An HVAC system is disclosed, comprising: (a) a compressor, (b) a source heat exchanger for exchanging heat with a source fluid, (c) a first load heat exchanger operable for heating/cooling air in a space, (d) a second load heat exchanger for heating water, (e) first and second reversing valves, (f) first and second 3-way valves, (f) a bi-directional electronic expansion valve, (g) a first bi-directional valve, and (h) a second bi-directional valve to modulate exchange of heat in the first load heat exchanger when operating as an evaporator and to control flashing of the refrigerant entering the source heat exchanger when operating as an evaporator, (h) a source pump for circulating the source fluid through the first load heat exchanger, (i) a water pump for circulating water through the second load heat exchanger, and (j) a controller to control operation of the foregoing.