Sales methods

Business forecasting and sales and operations planning (S&OP) is a fundamental part of any business strategy. It has been an effective management tool for decades; however, there is a wide variation in the degree to which it is used and how effectively over an extended period of time. It is critical to realizing projected Operation Asset Effectiveness (OAE) benefits and accelerates their realization.

S&OP comprises a set of planning and decision-making processes that balance product supply and demand and links business goals with operational and financial plans. Effective S&OP enables decision makers to achieve consensus on a single operating plan that allocates critical resources to performance targets.

S&OP concentrates on bringing all departments into executional alignment by focusing on developing and measuring common metrics that drive business success. By bringing sales, marketing, operations, and finance together, organizational silos are broken and an effective and comprehensive execution plan can be developed. Effective S&OP provides the processes necessary to develop world class, effective plans.

The primary purpose of S&OP is to establish production rates that achieve management’s objectives of maintaining appropriate inventories or backlogs, while attempting to keep the work force stable. S&OP offers many other advantages that translate into major benefits:

• Ensures that the operating plans are in lockstep with the business plan, or makes it evident where sales and production have deviated from the plan, so that course corrections can be made
• Provides a means for orchestrating all departments as it communicates the plans both horizontally and vertically
• Forces a realistic plan capable of achieving the company’s objectives
• Eliminates hidden decisions; good information and communication breed good decisions, so that the whole company benefits
• Effectively manages change — substitutes controlled and appropriate response for knee-jerk reactions
• Better manages finished goods inventory
• Builds teamwork
• Provides executives with control knobs for the business

Sales & Operations Planning at IGNCT

To IGNCT Consultants, S&OP is a performance enhancement tool used to address the business processes, metrics, information requirements, and the culture of the company. It is used to ensure that an enterprise-wide perspective is applied to match what customers really need with what the manufacturer is capable of delivering. It mandates the involvement of constituents across the value chain.

Successful Custom  S&OP programs are generally characterized by a top-down and bottom-up approach, aligning the company’s business plan with current demand and supply plans. We construct a cross-functional, collaborative process that focuses on improving operational performance and utilizes a structured, formal, holistic set of agreed-upon business processes.

There are a number of benefits to be derived from a successful S&OP engagement with Thomas Group: increased revenues from fewer out-of-stocks; shortened cycle times from order to cash; reduced inventories; improved scheduling, and most importantly, more satisfied customers

Resources

In order to create enterprise value, companies need information to transform what is known into value-creating solutions. Organizations must understand the issues, align initiatives and processes with goals, and integrate that understanding in order to succeed.

IGNCT Staff have created custom Business Models that are  recognized for their Process Value Management approach to business solutions and understands how important it is to stay ahead of the issues affecting businesses. Browse through our selections, and you will find the work of knowledgeable and collaborative professionals that create value and solve business challenges for organizations every day.

We are partnered with some of the most successful alternative energy providers in the world. IGNCT is  in tune with the latest IRS energy tax credits. Energy credits can be used to lower taxes & maximize profits. Our team of attorneys at New Century Tax can help determine the best corporate strategy for you small, medium or large size business.

Call us now for a free Consultation. (877) 530-6505

Proper Worker Classification

Basic Definitions

One of the biggest tax challenges for companies is determining whether workers are employees or independent contractors. If a worker is an employee, then the employer is responsible for withholding income tax and the employee’s portion of Social Security and Medicare tax from amounts paid to the worker. The employer is also responsible for paying over to the IRS the employer’s portion of Social Security and Medicare tax, as well as paying the federal unemployment tax.

On the other hand, the business is not responsible for any payroll taxes for independent contractors. Many companies believe that they can choose whether to treat any given worker as an employee or independent contractor. However, there are laws that determine whether the worker is an employee or an independent contractor. So the first step is to properly classify the worker.

An employee is an individual who performs services for you, and who is subject to your control regarding what will be done and how it will be done. If the employer retains the right to direct and control the means and details of the work, then the worker is an employee. We call this the right to direct and control. It is the only definition, outside of court cases, you will find, and it can be found in Treasury Regulations Section 31.3121(d)-(1)(c), paragraphs (1) and (2). Remember this term, right to direct and control, because you will hear it throughout this presentation.

