Best Practices: Learn the Right Way to Run a Distributor-Focused Midstream Program

The following key insights and best practices for designing a residential midstream distributor-focused water heater and HVAC program were gleaned from:

  • Interviewing program actors (e.g., midstream program implementers and consultants, manufacturers, and distributors);
  • Reviewing key program policy papers and presentations; and
  • Interviewing program managers interested in but not yet pursuing distributor-focused midstream programs to understand their concerns.

Take advantage of peer learning/exchange.

Shifting to a midstream program is not simple; tremendous insight can be gained from talking to:

  • Commercial lighting and commercial HVAC program implementers within your own organization – who may have used a midstream model for years.
  • A number of program design and implementation consulting firms that understand the subtleties of distributor outreach, qualified product lists, standard agreements and setting midstream incentives.
  • Other utility program managers currently running distributor-focused midstream programs.

ENERGY STAR highly recommends that before embarking on a midstream program, you discuss midstream with these parties. If interested in speaking to utility program managers and/or consulting firms that have implemented these programs, please contact ENERGY STAR at midstreamdistributor@energystar.gov.

Continue outreach to contractors and consumers.

Although the midstream program is focused on distributors, HVAC contractors and plumbers still need to be educated about the incentive opportunity. Midstream programs have found that the regular gatherings through distributors and/or manufacturers are the best way to reach contractors. In addition, overall energy efficiency program consumer marketing (see images) should still include midstream products (e.g., point of purpose signage, radio, billboard, TV, educational webpages, direct mail, and geo-targeted online ads). Lastly, cooperative marketing opportunities with distributors and manufacturers should be explored that take advantage of their networks of contractors and other stakeholders.

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Familiarize yourself with wholesale distribution vendors in your service territory.

Wholesale distribution can vary from large chains (national, super-regional and regional) to local suppliers. National distribution chains can have hundreds of locations (e.g., Ferguson has 1400 locations). Although the larger chains can set standards for programs at their locations, most wholesale distributors have a great deal of autonomy on how they are operated.

An excellent start at learning about the distributors in your service territory is to talk to HVAC contractors, plumbers, and manufacturers engaged in your downstream efforts. Program implementers should know the degree that the distributor’s trade area overlaps with the utility service territory. The overlap size will dictate how interested the distributor is in the midstream program. In addition, to get an understanding of the large distributors in your service territory, examine:

As an example, see these lists of distributors associated with midstream programs at Efficiency Maine, Efficiency Vermont and Energize CT.

Work with evaluation, measurement, and verification (EM&V) teams during program planning.

Midstream programs have had questions about attribution and issues with data reporting in the past. It is strongly encouraged that discussions with EM&V teams occur during the program planning process to assure a mutual understanding of market structure, market conditions and data needs. Program logic models, like the one below in Table 2 developed for the CPUC for a commercial HVAC program offering incentives to distributors,16 can help in these discussions.

Table 2: CPUC Program Logic Model for Commercial HVAC Program Offering Incentives to Distributors
Inputs Activities Outputs Outcomes
  • Incentive dollars to distributors that sell qualifying HVAC equipment
  • Identify and market program to distributors that ship equipment to CA market
  • Educate sales personnel and contractors on programs and high-efficiency equipment
  • Annual awards banquet with contractors, utilities, high-performing distributors
  • Distributors promote high-efficiency equipment to contractors/builders/developers
  • Cost-effective and competitive high-efficiency HVAC price points on lifecycle
  • # of units incentivized
  • Increased distributor stocking % of program-eligible equipment
  • Increased sales of high-efficiency HVAC equipment from distributors to c/b/d
  • contractors/builders/developers promote high-efficiency equipment to customers
  • Increased installation of high-efficiency HVAC equipment (retrofit and NC)
  • Measurable reduction in kW, kWh, therm usage
  • Increased market penetration of high-efficiency HVAC equipment (shipments)
  • Development of new minimum equipment efficiency standards

Understand distributor concerns.

Distributors can serve as an excellent partner in midstream programs due to their in-house expertise, long-standing relationships with manufacturers, and logistical and inventory systems to make program implementation easier. Conversations with program implementers and distributors revealed the following keys to working with distributors:

