When it was passed in the summer of 2022, the Inflation Reduction Act included a number of different economy-boosting provisions, along with several elements intended to tackle carbon emissions. A portion of the bill, which we discussed earlier this year, intends to stand up a federal- and state-level program allowing consumers to get rebates on certain energy efficient appliances (like heat pump water heaters). But a lot of work has been – and still needs to be – done to prepare for the launch of this program. Frank Sandtner sits down to provide the latest updates, including a nugget about how he’s advocated on behalf of the independent retailer during some calls with the Department of Energy and Environmental Protection Agency.
Rob Stott: We are back on the Independent Thinking Podcast and rehashing a conversation that we had at the beginning of the year. I was going back and looking at the dates, Mr. Frank Sandtner, our Senior Director of Business and Financial Services. It feels like last month we talked about the Inflation Reduction Act, but really it was the middle of January when we talked, end of January when we published the episode. So it’s been like 10 months, man. How’s it going?
Frank Sandtner: Good. I’ve been talking about it every month.
Rob Stott: I know. Maybe that’s got to be why it feels like it was yesterday.
Frank Sandtner: Exactly. There’s a lot going on. It’s a program that is evolving and so I’m glad we’re able to get back together again and give some updates on that.
Rob Stott: I appreciate you taking the time. And for those that… We will share the link to the original in the description of this episode, but if it’s possible, I know the Inflation Reduction Act itself is a behemoth to try to summarize, but for those that haven’t listened to the first episode or are still new to this idea of what it is, give that overview or catch us up on what this act is all about at a high level, before we dive into the details.
Frank Sandtner: Sure, sure. It’s a law that went into effect in August of last year. I think it was August 16th, and the idea of it is that the federal government is going to put a significant amount of dollars, as in the over 250 billion dollars, towards decarbonization and energy efficiency.
There’s a little bit of a target towards low income, but really overall, the country has to reduce the amount of carbon that’s created, and so energy efficiency, energy savings, sustainability is all rooted into what this act does. It’s broken up into two parts and then each part is broken up into a few other parts, but if you just take it at the highest level, you’ve got a federal component which is tax credits.
So basically, when you file your taxes, you are able to take a tax credit on certain purchases. Those purchases are purchases of Energy Star certified products, and there is a lot of different product categories that are included. Most of them are not what our retailers carry. The closest one is heat pump water heaters. There’s HVAC, heat pump HVAC included. There’s windows, doors, insulation, several other things, but mainly for our members, it’s these heat pump water heaters, and we recently got into the water heating business through a relationship we have with Reliance Water Heaters and they’ve been at Primetime, so we’ve got that started.
Then the other side of the program, which really is a lot smaller but is getting a lot more attention, are the state programs and the state programs as opposed to a tax credit that you take when you file your taxes. The state programs are instant savings. So basically, the consumer is able to save instantly when they make a purchase of a qualified product, and the products that are most likely in most states to apply, would include heat pump dryers, again, heat pump water heaters, and then electric cooking, electric stoves, electric cook tops, that sort of thing. So those are the categories that mainly apply, but the state programs have not launched yet. So it’s possible that some states decide to only include some products and not others. So a state has the right to restrict the program. They can’t go beyond what the Department of Energy set as the guideline for the program, but they could take a step back and be more restrictive than what the Department of Energy set.
By way of example, just the state programs across 50 states is about 9 billion in incentives, whereas the federal with the tax credits is going to be more like about 250 billion. So it’s much, much bigger on the federal side.
Rob Stott: Well, and to your point, even hearing you talk about it, it’s clear that you think about how there’s a lot of ways the states could go. There’s 50 states, right? So one federal government, 50 states, so you’ve got the federal side that they’ve kind of got their, not to say that their ducks are in a row, but they have it sort of figured out how they’re going to approach this program.
But then to your point, the state level, and that’s where a lot of the updates and where you’ve been… You said it, the attention’s been given because so much is unknown on that side right now because of how all the states are going to approach this, if they will approach it. So there’s a lot up in the air, and that’s kind of what you’ve been following. So talk about these past few months, what they’ve been like for you, kind of the work you’ve been doing to just stay abreast of everything that’s being done around this program.
Frank Sandtner: Sure. Appreciate you asking that because it actually has been a lot to keep track of. There’s so many different updates and everything else, and when the program first launched in August of last year, there was the notion of there’s this federal program that was going to launch January 1st of this year, the federal tax credits, but then the states were going to have to, they were going to launch sometime later on in 2023 was the idea. Well, as the year went along, the states have to individually apply to enter the program. They don’t just get the money. So basically they apply, they get approved, they get the funding.
