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CURRENT REALTOR
EDUCATION MEETING SCHEDULE October 9, 2008
NEW CUSTOMER VIDEO AND CUSTOMER SERVICE SCRIPT NORA has
completed a customer service training video and a sample customer service
script. They can be found at www.nora-oilheat.org.
The video can be watched on-line, or downloaded for later viewings, or where
there is no web access. Additionally, NORA is making a DVD available for
purchase at www.norastore.org. NORA will make changes and add information
in this area during the course of the heating season to give information to the heating oil
industry. So, you may want to check this site during the summer. Keeping Customers with Oil Copyright: Warm Thoughts Communications, Inc. 2008 You can’t blame the average person for thinking that oil prices are heading nowhere but up, and that they’d be better off switching fuels. After all, every time they turn on the TV, or read a newspaper, there’s another story of record oil prices. But that’s not the whole story by any stretch. Look at the recent US Open, and you could conclude that Phil Michelson is awful and will never win another championship. Look at the last football season and you might think the Ravens have no shot EVER at making it to the playoffs. Look at the standings right now and you might think the Orioles are likely to finish ahead of the Yankees. (Sorry, couldn’t avoid it). But to get at reality, you need to take a longer view, take more into account. So it is with home heating fuels. When you look at the whole picture, you see that oil heat is a superior choice, and that switching fuels does not make any sense except perhaps for a few reasons (want to cook with gas, want to get rid of the tank, love waiting day and days for service.) We win when our customers don’t make rash decisions, when they analyze things more carefully. If we can get them to pause, and Think Twice, we have a much better chance to keep them. And if they delay, then prices could come down to dissipate some of the economic advantages enjoyed by other fuels right at this moment in time. Here are the key
themes we need to share with customers: l The sky is not falling l The grass is not greener l Payback’s a bitch l Home Cookin’s good l Conserve don’t convert 1.
The sky is not falling While predictions of ever increasing fuel prices is the story du jour, it is not our epitaph. Throughout the history of oil, periods of high prices have been followed by sharp declines, triggered by any number of forces. While high prices may be here to stay, let’s remember that that’s exactly what many “experts” said in the 70’s, and periodically predicted over the next 30 years. Besides, there’s a difference between $5 a gallon heating oil and $3 a gallon heating oil. When we are in the middle of the doom, it always seems darkest. But then some breakthrough happens in production, or economic growth slows (in part due to higher oil prices) and the price retreats. Take a look at the chart below, and you can see the forces in action.
2. The Grass
is Not Greener When customers convert, they have concluded that the grass is greener on the other side of the fence. But is it really? Consider the following quotes, which we took from articles that have appeared in the last several years. Remember that when we first saw them without the fuels they referred to, we all thought they were talking about heating oil. But of course, they weren’t. I have attached most of these articles to this document for your records.
l With no immediate answers at hand, industry executives and analysts talk of elevated prices for years to come. Nat Gas l Price
grossly in excess of the market price or “price gouging- you be the
judge”. Propane l Today’s tight markets have been a long time in coming. We are not apt to return to earlier periods of relative abundance any time soon. Alan Greenspan. Nat. Gas l The
energy department earlier this month predicted that the total winter heating
bill for an average customer will be up 17% from last winter and 68% higher
than 2002. Nat Gas l Maryland consumers will be shelling out close to double this year, and the pain is not letting up. Electricity l By 2015, we expect to see prices rise another 69%, more than double the increase of the last 10 years. Electricity l Prices
are up 93% since August 2007. Wall
Street Journal April 2008 Nat Gas l The EIA’s short term energy outlook projects a decline in heating oil prices of 15% by 2009 (this one was about oil) The fact is that there are no fuel panaceas. Every fuel is now subject to the surge in world demand for energy.
And according to an article on Smartmoney.com on June 18th, 2008 (which also quotes Rich Goldberg) “ Residential heating oil prices are projected to rise 29% in the fourth quarter of 2008 from according to the Energy Information Administration. Those who use natural gas to heat their homes (a fair majority at 48% of U.S. households) shouldn't expect to fare much better. The EIA projects the average price of natural gas to rise 27% year over year (from $12.65 per thousand cubic feet in the fourth quarter of 2007 to $17.21 per thousand cubic feet in fourth quarter of 2008).
. So if you think you’ll
save money with another fuel, Think Again.
