Passed in August 2022, the Inflation Reduction Act is considered a landmark piece of legislation that will have a major impact on many industries for decades to come — including retail. The energy efficiency portion of the bill aims to provide consumers with various tax credits and other yet-to-be-determined benefits pending state-level programs that will roll out in relation to this bill. There’s a ton to unpack, but we attempt to do just that with Nationwide Marketing Group’s Director of Business Services Frank Sandtner.
Rob Stott: All right, we are back on the Independent Thinking Podcast and blessed today to have Mr. Frank Sandtner, our director of business services here on the Independent Thinking Podcast, right from Nationwide Marketing Group. Mr. Sandtner, how’s it going? How you doing?
Frank Sandtner: Doing great. Doing fantastic. Great to be speaking with you.
Rob Stott: Yeah, you as well as always. So it always fun to be able to pick the minds of our incredible people here at Nationwide Marketing Group and you amongst them. And we got some interesting stuff for those reading the headline of this episode that we’re diving into today. But before we get into all that, just how are things as we get into ’23? Just set the scene, what’s going on in your world, and what are you excited about? I know the Inflation Reduction Act will be a part of that, but what else is going on that has you excited about the start of 2023?
Frank Sandtner: I think that if you take it at a macro level, the slowing of the economy for our members gives them a perfect opportunity to think about their business. Meaning the last couple years they’ve been so busy working in their business, they haven’t had time to work on their business, and now this gives them a little bit of time to think about the next 10 years and where they want to put themselves 10 years from now.
Rob Stott: No, I’d love that. And the business and financial services world that you operate in is always one. We talk about, there’s the products and things like that. We have programs with and whatnot that our members have access to, but this is… There’s so much variety in this space, and opportunity too, ways to leverage some of the tools that we’ve got that are out there. And I know a big piece of the team retired at the end of last year, the shoes that you have to fill with Mr. Weinberg, but you guys are doing it. How’s that been, that adjustment to start the new year?
Frank Sandtner: It’s been wonderful. Rick did spend a fair amount of time preparing us or introducing us to all the different stakeholders, with the different utility contractors, the utilities themselves, everybody at the EPA. So it’s a significant number of people that are involved in all of these energy efficiency initiatives. And I’m lucky enough to now know most of them.
Rob Stott: Well, right in time too, because it’s a nice segue. I think you talk about the work that he did on behalf of, well with the EPA, I should say, on behalf of Nationwide, and with that Energy Star program. A big part of this Inflation Reduction Act that we’re going to talk about has to do with that. So I want to set the table for us a little bit because it’s obviously something that’s been in the news a lot of late and conversations have been happening, questions have been stirring. So I don’t know if you can do it, but if there’s a 30-second pitch on what the IRA, the Inflation Reduction Act, is all about, what would that look like?
Frank Sandtner: It’s the biggest piece of legislation ever in this country, which will total about $369 billion over the next 12 years. And that money will be used for projects that fall in the area of energy efficiency, decarbonization, reducing greenhouse gases, and clean energy. So it’s all about cleaning up and reducing pollution in America and spending a lot of money to get people to buy the products that create those cleanup savings.
Rob Stott: Got you. And this is a program, well, I say a program, it’s a piece of legislation passed last August, right? So last summer. And you mentioned it’ll run for a dozen years here. We’re sitting here early January ’23, what’s the noise about it right now? Why is it picking up a lot of interest? From what you are seeing out there and the questions you’re getting, what’s it about it right now that’s driving a lot of the interest and discussion?
Frank Sandtner: Well, first of all, there are so many stakeholders that everybody obviously wants to talk about it. And then you think about it, one of the biggest pieces of it is going to be monies that flow through in the form of tax credits. And tax credits actually launched January 1st of this year. So there was a period of time last year when the tax credits had gone away. So there was a gap and now they started up again and they’re higher. So that is administered by the Treasury Department and the IRA, I mean the IRS.
Rob Stott: Thankfully not the IRA.
Frank Sandtner: So that is kind of their thing. But because the program involves the use and implementation of Energy Star products, so really at the center of everything related to this Inflation Reduction Act centers around energy efficient products, which generally bear the Energy Star label. So that is why, because it’s already launched for a whole bunch of different categories, and the EPA wants to put the spotlight on Energy Star is why you’re hearing a lot about it already today.
