Insights & Advice

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Put an energy-saving appliance under the tree this year

If everything goes as planned, the up-coming $300 million Federal ‘cash for appliances’ program will be ready by November 30, 2009 just in time for the holiday season. At that time, the Department of Energy will start awarding individual states their share of the loot. The program is supposed to incentivize consumers to ditch old energy-wasting refrigerators, stoves or washing machines in exchange for a new ENERGY STAR -rated version. But there’s a hitch.

Unlike the ‘cash for clunkers’ program, whose guidelines were national, the appliance program will be run by individual states, The Federal government is hoping that each state will build off existing state and local utility rebate programs. They expect that individual states will incentivize the purchase of appliances used most often in a particular climate that will yield the most energy savings. For example, Florida might push air conditioners because of their blistering summer climate while Massachusetts might focus on heaters because of their cold winters. Unlike the clunker program, there is no requirement that consumers trade-in their old appliances to qualify for the rebates. However, most stores will accept your old appliances anyway. Of course, there is a chance that consumers will opt to keep their old, inefficient appliance as a back-up or sell them. That would defeat the purpose of the program.

Assuming the proposed state plans (which are due to be submitted to the energy department no later than October 15) are approved, they will receive $1 for every resident in their state. Of course, with New York’s 19 million residents, they stand to gain much more than Massachusetts with 6.4 million residents or Connecticut with 3.4 million citizens. Readers must also be aware that, like in everything government-related, a good chunk (10-25%) of the federal money will invariably be spent on administering these programs.

Given the clunker’s reputation as the most successful, but at the same time, worst run program in Federal history, I worry that states are facing double jeopardy in trying to control the goodies this time around. Aside from the short timetable, the likelihood that the states will screw up both the submission of their own plans and its subsequent administration appears quite high. What if every state has a different plan? Pity the poor national retailer such as Home Depot, General Electric or Electrolux who could theoretically face differing rebates in all 50 states. The additional paperwork alone could eat up any benefit to those companies.

The program, like the auto program before it, is designed with two objectives: to give beleaguered appliance makers a helping hand, while reducing the nation’s energy consumption through the sale of energy efficient appliances. Since sales of appliances are linked quite often to new home sales, it is no surprise that revenues have dropped 10% last year and are down another 15% or $1.1 billion through July of this year. As a result, there have been plenty of layoffs by companies such as Michigan-based Whirlpool and our own GE, which considered shutting down an entire refrigerator plant earlier this year but reduced its workforce instead. Those kinds of job losses contribute to the present (and rising) unemployment rate of 9.7%. Worried about their job or lack of one, cash-strapped consumers have repaired, rather than replaced, old dishwashers, washing machines or stoves.

That’s bad for energy consumption since these old appliances regularly use 10% to 30% more energy than more efficient modern appliances. I know, since we recently (just my luck) replaced our refrigerator, stove and air conditioner with ENERGY STAR appliances. I did see an instant decline in my electric bill.

The ENERGY STAR conservation program was established in 1992 by the U.S. Environmental Protection Agency, which evolved into an international standard for energy-efficient consumer products. These new ENERGY STAR rated products now account for almost 55% of new appliances ranging from central air conditioners to computers. Although some environmental critics say the rating system is not all that it is supposed to be, it’s the best we have at the moment.

And did you know that more than 25 states already have in place rebate programs for energy saving appliances that have existed for years? Many of them are linked to the utilities in your area that offer cash back for various energy saving replacement programs. Unfortunately, few have really spurred demand among consumers. The department of Energy is hoping that the state plans will allow piggybacking on existing state plans. So, if for example NYSEG or Western Mass Utilities offers a $50 rebate on the purchase of a new, energy-efficient refrigerator, you’ll get that on top of the new federal rebate.

“I think this is a great idea,” said Kim Taglieri, the owner of Alliance Appliance, a family-owned, home appliance business on Fenn Street in Pittsfield. “Western Mass Electric already offers a $50 rebate on ENERGY STAR refrigerators and we would probably add a further incentive on top of that.”

So, how much overall can you expect to save on the purchase of a higher-efficiency, household appliance this Christmas? I estimate anywhere between $50 to $200 based solely on the cash for appliances program but it could be much more than that. In addition to the piggybacking potential on existing state/utility programs, there will most likely be aggressive marketing programs offering deep discounts by the likes of Lowes, Costco, Best Buy and local companies such as Alliance Appliances.

Early in the summer I alerted readers that “Now is the time to purchase an automobile”. That proved to be correct. In a similar vein, I expect this holiday season will be an ideal time to buy that washer/dryer combination. Don’t lose out, start saving now.

Posted in A Few Dollars More, Financial Planning