In contrast, an independent contractor is an individual who performs services for you, but you control only the result of the work, not the means and methods of accomplishing the result.

The information that we are covering is discussed in the Publication 1779, titled Independent Contractor or Employee, and is available on the IRS Web site.

Employee versus Independent Contractor

IRS Revenue Ruling 87-41 contains factors, commonly referred to as the twenty common law factors, that assess whether or not a business has the right to direct and control the actions of the worker.  Although this revenue ruling is still valid today, the IRS has grouped the more relevant ones into three main categories of evidence that show whether a worker is an employee or an independent contractor:

One: behavioral control

Two: financial control, and

The third is the relationship of the parties.

I will discuss these in more detail, but I would like to point out that the  businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that make the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors that are relevant in one situation may not be relevant in another.

The key is to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

Next we will look at each of these factors in more detail.

First, let’s look at behavioral control. The key issues for behavioral control are instructions and training.

Types of instructions include things like:

When and where to do the work

What tools or equipment to use

What workers to hire or to assist with the work

Where to purchase supplies and services

What work must be performed by a specified individual, and

What order or sequence to follow when performing the work

You would also want to consider the degree of instruction. The more detailed the instructions, the more control the business exercises over the worker. More detailed instructions indicate that the worker is an employee. Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor.

The next factor under behavioral contol is the evaluation system. If an evaluation system measures the details of how the work is performed, then these factors could point to an employee. On the other hand, if the evaluation system measures just the end result, then this could point to either an independent contractor or an employee.

And finally, there’s training. Training means explaining detailed methods and procedures to be used in performing a task. If the business provides the worker with training on how to do the job, this indicates that the business wants the job done in a particular way. This is strong evidence that the worker is an employee. Periodic or ongoing training about procedures and methods is even stronger evidence of an employer-employee relationship.

When looking at behavioral control, the key factor to consider is whether the business retains the right to control the worker and the details of how the services are performed, regardless of whether the business actually exercises that right.

Here’s an example:

A plumber agrees to install plumbing in a new warehouse being built. Upon arriving at the warehouse, the plumber is given the building plans showing where the plumbing is to be installed, and advised that the plumbing must be completed within five days. This is direction of what is to be done, rather than how it is to be done and is consistent with independent contractor status.

Here’s another example that points more to an employee:

A plumber works out of the local plumbers’ union office. The warehouse general contractor tells the plumber what plumbing has to be done, gives specific instructions on installation, the tools to use, the type of pipe to use, and the order and sequence in which the plumbing is to be installed. These are specific instructions on how the work is to be performed and are consistent with employee status.

Now let’s look at the second category of evidence, financial control.

Financial control refers to whether or not the business has the right to direct and control the financial aspects of the worker’s job. Let’s talk about several different ways a business exercises financial control.

First, there’s investment. An independent contractor often has a significant investment in the equipment he or she uses in working for someone else. However, in many occupations, such as construction, workers spend hundreds of dollars on the tools and equipment they use and are still considered to be employees. There are no precise dollar limits that must be met in order to have a significant investment. Furthermore, a significant investment is not necessary for independent contractor status as some types of work simply do not require large expenditures.

Next are expenses. Employers are more likely to reimburse employees for their job expenses, while businesses usually do not reimburse independent contractors for expenses. However, employees may also incur expenses that are not reimbursed.

Here’s an example:

A teacher buys erasers, posters and other minor supplies throughout the year.

She is not reimbursed for these expenses, but minor expenses incurred by an employee do not indicate an independent contractor relationship. She is an employee.

The opportunity to make a profit or loss is another important factor. If a worker has a significant investment in the tools and equipment used and if the worker has unreimbursed expenses, the worker has a greater opportunity to lose money – for example, their expenses will exceed their income from the work. The possibility of incurring a loss indicates that the worker is an independent contractor.

We also want to consider the availability of services. Are the worker’s services available to the market? Independent contractors often advertise, maintain a visible business location and are available for the relevant market. Also, an independent contractor is generally free to seek out business opportunities.