  • Appeal to the distributor’s bottom line. Distributors, perhaps with limited success selling energy efficient HVAC and water heaters through the years, may not realize that sales of efficient HVAC and water heaters generally have significantly higher profit margins and increase operational income. For example, a heat pump water heater will earn the distributor twice the profits of a conventional electric resistance water heater.17
  • Involve the distributor early in the program development process. Years before the program was fully implemented, one program implementer worked for months with two large “early adapter” distributors to address program concerns about costs and leakage through a pilot. By becoming experts in efficient equipment and incentive processing, these early adapters gain a competitive advantage over distributors that join later. Program implementers have mentioned that if one or two distributors begin to benefit from the program, word quickly spreads and other distributors will scramble to join the program.
  • Provide a method for verifying eligible models. Providing distributors with a certified product list in an electronic format or integrated into an online portal enables them during the sales transaction to easily identify equipment that qualifies for incentives, thus maximizing program participation. Distributors also need confidence that the upfront discounts they are offering to contractors and plumbers will be eligible for reimbursement.
  • Provide an administrative fee to distributors. Many programs provide distributors with a small administrative processing fee per unit sold to cover the burden of incentive processing. For example, Efficiency Vermont has an administrative fee of $65 per HPWH sold, $50 per cold climate heat pump, and $3-$50 per high performance circulating pump.18
  • Pay the distributor within 30 days. Given what could become enormous outlays of funds, distributors cite delayed incentive payments as a significant barrier to participating in midstream incentive programs. Midstream programs can facilitate quick turnaround by:
    • Providing an online portal for distributors to input data necessary to receive the incentive.
    • Minimizing the data input requirements associated with the online portal.
    • Automating the incentive processing by integrating certified product model numbers into the distributor inventory and sales tracking systems.
    • Ensuring that contractors have a simple means to confirm to the distributor that the equipment has been installed in zip codes in the service territory.
    • Utilizing techniques such as direct deposit and electronic fund transfers to streamline the reimbursement process. It is recommended you keep the payment turnaround time as short as possible, one distributor felt ideally within two weeks of application.
  • Plan for increases in program participation to avoid budget overruns. Distributors are at particular risk if funding for midstream incentives abruptly ending. With their equipment inventories established months in advance, the combination of enormous increases in incented efficient equipment sales and a sudden discontinuation of incentives can lead to large unwanted inventory of higher priced energy efficient equipment that is difficult to sell. Careful planning, based on examining results of other midstream distributor programs, should be used to set larger budgets. Systems should be in place to allow distributors to know if and when funds will run out in advance.
  • Consider including these elements in partnership agreements:
    • Utilize manufacturers and manufacturer representatives, oftentimes familiar with upstream utility programs, to facilitate the contracting process.
    • Define the length of the agreement as one year or more.
    • Require corporate level signatures of participating distributor and program implementer.
    • Stipulate procedures in the event of program changes, or changes in incentives, administration, or management fees.
    • Contain a description of the program, contract information, definitions, terms and conditions, incentives and reimbursement protocols, and methods for verifying purchase and installation.
    • Specify notification procedures that allow distributors to know if and when funds will run out in advance.
    • Articulate criteria for eligible products and protocols for submitting information.
    • Structure agreement to allow for regular and hassle-free modification of list of incentive-eligible products (e.g., online lists) to avoid burdensome contract modifications when new products enter the market.

Adjust the downstream incentive if necessary.

Initially, most programs will not change the incentive amount as a program is shifted from downstream to midstream. However, some utilities will find that the incentive has to be increased or decreased to accommodate the market and budget restrictions. Example incentive amounts can be found in Table 1 "Participation Improvement for Distributor-Focused Residential Midstream Programs Compared to Downstream Programs" (here).

Manage how incentives are distributed.

If regulators require that the full incentive be passed from the distributor to the contractor to the homeowner, programs may wish to develop methods for communicating incentive amounts with homeowners and educating distributors and contractors of these requirements. For example, one program uses postcards to thank program participants and confirm receipt of the incentive and conducts extensive education and outreach to assure contractors are aware of the full incentive amount. However, other programs have no such restrictions and allow the market to dictate the amount of incentive taken by the distributor, contractor, and residential customer.

Include ENERGY STAR as part of your efficiency criteria.

Basing program requirements on ENERGY STAR criteria provides all parties access to online certified product lists and ensures that the energy performance of the equipment is third-party certified.19 For programs targeting a subset of ENERGY STAR certified products, filters can be developed and automatically fed to program websites using the advanced features of product finder for water heater and HVAC products other than CAC/ASHP.


16 “Net to Gross Evaluation of 2013-14 Upstream HVAC Programs (HVAC1)." CPUC. 4/30/17. CALMAC Study ID CPU0116.003. Page 9 of 63.

17 “Market Madness: Coordinating Supply Chain Players on the HPWH Court,” VEIC, Presented at the ACEEE Hot Water Forum, February 27, 2017. Available online at: http://aceee.org/sites/default/files/pdf/conferences/hwf/2017/Merson_Session4D_HWF17_2.28.17.pdf (PDF, 1.7 MB).

18 “Swimming to Midstream: New Residential HVAC Program Models and Tools” VEIC, D&R International, Mass Save, Energize CT, HARDI. Presented at the 2016 ACEEE Summer Study on Energy Efficiency in Buildings. Available online at: http://aceee.org/files/proceedings/2016/data/papers/7_888.pdf.

19 Lists for ENERGY STAR CAC/AHSP certified by AHRI are available via link from the ENERGY STAR website and can be directly accessed at http://www.ceedirectory.org/site/1/Home.