Well, what ended up happening is that the Department of Energy that’s running this entire program, received a lot of complaints from the states saying, you know what? You’re going to ask us to apply for this whole thing. Our state energy office only has five people. I mean, they’re all busy. We don’t have the ability to even do this.
The Department of Energy received enough complaints that what they did is in April of this year, they went to all the states and said, “You know what? We understand the problem and we’re going to give you the ability to get some advanced money so you could hire some people and use those people to put together the state program,” because each state has the ability to kind of set their own program. To this point, half the states have applied for the advanced funds and half of those that applied have received advanced funds. So the good thing is there’s some money flowing to the states to kind of get things accelerated.
Then on July 27th of this year, Department of Energy sent out the applications. So this is the application for the states to try to get their money for the program. Well, that application was a hundred pages long or is a hundred pages long, so thank goodness they decided to give the advanced funds because a state with only a few people is not going to be very successful.
So we see here, where all of these states are working on deciding on where they’re going to go with this program. But to this point, based on a conversation I had with some people at an Energy Star meeting, nobody has to this point, applied. So no state has yet applied for the funds and the thinking now has moved from latter part of this year launching to launching the middle of next year. The other thing that the Department of Energy did is when they sent out the application to the states on July 27th, they made the deadline be January 31st, 2025.
So, giving the states the ability to first hire some people, which they realized they didn’t have enough people, then making the deadline for application be way out in the future to help out, and so they’re doing everything they can to help.
The other thing that they did is the goal was to have each state create their own program, but they realized that most states don’t have a rebate processing system. So the other thing Department of Energy did is they built or are kind of in the process of building a rebate system that any state can use. So the state, they may have their own, but if they don’t have their own, they’re going to be able to use a federally-developed system to process rebates.
Rob Stott: So needless to say, it’s complicated and messy. It’s the government. So here we are seeing that processes are never seamless or simple. So as you’re finding out too, as you’re going through learning about not only to apply for the money to be able to offer these rebates, but then to have some advanced funds to build the systems to be able to apply, to then have the systems in place that they can even accept rebate applications from the customer at the end of the day. Am I following that correctly?
Frank Sandtner: You are following that correctly, and I’m giving you just another little wrinkle to the whole thing that is relevant to our members. Remember, within the state programs, this is not everything that’s in there, but the most relevant to our members is heat pump dryers, heat pump water heaters, and electric ranges, cook tops and stoves. So a consumer would have to be able to go into the store and it’s meant to be an instant savings. So the customer would get a savings right off at the register, which would make the purchase very, very economical to the customer.
As the Department of Energy was building these systems, what they did is they of course, took the easy path. So they got together with Lowe’s and Home Depot and kind of figured out how do we put all the controls in place to make sure that that customer is really eligible, that it actually does go in the house where it’s supposed to go, that we haven’t paid a rebate more than the purchase price, all of these kind of controls.
And it’s through this system they’re building and there’s an API that is to be used between the retailer being the big box store, and the state through this system that the Department of Energy is building. Well, of course, I put up my hand and said, “This program, the way you’ve designed it, it’s not friendly to independent retailers. Independent retailers are going to do a better job at getting at the consumers you’re trying to reach than a big box store, and yet you’ve built this thing almost without even considering independent retail.” And I was the bull in China shop on some calls with PNNL, which is the Pacific Northwest National Labs. They’re the ones that are building all of this stuff for DOE.
And then I went to an Energy Star meeting and they had a top official from the Department of Energy there. We had a meeting with the retailers and I basically said the same thing. I said, “Love it that you have all of this stuff done, but how are you expecting an independent retailer, that is generally going to be small, only operates in one state, to be able to leverage this API that you’re building? They don’t have IT teams.” And so through the two times that I basically said, “You got to do something about this, you have to accommodate, you have to build new workflows for independent retailers.” Believe it or not, this week, just two days ago, I reached out to somebody from one of the utility contractors and he said, “Guess what? The EPA has volunteered to help DOE come up with solutions for independent retailers.
Rob Stott: Wow!
Frank Sandtner: I heard you. They understand this is the problem. Yeah, not only did I go through them, I went through the president of NASIO, which is the National Association of State Energy Officials. So I voiced this problem pretty loud and pretty broad, and then yesterday I got an email from a lady at again, this PNNL, which is a company, it’s a government agency that’s building all of this software, and she said, “How can we figure out which point of sale systems your retailers are using so we can make something work out?” So hallelujah and this is really the biggest news.
Rob Stott: Yeah, absolutely.