Switching Fuels Can Backfire, So Look Before You Leap A) Where’s the Big Savings? From 2002-2008, the EIA reported the average heating costs. Here’s how it stacked up in the Mid Atlantic Region for the last 6 years: Natural Gas- $6,995 Heating Oil- $8,115 Electricity- $12,920 Propane- $11,457 Source: EIA and US Dept of Labor data What this shows is that if you converted to Electricity or
Propane thinking you’d save money over the last 6 years, you actually paid more
money. And that doesn’t even take into
account the actual cost of the conversion (see below). If you converted to natural gas, you saved
less than $200 per year (but not if you factor in conversion costs). And the vast majority of the savings
occurred in the past year, when oil prices surged ahead of the increase in Nat
Gas rates that we are seeing now. Do it Yourself Fuel
Cost Comparisons Different Heating Fuels are measured and priced in different denominations. Oil and Propane in gallons, Electricity in Kilowatt Hours, Natural Gas in therms. The way you can compare apples to apples when it comes to cost, is to break them down into their common denominator- the amount of BTU’s contained in each “package.” BTU’s measure the heat generating capability of the fuel. It’s the reason we use the fuel in the first place. And in concept, you can think of it like calories. We can compare the “energy” content of very different food types- a scoop of ice cream, a glass of soda or a piece of steak- by looking at how many calories are in each. It turns out that heating oil is the most “BTU Rich” form of energy. And it’s one reason why oil heat homes heat up quicker. A gallon of heating oil packs in approximately 140,000 btus. A gallon of propane only 92,000. (that’s one reason why it’s misleading when customers just look at the cost of these two fuels per gallon. It’s like comparing two candy bars- the wrapper is the same size, but the oil one is 50% bigger inside the wrapper (though I wouldn’t vouch for it’s taste). A therm of gas includes just 100,000 btu’s. Anyone can compare the cost of different fuels using the following formulas:
So if a home uses 600 gallons of heating oil for heat in a year, it would need:
Plug in these costs from any local supplier or utility, and you can get equivalent costs. Just be sure to factor in the extras that get buried in the nat gas and electric bills particularly- things like delivery charges, customer charges, tank rental fees, etc. On average, a household in the Middle Atlantic States will consume 60.1 Million BTUs annually for heating. (Water heating will consume additional BTUs) Source DOE/EIA 2001 Residential Energy Consumption Survey) More Evidence The Energy Information Agency (which is part of the US Department of Energy) does a regular comparison of fuel prices. This was issued in 2007, so the 08 and 09 numbers are projections. But it gives more back up to our claims. You can see the clear advantage oil has over propane and electric, though the recent disadvantage compared to natural gas. (note: liquefied Petroleum gases is propane, distillate fuel oil is heating oil)
The surge in Natural Gas Prices has just started to be reflected in residential bills (largely because Utilities lock in big chunks of their gas purchases ahead of time.) However, it’s starting to hit big time now. The gas commodity charge for BGE customers, for example, has risen 40% from February through May.
Conclusion:
3) Payback’s a Bitch It would be bad enough if the cost of most alternative fuels were not more expensive. But Switching to gas can involve large upfront costs that are sometimes “hidden,” and which can make payback unlikely. We’ve put together a rough way to identify hidden costs and do explore the true costs of conversion. There was some difference of opinion about the cost of alternative fuel equipment installations, so please feel free to run this by your own equipment sales people to put together as precise a comparison as possible for your particular community. Hidden Costs: Natural Gas-
Compare the up front costs to the average savings of $200 a year over the last 6 years, and you see that there’s no great savings here. Particularly since most of the savings came in the last year and a half and are certainly not guaranteed to be repeated. Propane-
Compare the up front costs and then consider that the fuel itself has averaged $300 more per year for the last 6 years than heating oil, and you see that a switch to propane is likely to cost you a lot of money rather than saving you anything. Electricity-
4. Home Cookin’s Good It’s not enough to point out that you probably won’t save any money by switching to another fuel, you’ve got to remember the other advantages of heating oil. The broad themes here are: l Modern oil heat is safe, efficient, clean, warm, abundant. l It is getting better all the time- new technology enhancements, greener, ample supply. l Local heating oil companies are on your side, not part of the big oil machine. l Service can’t be beat. Here are a few points the group came up with to drive these points home: l Oil is 95% cleaner burning than in 1970 l Improvement in efficiency has reduced average fuel consumption by almost 40% since then. l Oil has the hottest flame temperature- 3,000 degrees. It’s why your home heat’s up faster, and feels more comfortable quicker. l Almost 3,000 people die each year from Carbon Monoxide poisoning. All fossil fuel heating systems can create unsafe levels of CO if they