500 Miles

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I crossed 500 miles under pedal power in 2009 not long ago, as well as logging a week over 100 miles.  That's a nice milestone on the way to my goal for the year of 2,000 miles, but I'm starting to think that might be a bit out of reach.

Last year I logged about 900 miles but that was a partial season since I didn't get the trike until mid-June.  I figured that with diligence, I should be able to double that number for 2009 (hence the 2,000 mile goal), but I didn't consider the cumulative effects of vacations, wacky summer schedules, and some downtime for mechanical problems.

Sadly, the weather this week is supposed to be absolutely perfect for trike-riding, but the kids' summer schedules are probably going to limit the number of days I can actually ride to work.  We're in the crazy part of the summer now, when all three kids have one summer program or another and we have to drive them all over creation every day.

Our Geothermal Adventure (Chapter 3)

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Our new geothermal heat pump system is installed and operational (you can read about our initial research, and the decision to go ahead). All that remains at this point is to clean up the mess.

We have replaced our traditional furnaces, air conditioners, and water heater with a new system consisting of two geothermal heat pumps, a backup gas-fired furnace, a hot water storage tank, and a gas-fired on-demand hot water heater. The geothermal heat pumps both heat and cool the house using the soil under our yard as a gigantic heat sink (which is several times as efficient as a traditional furnace or air conditioner), and use waste heat to heat the water in the hot water storage tank. The on-demand hot water heater kicks in if the water in the tank isn't hot enough, and the gas-fired backup furnace is used on really cold days or when the power company turns off the heat pumps to manage the power grid in the winter.

First, a Rude Surprise

Recall that there are three financial incentives for installing this system:

  • A $150/ton rebate from our electric company, Xcel energy, for new geothermal systems
  • A "dual-fuel" electric rate which gives us cheaper electricity for the geothermal system if we have a gas backup and let the power company shut off the geothermal to manage the power grid, and
  • A 30% federal tax credit

Of these, the $150/ton geothermal rebate from Xcel is relatively small (heat pump capacity, like air conditioner capacity, is measured in "tons." Our system is six tons total).  The dual-fuel rate is the one which really makes the system work financially, since that makes the geothermal significantly cheaper to operate than natural gas, even in years when natural gas is cheap.

We calculated that, given the cost of replacing our old furnaces (which had to be done anyway) and taking advantage of all the financial incentives, the geothermal system would pay for itself in about nine years.  That's not bad, considering that the heat pumps have a ten-year warranty and the loop field (the underground heat exchange wells which account for about half the project cost) should last pretty much forever.

Shortly after we committed to the project and paid for 50% of the system up front, we heard from our tax advisors that we might not actually be able to take advantage of the full geothermal tax credit. The problem is that the tax credit is nonrefundable, meaning that if it reduces your tax liability below zero then you don't get the difference back.  At the time we were planning the system, it was still unclear if the credit would be refundable or not; and now that it's not, we don't know if we will have enough tax liability in 2009 to get the full value of the incentive.

We re-ran the numbers without the federal tax credit, and it turns out that without it the system will pay for itself in 18 years instead of nine.  That's not great, but it's not terrible either, especially considering the nonfinancial benefits (helping the environment, etc.).

The System

The system we had installed is one of the more complicated (and therefore more expensive) residential geothermal systems out there.  We had to work around two major limitations in our home: an addition with a completely separate furnace and air conditioner (and no practical way to tie the ductwork together into a single system), and a relatively cramped utility room. Our system consists of:

  1. The geothermal loop field, which is six parallel wells drilled to a depth of 180 feet in the front yard, each with a loop of pipe filled with antifreeze solution.  A buried manifold connects the six loops to a pair of pipes which go underneath the garage into the utility room.
  2. A 2-ton heat pump for the addition, which uses antifreeze pumped through the loop field as a heat source or sink and an air conditioning-style compressor to heat or cool air. Some waste heat is pumped into the hot water storage tank through a pair of water pipes.
  3. A 4-ton heat pump for the main house, which pumps its refrigerant through a heat exchanger in the gas backup furnace to heat or cool the house. It also pumps waste heat into the hot water storage tank.
  4. A gas backup furnace, which also serves as the forced air blower for the main part of the house.
  5. A hot water storage tank, which is warmed up to about 110 degrees when the heat pumps are running (and stays cold when they're not).
  6. An on-demand hot water heater, which runs when the hot water in the storage tank isn't hot enough.
  7. A motley assortment of pipes, pumps, wires, fuseboxes, relays, etc.