Rob Stott: Got you. And bottom line for obviously the focus being the efficiency and benefits to the environment, things like that. From the retailer perspective, what are some of those bottom line benefits that they could see out of this, out of the new legislation, and these credits, and what that could do for them and their businesses?
Frank Sandtner: If you just think about the federal government is going to spend about $369 billion, that’s almost the equivalent of just giving somebody a ticket to get started in certain business. It’s like subsidizing the businesses that are involved in where that money’s going. And so the thing that’s important for our retailers is to understand where the money is going so they can figure out, as they start working on their business, how do they take a share of that? How do they insert themselves in the categories where the money is going? And not just the federal tax credit money, but then also the state programs that will come along next year. That’s really, really important. And that’s why we’re putting a focus on this.
It’s not so much because the legislation, and specifically the federal tax credits, I mean they really apply to none of the products that our members sell. The closest thing is anybody who happens to be in the water heating business, but we don’t have many people in the water heating business today. That’s the closest thing there is. Then there’s weatherization programs and home energy audits and heating and cooling. So there’s all these categories that create significant opportunities and are places where I feel our members need to start thinking about either getting into directly buying a business in that category or partnering with other companies that they may know of in their market that they may have a friend who’s ready to retire and just thinking about closing it down as HVAC business. So that may be something to think about directly getting into yourself.
And we have a Nationwide Learning Academy session at PrimeTime that will focus on the Inflation Reduction Act with a lot of discussion about what kinds of partnerships would make sense. So what are the kinds of things that can tie together the assets that our members have with the opportunities that the federal government’s creating and create that win-win situation. My feeling is that with these programs lasting for 10 years, it’s not something where it’s not worth investing the time because in a year it’s going to go away. No, these are going to last for a long time. They’re going to provide significant monies every year for the next… A lot of people say 10 years, but the federal tax credits, they actually have a tail at the end, which makes them last at a diminishing rate for 12 years, but the state programs are mainly going to be 10 years long. So that’s kind of where my thoughts on that.
Rob Stott: Got you. No, that’s awesome. And I appreciate your plug there for the NLA because we can cover so much in a podcast, but we have questions we’ve got lined up. But for those listening or that will be in attendance with us in Dallas, great opportunity to get in front of the experts on this space and get your questions asked, and if not answered, at the very least in our heads so we can help you navigate these waters and figure out what ways you can leverage what’s coming out of this in your business.
And something you mentioned in there that I think might definitely a question that will crop up from retailers out there listening is the difference, and it always, with any legislation, federal legislation, there’s the federal aspect and you mentioned the state aspect. So talk about the differences there between what the federal monies that you mentioned will do and then what our members and our retailers have to look for, or look out for rather at the state level.
Frank Sandtner: Yeah, great question. And just to kind of position for you, when we do the Nationwide Learning Academy session at PrimeTime in Dallas, we’re going to base it on what we know, which is we know everything there is to know about the federal program. The state programs are in development. So actually right now they’re not even in development yet. So we’re going to deal with what we have, but we kind of understand where the state programs are going to go. And then at the next PrimeTime, the one in Nashville, we’ll have another NLA session on Inflation Reduction Act with the information we have at that point, which will be further along. This is a building thing because remember, this is a 12-year initiative, so it’s worth spending some time on these topics.
On the federal level, the only program that exists are these tax credits. So there’s a whole bunch of different product categories where tax credits apply, but the tax credits are pretty significant. They’re generally 30% with a cap in some categories. Like water heating, the cap is $2,000. In some other categories, the cap is $600. But to give you the sense in the old tax credit world, so basically 2021, 2020, these things were capped at $300. It was a $300 tax credit.
If you think about it today, if you buy a heat pump water heater, which is a category that we’re very interested in, that all in, the tax credit applies to the installation, everything. So let’s say all in, it’s $3,000. Well, that tax credit is $900. So that is a very significant amount of money. So we’ve got the categories and everything defined, the rules for whether it’s rental property or owner or partial owner, meaning it’s not your primary residence. So all of those things are defined. And I will be able to… I think we’ll probably post on MemberNet some of the specific rules as it relates to the federal program because there are a whole set of Q and A that was put together there.
