The Energy Saving Investigation Continues!

Thank you all for the amazing comments and suggestions you left on my post about my investigative project with the weird kWh figures I was getting from my utility company.  I’ve been so obsessed with the project I haven’t had time to write individual responses, but I did read every one of them and, in many cases, add it to a task list to check and / or immediately go out and spend some cash on a device that could help narrow down the problem.  For example, I now have Kill-a-Watt measurements being gathered so I can isolate certain appliances and electronics, measuring the actual, real-world use.

I also decided, while doing this, that I would go ahead and finish switching the entire house to energy efficient lighting.  I ran a full intrinsic value analysis, just as I would if I were valuing an expansion project or a fixed income security.  The returns are much higher than they were a few years ago; so high, I can no longer ignore them.

Here’s just one illustration.  My preferred LED light bulb costs $32.97.  I’ll pay $2.54 in sales tax.  Thus, my net cost per LED light bulb is $34.75.  Each replaces a 65 Watt regular incandescent light bulb but burns only 13 Watts, while providing the same Lumen equivalent as a 75 Watt bulbs.  That means each LED light bulb burns 52 Watts less, while providing a brighter light.  Assuming each bulb is lit for 3.5 hours per day, on average, the savings amount to 66,430 Watts per year, or 66.43 kWh.  The electricity in my area costs $0.1038 per kWh, so this creates a very clear, net cash savings on my electric bill of $6.90 per annum, per bulb.

Based on my net cost of $34.75 per bulb, this results in a 19.86% return on capital employed.  The real return is going to be higher for two reasons: 1.) These bulbs have a warranty of 6 years but are projected to last an average of 22.8 years, meaning that I will save the cost, time, and hassle of having to replace each light socket somewhere between 6 and 50 times over the coming decades, and 2.) Electricity prices will inevitably rise with inflation, so any increases in the rate charged by the utility company will more quickly recoup the savings compared to the position I would have been in had I not made the capital expenditure.

There are very few places in life where one can get a cash return of 19.86%+ on capital, consistently, with practically zero risk, while simultaneously reducing their environmental footprint and experiencing a substantial increase in the quality of the lighting, which now looks museum-quality as we opted for the LED light bulbs with a bit narrower beam focus.

In some situations, I was able to replace 65 Watt bulbs with 14 Watt compact florescent bulbs (CFL).  Using the same average lit rate assumptions, they should save $6.76 per annum in electric costs, while costing $9.66 after sales tax per bulb.  That is a cash return of 69.98% on capital employed.

Again, I know of almost nowhere else in life where such a high return is so easily achieved.  Think of it like buying a blue chip stock where you lay out cash today to collect dividends in the future.  Only in this case, you are laying out cash today to have less cash taken from you in the future.  The net economic effect is identical.

As I gather more information from the devices now monitoring the electronics to determine whether more draconian actions are necessary (I’m hoping some of your suggestions turn out to be correct and I can end the investigation – a wayward vampire device that is defective and draining large amounts of energy or a broken refrigerator seal), I’m running cost-return analysis with various energy input assumptions to decide whether it’s worth it to switch out some of the almost-new appliances I already have for gas versions.  I’ll have to pull my energy research files and look at the total supply and distribution situation to determine whether I think low natural gas prices are sustainable for 36 to 48 months.  I may also research solar rebates for my area and see if it is feasible to create some sort of internally generated power to offset my kWh pull from the grid.

I realize I’m being irrational here in the sense that the best I can hope for is, say, a 50% reduction in usage, or $1,000 per year.  Given the time investment involved, this is an utterly stupid way for me to behave since it’s a rounding error on my annual household income statement, having practically no utility to my family.  But my inner investor can’t let it go because it looks like the return on capital is going to be 20% or higher for all outlays involved and once it’s done, it will also free up some time as many of these items have longer useful lives.  Fellow value investors out there know what I’m talking about – finding a guaranteed 20%+ return on outlays is like discovering the ultimate weapon in a video game.  The emotional reward is so enormous you want to scream and throw your first in the air, singing, “We Are the Champions”.  How can I let it go, when it’s just there, waiting to be picked up for a few days of work?  It’s like finding money in the street.

Perhaps, for poetic justice, I’ll use the savings to fund more energy investments.  Over a 30 or 40 year time period, these savings could easily result in an extra couple hundred thousand dollars worth of utility shares by the time I’m in my 60’s or 70’s.  That’s more money for charity; more money for gift transfer to my children and grandchildren. It’d be like that scene in The Graduate, only instead of “Plastics”, I’d point to limited partnership certificates for a pipeline in which I had an investment and whisper, “Lightbulbs” or “Water Heaters”.