Fall heating season is here. What market forces are changing how we do business? What does the future business and technical climate look like for the PHC contractor? Let’s take a look at some of the challenges and changes headed our way.

Private equity: The incursion of private equity into the residential home service industry is nothing new. It has been a steady presence for over half a decade. Many of my contractor friends who are around my age have sold their companies in the last year or two. PE will continue to have a presence in the markets that we serve, particularly residential service, repair, maintenance and replacement. 

What has changed is my viewpoint and opinion of PE’s market presence. I no longer fear or dislike them. I might even say I welcome their presence and I have learned how to compete with them as a small, privately owned HVAC company.

There are some areas where I cannot compete head-to-head. For example, I cannot match their purchasing power and I know that I will not pay the same prices for equipment and supplies. I also cannot afford their marketing budgets, call centers, office staff and HR staff as their size allows layers of support staff and management. The reality is that I do not need to compete directly to be successful. 

Many clients prefer to deal with smaller companies where they know the owner. They like to see the same techs every year. As a small company with 19 employees, I know almost all of my clients and who they want in their homes.

We have also exploited niche markets that PE firms had shifted away from. In my market, the Washington, D.C. metro area, there are many homes heated by boilers. Many of my former competitors in this market have been snapped up by PE and stopped servicing and replacing boilers. We have exploited this fact to increase our boiler work significantly. Similarly, PE has also chosen to stay away from radiant floor heating, remodeling projects as well as the large architect-driven custom home market. All of these specialty niche areas have grown in my company over the last three to four years.

Private equity has raised the bar in our industry when it comes to business practices, systems and pricing. If you are a smaller independently owned company, embrace the changes and competition and learn to exploit the areas in your market where you have a competitive advantage.

Federal regulations: Our elected officials are hard at work making changes to products we install on a daily basis. These updates and changes primarily involve minimum efficiencies. The commercial water heater efficiency mandate was set to go into effect October 6, 2026. It would have required all commercial gas water heaters (anything over 55 gallons) to be high-efficiency, condensing with a minimum efficiency of 95% thermal efficiency (TE).

The Department of Energy recently delayed enforcement of this efficiency standard by one year to October 6, 2027. This gives us a little breathing room to prepare for this market disruption.

Similarly, after May 6, 2029, any electric water heater over 35 gallons will need to be a heat pump water heater. 

Local jurisdictions are also passing legislation affecting what products contractors can install. In many cases, the goal is decarbonization. In my market, there are at least two towns/jurisdictions where fossil fuel appliances are banned for new construction projects. 

As contractors, we need to be prepared for these changes regardless of our political views. If you want to have a voice in policy change, the best way is to become involved and active in trade associations. ACCA and PHCC are two of the best organizations with strong political advocacy programs and committees. 

Commercial water heaters: Randy Duke is hydronics sales manager at Washington Winnelson. His nickname is the Water Heater Guru. He knows more about water heaters than anyone I know. I once took Randy to look at a complicated domestic hot water job in a hotel in Alexandria, Virginia. We met at the site and surveyed the mechanical room.

He scanned the four domestic water boilers and two massive storage tanks. He scribbled a few notes on his pad and turned to leave. He was on-site less than 10 minutes.

“Don’t you need to take a closer look?” I asked.

He chuckled and replied, “No, I already know what’s here. I sold this job when they built it in 1986.” 

I asked Randy how the impending efficiency changes will impact the commercial volume water heater market.

“It is a game changer,” he noted. “Venting is going to be an issue on a lot of jobs, especially in older commercial buildings where you may not have access to sidewall vent.” 

One solution Randy devised for large domestic hot water loads was to use a commercial boiler connected to an indirect DHW tank (or bank of tanks) to produce sufficient hot water. You have to think creatively to solve new problems and Randy is one of the best at that. 

Heat pump water heaters: Changes are coming to the electric water heater segment. DOE standards go into effect in May 2029 mandating that electric water heaters over 35 gallons must be heat pump water heaters. 

Heat pump water heaters are nothing new. My company has installed and serviced them for several years. There are a few things to be aware of when installing these, especially if you are not familiar with how heat pumps operate. Here are a few things to watch for:

• Space: Heat pump water heaters need space to breathe. You cannot stick them in a closet and expect them to work. We have found that they work best in an unfinished basement or mechanical room. As the heat pump operates, it absorbs heat from the space cooling it down. This is an added benefit in summer but can lead to an objectionably cooler space in the winter. Note that several manufacturers have split systems with remote refrigeration units installed outside that resolve this issue. 

• Drains: These units require a condensate drain. A floor drain or small condensate pump can handle this but it is something to be aware of and plan for when installing them.

• Electric: Make sure to check the manufacturer specs and ensure the electric service can handle the additional load. Some units can operate on 120V with a standard appliance plug. It is advisable to run a dedicated circuit and not just plug it into the closest outlet. In many jurisdictions, an electrical permit may be required. We partner with an electrician for this as we do not carry an electrical license.

• Service/maintenance: When installing heat pump water heaters, it is important to let homeowners know about ongoing maintenance. There are filters that need to be cleaned on a regular basis. Condensate drains need to be flushed and kept clear. Over time, coils may need to be cleaned. In order to maintain peak performance and long lifespan, this maintenance must be done at regular intervals, annually at a minimum. We do this work spring and fall when servicing our clients’ heating and cooling systems.

The future: It is hard enough running a contracting business with day-to-day operational challenges but it behooves us to keep an eye on future changes and regulations that affect our companies and how we conduct business. Stay ahead of the game and your competitors by educating yourself on these changes before they hit. Your suppliers, manufacturers and trade associations are great resources. Be a proactive leader in your market rather than a reactionary follower and your business will thrive.