A Second Chance for California

In early May, I had the privilege of being invited to participate in a 70-person HVAC Energy Efficiency Roundtable that met for two days in San Francisco. The roundtable, called a historic event by many there, was well organized, and represented an eclectic group of stakeholders, many of whom weren't the “usual suspects” in this type of meeting.

The people attending represented major California-based investor-owned utilities (IOUs), the California Public Utilities Commission (CPUC), the University of California, Davis, HVAC manufacturers, distributors, contractors, national and local trade associations, energy industry consultants, as well as educational and certification organizations.

Over the past few years, several attempts have been made to implement sustainable energy efficiency programs in the state. In addition, more stringent energy codes related to HVAC systems were mandated under California's Title 24.

Some of these measures seem to have backfired. For example it's estimated that permits were pulled on less than 5% of all HVAC installations last year, down drastically since the recent energy codes were changed. These changes made the permitting process more onerous, and mandated consumers fix their systems when specific HVAC work was done in their homes. California utilities have also tried a number of HVAC programs to help reduce energy usage that wasn't sustainable once the incentives were expired.

Will This New Task Force Get It Right?

While much has happened in the 18 months since, the genesis for the event could be traced in part to an important sentence in the CPUC's October 2007 Decision 07-10-032 which read:

“Collectively, the [commenting] parties agree that a major improvement in HVAC energy efficiency savings will require significant improvement in existing industry practices and major changes in utility programs.”

The roundtable discussions were very lively and resulted in a great deal of brainstorming. The goal was to figure out how to help California achieve its energy goals with regards to HVAC systems in homes and businesses, and there were a great deal of positive ideas discussed - too many to cover in this editorial.

The conversation began to turn to the fact that for this to happen, contractors must do a better job installing and servicing HVAC systems. While there were many correct principles in that sentiment, something happened in the dynamic of the conversation that began to feel more like the real “problem” is the HVAC contracting community. The feeling was that contractors need to be changed, controlled, enforced against, and as one attendee stated in an excited rant, “contractors should be heavily fined and ultimately thrown in jail if they don't comply.” When I lifted my jaw off the floor after hearing this damning and accusatory statement, it dawned on me (and most of the group), that things were beginning to go south. Perhaps ironically, the rant against contractors was not being levied by utilities, consultants, or policy makers in attendance (who seemed to be quite sincere about partnering with the HVAC industry going forward), but rather, the feeding frenzy was spearheaded by several individuals prominent in the HVAC industry.

Luckily, cool heads prevailed and the conversation was brought back on track for the most part, but a cloud of blame towards contractors still hung heavily in the air, somewhat altering the mood for the rest of the meeting.

As the Roundtable was wrapping up, I challenged the group to be careful not to try to “change” the contracting industry without first understanding it. I warned that any measures taken to influence and guide contractors to improve quality and reduce energy usage, should fit within the culture and business approach of successful contractors. It would be arrogant to think that anything this group came up with would be blindly accepted by those contractors who have worked hard to develop their successful business models. After all, how many of the 70 people in the room have ever run a successful, double-digit net profit contracting business? I counted one, maybe two.

Sure, a large number of HVAC contracting companies are still poorly run, and many of them are virtually out of business. These aren't the contractors who'll lead the way towards higher quality, improved comfort and indoor air quality, and improved energy savings. If we're lucky, some day they'll follow the leaders.

Understanding Our Industry
There’s an 80/20 rule that applies to virtually any industry that’s more like a 20/60/20 rule. It goes something like this: The Top 20% of our industry strives to improve their quality, profits and growth by investing in new technology, getting better educated, and doing the hard things to make sure they are always ahead of their competition. These are the companies who focus on marketing and selling service instead of a low price box. These are the companies that know the only way to succeed is by building a service agreement base that becomes their primary source of add-on replacement business.

These are also the companies most likely to become performance-based and who will mold the future for delivering and servicing systems that provide the highest efficiency and comfort available. These are the type of companies that creators of advanced energy efficiency programs should focus on, incentivize and promote as the providers through whom consumers can get the best utility incentives and participation in special programs.