A Second Chance for California

June 1, 2009
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.

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.

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Of the remaining 80%, the Middle 60% of our industry wants to do a good job, but doesn’t know where to start. Many are under-capitalized and jut can’t make the leap. Many think they are delivering a quality product at a fair price because they “don’t know what they don’t know.”

This group has great potential, but they need help. They need some baby steps which include the new Quality Installation and Quality Maintenance standards and guidelines. Utilities could encourage this middle group with mid-level incentives and rebates for doing a higher quality job than their low-ball counterparts. Some of the low-ballers can pull themselves up to the higher ground of this group with the right encouragement.

The Bottom 20% are virtually a lost cause. They like being the bottom feeders because they don’t know any better. Most have no intention of changing how they do business. In fact most of them think they’re a lot smarter than everyone else as they are “stealing” jobs away from legitimate contractors. They too “don’t know what they don’t know,” but the difference is they really don’t care. This group should not have access to any incentives or ability to offer any rebates to consumers. Every now and then one will climb out of the low-price swamp and clean himself up to be able to participate in the Middle part of our industry. There’s nothing wrong with encouraging this, but we must proceed with caution as most are just looking for low-hanging fruit they can fill their belly with for a quick meal, but have no intention of changing who they really are.

True Transformation Comes From Within
So this caution goes out to my fellow HVAC Roundtable Task Force members and all of those who seek to “change” our industry: Before you can effect change, you must first seek to understand. Learn more about our industry, learn about the good in it, not just the bad aspects. Learn more about what the Top contractors are doing, and make sure that as you try to mold new ways to encourage quality and energy efficiency, that you do so with these folks in mind. Also keep in mind that contractors are not the only ones that need to change to meet the challenges of the future, but that the utility commissions, energy commissions, code enforcement bodies, manufacturers and distributors also need to change some of their thinking to allow contractors to do their work, be successful and thrive.

California can do some amazing things over the next several years if it keeps some of these precepts in mind. We need to move forward with humility and understanding that none of us have all the answers, and no good will come from pointing fingers and making scapegoats of one segment or another of our industries. If the mission of this group is to truly, “provide the necessary guidance to both California and the western U.S. to help ‘transform the industry,’” then we must keep in mind all of the true stakeholders in this process, especially the homeowners who will ultimately decide whether to invest their hard earned dollars and their trust in us. We must also keep in mind the HVAC contractors who are the face of our industry to these homeowners They must continue to earn the trust that is placed in them day in, day out, as they work and live in the trenches of this fragmented, tough, yet rewarding industry.

Dominick Guarino is chairman & CEO of National Comfort Institute (NCI), (www.nationalcomfortinstitute.com) a national training and membership organization focused on helping contractors grow and become more profitable. Email him at [email protected] or call NCI at 800/633-7058.

About the Author

Dominick Guarino | Chief Executive Officer

Dominick Guarino is CEO of National Comfort Institute (NCI), (www.nationalcomfortinstitute.com), the nation’s premier Performance-Based training,
certification, and membership organization, focused on helping contractors grow and become more profitable. His email is [email protected]. For more info on performance-based contracting, go to WhyPBC.com or call NCI at 800/633-7058.