Then on the state level. The thing with the federal program is you got to put the money up front. You got to spend the $3,000 on that heat pump water heater, and then when you follow your taxes, you’ll get this 30% tax credit up to $2,000. On the state programs, the state programs are going to be more focused on immediate savings with a specific element of them focused on low income. So the idea being we got to make sure that low income individuals and households can take advantage of this program. Many of those households don’t have a federal tax problem, meaning they’re not paying taxes or their taxes are less than the credit. So the idea being, okay, if we wanted to benefit low and medium income people, we’ve got to provide it as an instant discount. So when I buy that product, the money has to come off right then and there.
So there’s really two programs that are being created at the state level. So let me just explain what I mean by that. Each state is going to be able to apply to the EPA for one or both of these two programs. They’re going to have to create a proposal to apply for these programs. The format of the proposal hasn’t even been created yet. So by being part of this process, I received an RFI, which is request for information, where they’re looking for my feedback on what they should put as the rules for the state programs. Once the states receive the rules from the EPA, then they’re going to have a certain amount of time to respond. Then the EPA is going to have to review all of them and make decisions about the programs, maybe make some modifications. So these state programs are only going to kick off, optimistically, it’s the end of this year, less optimistically, it’s the beginning of 2024. Okay?
So within the state programs, there’s two different types of programs. One of them is focused on electrification. So this is for all income levels is to say, “Hey, if you…” Sorry, the electrification one is for low income, is to say, “If you buy these specific products, you are going to get an instant savings when you buy it now.” So that means when you’re in the store, they have to understand your income level, they have to be able to… There’s a whole lot of systems work to make that happen. That’s the electrification portion focused on low income, but some significant savings. The category that we’re very interested in, as I mentioned, is water heating. A heat pump water heater will carry an incentive for a low income individual of $1,750.
Rob Stott: Wow.
Frank Sandtner: That’s a very significant savings, plus up to $500 for the contractor that does the installation. So you see there’s a lot of money tied in there.
Rob Stott: Yeah.
Frank Sandtner: The second program is really focused on efficiency. So the first one, electrification meaning implement electric products. The second one is efficiency, which is about installing more efficient products. So reduce the energy consumption of your home through more efficient products. That program is the least defined right now. So it’s possible that when the rules come out that kitchen appliances might apply. They may apply in some states, but not in all states. Depending on where the state is in their sort of clean energy journey, they may feel that they’ve already squeezed all the savings they can out of kitchen appliances and laundry appliances, and they don’t include them. Some other states may include all of them. Some may provide small incentives. Some provide bigger incentives. But the idea there is with this efficiency portion of the Inflation Reduction Act is you’re going to get money back based on how much you’re able to reduce the energy consumption within your household, and there is an element where the amount is higher if you’re lower income, and it’s lower if you’re higher income.
Rob Stott: Well, so a couple points there. One being obviously a lot’s still up in the air as far as the state level goes because we’re talking, as you mentioned, some of these things, we’re looking end of this year at the earliest as far as them getting passed, implemented, things like that. And so the opportunities are still further out. But the other thing is is that we’ve as a group, as Nationwide have long since pushed the opportunity that the Energy Star program represents. And I know obviously as a partner of the year, sustained excellence for eight years running, I believe it is, and then longer recognized by the EPA, something we’ve had success with. So this is just another reason for us to continue to explain the benefits of energy efficiency. And now there’s almost another talking point, right? Is that not even just us talking to the retailers, but giving them the tools to turn around and talk to their consumers about the opportunities that exist to push these products in their stores.
Frank Sandtner: This has become more of a hot button and more in some states, in other states, but it’s a hot button because energy efficiency, energy savings, trying to slow down climate change or reverse climate change is definitely a big deal. And one where, yes, we’ve been at the forefront of this. We plan to stay on the forefront and be the… Basically the go-to place for any information on how to optimize this Inflation Reduction Act.
So when we do the NLA session at PrimeTime, we may have somebody from the EPA there. So I may do it along with somebody from the EPA or do it by myself with information that is provided by the EPA, because I want to make sure that everything that I cover is a hundred percent factual. This is a very fluid environment. This isn’t something where here’s the information and run with it. Many of the things, because they’re not defined yet, I need to understand where the mood is swinging in terms of what is going to happen and is not going to happen.
