1. ENERGY STAR – An Enabler to Sell Natural Gas to Builders ENERGY STAR Participants Meeting May 11, 2005 Mark Butler

2. Overview n Background on the development of a new industry n Current status of the market n Residential New Construction market in New Brunswick n The role of ENERGY STAR

3. 4 990215 M&NP.ppt Sydney Interconnect with Sable Offshore Energy Project at Goldboro, Nova Scotia Interconnect with Tennessee Gas at Dracut, MA Map not to scale N

5. Background n Based on the “unbundled” model –Predicated on a vibrant downstream service industry n Focus: – EGNB as a “Pipes” company: Build the distribution system - maximize access Others would bring in the business n First customers served in 2001 –Focus on serving the retrofit market –Building infrastructure on speculation –Facilitating the development of the industry

6. Background n It took until May 2003 to convince the New Brunswick government that the unbundled model wasn’t working. n New regulations were put in place to allow us to provide customer services and gas supply. n EGNB had to become an aggressive sales focused organization providing sales, installation and service as well as gas commodity. n As a result, the distribution revenue signed in 2004 was 3.5 times greater than 2003. The lack of industry participation has forced EGNB to play a leadership role in all aspects of the industry.

7. Current Status n Serving seven municipalities n 390 km of Gas Mains n 3,300 active customers n 13,700 potential customers have access to natural gas

8. Retail Infrastructure n Still underdeveloped and fragile: –Heating contractors: None dedicated to natural gas –Lack of focus and skills Small unsophisticated contractors –No financial strength –Limited marketing/sales effort –Limited after sales service –Similar issues with the rest of the value chain: equipment/parts distributors, marketers, etc.

9. The New Brunswick New Construction Market

10. Electric – The Current Choice for Space Heating n 100% of new homes heat with electricity, most of which are baseboard. Builders consider the cost of installing baseboard heating to be negligible.

11. Operating Cost Comparison n Residential electric rates are subsidized by commercial rates and promote the use of electricity for heating with a declining block structure. Based on 2004 gas & electric rates

12. Space Heating

14. New Brunswick New Construction Market Even though it’s a relatively small market we still can’t provide service to all new subdivisions

15. Marketing to Builders n Began marketing to builders in Nov. 2003 n Hill Brothers - our first early adopter –recognized as an innovative builder –leader in the industry –voted “Builder of the Year” by the New Brunswick Homebuilders Association in 2003. n After a concerted effort we sold the builder but then had to sell the homebuyer.

16. Challenges n A multitude of relationships requiring education and direction. –Developers –Builders –Real Estate agents –Homebuyers –HVAC contractors –Construction trades –Architects Significant effort required for each individual sale, which should diminish over time

17. Timing Is Everything n In most markets new construction is planned well in advance –decisions builders are making today are for homes that will be built in 4 months or more. –programs you sell today can’t be delivered for several months New Brunswick experience has been the opposite!

18. Timing n The long and complex sales cycle hasn’t given us the lead time we would like to plan our construction. –Often can’t give our Planning and Construction staff the go ahead until the “last minute”. – The first sales were made to homes already under construction. –The problem wasn’t changing the planned heating system to forced-air natural gas, it was getting the gas there before the closing date.

19. Challenges n Relatively large number of builders building a small number of houses.  Half of the homes built that had access to natural gas installed electric heat. Results  Convinced 30 builders (24 subdivisions) to install 155 natural gas heating systems 100% of these were ENERGY STAR qualified furnaces.

20. ENERGY STAR ® Selling a premium heating system –Two stage heating (50% of sales) Temperature control Quiet operation –Variable speed fan motors (39% of sales) –Humidification –Air filtration –Cooling –ENERGY STAR Low operating costs Environmental benefits The ENERGY STAR symbol provides credibility and acknowledges the superlative quality of our value proposition.

21. Incentives incentives are essential! n The primary barrier to natural gas is the capital cost – incentives are essential! n Incremental cost over baseboard = $3500- $5000 with incentives n Cash Incentives –$800 for ENERGY STAR qualified furnace ($300 NRCan $500 EGNB) –$500 for the water heater n Deferred financing on cost of installed equipment –0% interest and no payments until home is sold

22. Incentives n Model homes –Preferred pricing on ENERGY STAR qualified heating system –Appliances on loan range, refrigerator, dishwasher, cloths washer & dryer –Cash incentives $250/month –Advertising to promote model home

23. Conclusion n The ENERGY STAR symbol supports our sales strategy and value proposition –Quality product –Comfort –Indoor air quality –Environmental advantages n We have laid the groundwork to capture an increasing portion of the market in the future –450 new homes in 2005 (170 already signed) n Have we already transformed the market? –ENERGY STAR is the standard and will continue to be, providing we can transform the electric heating market to natural gas.

24. Contact Information Mark Butler Manager Business Development Enbridge Gas New Brunswick 506-457-7721 mark.butler@enbridge.com