The new edition of the National Appliance Energy Conservation Act (NAECA) from the U.S. Department of Energy (DOE) is set to take effect in April. After that time, all water heaters manufactured and sold in the U.S. have to meet more stringent efficiency requirements. But, what does this mean for homeowners? What do contractors need to understand and communicate to their customers?

I had the opportunity to discuss the new NAECA standard with Mike Agugliaro, owner of Gold Medal Service in New Jersey. He had some interesting thoughts about the standard and ways contractors can get up to speed and use the update as a chance to offer something new to their customers.

JS: Can you tell us about Gold Medal Service?

MA: We celebrated our twentieth anniversary last year. We do plumbing, heating, cooling, electric, drain cleaning, basement waterproofing, one-day bathroom solutions, indoor air quality, generators and water quality. We run roughly about 100 service vehicles in New Jersey.

JS: When did you first become aware of this change to the Department of Energy NAECA water heater standard?

MA: For me, it was only about seven months ago that I really became aware to the point that I was listening to it. But, the reality is that this thing is a go for April. That’s when it became apparent that we needed to start educating our customers and see how we can serve our customers.

I’m definitely in favor of this because, let's face it, it gets harder and harder to keep improving global infrastructure. Every home has some kind of water heater. This will make a real dent in things that can decrease our use of energy. It’s a smart decision (from DOE). The only thing that makes it a little difficult is that the people making this decision are looking at it from an efficiency standpoint, but they’re not always looking at it from an economy standpoint. So like all problems in life, you solve one problem, but you create another one.

We solved one problem, but now we created another problem in that, after April, the customer’s going to spend more money if their water heater breaks down.

JS: Does some of this added cost come from the fact that the additional insulation often required to make the units more efficient results in larger water heaters?

MA: To replace a water heater, now you're going to need room. Now if it doesn’t fit in some kind of closet, you're going to be forced to do some demolition or relocate the water heater. Now there’s more expense and that will be kind of a shock to people when they expect a certain cost of a water heater and now the price can go double or triple (if they have to relocate).

JS: Do you think that’s something hiding in the weeds on the consumer side?

MA: Yes, because homeowners are never going to hear this message until the day comes when their water heater goes bad, and then they’re like, “What do you mean? I can’t afford this.”

JS: On your side of things, do you feel that most contractors are up to speed on this? Or, is this update fairly unknown in that circle?

MA: I think it’s extremely unknown. Our company is interesting because we own a service company and we own a coaching company that’s called Service Key, so we coach just about 30 other companies across the U.S. and Canada. So, they’re aware of it, but that’s a minute percentage out of hundreds of thousands of companies out there. Normally, on social media you’ll hear or see conversation about things like this, but I don’t see anyone talking about this.

JS: What would you suggest, from your experience, to other contractors, things they should take into consideration as this gets closer to going into effect?

MA: I look at everything in three brackets; the "before" bracket, the "during" bracket and the "after" bracket. We're in the "before" bracket; what do we have to do right now? The first thing you need to do is educate all your consumers, so that they can make a logical decision now. Are they willing to wait until this change happens? Or, would they like to take advantage of the units they can put in now to prevent themselves from this larger expense later?

So on the "before" end, we're really pushing it as hard as we can to the customer. I look at it like in my own house. Normally the standard life for water heaters is 8–12 years, depending on the quality of water and brand of the heater. But, most people will agree that they're not going to change the water heater until they wake up one morning and there is no hot water. What we're telling people now is, if you're going to live in that house for at least that period of time, you have two choices: you can buy one now at the lower price and be covered for the next 8–12 years, or you can wait, knowing that in the next 3–5 years your water heater is probably going to go bad and you're going to have a larger expense. So for us, it's a really smart investment to do it now. We're proactively educating all our customers about this.

JS: Is that an opportunity to touch base with your customers about something that can save them some money?

MA: Yes, and let them make their own decision from that point on. Then, there's the "during," and that's where we're going to be going into this change on April 16. So, what you want to do is make sure you get together with the manufacturer of the product you're selling, you want to get all the cut sheets, get any education and really make sure that you understand the ins and outs of the product that's coming. Because just like anything else, like a new model car, you hope they don't have glitches—but they have glitches. So, the "during" is you just want to make sure that you have all this information, so as these units change, you can educate the customer, because customers today are already a little skeptical about things. You want to have the information to show them this change is in effect, and here are the choices.

The other thing you want to do is make sure that you understand the other avenues for a customer that they might consider. Because at this point, the cost climbs and I'm looking at it for the best opportunity ever for tankless water heaters to be sold. If you look at a traditional manufactured water heater, it can be anywhere from $1,200 to $1,800 for just a base model with no bells and whistles. And, maybe a tankless water heater job is $4,000. Well, now with the new energy-efficient costs of these heaters, you're going to be almost at the point where if you can put a tankless in, why wouldn't you go with a tankless? It's only going to heat the water as you need it. It's going to free up space, so you can fit this thing on a tiny little wall. It is extremely efficient, extremely reliable and increases the value of your home.

JS: Are contractors as comfortable with tankless as they are with tank heaters at this point?

MA: I would say I'm very comfortable with tankless heaters. We've been doing them for years and years. I have one in my own home. The other companies that we coach are wary, but I still think in the contracting world of specialty plumbing, this is a technology that really hasn't changed very much in 100 years. Once we went from outhouses to plumbing and toilets. There hasn't been a really huge generation of change. It's not like a cell phone. Go back 20 years, it was a the size of a shoe box, and today you can probably make a call from your ring or something. I would say there's still a lot of old school thinking that's not really stepping into the new technology of being tankless and looking at how it really could help a customer. When my swimming pool needs water, I fill it up with my tankless unit for warm water. I filled my whole pool up with it, which is 33,000 gallons, and I have yet to have a failure or breakdown with it.

JS: Do you think consumer demand will drive that interest in tankless for that reason?

MA: I think it's going to move more toward tankless water heaters than ever before.

JS: On the tank side of things, do you think some of that cost fluctuation will even out in time? Or, is that just how it's going to be going forward?

MA: I think it's going to be a significant cost between the water heater and installation. I don't have an exact number, but normally every year, every manufacturer's trying to hit you five percent. They're coming out with a global thing like this (the new NAECA standard), and you think it could be a 25–35 percent increase. If you look at it on the electrical side on the electrical division, if there's a safety receptacle in your bathroom that has been reset, those things used to be at one time five dollars, and then when they came out with the new smart technology, where if it slips or burns out, you can replace it. It went from a six dollar thing to a $28 thing. I guess another example is fluorescent bulbs to LED bulbs. So, I think 25–35 percent easily is what you're going to see, and then what it's going to be for the repairs on it. Any greater technology is going to cost more to repair. It has a snowball effect.

JS: Do you have anything else you want to add?

MA: When things like this are happening, I think it's important for contractors to step back from their business a minute and ask three things: what can hey do for the customers, good, bad or indifferent; what's it going to do for the company; and what can they do for the employees? Is it good, bad or indifferent? In one end, for contractors, it's probably going to give them more business, or at least it's going to give them a different type of business, for more dollars. So, that's not a bad thing. The only bad thing is, when you're in a thriving economy, it doesn't matter if they have the money. But, when you have something that comes out that's more money, and the economy is not thriving, now you have a tough situation. So, I just think contractors have to wake up a little bit because if you don't catch these types of things in time, it could hurt a company not to know this information. Then they let down their customers. Let's say it's March 30, and you're selling a water heater, but you never told the customer that these other ones are going to come out and you could have saved them maybe a thousand dollars. You're going to get a bad reputation. l