Frank Sandtner: That they have now reached out and they’re now putting resources behind supporting independent retail. The guy who’s the president of NASIO, the State Energy Offices Association, he in particular when I saw him at the Energy Star meeting in Atlanta said, “We really, really need to lean into independent retail. Independent retailers are local in the market. You are what the states want. What you deliver in a local market is exactly consistent with what every state wants, and they would be very disappointed if we don’t get this problem solved.” So he also went to bat for us with DOE, to get to where we are now, where they could have a solution for the big box stores, which seems to be almost complete. Now they have to create a solution for independent retail, and the good thing is that most of these programs are not going to launch until no sooner than the middle of next year. So we will have enough time to create these solutions and for any independent retailer that is listening to this podcast, thank goodness that Nationwide has that kind of clout and that kind of recognition that I brought this up multiple times and was able to get them to, we do need to make sure we take care of independent retail.
Rob Stott: Well, awesome to have an advocate like you having a seat at that table to be able to pull some strings and make it happen. Awesome.
Not often we get some breaking news on the podcast, but hey, what do you know? You hitting me with it. I love it, man. I love to hear that. And you kind of alluded to it, but the importance of having this system. Can you walk through at a simplified level, what this, once it’s built and this API is available to an independent retailer, what is that going to allow them to do?
Frank Sandtner: Well, the way the process is going to work is that one of the pieces that everybody’s had a problem with is this income verification. Because these state programs, one of the very first things is qualifying somebody through their income. The income qualification is going to be a system that’s different in every state. So the state has a hundred percent responsibility for income qualification, which means I can’t tell you how it’s going to work in any one state because nobody’s applied yet.
But that is firmly resting on the states, and it assumes that the customer either becomes aware of these rebate opportunities and then either does it in a store, does it themselves, but it’s private. Income verification then creates a coupon code. They’ve referenced in coupon code may work a little bit differently for our retailers, but there’s something that’s going to happen that’s going to qualify that individual, and then it actually has to be that individual living in that household because it’s looking at the income of that household and the area where they live.
So there’s some type of qualification that happens by the customer or privately to the customer, even if the retailer helps. But when the customer then goes into and knows what has this level of qualification, they go into a store, one of our retailers, and what ends up happening is the retailer is responsible to make sure that they understand what rebate amounts apply to which products.
So if based on that customer’s qualification, they qualify for a thousand dollars and the retailer gives them $1,200, that’s on the retailer. So they have to understand what that dollar amount is and which products actually qualify. The retailer then, when they sell to that consumer, so let’s say it’s a product that actually sells for $1,200 and there’s a thousand dollars incentive, because these incentives are big. They’re going to generally be $840, $1,750. So they’re big. Now that customer is only going to owe $200 because there’s a thousand dollars incentive. The retailer uses that sort of coupon code or that whatever it ends up being designated, as the other thousand. So the customer pays 200, the program pays a thousand, and then the consumer, I mean the retailer then claims that thousand dollars with the state.
So the state is, most states are going to use a third party contractor, and the third party contractor is going to be the one that does the processing on behalf of the state. The state has the money, it gets funded to the retailer as quickly as possible, and most programs, they probably start off with a little bit slower and then they speed up over time.
Rob Stott: It sounds like too, you mentioned that obviously, the funding around the state level program is smaller. Is there only a certain amount of available funds for these rebates that a retailer should? They’re not going to expect to see hundreds of these things come into their stores all of a sudden. There will be a point where that resource is tapped out. Is that right?
Frank Sandtner: Yes. Yes, their rebates will time out. I mean, the programs run for, because they were going to run for 10 years, but seems like they’ll be about a year late. So they’ll run for about nine years, not 100% sure whether a state is going to be given all the money and can exhaust at all within two years, or whether the DOE is going to give a certain amount per year.
Not sure, but one of the things that the federal system, the DOE rebate system does, is it has a reservation component. So when a consumer is qualified, so let’s say they’re qualified and they’re going to indicate what they’re planning to buy and then before they even go into the retailer. So it’s cloudy on exactly how that’s going to work, but the idea is reserve the money for that consumer so that we don’t over subscribe. They want to make sure that they don’t have a state that runs out of money, either for the year or in total, and a retailer is given rebates that now they can’t claim because there’s no money left.
So there is this reservation process and how the reservation process works, and the qualification process works without using this API, because the API is going to be between the retailer’s point of sale system and this federal system. So it’ll speak to each other and it’ll confirm that, yes, this is a valid coupon code and all of this sort of thing.
