Making decisions means making good assumptions
Just before Christmas, Joe and I installed a spa on our new deck. The spa had been in the lower floor ofthe house. This was not a good idea in Pennsylvania. Then two things happened in quick order. (1) We got our first electric bill with the spa outside and the truly cold weather having arrived. Bill went up a bit, as expected, but not enough for real concern.(2) One month leter we got our first bill with the spa outside, the cold weather, AND the rate increase. We have a full electric house (gas is not available, I hate fuel oil, a furnace would require taking down ceilings installing ductwork, and I'm away too much for a wood or coal burner to make sense). It was a shocker!.
Next step was to investigate solar. We did this several years ago (on a different house in a far warmer climate) and the payback was terrible. But we had some vague knowledge about new incentives that might change that story. We had heard that cost swere going down rapidly, too. Maybe solar would make economic sense this time.
I contacted a reputable electrical contractor with a proven track record. I was really impressed when instead of making an appointment to visit our house, he pulled us up on Google Earth and was able to calculate our roof dimensions to the foot as well as our angle of inclination. Turns out our property is a good candidate for solar. I asked for, and received within two hours, examples of two recent proposals.
The first glance seemed like great news. A net cost we can write a check for, a payback under four years, and a five year cash return of several thousand dollars.
But after a few minutes reality sunk in. This seemed just too good to be true. Accountants need to develop a bit of intuition and my alarms were going off.
Two hours later, and a couple of phone calls to my friends at PPL, I have a much better feel for these incentives. And my students--as a management accounting specialist I work extensively with students on good assumptions and reasonable estimates-- have a new case to analyze this fall. It's not that the contractor is unethical. It's that incomplete information, and misunderstanding tax incentives, led to poor asumptions and unrealistic ROI estimates.
Tomorrow I'll attend a seminar on solar power. I need to understand the type and size system that fits our needs best. After that I'll be revising the proposal. Stay tuned. Maybe you should investigate solar, too.
Barbara McElroy is Associate Professor of Accounting and Head of the Department of Accounting and Information Systems at Susquehanna University in Selinsgrove, PA. Before beginning a career in academe, Barbara worked in both public and private accounting settings, and owned several businesses. She is particularly interested in the interaction of accounting and public policy. Barbara will discuss current events with the interest of students, faculty, and practicing professionals in mind.