Finally, the method of payment must be considered. What type of payment does the worker receive? Is he paid by the job or the hour? Hourly, weekly, or similar basis for payment in return for labor generally is evidence of an employer-employee relationship. A flat fee is generally evidence of an independent contractor, especially if the worker incurs the expenses of performing the services.  Furthermore, if a worker continues to be paid during down time, this is evidence the worker is an employee.

Again, just as with the behavioral control factors, there is no one factor that takes precedence over the others. It’s a matter of looking at the whole relationship and seeing where the “preponderance of evidence” lies.

The third category of evidence is the relationship of the parties.

Let’s take a look at some of the elements that may be present in the type of relationship between the two parties.

Is there a written contract? Although a contract may state that the worker is an employee or an independent contractor, this is not sufficient to determine the worker’s status. The IRS is not required to follow a contract that simply states that the worker is an independent contractor, responsible for paying his or her own self-employment tax. How the parties work together determines whether the worker is an employee or an independent contractor.

Are employee-type benefits provided? Employee benefits include things like insurance, pension plans, paid vacation, sick days, and disability insurance. Businesses generally do not grant these benefits to independent contractors. However, the lack of these types of benefits does not necessarily mean the worker is an independent contractor.

How permanent is the relationship? If you hire a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.  As mentioned earlier, if the worker continues to be paid during down periods, this points toward a more permanent employer-employee relationship.

Are the services provided a key activity of the business? If a worker provides services that are a key aspect of your regular business activity, it is more likely that you will have the right to direct and control his or her activities. For example, a baker is a key element in the bakery business.  It is likely that the bakery would have the right to control or direct that work of the baker because his or her success determines the success of the bakery. This would indicate an employer-employee relationship.

We often get questions from business owners about how to treat ‘casual labor’ or day labor. For each worker you will need to look at all of the factors we’ve just discussed, and see whether they indicate an employee or an independent contractor. The length of time the worker performs services for you is not a stand-alone factor in determining his or her status. A worker can be an employee even if he or she only performs a few hours of services.

What if you’re still not sure?

After reviewing these three categories of evidence, if you are still unsure whether a worker is an employee or an independent contractor, you can file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.

The IRS does not charge a user fee for an SS-8 determination, but you should expect to wait at least at least six months for the determination, especially as the volume of SS-8s increases. However, it may be worth it for a business that will continually hire the same types of workers to perform particular services.

Form 8919

There may be circumstances where a determination has been made that a worker is an employee, however, the employer continues to treat the worker as an independent contractor and issue him or her a Form 1099 in lieu of a W-2. Form 8919, entitled Uncollected Social Security and Medicare Tax on Wages is now available for this situation. Workers who believe they have been improperly classified as independent contractors can use this form to tell the IRS they believe they should be employees, and report only their share of Social Security and Medicare taxes in lieu of self-employment tax. This form is attached to Form 1040.

On the form, workers must select one of eight reasons why they believe they were employees rather than independent contractors. For some of the reason codes, a Form SS-8 must already have been filed. For others, the worker is required to file the SS-8 before filing his or her tax return.

Let’s talk about officer compensation.

You might think you might have to go through all these tests to determine the worker status for officers, but you don’t, because officers are specifically included within the definition of employees for purposes of FICA, FUTA, and federal income tax withholding.  Officers are employees by statute under Internal Revenue Code section 3121(d)(1).

The common law standard is not applicable. However, there is a narrow exception. An officer is not considered to be an employee of the corporation if two requirements are met:

One: the officer does not perform any services or performs only minor services; and

Two: the officer is not entitled to receive, directly or indirectly, any remuneration.

Sometimes corporations attempt to compensate officers for their services using methods other than wages. These can include:

Distributions

Loans to shareholders

Payments of personal expenses

Excessive rent payments

Management fees and/or Fringe benefits:

There are several court cases and rulings indicating that the IRS has the authority to reclassify all or part of these payments made to a corporate officer as wages.

Misclassification of Workers:

As we have seen, the status of a worker as either an independent contractor or an employee must be determined accurately in order to ensure that workers and businesses can anticipate and meet their tax responsibilities. Businesses decide whether to hire employees or independent contractors depending on individual needs, customer expectations, and worker availability. Either worker classification – independent contractor or employee – can be a valid and appropriate business choice.

