Bradford White CEO, Bruce Carnevale, Shares on Regulatory Changes for Markets and Manufacturers

“State of the Industry”

Bruce Carnevale, president and CEO of Bradford White Corporation, presented his annual “State of the Industry” during the opening session of PHCC Connect. He focused on the coming regulatory changes in 2026 and 2029 and the significant impact they will have on the water heating industry.

Carnevale spoke with Day Atkins, publisher of Southern PHC, and shared his opinions and experience about the massive transition in the water heating industry.

 

Q: In your speech, you talked about the Department of Energy (DOE) regulations for 2026 and 2029. They’re going to bring some pretty significant changes to the water heater market, dramatic changes. Has there ever been a time where you’ve seen such significant regulatory hurdles that’s presented by these?

A: This is unique in that we’re dealing with a substantive commercial change and then it will be followed by a dramatic residential change. In the past, we’ve had changes, such as NAECA 3, which was very, very impactful on the residential side, but it was limited to residential. Now we’re going through in a relatively short period of time, over a three-year span, with major impacts on both commercial and residential. I’d say this is probably the most impactful change that we’ve seen from a regulatory standpoint.

Q: When regulatory changes dictate such radical changes in a product, this can disproportionately affect lower-income families. The offset is the future savings and operational costs, but how do you view this trade off in terms of payback to the consumer?

A: We fought really hard to try to preserve the standard resistance electric category, particularly on the smaller sizes. We were very sensitive to the impact on lower and even middle-income families. These regulatory changes in some cases make the products unaffordable without any kind of a rebate or government assistance, and that’s just not right. It’s not fair.

We’ve always prided ourselves on having a very high value appliance, meaning it’s relatively low cost compared to other appliances and it lasts a long time. Hot water and heat are necessities. We’re not talking about a luxury here. Everybody needs hot water and heat, it is essential. It really bothers me that these regulations in some cases are going to make the products more expensive for a lot of consumers.

Q: In the Department of Energy’s analysis, they look at it and say the energy savings and the environmental impact override the cost implications to the consumer, but we don’t really know where that ROI really is.

A: You can argue on the different calculus they used to arrive at whether it’s economically viable or not. One of the things that is a little bit unique to the American consumer versus maybe the European consumer is we’re much more likely to buy something based upon the upfront price. Historically, electricity has been relatively inexpensive in the US, so people don’t necessarily factor in that savings over the period of time into their decision.

With water heaters, it’s generally an emergency replacement. People are not shopping for a water heater in advance until they have a problem. They have a leak, it fails and they call their plumber. They don’t have time to figure out what the best option is, and in some cases it’s not available in the supply chain. By and large, the American consumer makes decisions based upon need. I need it now. What’s my most cost-effective option?

Q: How has Bradford White responded to the many changes in water heater manufacturing over the last decade? Has your R&D budget expanded significantly and what do you see in that regard for the coming decade?

A: R&D has expanded dramatically. Manufacturing capacity and capabilities have expanded dramatically. The most significant investments in R&D have been really focused on heat pump technology, both residential and commercial.

The way we have set up Bradford White is we’re a customer focused company. We have to pay attention to the regulations, but we also have to understand the customer has the final say and we have to understand that while electrification may take hold in certain parts of the country, it may not take hold in other parts of the country to the same extent. We have to be able to produce high efficiency gas products and heat pump electric products. It’s not an either-or-thing for us. It’s what can we do to make sure that we have the right products for our customers when they need them and that’s what we’re investing to be able to do.

Q: From a decarbonization and energy efficiency standpoint, we can see where water heaters will be in five years. What do you see in 10 years and 15 years? Where is this going?

A: I think the move towards heat pumps will continue. I honestly don’t think it’s going to happen as fast as maybe some others in the industry do, or maybe some others would like it to, and it really comes down to pragmatism.

Europe rushed to heat pumps for both heating and hot water, and the market shifted to heat pumps. That was regulatory driven, and it was incentive-based. When the incentives went away — and I’ll argue more importantly — when the consumer experienced the cost of the heat pump transition and then the comfort level, they pushed back and said, “What did I just spend all this money for? To be less comfortable than I was before?”

The voice of the customer got to the policy makers and they started to pull back on some of the time frames. Consumers started to experience what it was like, then the incentives were reduced or eliminated, and the market collapsed. I think consumers started to question whether heat pumps were the best option. This was primarily around space heating, but I think it applies to water heating, as well. So now there is movement in Europe to a hybrid system, a combination of a heat pump and a condensing gas unit, and to me that makes a lot of sense.

I think in the U.S. we will eventually start to move towards that more pragmatic approach where you leverage the efficiency of a heat pump but still provide the user with not only the amount of hot water they need, but also the temperature that they need. I look at that probably evolving into some type of a hybrid between heat pump and condensing gas technology.