malfunction. But oil systems normally generate severe smoke as a warning sign, while no such warnings are given by natural gas or propane systems. l Heating oil is non-combustible. If you drop a lit match in a pale of heating oil, it will go out. You must atomize it and ignite it at 140 degrees to light. Compare that a natural gas or propane system. l Boilers can allow you to get your domestic hot water for free in the winter, when it’s heating your home. l New Technology is paving the future: 208 models of oil boilers now earn Energy Star rating of 85%-92% efficiency 84 furnaces reach 83%-92 l Modern Oilheat equipment produces near-zero levels of emissions. l Emissions are so low it is not even regulated by the federal government under the clean air act. l Bioheat and ultra-low sulfur Oilheat bring emissions even lower. l Heating Oil does not contribute much at all to the oil import problem. If we eliminated every oil heat system in the country, it would reduce imports by less than 2%. l 85% of heating oil is refined in USA l Customers have never gone without heat because of a shortage of heating oil. We now have Strategic Petroelum Reserve with 700 million barrels of crude oil. and Heating oil Reserve 2 million barrels. l If you run out of oil in your tank, you can get a delivery normally within a few hours. But if a gas line ruptures, you can go days without heat. l Oil heat customers give their companies exceptionally high ratings (over 93%) in national customer service surveys. It’s a fundamentally different experience than dealing with a huge utility company. 5)
Conserve, don’t convert Older oil heat systems were typically much more efficient than older gas or heat pumps. Don’t rush to replace, there are alternative ways to be more efficient that are less costly (see below)
The Consumer Energy Education Council of America (cecarf.org) which has studied energy and cost issues for more than two decades, recently concluded it makes no economic sense to switch fuels. You are better off reducing consumption.. Better options, according to the American Council for an Energy Efficient Economy, are: l Programmable thermostat - with a return of up to 124%, this is one of the cheapest measures, yet produces the biggest bang for the buck. l Ceiling insulation - since most of the heat rises through the attic, more insulation can provide a 41% return on investment. There are dozens of similar tips available to help customers wisely reduce their energy dollars. The bottom line- conserving fuel of any type is a sure thing. Converting to another fuel is a gamble with steep odds against paying off. Talking with Customers About Converting Key’s to Talking with customers: Ask Before you tell. Determine where the bulls eye is. Find out the reason someone is considering converting, because it makes a big difference to your response. For example, a person who thinks they are going to save because another fuel is cheaper than oil needs different evidence then someone who thinks they’re helping the environment, or reducing our dependency on foreign fuels. Key questions to ask someone: l Why are you thinking of converting? l What are you thinking of switching to? l How old is your heating system? l How long do you plan to stay in your house? l Have you gotten a quote yet? Examples of managing
the conversation: You: “I understand you are thinking of converting to XXX . May I ask why?” Customer responds Is there any other reason? “I appreciate that you’re frustrated by today’s current oil price, but have you done the math to see what the real cost difference is? Customer responds Well here’s a few things to consider. (then fill in the blanks) “While Oil is currently very high, that’s really unusual. In fact over the last 6 years, a typical home would have spent ______ more for heat with _____ than one with oil. (or, if it’s nat gas, it would have only saved an average of $200 a year vs. oil) And did you know that while oil is in the news now, the cost of these other fuels is surging also. For example Electric is up ______ Gas is up _______ Propane is up _______” (let them answer) “And when you add that to the thousands of dollars you’d spend to convert, it is worth thiking of some cheaper options.” “Have you gotten a quote for switching fuels? Because one of our guys would be happy to do an analysis with you to see what the best money saving option would be- whether that’s to convert, upgrade your existing system, or take other less expensive steps. Also, he can fill you in on some of the hidden costs that the other contractors don’t always tell you about up front.” (If ok, then set up to speak with one of your equipment sales people. If no, then offer to send them some information to help them make the best choice. Very soon, we will also have the website up with all this info laid out for them.) Note: if you sell other fuels or install gas or electric units, you are in a perfect position to say: You know we install xxxx as well as oil, so we are in a perfect position to give you an objective analysis, and you can count on the fact that we won’t leave out the hidden costs that some other contractors don’t tell you up front. Close: “I know that these prices are frustrating, but it really pays to look before you leap. Lots of people think that converting is an answer, only to find that they jumped out of the frying pan and into the fryer, wasting even more money in the process.” |
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