The majority of classifications of workers are not challenged by the IRS. However, when IRS reclassifications are made, it can result in the assessment of significant employment tax liabilities. Congress recognized this in 1978 and passed Section 530 of the Revenue Act of 1978. Section 530 provides businesses with relief from federal employment tax obligations if certain requirements are met. It terminates the business’s, but not the worker’s, liability for the following employment taxes: federal income tax withholding, Social Security and Medicare taxes (FICA), and Federal Unemployment Tax (FUTA). It also means the business is not required to pay any interest or penalties resulting from the liability for employment taxes.

Information on Section 530 relief can be found in Publication 1976 (PDF), titled Section 530 Relief Requirements. This publication is on the IRS Web site.

Section 530 Relief Requirements:

Now let’s take a few minutes to address the application of Section 530 of the Revenue Act of 1978. In certain circumstances, Section 530 can relieve businesses of employment tax liability resulting from worker misclassification, but the business must meet specific requirements under the law.

The business must meet the following three requirements to receive relief under Section 530:

Reporting consistency, Substantive consistency, and Reasonable basis.

The business must meet ALL three tests.  Meeting these three tests means that the business will not owe employment taxes for the workers in question.

Let’s talk about the two consistency tests.

The business must demonstrate two types of consistency:

First, the business must treat all workers in similar positions the same. This is called substantive consistency. The business (and any predecessor business) must not have treated the workers, or any similar workers, as employees. If you treated similar workers as employees, this relief provision is not available. In other words, treatment of the workers must be consistent with the position that they were not employees. For example, if the business treated a worker as an independent contractor, it must treat all workers in a similar position as independent contractors. Let’s say a business employed 20 workers performing the same duties under the same direction and control, and treated 15 as employees and 5 as independent contractors. In this scenario, the substantive consistency test would not be met.

Second, the business must file all required federal tax returns on a consistent basis. This is called reporting consistency. This means that if a business believes a particular worker or group of workers are properly classified as independent contractors, then the business must demonstrate to the IRS that they have been filing the required forms – for example, Form 1099-MISC – for those independent contractors.

Relief is not available for any year the business did not file the required Forms 1099-MISC. If they filed the required Forms 1099-MISC for some workers, but not for others, relief is only available for the workers for whom the 1099-MISC was filed.

Section 530 – Reasonable Basis:

In addition to meeting both consistency tests, the business must also have a reasonable basis for not treating the workers as employees. To establish that you had a reasonable basis for not treating the workers as employees, you can show that:

You reasonably relied on a court case about federal taxes or a ruling issued to you by the IRS; or

Your employment tax liabilities were audited by the IRS at a time when you treated similar workers as independent contractors and we did not reclassify those workers as employees; or

You treated the workers as independent contractors because you knew that was how a significant segment of your industry treated similar workers; or

You relied on some other reasonable basis. For example, you relied on the written advice of a business lawyer or accountant who knew the facts about your business.

It is the position of the IRS that the judicial precedent relied upon must have been in existence at the time you made the decision to treat the workers as independent contractors. Additionally, if you are relying on industry practice, you will need to show that you knew, at the time you began treating your workers as independent contractors, that this was the industry practice – for example, a survey of the industry prior to your treatment.

If you did not have a reasonable basis for treating the workers as independent contractors, you do not meet the relief requirements.

What is GeoExchange?

Homeowners in virtually every region of the United States are enjoying a high level of comfort and significantly reducing their energy use today with GeoExchange (geothermal) heating and cooling.

This marvelous technology relies primarily on the Earth’s natural thermal energy, a renewable resource, to heat or cool a house or multi-family dwelling. The only additional energy GeoExchange systems require is the small amount of electricity they employ to concentrate what Mother Nature provides and then to circulate high-quality heating and cooling throughout the home.

Homeowners who use GeoExchange systems give them superior ratings because of their ability to deliver comfortably warm air, even on the coldest winter days, and because of their extraordinarily low operating costs. As an additional benefit, GeoExchange systems can provide inexpensive hot water, either to supplement or replace entirely the output of a conventional, domestic water heater.

