This paper presents a study which was conducted to evaluate the performance of a commercially available heat pump water heater (HPWH) with modified controls. The HPWH is first characterized experimentally under a series of different thermal conditions and draw parameters. The test tank contains a 1500 W electric auxiliary heater that provides on demand heat to the top 0.30 m (1 ft) of the tank, and a wrap-around heating coil. An air source heat pump (ASHP), using R-134A as the refrigerant, draws air from, and returns air to the surrounding space and provides heating to the whole tank through the coil. The tank has been tested using Canadian Standards Association draw profiles to characterize performance under different hot water demands. Electricity consumption and thermal flux is measured for each vertical tank section, and various performance metrics are calculated using energy balances. A trnsys model is then calibrated to the experimental data to allow for the flexibility of varying multiple parameters over various climates. Using this calibrated trnsys model, an optimal control strategy and tank setpoints can be determined for use in cold climates. As expected from previous work, there is a decrease in performance of the HP when heating the tank to higher temperatures to facilitate thermal storage, but the benefits from taking advantage of shifting electrical demand (of water heating) to space heating demand can outweigh the loss of performance.