medalia. "We are just trying to get people focused on

energy. Do or die, we are not trying to be earth shoe wearers, but

on the other hand, nobody seems to be paying attention. There is no

method to help them at least get comfortable with the idea with

conserving

energy."

"In our core we believe in energy efficiency as good for the

government

and as a nation, because we become less dependent on foreign oil.

Individually, collectively, globally, we believe in it. But this is

a business, and we see a business opportunity," says Medalia.

"We are not here to change the world. The business we are building

revolves around filling a need."

NWATT.com, 121 Bertrand Drive, Princeton 08540.

Jim and E-Ping Medalia. 609-497-9115; fax, 609-497-9795. Home page:

www.nwatt.com

Top Of Page
Inspecting For

Energy Efficiency

Joe Iandolo, above, of CMC Energy Services on

Princeton-Hightstown

Road also wants to encourage homeowners to invest whatever it takes

to make their homes energy efficient.

But whereas NWatt hopes to work with home owners and possibly with

home assessors or tradesmen, CMC targets its software for those who

do engineering inspections. Home inspectors currently do not include

energy efficiency in their reports. With CMC’s audit tool, the

inspectors

can enhance their report and thus charge more to the new owner. CMC

is also developing a network of reliable contractors to perform the

necessary remediation.

"The inspector would determine if a home was leaky, average leaky,

or not leaky," says Iandolo. "The homeowner would get a report

estimating what it would cost to make the home energy efficient and

what the savings would be. Our idea is to combine this cost with the

mortgage and to address the problems at the time they move in or

shortly

thereafter. What better time to think about energy than when you have

a new home?"

Iandolo considers the appliance purchase a "no brainer."

"You

can go into any store and look at the label contents to see how energy

efficient the appliance is," says Iandolo. What really matters

are what he monitors, the heat leaks.

In addition to the software, CMC employs a more old-fashioned method

— the $200 blower test, to pinpoint the hidden leaks. "You

can find a lot of leaks without using a blower door test but not the

hidden leaks, and sometimes those are costing you a lot more than

the obvious leaks, such as the door or the window," says Iandolo.

Most often used for low income housing projects, the test uses a huge

fan to suck the air out of the house and create a partial vacuum.

A technician goes around the house with a smoke stick — a stick

that produces smoke — to find the intrusion of air, often in the

attic or in what Iandolo calls "thermal pathways," hidden

areas that contain ducts, pipes, or wires. "We plug those up with

caulk, expandable foam, fiberglass insulation, and sometimes even

plastic bags," he says.

Born in Philadelphia, Iandolo went to the University of Notre Dame

in Indiana, Class of 1965, and served four years in the U.S. Air

Force.

Then at Johnson & Johnson’s now defunct Chicopee manufacturing plant

he worked as manager of accounting, energy auditor, and controller.

He took a job with CMC in 1986, and is now executive vice president

of the 70-employee firm. Based in Bethesda, the company was founded

26 years ago during the energy-conscious Carter administration by

an economist, Doris Ikle. With a headquarters in Bethesda, the firm

has another office in Pennsylvania.

Beta testing is almost complete on the software program, and if all

goes well it will be licensed on a per-audit basis to members of the

American Society of Home Inspectors or the National Association of

Home Inspectors, or to those who have passed a national certification

test. Home inspectors who use this program can add $75 to $100 to

an inspection that might cost from $275 to $600. The software yields

a report to the prospective homeowner about major energy consuming

systems such as the furnace, windows, etc. and makes a recommendation

about whether, and how, to replace those systems. The report

recommends

several contractors who could replace each system.

Over the years CMC has done 200,000 residential audits, primarily

for utilities, but in recent years CMC has been called on mostly for

commercial and industrial energy audits. Most of the 30 employees

who work in New Jersey conduct these audits for utility companies,

especially PSE&G and JCP&L.

CMC is trying to get its energy audit software recognized by Fannie

Mae. "We have to justify to the bank that it will really reduce

the costs," says Iandolo. "The costs are going to be a real

big surprise for people."

"Deregulation was a joke, an artificial red herring," says

Iandolo. "What was saved in rates will come back to your utility

bill next year, so maybe people will pay attention again."

CMC Energy Services, 43 Princeton Hightstown Road,

Princeton Junction 08550. Joe Iandolo. 609-936-8900; fax,

609-936-0899.

Www.cmcenergyservices.com

Top Of Page
Why the Increase?

Public Service Electric and Gas warns that residential

customers’ electric bills will go up an average of 15.1 percent this

month. This means that the average customer who uses 580 kw hours

per month will see an $8 monthly increase. Gas customers will see

a provisional increase starting September 1.

Why will your utility bill be so much higher this winter? Under

deregulation,

caps for costs were set by legislators who were far too optimistic.

The 1999 reduction for electric rates was nearly 14 percent. "They

lowered the rates artificially," says Jeanne Fox, president of

the Board of Public Utilities, "and the market cost of energy

went up. Why they thought it would go down, I don’t know."

Fox [no relation to this writer] is an unusual example of someone

who worked as a staff member of a government agency and then returned

to be its chief. She and her four brothers grew up in Maple Shade,

where her father was a repair installer for AT&T. A philosophy major

at Douglass College, Class of 1975, she went to Rutgers law school

and worked at the BPU from 1981 to 1991. Under the Florio

administration

she was deputy commissioner of the Department of Environmental

Protection

and Energy. From 1994 to 2001 she was administrator for the federal

EPA in a region that included New York and New Jersey. She was

appointed

to the board early last year by Governor McGreevey, for whom her

husband, Steve DeMicco, had been campaign director. A supporter of

women’s issues, she serves on the board of, among other organizations,

the Girl Scouts.

Fox explains that, when the cap limits expired on August 1, the

utility

companies could start charging market rates. Also the utilities could

begin adding their $1 billion in accumulated losses to customer bills.

Alone among all the states that set caps, New Jersey’s utilities are

even allowed to charge interest on the losses.

Fox says that the BPU worked hard to keep the new rates low. Among

the BPU’s maneuvers to was to hold "descending clock auctions"

so that utility companies could efficiently bid on the energy supplies

they would need for the year. "That was unique, and it saved the

customers money," says Fox. The BPU also pressured the utilities

to renegotiate some generating contracts and some financial

arrangements,

and it required PSE&G to stop making its customers pay for the

decommissioning

of the Salem nuclear power plant.

Says Fox: "My staff busted their guts. We did a lot of things

to lessen the impact." The result is that consumers are paying

rates either at or below what they were paying in 1999.

— Barbara Fox


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