GeoExchange heating and cooling is cost effective because it uses energy so efficiently.1 This makes it very environmentally friendly, too. For these reasons, federal agencies like the Environmental Protection Agency and the Department of Energy, as well as state agencies like the California Energy Commission, endorse it.

Owners of GeoExchange systems can relax and enjoy high-quality heating and cooling year after year. GeoExchange systems work on a different principle than an ordinary furnace/air conditioning system, and they require little maintenance or attention from homeowners. Furnaces must create heat by burning a fuel–typically natural gas, propane, or fuel oil. With GeoExchange systems, there’s no need to create heat, hence no need for chemical combustion. Instead, the Earth’s natural heat is collected in winter through a series of pipes, called a loop, installed below the surface of the ground or submersed in a pond or lake. Fluid circulating in the loop carries this heat to the home. An indoor GeoExchange system then uses electrically-driven compressors and heat exchangers in a vapor compression cycle–the same principle employed in a refrigerator–to concentrate the Earth’s energy and release it inside the home at a higher temperature. In typical systems, duct fans distribute the heat to various rooms.

In summer, the process is reversed in order to cool the home. Excess heat is drawn from the home, expelled to the loop, and absorbed by the Earth. GeoExchange systems provide cooling in the same way that a refrigerator keeps its contents cool–by drawing heat from the interior, not by injecting cold air.

GeoExchange systems do the work that ordinarily requires two appliances, a furnace and an air conditioner. They can be located indoors because there’s no need to exchange heat with the outdoor air. They’re so quiet homeowners don’t even realize they’re on. They are also compact. Typically, they are installed in a basement or attic, and some are small enough to fit atop a closet shelf. The indoor location also means the equipment is protected from mechanical breakdowns that could result from exposure to harsh weather.

GeoExchange works differently than conventional heat pumps that use the outdoor air as their heat source or heat sink. GeoExchange systems don’t have to work as hard (which means they use less energy) because they draw heat from a source whose temperature is moderate. The temperature of the ground or groundwater a few feet beneath the Earth’s surface remains relatively constant throughout the year, even though the outdoor air temperature may fluctuate greatly with the change of seasons. At a depth of approximately six feet, for example, the temperature of soil in most of the world’s regions remains stable between 45 F and 70 F. This is why well water drawn from below ground tastes so cool even on the hottest summer days.

In winter, it’s much easier to capture heat from the soil at a moderate 50o F. than from the atmosphere when the air temperature is below zero. This is also why GeoExchange systems encounter no difficulty blowing comfortably warm air through a home’s ventilation system, even when the outdoor air temperature is extremely cold. Conversely, in summer, the relatively cool ground absorbs a home’s waste heat more readily than the warm outdoor air.

Studies show that approximately 70 percent of the energy used in a GeoExchange heating and cooling system is renewable energy from the ground. The remainder is clean, electrical energy which is employed to concentrate heat and transport it from one location to another. In winter, the ground soaks up solar energy and provides a barrier to cold air. In summer, the ground heats up more slowly than the outside air.

Making Hot Water

GeoExchange systems can also provide all or part of a household’s hot water. This can be highly economical, especially if the home already has a GeoExchange system, hence a ground loop, in place.

One economical way to obtain a portion of domestic hot water is through the addition of a desuperheater to the GeoExchange unit. A desuperheater is a small, auxiliary heat exchanger that uses superheated gases from the heat pump’s compressor to heat water. This hot water then circulates through a pipe to the home’s water heater tank. In summer, when the GeoExchange system is in the cooling mode, the desuperheater merely uses excess heat that would otherwise be expelled to the loop. When the GeoExchange unit is running frequently, homeowners can obtain all of their hot water in this manner virtually for free. A conventional water heater meets household hot water needs in winter if the desuperheater isn’t producing enough, and in spring and fall when the GeoExchange system may not be operating at all.

Because GeoExchange systems heat water so efficiently, many manufacturers today are also offering triple function GeoExchange systems. Triple function systems provide heating, cooling and hot water. They use a separate heat exchanger to meet all of a household’s hot water needs.

