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Utility Rebates

Both of our largest electrical utility providers in Maricopa County frequently offer a rebate incentive for you to replace your heat pump or air conditioner. The rebates usually range from $200 to $800. Our customers often ask if we can help them get this rebate. Most customers assume this is easy free money with no strings attached, and of course they want it. It seems so good, it almost looks like a real life fairy tale that has come true!

power company rebate money fairy

Like all other fairy tales though, this one is also too good to be true. The requirements to obtain the rebate are fairly extensive and often require a considerable additional investment far above the value of the rebate (upgrade cost for higher SEER unit, possible duct repairs and modifications, etc.), likely a negative investment in many cases actually, even after calculating the additional utility savings over many years. The requirements may include:

  1. Cooling load calculation based on 108℉ outdoor ambient summer temperature (known as "Manual J")
  2. Very strict / conservative estimations, which amount to careless assumptions many times actually, about the construction and insulation charactoristics of your home
  3. New equipment sizing based on the above design parameters with little or no allowance for reserve capacity or variation - REQUIRES the smallest possible unit that meets the design calculations
  4. Airflow measurement after installation with actual minimum airflow delivery of 85% or more
  5. High efficiency unit, minimum 16 SEER likely required
screenshot of rebate info from the power company website (fair use claimed here for criticism and reporting)
Screenshot of past rebate qualification chart from power company website

The utility companies do not offer these rebates because they have extra money laying around and they decided to become philantropists. They are not doing it because they love to "help" their customers save money (they are for-profit corporations). There is no free money fairy. The reason the utility companies are offering the rebate is because they are getting something in return for the money they are giving you! In reality the power company isn't even the one ultimately giving you the money. Those rebates are subsidized by the other utility subscribers (your friends and neighbors). The rebates are simply an expense calculated into the cost of electricty that we all pay for. The real reason that the rebate program exists is because we have a power problem in Arizona. The problem is called peak demand, and the rebate program incentivizes people to purchase small (or at least the smallest size as calculated by Manual J specifications) A/C systems of very high efficiency so that when it is running, particularly during times of peak demand, it will consume a minimal amount of electricity. This information isn't widely publicized of course (but is no secret either), however it is the only reason why they are giving away rebates. The utility companies know that almost everyone is going to be turning on their air conditioner in the summer at the same time when they get home from work, Monday through Friday between 5 and 9 PM and all these air conditioners use a considerable amount of electricity and are maxing out the capacity of the system to provide this level of consumption. These periods of excessive electrical usage are called "peak demand" and peak demand has been steadily increasing for decades and must be lowered or there will be big troubles ahead for us all (regular black-outs would be likely). The Corporation Commission, which by law regulates the public utilities in Arizona, has mandated that policies and incentives be implemented that create a long term net reduction in peak demand so that we do not have to face the difficulties of exceeding maximum peak demand capacity.

There are several ways of doing this. They are using a combination of both positive and negative reinforcement practices to accomplish this. On the positive side, they are giving away free money if customers have a very high efficiency unit of the smallest possible size (as calculated by Manual J 108℉ specifications, which as we already said is based on an unrealistic ambient temperature and also requires very consevative estimations of the insulation charactoristics of the home) installed so that it uses a minimal amount electricity when it runs. They don't really care if your new A/C unit runs non-stop because it is too small and doesn't have sufficient reserve capacity to cool on demand to the temperature you desire, they only care that it uses a minimal amount of electricity when it is running. A really high efficiency air conditioner probably doesn't save much money if it has to run all the time though. As we said already, the rebate is an incentive to install a system that has a lower wattage consumption while it is running during peak demand. It isn't necessarily about using less electricity overall. The power companies are for-profit corporations and they derive considerable financial gain for their shareholders by selling electricity. It is in their best interest to have lower wattage A/C units running all the time than it would be to have higher wattage ones running intermittently.

On the negative reinforcement side, they are frequently changing the rate structure so that they can charge varying rates for electricity, depending on the plan you are on and the time of day when you use the electricity. Almost everyone has smart meters now, so the electric company is able to observe the power usage at every minute of the day and night in real time. During times of peak demand they will be charging considerably more in the future, especially for excessive use. This is the negative reinforcement approach and it will work very effectively I'm sure. People who are careless and consume extreme amounts of electricity during peak demand will be heavily penalized for it.

Either way, these efforts to reduce peak demand are working. However, in the case of rebates we do not participate. Climate change is not a theory anymore, it is a statistical and calculable fact. As of the writing of this article (March 2018), 17 of the 18 hottest years on record have occurred in this century. That provides an overwhelming correlation of data to substantiate the claim that our climate is definitely changing, getting hotter and hotter. This is not a seasonal meteorological irregularity or a mere fluctuation in temperatures, clearly it is a severe repeated, worsening trend that has a very high statistical probability of continuing. With that being said, as a company we cannot and will not participate in a program that requires air conditioners to be sized using climate statistics that are from another century and are no longer a realistic value. 108℉ is not anywhere near realistic today for the metro Phoenix area! At some point, these new undersized air conditioners that everyone is getting through the rebate program are going to meet a day, or a string of record hot days, probably near the time of summer solstice, in which they are incapable of maintaining a comfortable indoor temperature, even running non-stop during the day, struggling to keep up with the temperature slowly rising inside the house in the afternoon. Many of these systems in operation today are barely able to keep up as it is and even the tiniest anomaly such as a slight loss of refrigerant (many systems have small refrigerant leaks) or a dirty / restrictive air filter could be enough to push it over the edge, whereas a properly sized system with a small reserve allowance of capacity would still be cooling just fine. Good luck when it hits 125℉ here. You know it could happen soon.

Skip The Rebate and Be Happy and Cool

Our primary goal when we install a new heat pump or A/C system is to make for certain that it will keep you cool, even if it hits 125℉ someday! As a licensed contractor, we are responsible for our installations, and frankly it seems to be a considerable conflict of interest for us, in the event we participated in the free money rebate scheme, to have some other non-responsible entity tell us what size system we must install using a formulation that often under-estimates the cooliong load, yet we are still expected to maintain complete and sole responsibility for the ability of the system to properly cool and heat. Therefore we do not and will not participate in the program and we strongly recommend to anyone who wishes to participate (both customers and other HVAC companies) that they very carefully consider the points described in this article before doing so. Life is pretty miserable and frustrating with an air conditioner that isn't quite able to keep you comfortable all of the time and the lousy $500 rebate you got will be very little consolation while you're sweating it out.