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Green Design

Helping green grow

Moderate investment turns Neil Kelly’s Home Performance division into cutting-edge energy-efficiency contractor.

By Tim Gregorski, Editor in Chief March 25, 2013
From left: Chad Ruhoff, manager of Home Performance, and Tom Kelly, president of
This article first appeared in the PR March 2013 issue of Pro Remodeler.

Selling a sustainable remodeling project can be very difficult, especially when the homeowner demands a low-cost and rapid return on their investment.

The ability to convey the value of a sustainable remodeling project is a critical aspect of the selling process, yet it is attainable for remodelers.

As homeowners have become increasingly aware of cost-to-value for sustainable remodeling projects, they’ve also become more adept to the benefits of energy efficiency and utility savings. However, creating the proper balance between the two can present its own challenge, a challenge that one Beaver State remodeling contractor believes can be conquered with a simple question: Are you comfortable in your own home?

Evolving with the marketplace

Neil Kelly Inc. began as a small, family-owned remodeling company in Portland, Ore., in 1947. The firm has grown to become one of the Pacific Northwest’s largest full-service remodeling companies offering comprehensive design, whole-house remodeling, new construction, window replacement, and home improvement services.

Residential rehab increases comfort, lowers energy costs

Ann Gravatt and Brad Ouderkirk are both sustainability professionals. Shortly after purchasing their older northeast Portland home in 2011, they immediately began thinking about ways to conserve energy in the home. Their idea was not just to save money but to achieve a level of winter and summer comfort in their home while reducing the carbon footprint.

The house had been remodeled by the previous owners, however the windows were in poor shape and the house was still drafty in the winter.

They applied for a no-cost energy audit through Clean Energy Works Oregon, which assigned Neil Kelly’s Home Performance team to conduct an audit.

The audit team found that the attic insulation had been installed incorrectly, creating a raceway for cold and hot air—as well as potential moisture—along the upper side of the ceiling.

Home Performance sat down with the owners to outline where they could effectively use their budget to increase comfort and reduce energy costs. They decided to on four key energy-saving tactics:

  • Air-seal the home to eliminate air leaks
  • Re-insulate the attic using fiberglass batting
  • Replace most of the windows with triple-pane windows
  • Install window inserts on other windows to keep drafts and noise out while still maintaining the character of the home

The owners were very happy with the newfound comfort in their home.

According to Gravatt and Ouderkirk, “Neil Kelly Home Performance was very responsive and a great advisor. Besides catching the insulation problem, they pointed out how we could put our money to best use. They provided high quality workmanship on the window installations.”

The firm’s sales peaked at $25.7 million in 2008 just as the remodeling industry went into a downward spiral. The changing economic platform forced many remodeling contractors to diversify their business to adjust to a changing marketplace. Neil Kelly was no exception; however the timing of their launch into the energy efficiency marketplace could not have been timelier.

In 2005, Neil Kelly launched their Home Performance division to the tune of $73,000 in sales. Not necessarily a great start, but the potential was there for more business.

“We had seen some potential for this market due to the increasing cost of energy, awareness of global warming, and it fit our values as a company that was already involved in sustainable construction. At the time, there were a fair amount of incentives for energy improvements in Oregon,” says Tom Kelly, president of Neil Kelly Inc. 

In the seven years since its launch, Neil Kelly Home Performance has grown significantly because of market demand for residential energy efficiency in concert with even larger incentives available for residential energy improvements. By 2012, Home Performance totaled $5.5 million in total sales from more than 400 total jobs, representing just under a third of the company’s business.

Over time, Home Performance’s job portfolio also evolved to include a full range of energy efficient home performance contracting services, including home energy checkups, insulation, air sealing, window replacement, HVAC installation, and indoor air quality improvements. Their average energy efficiency job size completed by Home Performance grew from $1,300 per home in 2006 to $14,000 in 2012. As revenue increased, so did the size of staff, from three employees to the current level of 50. And, of those 50 Home Performance employees, 20 are BPI certified, 6 LEED certified, 1 is a Master Builder, and 1 is a Passive House Consultant.

Shaky start to sustainable construction

Neil Kelly’s first attempt at the energy efficiency market took place nearly 40 years ago in a remodeling industry much different than today’s. The company operated a weatherization and solar hot water division in the 70s and 80s.