The Earth Connection

Once installed, the loop in a GeoExchange system remains out of sight beneath the Earth’s surface while it works unobtrusively to tap the heating and cooling nature provides. The loop is made of a material that is extraordinarily durable but which allows heat to pass through efficiently. This is important so it doesn’t retard the exchange of heat between the Earth and the fluid in the loop. Loop manufacturers typically use high-density polyethylene, a tough plastic. When installers connect sections of pipe, they heat fuse the joints. This makes the connections stronger than the pipe itself. Some loop manufacturers offer up to 50-year warranties. The fluid in the loop is water or an environmentally safe antifreeze solution that circulates through the pipes in a closed system.

Another type of geothermal heating and cooling is Direct GeoExchange (DX) systems, which utilize copper piping placed underground. As refrigerant is pumped through the loop, heat is transferred directly through the copper to the earth.

To ensure good results, the piping should be installed by professionals who follow procedures established by the International Ground Source Heat Pump Association (IGSHPA). Installers should be certified by IGSHPA or be able to show equivalent training by manufacturers or other recognized authorities at a recognized institution, such as one of the many regional GeoExchange training centers located throughout the United States.

The length of the loop depends upon a number of factors, including the type of loop configuration used; a home’s heating and air conditioning load; soil conditions; local climate; and landscaping. Larger homes with larger space conditioning requirements generally need larger loops than smaller homes. Homes in climates where temperatures are extreme also generally require larger loops. A heat loss/heat gain analysis should be conducted before the loop is installed.

Types of Loops

Most loops for residential GeoExchange systems are installed either horizontally or vertically in the ground, or submersed in water in a pond or lake. In most cases, the fluid runs through the loop in a closed system, but open-loop systems may be used where local codes permit. Each type of loop configuration has its own, unique advantages and disadvantages, as explained below:

Horizontal Ground Closed Loops. This configuration is usually the most cost effective when adequate yard space is available and trenches are easy to dig. Workers use trenchers or backhoes to dig the trenches three to six feet below the ground, then lay a series of parallel plastic pipes. They backfill the trench, taking care not to allow sharp rocks or debris to damage the pipes. Fluid runs through the pipe in a closed system. A typical horizontal loop will be 400 to 600 feet long per ton of heating and cooling capacity. The pipe may be curled into a slinky shape in order to fit more of it into shorter trenches, but while this reduces the amount of land space needed it may require more pipe. Horizontal ground loops are easiest to install while a home is under construction. However, new types of digging equipment that allow horizontal boring are making it possible to retrofit GeoExchange systems into existing homes with minimal disturbance to lawns. Horizontal boring machines can even allow loops to be installed under existing buildings or driveways.

Vertical Ground Closed Loops. This type of loop configuration is ideal for homes where yard space is insufficient to permit horizontal buildings with large heating and cooling loads, when the Earth is rocky close to the surface, or for retrofit applications where minimum disruption of the landscaping is desired. Contractors bore vertical holes in the ground 150 to 450 feet deep. Each hole contains a single loop of pipe with a U-bend at the bottom. After the pipe is inserted, the hole is backfilled or grouted. Each vertical pipe is then connected to a horizontal pipe, which is also concealed underground. The horizontal pipe then carries fluid in a closed system to and from the GeoExchange system. Vertical loops are generally more expensive to install, but require less piping than horizontal loops because the Earth deeper down is cooler in summer and warmer in winter.

Pond Closed Loops. If a home is near a body of surface water, such as a pond or lake, this type of loop design may be the most economical. The fluid circulates through polyethylene piping in a closed system, just as it does in the ground loops. Typically, workers run the pipe to the water, then submerge long sections under water. The pipe may be coiled in a slinky shape to fit more of it into a given amount of space. GeoExchange experts recommend using a pond loop only if the water level never drops below six to eight feet at its lowest level to assure sufficient heat-transfer capability. Pond loops used in a closed system result in no adverse impacts on the aquatic system.

Open Loop System. This type of loop configuration is used less frequently, but may be employed cost-effectively if ground water is plentiful. Open loop systems, in fact, are the simplest to install and have been used successfully for decades in areas where local codes permit. In this type of system, ground water from an aquifer is piped directly from the well to the building, where it transfers its heat to a heat pump. After it leaves the building, the water is pumped back into the same aquifer via a second well–called a discharge well–located at a suitable distance from the first. Local environmental officials should be consulted whenever an open loop system is being considered.