Together, all this gear replaces everything which had been in our mechanical room except the water softener.  It looks like the inside of Captain Nemo's submarine.

The Installation

The project took about two weeks to complete, though 90% of the work was finished in the first week.  Drilling the loop field and replacing our old mechanical systems happened in parallel, with our new hot water heater and gas backup furnace operational after the first full day of work.  This meant that we wouldn't have to be without heat or hot water, though fortunately the weather has been nice enough that the heat hasn't been necessary.

In order to be fully operational, after the equipment was in place and the loop field completed, the loop field had to be connected to the heat pumps and filled (it took about 125 gallons of an antifreeze mixture.  I'm told this fluid should never have to be replaced, unless the system has to be drained for some reason).  Then we had to wait for Xcel Energy to install a second electric meter, since the "dual fuel" rate requires that the geothermal system be separately metered from the rest of the house.

Once all that was done, we ran into a series of minor problems: the wrong part for a control relay, a burned out switch, and finally, after everything was running properly, the technicians accidentally left one of the heat pumps in a test mode, requiring another visit to reset it for normal functioning.

All told, the installation went about as well as can be expected for a project of this magnitude.

Living with Geothermal

The weather has been very pleasant lately, and we haven't used our new system much yet. It was a little cool the first evening the geothermal was on, so we ran it for a few hours to take the chill off.

Some things take getting used to in transitioning from traditional heat and air conditioning to geothermal. The biggest change is that unlike a gas furnace, which normally cycles on and off, a geothermal system is most efficient when it operates continuously in its lowest stage.

That means that it no longer makes sense to turn the heat down at night and when we're not at home during the day.  We had saved a significant amount on our heating bill by turning the heat way down at night, but now that strategy will actually cost us money by forcing the geothermal system to run in a less efficient mode to catch up--or worse, the system might switch to the gas backup furnace, negating the efficiency of geothermal entirely.

Getting the most out of geothermal will mean making only very gradual changes to the temperature in the house.  The name of the game is to try to keep it running in the lowest stage possible, and avoid running the gas backup at all.  We'll have to experiment with it when we get into the next heating season to see what works, but I'm guessing that we can turn down the heat modestly during the work week, as long as we are careful to raise it only gradually on the weekend.  The wood stove will be helpful, since it will give us a way to add more heating capacity without losing the benefit of the geothermal.

Vacuum Extraction Coffee Maker

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Our trusty Braun coffee maker (a wedding present from almost 16 years ago) recently died. I wanted to replace it with something which wouldn't die on us after a year or two, so the cheap $20 Mr. Coffee from Target was out.

I've heard people rave about vacuum extraction coffee makers, so I decided to investigate....and bit. For $75 (including shipping from Amazon), I picked up a Bodum Santos 34-ounce vacuum extraction coffee maker.

This is an entirely different way of making coffee from the usual automatic drip.  There are two chambers, a lower one which you fill with water, and an upper one filled with coffee grounds.  You boil the water in the lower chamber, which forces it up through a tube into the upper chamber where the hot water and grounds mix.  Then you remove it from the heat, and as the steam in the lower chamber cools it sucks the coffee back into the lower chamber through a filter.

As soon as I got the box this afternoon, I brewed a pot of decaf (it being past my usual hour for stimulants).  Following the advice of many people online, I preheated the water in the microwave to save time on the stove (a good idea).  And by golly, even though I don't consider myself a coffee geek, I really can taste the difference from our old drip coffee maker.  It has a much stronger coffee flavor with less bitterness.

Plus, it's fun to watch.