Energy audits available, regardless of income

Neil Kelly Home Performance is currently developing energy audit opportunities for upper and lower income households. The firm’s traditional target market has been higher income homeowners. Because of the financing opportunities that are available, the firm can reach out to homeowners with more modest incomes. This allows Home Performance to diversify its target market and open up the possibility of the Home Performance division becoming a source of referrals for future remodeling work.

“We don’t have a way to know household income but the clients utilizing the program are in more moderately priced neighborhoods compared to where we normally do business. We are seeing some spillover into our remodeling division, remodeling jobs we might not have normally proposed,” says Tom Kelly, president of Neil Kelly Inc.

“In those days there were federal tax credits for solar hot water, insulation, and storm windows. After Ronald Reagan became president, the credits were eliminated and the industry lost its steam,” says Kelly.

Fast-forward to the early 2000s and a re-emerging energy market still in its infancy when Tom Kelly was invited to sit on the Residential Green Remodeling and Renovation panel at Greenbuild 2004 in Portland.

“At the end of the panel, I met a remodeler from New York State who had converted his remodeling business to include energy retrofits. He inspired us to get back into the energy retrofit business,” says Kelly.

At the time, Neil Kelly had been involved with green building and remodeling projects, but the company had yet to introduce the Home Performance division.

When Neil Kelly formally launched Home Performance, the economy and housing and remodeling industries were healthy but teetering on the brink of a recession. After the economy tanked, Neil Kelly’s revenue stream was deeply impacted. The firm lost 35 percent of its revenue in 2009. In 2010, the company was able to keep revenue steady but still lost 3 percent overall. By 2011, business began to improve as the Home Performance recorded an 11.7 percent increase in revenue over 2010.

Home Performance grew at a compounded rate of 82 percent from 2007-2011, and went from being 1 percent of Neil Kelly’s revenue to 15 percent of the total revenue by 2011. Preliminary figures from 2012 indicate approximately 100 percent growth for Home Performance over 2011.

A meteoric rise considering the instability of the economy shortly after the launched of Home Performance concurrent to the initial investment that totaled between $20,000-$25,000, and included equipment, training, and marketing efforts.

Keys to success

Critical to the success of Neil Kelly’s Home Performance division was the firm’s participation in Clean Energy Works Oregon. This non-profit program was started by the City of Portland and expanded throughout Oregon with DOE funding in 2010. Home Performance partnered Clean Energy Works Oregon with Energy Star and the Energy Trust of Oregon to offer homeowners energy assessments, no-money down on-bill financing, information about local and federal rebates, and access to home performance contractors who are trained and qualified to participate in the program.

As a result of the partnership, Home Performance receives leads from homeowners who apply through the Clean Energy Works Oregon website (www.cleanenergyworksoregon.org/).

Clean Energy Works negotiated with various Oregon utilities to offer homeowners the option to pay for home efficiency improvements through their utility bills at low interest rates and no money down.

“The main driving factor for our growth was the emergence of Clean Energy Works Oregon and the much larger rebates that were offered. Other benefits to the program are the ‘on-bill’ payments made through the utility for the loan, the Energy Advisor/Advocate that works with the consumer, and perhaps most importantly the flow of the leads from the program,” says Kelly.

Since 2010, Home Performance has received more than 70 percent of its total leads from the Clean Energy Works Oregon program. Home Performance also generates additional business by independently marketing the Clean Energy Works Oregon’s financing package to its database of previous remodeling customers.

“The biggest benefit that Clean Energy Works Oregon has brought to the table is financing for energy efficient upstarts. This has made our product more accessible for clients,” says Chad Ruhoff, manager of Neil Kelly Home Performance.

Furthering the marketing efforts, Home Performance also offers a free home energy audit to all current customers. The audit includes pressure testing the house for air leaks and testing ducts and HVAC equipment.

Audits help tap energy efficiency market

Typically, two people are assigned to the audit: a salesperson and a home energy assessor. The salesperson’s role is to act as an educator and help the homeowner understand the assessment process and how upgrades can meet their specified goals. The assessor’s job is to conduct the checkup and prepare a comprehensive report of the findings.

Energy efficiency, “use less”

Where are we in terms of the future of energy efficiency? According to Chad Ruhoff, manager of Neil Kelly Home Performance, we are still in the “use less” phase.

“We need to focus on how we heat our water and homes, and how to keep more of that heat in the home,” says Ruhoff. He says one step would be to reduce the energy it takes to heat our homes and water. Step two is to start making energy onsite with solar.

The next steps include reducing energy use and producing energy onsite. Technology such as photovoltaic panels is one way to reduce the energy load.