Now, presumably there are going to be ways without using the API, but they never had any information about that. And so it sounds like first we’re going to see, they’re going to probably incur the expense of making the API work for, let’s say, this is me thinking a little bit ahead, maybe five of our top POS providers that they would pay to integrate with them. That’s my goal is to have them do that or have the states fund it because they want to support independent retail, something along those lines. And then retailers that are smaller than that, that there’d be some process to do it manually with enough controls to make sure that the retailer gets reimbursed.
Rob Stott: Handle them properly. Now obviously, you mentioned a couple application processes on the state side, does a retailer have to do anything to get access to that API or to become a qualified location for accepting these rebates?
Frank Sandtner: Yes, in the law itself, it specifies that every state has to create a list of qualified retailers. I mean retailers, contractors, so it’s everybody. Because the list of qualified retailers and contractors, they have to go through some training, they have to understand how the system works, they have to have a login to the system. So there’s several things. There’s learning involved here and we have to make sure that everybody does get that training.
So each state at some point, is going to set up some type of process to engage with retailers and this is where it was really important for me to develop a relationship with some of these state energy offices. Actually, not some of them. In the end, all of them and I found out that there is an association, so there’s association for everything.
Rob Stott: Of course there is.
Frank Sandtner: So there’s an actual this NASIO, which is this National Association for State Energy Officials. So the state energy offices in all states, they’re all part of this thing and I’m using the president, David Terry is his name, as my conduit into meeting these people because I need to make sure that each of them let our retailers in on this. When is the process of taking names of retailers? When does that begin? Getting our retailers, I mean there’s this whole thing with this API and that sort of thing. Well, that’s going to happen sooner. But then once the states are ready to start kicking off their programs, get all of our retailers that sell the products that qualify on the list, get them access to the training, and then have them have the ability to take advantage of these programs.
I mean the programs in most states are fair state is going to be anywhere from a hundred million dollars to 500 million. That’s where most states fall. So it is not insignificant amount of money. And the incentives, as I was saying earlier, the incentives on a heat pump dryer is going to be $840, an electric stove cooktop is going to be $840, and a heat pump water heater is going to be $1,750. So having the ability to provide that level of discount on a product is very, very significant.
Now, somebody who doesn’t, that’s for the lowest income person, somebody who’s a little bit higher income, the discount is less, and if you’re a higher income person, the program doesn’t even apply. So that’s where the thinking is that Lowe’s and Home Depot, their target customer is probably a little higher than some of these income restricted pieces for the states. Some of the states, because as I said earlier, they have the ability to restrict the program. Some of them are going to make the program apply to only lowest income people and the states and the DOE understands Lowe’s and Home Depot, that’s not going to work. The people that they’re targeting with these state programs do not shop at Lowe’s and Home Depot.
Rob Stott: And that’s where the learning, the continually following the developments within this program are kind of important. And that’s the work that a lot of groundwork has been laid and obviously, some success already getting the foot in the door with the association and the state energy offices, to get independent retail top of mind for them. A big win, of course, but the work is not done for sure. Lots to continue to follow with this program.
Frank Sandtner: And this is real time. The latest update was from two days ago, in terms of them committing to help us out. And my goal would be that we continue to have these podcasts and as new information, and we may next time learn about the first state that’s ready to launch.
The other thing to realize is that, just to add one more wrinkle to it, is that the federal government is creating this rebate system, but each state has the ability to either use that system or use something else. They may have their own system. So for a retailer that does business in multiple states, they may have to deal with multiple rebate processes, and then each state is going to have some specifics in terms of what products qualify and that sort of thing. Because some of them may be more restrictive, some more restrictive on income. So it does end up being somewhat complicated, but the complication is to many of our retailers, actually helps because imagine Lowe’s and Home Depot that are trying to run 50 programs.
Rob Stott: Yeah, no.
Frank Sandtner: It gets really difficult for them. The good thing is for most of our retailers, they’re in just one state, and as such, they just have to learn how to do business with that one state and that one state only.
Rob Stott: That’s awesome. And obviously got a resource on hand here at Nationwide Marketing Group that you can lean into who is, from what I can tell, going to know everything about all 50 of those states programs.
You’re doing the Lord’s work, my man. We appreciate it. It is awesome to talk to you and see, hear these updates and get the breaking news. That’s cool too, of course, but interesting to see how the program’s continuing to evolve as well. You mentioned it. We will for sure be having you back on this podcast and talking about the next update as they come along. Until then, man, Frank, I appreciate it and always great to chat with you and catch up on this stuff.
Frank Sandtner: Awesome. Thanks so much.