So the scorecard for the vacuum extraction coffee maker is:

Advantages:

  • Fun to watch
  • Simple: nothing electrical and no moving parts
  • No replaceable filters, and easy to clean
  • Brews a fine cuppa joe

Disadvantages:

  • Fussier than a drip coffee maker
  • More expensive than Mr. Coffee (though not more expensive than a high-quality coffee maker).
  • Makes a smaller pot than a large coffee maker

Optimistic Sign #10: Sold!

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The cul-de-sac we live on has about a dozen homes, and it's an amazingly stable neighborhood. More that half the homes have been owned by the same people for ten years or longer.  Two or three of the houses are still in the hands of the original owners (most of the houses having been built about 25 years ago).

For the past two years, there has been at least one house for sale at all times, and for several months during 2008 there were three houses on the market at the same time. It used to be something of a rarity to have even one house on the market, and the last time there were two for sale at once was 12 years ago, when we bought ours.

This weekend, the last house on our block sold. For the first time in a couple years, there are no houses for sale on our block.

Optimistic Sign #9: Sunday Paper

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Today's Sunday paper was the thickest I can recall since Thanksgiving.  Since most of the heft of the Sunday paper is advertising supplements and circulars, this is a strong indication that advertisers are coming back.

Target took out a huge full-color spread in the middle of the A-section, at least four full pages and maybe more.

This is an especially good sign given how hard newspapers have been hit in this downturn.  If advertising dollars are truly up, it comes not a moment too soon for them.

Optimistic Sign #8: Traffic

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I've noticed in the past few weeks that morning rush hour traffic has been getting worse.

Now, my commute is not very long (less than ten miles), and the traffic on the particular highways I drive has never been that bad to begin with.  If traffic jams really are getting worse generally (and not just for me), then this is a sign of an improving economy.  More traffic at rush hour means more people going to jobs, which means more people employed.

10%

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Today I reached 200 miles on my trike for 2009.  The goal is 2,000 miles for the year, so I'm 10% of the way there.

2,000 miles will be a push, so making this milestone by the end of April is a good start.

Our Geothermal Adventure (Chapter 2)

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We've had a couple of months to investigate installing a geothermal heat pump system for our home, and now it's Decision Time.

This whole process started back in January when our old, conventional furnace went kaput on one of the coldest nights of the year.  It was past its expected life expectancy, so we started researching geothermal.  A geothermal heat pump uses the ground under the house as a gigantic heat sink, pumping heat underground in the summer (when the air conditioning runs), and pumping heat out in the winter (when it acts as a furnace).  This takes considerably less energy than conventional heating and cooling.

Financially speaking, a geothermal system costs more upfront, but less to operate.  The payback time is long enough that most people would be (understandably) reluctant to install one without some sort of financial incentive.  Fortunately, there are incentives aplenty:

  • The Fiscal Stimulus Package offers a 30% rebate to new EnergyStar rated geothermal installations from the federal government.
  • Xcel Energy, our power company, offers a special "dual fuel" electric rate: if we have a conventional backup and let them turn off the electric heat pump occasionally to manage demand, they cut the electric rate in half.
  • Xcel also offers a rebate of $150/ton for installing a new geothermal heat pump system.

Doing the Research; Running the Numbers

Going into this process, we were helped by the fact that my parents installed a geothermal system a little over a year ago.  They've been generally happy with it, but had some issues (more on that later), and they were able to provide some hard numbers.  We figured it would cost about $25,000 to replace our furnace.

We identified several local geothermal contractors and invited them to our home to inspect the existing system and offer ideas and bids.  The contractors we did invite represented a cross-section of major heat pump brands, and all passed our initial screen of good histories on Angie's List.  We did not talk to the installer my parents hired, after hearing some of their negative comments and seeing other customers' complaints.

Our home presents a couple of unique problems for this installation.  First, we actually have two furnaces, separated by about 30 feet.  One is for the main part of the house, and the other is for an addition built before we moved in.  Ideally, we would want to replace both units with a single heat pump and tie the ductwork together, since a second heat pump adds considerable cost to the system.  There also isn't very much room around either of the existing furnaces for new equipment, making it difficult to find room for a conventional gas backup furnace (and without that special electric rate, the numbers don't make sense).

None of the contractors we spoke to thought it was feasible to put in only a single heat pump to replace the two furnaces: there just is not enough room to run the needed ductwork without cutting through bearing walls.