What else does the future hold for energy efficiency? According to Ruhoff, heat pump water heaters and ductless heat pumps are emerging technologies.

“I believe they will revolutionize the way we heat our water and homes,” says Ruhoff.

LED lights are also increasing in quality and decreasing in cost.

“As the LED industry continues to evolve and expand, more and better technology is bound to arrive to residential applications as well,” says Ruhoff.

Ruhoff also noted that it is critical to find the right people for each part of the audit process.

“What traits make a great auditor are not the same traits that make a great salesperson or project manager,” says Ruhoff.

A final report addresses the specific concerns of the homeowner, and typically includes an estimate of the probable energy savings and payback of the proposed work.

He says this is newer business model that was borrowed from Neil Kelly’s Design/Build Remodeling division and the overall structure of the audit process is designed to maximize the conversion to jobs.

Since 2011, the Home Performance has performed more than 1,000 energy audits with measurable results. But like anything that costs more, there is more effort involved in selling energy efficiency.

“If the benefits of a green remodeling project are communicated well, the client is likely to buy. Home Performance may be more expensive than a single measure approach much like hiring a design/build firm is going to be more expensive than a do-it-yourself contractor,” says Ruhoff.

Typically, one in three of the energy audits result in additional home performance upgrades, which can add $20,000 to an $80,000 remodeling job. Additional financing through the Clean Energy Works Oregon program can make the deal even better for the consumer.

“Clients have been purchasing more because of the financing,” says Ruhoff.

Ruhoff also says the firm has done their best to learn about their clients. The typical Home Performance clients are parents with children and a combined household income of $150,000. The client list also includes Generation X and Y homeowners that “want to do what’s right for the environment” as well as older homeowners that are concerned about health, safety, and indoor air quality.

“Most will say their utility bills are too high, some will say they want to ‘do the right thing’ but what we really want to learn is whether they are comfortable in their home,” says Ruhoff.

Home Performance focuses their sales presentations as solutions to a client’s problems, and they weave their story around how the whole house approach will solve their comfort and indoor air quality issues, while reducing their carbon footprint and energy costs.

The energy audit also plays a key role an educational process for the client. Home Performance’s energy audits teach the client what the diagnostic tests reveal about the house as well as the basics of the building science.

“People don’t buy what they don’t understand, so it is very important they learn during the audit,” says Ruhoff.

While clients may call the firm for reasons such as energy efficiency, water efficiency, or indoor air quality, ultimately the overall comfort of the homeowner ends up being the most important factor (see “Residential rehab increases comfort, lowers energy costs” above).

“The driving factor for most of the jobs we sell is comfort. Energy efficiency is in second, and finally indoor air quality next, although I believe that indoor air quality needs to be much higher on the list,” says Ruhoff.

Studies have shown that up to 50 percent of a home’s air comes from the crawl space. Soil gases, including radon and moisture as well as particulates can come from crawl spaces and basements.

Home Performance also noted that other important considerations include noise reduction and health issues.

Opportunities available

According to Kelly, despite the challenges associated with a start-up business, remodelers should consider becoming involved in the energy efficiency market.

“The overall demand is there for sustainable remodeling jobs, however there is much to consider before getting into the business segment,” says Kelly.

First, are the geographical location and the market demand for energy efficiency. While the Pacific Northwest market may be booming, other areas of the country may not have the potential for growth.

Seasons are another factor, according to Ruhoff. Downtime during the off-season for the Home Performance crew is generally offset by the upswing in business during construction season. “We work hard to level off the troughs of demand we see seasonally,” says Ruhoff.

Cost is a huge factor that can impact an energy-efficiency start-up. It’s well documented that sustainable construction can be expensive. Home Performance developed a multi-step approach out of their energy audit to help the client manage their sustainable construction goals, a measure that may be applicable to the client especially if financing is not available.

“It is my belief that the remodeling industry is the vehicle to deliver energy retrofit services to the consumer. Besides us, there are numerous other contractors who have added retrofit divisions to their remodeling companies. Nothing is simple, but ‘bolting on’ a retrofit division is something any remodeler can do,” says Kelly.

Regardless of the level of consumer interest in specific areas of the country, Kelly believes sustainable retrofits to satisfy the energy efficiency demand will soon be in every city in America in the coming years.

“We were ready when it happened here and were able to take advantage of a great opportunity,” says Kelly. PR

Moderate investment turns Neil Kelly’s Home Performance division into cutting-edge energy-efficiency contractor.

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