For example, through my affiliation with some of these energy efficiency programs, there’s a desire to try to create for some of the state programs, some national rules. So national rules for state programs would make it easier for us to implement programs for our members because some things would be the same across all states. That’s something that whether we’re successful or not, we don’t know, we’re going to take a shot at it and see where that goes. So there’s many of those kinds of things that are just open, but we’re right there. We’re right there at the cutting edge of making those decisions.
Rob Stott: Well, I mean it’s always important I think, to be a part of those. And I know the close tie with EPA obviously gives us a chance to… I hate the cliche of seat at the table, but being a part of those conversations and at least being in line or having awareness of what’s going on so that we can pass that information on is obviously important for the retailers out there.
Now, for those retailers, is there anything, aside from getting learned up and educated on the things happening at the federal level right now, is there anything that they should be doing to prepare for these potential changes at the state level other than just staying ready and informed? And could they be doing anything to prep for the potential state level, or even at the federal level, things that they could be doing?
Frank Sandtner: I feel like everybody needs to be thinking about what I said earlier about partnerships because there’s a lot of opportunity here and somebody’s going to seize that opportunity. And from my perspective, it better be our members that take advantage of these things because that’s why we’re here. That’s what we’re trying to do is pave the way and make that a possibility, whether it be some of the areas that are important. There’s the heating and cooling is important. The plumbing is important. There’s some stuff that’s related to the exterior of the home and the weatherization. Energy audits or a piece. There is a big section that’s going to happen, which is to verify that the things that a contractor said happen actually happen. So there’s a verification piece that has to be done by a third party unaffiliated with that contractor. That’s going to create opportunities.
So finding all of those and making that fit with our membership is really my obligation to our members. That’s why I’m here to do is to make those pieces fit. There’s been several members that have already come and asked questions about Inflation Reduction Act and just trying to understand it at a broad level, and that’s going to continue. So that’s where certainly the session that we’re going to have at this upcoming PrimeTime is going to be very helpful. It’s going to be helpful to me also because it’s going to help me know where the minds of our members are. And then by the time we get to Nashville, we’re taking everything I’ve heard and trying to better start to formulate some of the partnership opportunities would be wonderful.
Right now, just to kind of give you a sense, I’ve already contacted the PHCC. What the heck’s the PHCC? It’s the Plumbing-Heating-Cooling Contractors Association. Because to the extent that we move forward with water heating, there’s probably going to be a need for partnerships with plumbers. And we’re speaking to one of the manufacturers and are close to having an agreement there, but we feel like we’re going to have to augment that. That would be creating a partnership with plumbers that doesn’t exist today, that helps our members get that missing piece so they can be in a new category called water heating. And then extend that to some of the other things in the Inflation Reduction Act. That’s what I’m aiming to do for our members.
Rob Stott: I think it’s cool to hear about some of those things because it’s sort of been, if you’re following Nationwide and sort of see the direction, the whole home, it’s there. It’s on the horizon. It’s something that I think is easily achievable in what we’ve been angling and trying to do. But from the members right now, what questions are you hearing? Or what’s the most common question about… I assume it’s just understanding like what is this, and what do I need to know? But sort of more granular, are there any common questions you’re getting about this piece of legislation from our members?
Frank Sandtner: It appears that most of our members have been exposed to some of the state. Some states in particular are circulating information about what’s coming, and our members are wondering what of the categories they’re in are included. How do I participate in this? What of the things that I’m selling are going to be included in these instant rebates? And A, we’re not a hundred percent sure other than we do know, where we absolutely know outside of the federal program is the state programs for low income have to include heat pump dryers, heat pump water heaters, and electric stoves/ranges/ovens.
The piece that’s not totally clear is, I believe many of the states are going to say, “But it has to be switching from gas to electric.” So the fuel switching element of the requirements. The income requirements is clear. The product categories themselves are clear. They have to be Energy Star certified. But do you have to go from gas to electric? I feel like in the case of stoves, ranges and ovens, it will be a requirement that you go from gas to electric. Fuel switching is more complicated. It’s not the same as just replacing electric for electric.
So this issue that has been in the news a lot about the gas and the downside of gas and the harmful health issues with gas, this all stems from a Stanford University PhD study that was done. And the study was really not designed around health issues. It was designed around this thing called this methane puff, which is to figure out the efficiency of gas versus electric and how much gas is wasted when you turn the appliance on and when you turn it off. Because when you turn it on before the actual flame starts, there’s some amount of gas that emits and when you turn it off, the same thing happens. You turn it off, but still a little bit of gas emits. And that gas is methane gas.