The space constraints also knocked out one of the manufacturers, which simply didn't have any way to give us both the heat pump and the gas backup in the space we have available.

We settled on a system from a local WaterFurnace contractor with many years of experience, and which could show us examples of how they'd handled similar problems for other customers.  The total cost will be about $40,000, and this will include two heat pumps, a natural gas backup furnace, a hot water holding tank, a desuperheater to use waste geothermal heat to preheat domestic hot water, and a whole-house on demand gas water heater.  The cost is split approximately one-third for equipment, one-third for drilling the geothermal wells, and one-third for installation and other components.

This will be a six ton system total (heat pumps, like air conditioners, are measured in "tons" of capacity), with four tons serving the main part of the house, and two tons serving the addition.  Only the main part of the house will get the backup gas furnace, but that will be sufficient to keep the addition warm (though not totally toasty).

Given that the total cost will be so much higher than we expected, we went back and did a more careful analysis of the payback.  Working in our favor is that we are also getting a new water heater in the bargain (which we would probably need in a few years anyway), so we can count the avoided cost of a new water heater towards the geothermal system.

After figuring out the various rebates and backing out the cost of two new furnaces, two air conditioners, and a new water heater, we estimate that the geothermal system will cost about $11,000 more than replacing everything with the conventional equivalents (after rebates).  It will save us about $900/year in heating costs, and $250/year in hot water (since the hot water will be essentially "free" when the geothermal system is running), and pay for itself in ten years.

I didn't figure in any air conditioning savings, since last summer we barely ran our A/C at all.  However, if we do have a hot summer, the savings will increase very quickly because the efficiency improvement for geothermal air conditioning is even more dramatic than for geothermal heat.  This could easily be hundreds of dollars more in savings.

So the numbers still make sense--the system will pay for itself before the warranty runs out.

That said, this will be a financial strain.  First, we have to pay for the whole system in one big lump, whereas if we were to replace our furnaces, hot water heater, etc., as they failed, we would be spreading the cost out over several years.  Second, we don't get the federal rebate (well over $10,000) until we get our 2009 tax refund sometime in 2010.  That means that it will be over a year between the time we spend the money and when we get that part of the money back.

Finally, the $40,000 number doesn't include relandscaping the front yard.  Drilling the wells will leave the yard a mess, and we're going to have to spend some money getting it repaired and cleaned up.  We had been planning to do a some significant landscaping within the next few years, so this will also get moved up to this spring.

Avoiding the Pitfalls

Part of making the numbers work is making sure we actually can claim all the rebates and incentives for this project.  My parents discovered this the hard way, when they went to do their 2008 taxes and learned that the model of heat pump they installed wasn't EnergyStar rated and therefore not eligible for the federal rebate.  The rebate in 2008 was limited to $3,000, so they weren't counting on it to the same extent that we are, but it was a rude surprise nevertheless and a warning for our project.

I've verified that both of the heat pumps we'll be installing qualify for the federal rebate, but we still need to contact Excel and make sure we have all our ducks in a row for both of their programs.

I also expect that there will be some as-yet-unknown gotchas.  We don't yet know where all our utility lines are, so we don't know where the wells can be drilled and where the connection to the house will have to go.  There's the chance that something will turn out to be unsuitable and put the kabosh on the whole project.

The Plan

If all goes well we'll probably have our new system installed by the end of May.  We need to get a permit for drilling the wells, and plan where everything will go.  Drilling will be in early May, with the mechanicals shortly thereafter.

Puppy Spam

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Comment moderation has been turned on--it didn't take long for the spammers to flood one of my entries with a couple hundred spam comments advertising what appeared to be puppy spam.

At least the cleanup was quick, thanks to mass delete.

The moderation policy is that any reasonable and unspammy comment will be allowed through, but no promises on the time.  This blog is very much a part-time hobby, so I'll get to comments when I get to them.

Cornering the Market in Money

Cornering the market is a (generally illegal) form of market manipulation where someone buys or controls enough of something--a stock, commodity, etc.--so as to effectively control the market price for that item. It can be very profitable, since the person who has cornered a market can force buyers (at least those buyers who have no alternative) to pay essentially any price.