Q: Hopefully, government incentives, rebates will react to that and help us move into the proper direction. Is that what you see?

A: I think that will be regional. I mean there are going to be parts of the country that are still fundamentally opposed to any kind of fossil-fuel appliance and they’re going to move towards full electrification. There are going to be other markets where this hybrid approach takes hold and there may be some other markets where gas is still dominant.

Q: How much uncertainty is there for the rebates and incentives in the Inflation Reduction Act (IRA) to promote energy efficiency?

A: The IRA was written from an incentive-based viewpoint. Strategically, it was good. The execution was horrendous, and I think even the federal government would acknowledge that. The federal government was very slow, and the states were very slow to put the approval process in place to be able to access the money from the IRA. That started to correct, and more states now have a process in place so I think that money will start to flow, but it took a good two years for that to even start to flow at all. We can’t do that in business. We can’t operate at the pace of government.

Q: Bradford White keeps growing through increasing sales, but also through acquisition, with your most recent being your entry into the leak-detection market with FloLogic. What’s your vision for Bradford White for the future in terms of breadth and depth of the company?

A: I will just reemphasize that Bradford White is a customer-focused company. All of these acquisitions were driven by the needs of our customers. When we’ve acquired companies that make primarily electric products that was driven by customers saying, ‘Hey, we need a commercial electric solution.’ We acquired Keltech. When we needed an electric-boiler solution, we acquired Electro Industries.

The FloLogic one was a little bit different. We weren’t specifically looking for leak detection and shut off, but through a relationship that one of our board members had with them, we said this is a really cool technology in and of itself. They also bring a very robust IoT (Internet of Things) platform that we looked at and said we can potentially leverage that for other products within the Bradford family.

We’re now very excited about that because we’ve heard nothing but great feedback about the product, and about the opportunity for that product category. We will be investing in that pretty heavily to broaden that line. We’ve heard from our customers. That’s something that they want us to do, they want us to be able to provide leak detection solutions.

Q: Bradford White has steadfastly refused to sell through big box retailers. That’s a significant market share that you forego in favor of serving only the contractor. Do you see a time when Bradford White’s commitment to that stance would ever change?

A: We don’t have anything against big box retailers. They perform a very important function in our economy. Our philosophy is the product needs to be installed by a professional. Where that professional chooses to purchase the product, we need to be able to make that product available to them, and that is the wholesale channel by and large. But again, it’s not anti-retail, anti-big-box. It’s focused on professional installation and servicing the professional contractor.

Q: You invest in a great deal of money in training for contractors. What are the trends in that regard? Is demand for training for manufacturers increasing or decreasing and how are you all responding to those changes?

A: Demand continues to increase. The more that we add, the more there is a need for it. We take an approach where we’ll do the training at our facilities or we’ll take the training to our customers. During the pandemic, we invested with our manufacturer reps in 20 training trailers, additional to what we already had deployed, so that they could enhance training at the local level. It’s critically important as the product becomes more complex.

Q: From an industry standpoint, contractors have been slow to embrace heat pump water heater technology. Why is that and what is Bradford White doing to help the contractor to get more comfortable with the tech around the product?

A: Our industry is one that is somewhat change averse. That’s throughout the entire channel, from the manufacturer, through to the distributor, to the contractor and the consumer. I wouldn’t say there’s necessarily a resistance to heat pumps.

I would say maybe there’s a misunderstanding that it is a relatively straightforward product to install.

The comfort level with that will evolve, but quite honestly contractors are driven by what their customers are asking for and if their customers aren’t asking for heat pumps, then they’re not going to install them. I think that the demand really needs to be created at the consumer level.

Contractors will come along once the consumer says, ‘Hey, I’d like to install a heat pump water heater.’

We anticipate steady organic growth in heat pumps each year until 2029. The implementation of NAECA 4 in 2029 is expected to significantly accelerate this growth, as it will require heat pump water heaters for tanks as small as 35 gallons, driving a sharp increase in demand.

Q: The efficiency of heat pump water heaters is incredible. What do you think could be beyond heat pump water heaters that your R&D department is hinting at?

A: I think there will be continued evolution of heat pump technology. As you’ve seen with heat pumps since 2009 — when they were launched on a broad scale — we’ve seen almost a two-fold increase in the efficiency. Not sure how much more we can push the efficiency envelope, but I think there will be changes to refrigerants that will be mandated and will drive some different technologies and maybe some different performance characteristics. We’re on the leading edge right now of where you can get to with efficiency with UEFs (Uniform Energy Factors) pushing 4.0.

Bradford White

To the left: Bradford White CEO, Bruce Carnevale

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