Standing Column Well System. Standing column wells, also called turbulent wells or Energy WellsTM, have become an established technology in some regions, especially the northeastern United States. Standing wells are typically six inches in diameter and may be as deep as 1500 feet. Temperate water from the bottom of the well is withdrawn, circulated through the heat pump’s heat exchanger, and returned to the top of the water column in the same well. Usually, the well also serves to provide potable water. However, ground water must be plentiful for a standing well system to operate effectively. If the standing well is installed where the water table is too deep, pumping would be prohibitively costly. Under normal circumstances, the water diverted for building (potable) use is replaced by constant-temperature ground water, which makes the system act like a true open-loop system. If the well-water temperature climbs too high or drops too low, water can be “bled” from the system to allow ground water to restore the well-water temperature to the normal operating range. Permitting conditions for discharging the bleed water vary from locality to locality, but are eased by the fact that the quantities are small and the water is never treated with chemicals.

Other loop designs are also being used. In a few places, for example, home builders have installed large community loops, which are shared by all of the homes in a housing development.

Purchasing a System

To ensure they receive the highest-quality equipment, system design and installation, consumers should consider the following guidelines when shopping for a GeoExchange system:

Ratings and Certification: Look for equipment that is certified by the Air-Conditioning and Refrigeration Institute (ARI), a non-profit organization that rates the performance of residential and small commercial geoexchange equipment. Certified equipment carries the ARI seal.

Warrantees: Manufacturers’ terms of warranty vary. To assure a high-quality installation, seek a performance guarantee on the installed system, as opposed to coverage limited to the heat pump itself.

Sizing: GeoExchange systems that are too large waste energy and do not provide proper humidity control. Check to see that the contractor carefully determines your home’s heating and cooling requirements using accepted procedures, such as those recommended by the Air Conditioning Contractors Association. The actual size of the system should be within 15 percent of the calculated load.

System Design: While designing a residential GeoExchange system is not particularly complicated, always use experienced contractors. The contractor should carefully select the size of the GeoExchange system, the size and design of the loop, and the type of fluid that will circulate through it. The contractor should also examine ways to use the GeoExchange system to provide hot water. Finally, the contractor should examine your home to ensure the ductwork is designed and installed properly to prevent leaks, as well as to ensure it is properly insulated and has window glazings and other energy-efficiency features. Minimizing heating and cooling needs reduces the required size, hence the cost, of the GeoExchange system.

A Sound Investment

GeoExchange is becoming the system of choice in many parts of the United States as consumers learn more about its aesthetic advantages and long-term value, and as it becomes more widely available.

GeoExchange is no longer just for the affluent, a reputation it once held because typical early buyers were owners of upscale homes. They wanted the quiet comfort GeoExchange systems provide, and they were more than willing–and could afford–to pay the cost premium associated with early systems. This is because the extraordinarily low operating costs of GeoExchange systems more than make up for any higher installation costs within a few years. According to the U.S. Environmental Protection Agency, GeoExchange systems save homeowners 30-70 percent in heating costs, and 20-50 percent in cooling costs, compared to conventional systems. GeoExchange systems also save money in other ways. They are highly reliable, require little maintenance, and are built to last for decades. They add considerably to the value of homes.

Today, homeowners in all income brackets can take advantage of the benefits of GeoExchange heating and cooling. Initial costs have declined substantially as many more builders and heating and cooling contractors nationwide make GeoExchange systems available, and as innovative techniques enable the loops to be installed more quickly (often in one day) and for lower cost.

What’s more, some electric utilities around the nation now have incentive programs and low-interest financing programs which can make GeoExchange even more affordable. Many financial institutions also now allow home buyers to qualify for larger mortgages if they purchase a house that utilizes a GeoExchange system. The reduction in monthly energy bills more than offsets the slightly higher mortgage payment. With such mortgages, homeowners with GeoExchange systems can begin saving money from day one, then go on saving year after year!

Today, the major barrier to wider use of this marvelous technology is the fact that many consumers simply aren’t aware it’s there.

A Wise Choice

GeoExchange is a smart investment for consumers who want a system that provides a high level of comfort and low monthly energy bills for as long as they own their homes.

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