Methane gas is very harmful. Methane gas is worse than carbon dioxide. So basically that is emitted in your house, which is a problem. And when you accumulate it across, the state of California probably has 20 million gas water heaters, that’s a lot of methane gas, and that is one of the worst greenhouse gases out there. So that is where sort of all of this has come about. And I actually heard the guy present his PhD study and it’s quite fascinating.
Rob Stott: Yeah, and the timing of it all. I’m sure he didn’t plan to release this and cause this. And then also the Inflation Reduction Act happens and all the conversations are meshing together, but it’s, hey, an opportunity too it presents across… I just saw the stat where it’s like 38% of households across the US have gas stoves. They’re implemented in homes. And so that’s an opportunity. These homes that want to switch from gas to electric because of this, and they could take advantage potentially of the Reduction Act and everything that represents. So a lot of opportunity here potentially for retailers and just ways of talking too to your customers, how to inform them and make sure that you’re presenting yourself as an expert in the space and looking out for that best interest of the customer.
Frank Sandtner: Yeah. One thing I wanted to say is that, one thing that’s become clear to me as I’ve done research on this and talk to people is that I could understand how we may not be successful in trying to get a similar program across all states, because the challenges between states are so different. You talk about the state of Vermont. And the state of Vermont, looking at the heating of the house, only 8% of the homes are heated with electricity. Okay? 8%. In Florida, 91% of the homes, the heating is electric.
So you think the issues are different between Vermont and Florida? Yeah, I mean the goals are completely different. The highest source for heating a home in Vermont is fuel oil. Fuel oil doesn’t even exist in Florida. I mean, nobody does this. There may be some propane. There’s no fuel oil. If you go out in California, you’ve got a situation where… So let’s take water heating now. So in Florida, again, over 90% of water is heated with electric water heaters. There’s very, very few gas water heaters. In California, it’s 90% gas and 10% electric. So it’s almost like the flip opposite. So their challenges in California and the challenges in Florida are completely different. So the state programs are… The reason monies were allocated to states individually is so they could create a program that is considering their marketplace and what their market challenges are.
Rob Stott: And we just did a similar look on the Nationwide blog too, with the stoves and cooktops, whether they’re gas versus electric by state. And there’s awesome breakdown that came from one of the agencies out there. 92% of homes in Florida have electric gas, or I’m sorry, electric stove tops. And you go out to, I’ll use the same two states, California, it’s 70% gas. So just again, it’s very different from state to state. So it makes sense why it would apply very differently with how they go about creating their programs for this Inflation Reduction Act.
So lots of information to be had and still more to learn and come down the road here as we start to follow and see what happens at the state level. So I feel like we’re going to be hearing a lot more from you, not just during NLAs, but on this podcast and on our blog as well, Mr. Sandtner. So this was a tremendous overview. Appreciate you taking the time and sharing the knowledge. And just close it out one more time for those that are going to be with us in Dallas. They can check out the NLA there. For sure, that’ll be one recorded that gets as well. And I know you do regular webinars as well, so I’m sure this will be something that gets discussed quite frequently throughout the year.
Frank Sandtner: Well, do a little bit of a plug for at the show with this really heavy emphasis we have on energy efficiency and Inflation Reduction Act and the interest that we have in water heating. We will have a heat pump water heater in our Energy Star booth. So we’ve never actually had a product in our booth before. This will be the first time. The energy savings. So basically somebody going from an electric water heater to a heat pump water heater would save between 66 and 75% reduction in energy consumption going from electric to heat pump.
Rob Stott: Wow.
Frank Sandtner: So that’s something that we’re definitely standing behind because in terms of accomplishing energy savings goals, heat pump water heaters go a very, very long way in accomplishing that.
Rob Stott: No, that’s awesome. And something to check out too for sure. So we’ll be there and swing by that booth and see what’s happening there with the Energy Star team. But we appreciate it. This was a lot of fun and educational for me and I’m sure for our listeners as well. So we appreciate the time and look forward to connecting again down the road.
Frank Sandtner: Fantastic. Thanks so much.