For example, you might corner the market in frozen concentrated orange juice by going out and buying up all the OJ you can find, then entering into contracts with the OJ plants to buy their production. At some point, someone wanting to buy frozen concentrated orange juice would be forced to come to you, and pay whatever price you ask.

In practice, there may actually be more OJ futures available to buy in the market than actual OJ production, since a significant fraction of the market is not actual buyers or sellers of the physical commodity but speculators who trade futures contracts expecting to close their positions without ever touching any actual juice (except perhaps at breakfast). So when those futures contracts start to mature, the speculators discover that they are obligated to deliver actual frozen concentrated orange juice (which is unavailable) or buy back their contracts at some absurd price. You have, in effect, created an artificial shortage of OJ to your own benefit.

Cornering a market is very expensive, since you have to have enough capital to lock up most of the supply. It can also be very risky, since if you try and fail to corner a market, you can wind up paying too much for a huge amount of something you don't actually need. Nevertheless, every so often someone tries to corner a market; and occasionally someone succeeds.

The most profitable, and most difficult, market to corner would be the market for money itself. Money is in some respects a commodity like any other: it can be bought and sold, you can create derivatives, and you can write contracts which obligate the delivery of a certain amount of money under certain conditions. If you could corner the market for money, you would drive up the value of money (otherwise known as "deflation") by creating an artificial shortage (aka "liquidity crisis"). The people you traded with would be unable to deliver the money they were obligated to under their contracts, so you would be able to demand whatever other hard assets they might have instead.

Cornering the market in money would be hard, but maybe not impossible. The best way would be to buy up a whole lot of some financial contract which is normally relatively inexpensive, but under the right (very rare) circumstances obligates the seller to give you a hundred or a thousand times the capital you invested. Ideally, the seller would view the contract as safe (so the price would be low), but could be triggered by some crisis.

A Credit Default Swap (CDS) fits the bill pretty well: pre-2008, you could buy a contract for a few tens of thousands of dollars per year which would obligate the seller to give you $10 million upon the failure of some big investment bank or blue-chip corporation.

So you buy CDSs on a bunch of big low-risk corporations at 2006 prices (which is to say, dirt cheap). Since the CDS isn't directly tied to an actual bond issued by the company, you can actually buy more CDSs than the company has outstanding debt. Then, recognizing that there's a cascading effect, you also buy CDSs on all the companies who sold you the first set of CDSs--since if Lehman Brothers has to pay out on all those swaps, they'll have a good chance of defaulting as well. Since the CDS market is almost completely opaque, nobody will know how many contracts you've bought up or what the aggregate value is.

At 2006 prices, you could have invested a few billion to buy CDSs which would pay (in aggregate) a trillion dollars or more if the companies started failing. Lots of investors have a few billion to throw around. Almost nobody--other than the U.S. Treasury which prints its own money--has a trillion.

The corner happens when one of the companies you bought CDSs on starts getting into a little trouble. Every company has rough spots, so this is bound to happen sooner or later.  That will make the market value of the CDSs you own go up, and lets you demand more collateral from the companies you bought the CDSs from.

That, in turn, requires those companies to come up with cash quickly, and hurts their financial stability--which drives up the value of the CDSs on those companies, and lets you demand more collateral from a different set of counterparties.

If it all plays out right, in fairly short order every company which sold you CDSs is selling every asset they can get their hands on in order to meet their contractual obligations to you. Cash becomes the most valuable commodity because nobody can find enough of it. It's financial armageddon, but you win big.

The only flaw--and it's a big one--is that the government can create new cash any time they want.  Normally they don't like to do this, because it can lead to inflation.  But if the government discovers what's going on early enough, they can print more money, give it to the foolish companies who wrote those CDSs (like AIG) to make good on their promises, and break the cycle of collapse by making money less scarce.  This excess cash can (at least in theory) be taken out of the system at a later date once things have stabilized, in order to prevent hyperinflation.

So....do you bet on the Federal Reserve being on top of things and pumping the cash to the right place at the right time? Or do you bet that nobody will figure out what's going on until it's too late?