HomeMy WebLinkAboutStaff Report 2503-4394 Climate Action and Sustainability Committee
Staff Report
Report Type: ACTION ITEMS
Lead Department: Public Works
Meeting Date: March 21, 2025
Report #:2503-4394
TITLE
Recommendation to Council to Approve a Professional Services Contract with Franklin Energy
to Administer a Full-Service Whole Home Electrification Program, Pending Final Negotiations;
CEQA Status: Under CEQA Guidelines section 15183, projects consistent with an existing
general or comprehensive plan do not require additional CEQA review
RECOMMENDATION
Staff is negotiating a Professional Services Contract with Franklin Energy, and recommends that
the Climate Action and Sustainability Committee recommend that the City Council:
1. Approve a 3-year contract with a not-to-exceed amount of $7,055,000 with Franklin
Energy to administer a Full-Service home electrification program targeting single family
homes, provided it includes the City’s standard Professional Services Agreement terms,
conditions and scope requirements;
2. Authorize staff to use up to $1.43 million in Gas Utility Cap and Trade Revenues for the
program; and
3. Amend the FY 2025 Budget Appropriation (requires a 2/3 vote) in the Gas Fund by:
a. Increasing Gas Resource Management Operating Expenses for Contract Services
by $1.43 million; and
b. Decreasing the Cap and Trade Reserve by $1.43 million
EXECUTIVE SUMMARY
Staff is recommending the Climate Action and Sustainability Committee recommend that
Council approve a 3-year professional services contract with Franklin Energy Services with a
not-to-exceed amount of $7.055 million to administer a turnkey home electrification program
as part of the Advanced Single-Family Electrification program. A turnkey, or full service
program, involves incentives, just like a typical rebate program, but also includes a program
operator who can help residents through the process of working out what kind of project is
right for them and will find the contractor and handle permitting on their behalf. The City
already provides this service for heat pump water heaters. This new program builds on the
current residential program portfolio providing turnkey heat pump water heater installation
service, technical advising on home electrification, and a suite of home electrification rebates.
With this contract, the City will expand turnkey installation service beyond heat pump water
heaters to help single-family residents throughout Palo Alto replace other kinds of gas
appliances as well (e.g. furnaces, stoves) with efficient electric alternatives. It will also support
City efforts to streamline permitting and other processes, experiment with new customer
intake approaches to see how it affects program uptake, and build a critical mass of electrified
homes to help others see that home electrification is viable. The program also provides data to
support design of future programs.
2-e) per year, or 4,650 MT CO2-e over the lifetime of the newly electrified
appliances if fully subscribed. The proposed budget covers only the first year of the contract
(with mostly coincides with FY 2026). Future years would require additional budget allocations.
The contract also includes an optional low-income program option that could be activated in
the future if needed, serving as a backup to the City’s existing contract for these services with
another provider.
BACKGROUND
1 Work Plan Work Items 2.1D through 2.1H focus on establishing rebates and
programs to facilitate single-family home electrification.
Table 1: Summary of Electrification Services Offered by City
Equipment Services Service Launched
Full-service replacement March 2023
Emergency replacement September 2024Heat pump water heater
Rebate and/or technical assistance for
residents who hire their own contractor 2017
Heat pump space heater
and other equipment
Rebate and/or technical assistance for
residents who hire their own contractor January 2025
1 2023-2025 S/CAP Work Plan; https://www.cityofpaloalto.org/files/assets/public/v/1/sustainability/reports/2023-2025-
scap-work-plan_final.pdf
ANALYSIS
Staff is proposing to expand the City’s residential electrification program services further to
include a full-service (a.k.a. turnkey services) program component to help residents electrify
home heating systems and gas end uses in addition to water heaters. With the addition of these
services, staff is now referring to the entire suite of programs (including this program and the
programs listed in Table 1 above) as the Advanced Single-Family Electrification Pilot Program.
Launching this full-service program component requires a new contractual partner and
additional funding in the FY 2025 budget.
Staff is proposing to partner with Franklin Energy to run the full-service component of the
program. Franklin Energy was selected by Peninsula Clean Energy (PCE) and Silicon Valley Clean
Energy (SVCE) after a formal RFP process in 2023 with contracts approved by the boards of the
two CCAs in February and March of 2024, respectively. The City will continue to handle most
community outreach, generating leads. Franklin will provide customer intake, complete home
assessments, help residents decide on an electrification plan, provide quotes, and manage the
contractor to complete the project. They will also provide any post-installation support and
issue resolution needed. Franklin currently has contracted with three sub-contractors to handle
installations at customer sites, with plans to onboard additional contractors in the future. These
contractors have agreed to provide fixed prices on electrification upgrades making
electrification easier and price-transparent for residents. Total contract authority requested is
$7.054 million over three years, including about $1.5 million in optional authority to launch a
low-income program if needed, as shown in Table 2. Staff is currently finalizing key terms,
conditions and scope with Franklin, and recommends approval of the contract provided it
includes the City’s standard Professional Services Agreement terms, conditions and scope
requirements.
Staff estimates that 500-700 households require furnace replacements each year. The proposed
budget is enough for about 150 homes. This is about 20% to 30% of annual replacements, a
comparable market share to that accomplished by the heat pump water heater program.
Table 2: Proposed Turnkey Home Electrification Annual Contract Authority
Year 1 Year 2 Year 3
Program Set up $211,075 --
Ongoing Program concierge $369,294 $369,294 $369,294
Site Assessments $120,150 $120,150 $120,150
CPAU instant rebates $1,080,000 $1,080,000 $1,080,000
First Year Contract Expenditures (Yr 1)*$1,780,519
(optional) Low Income program $510,645 $491,730 $491,730
Total Optional & Future Year Program Budget $510,645 $2,061,174 $2,061,174
3-year Total (with 10% Addtl Services)$7,054,863
*First-year contract expenditures funded with $1.43M new budget request and remainder
from existing Advanced Heat Pump Water Heater Pilot Program Budget. Future years or
optional services will proceed only subject to budget appropriation.
The first-year program budget would cover funding for up to 150 homes (up to $9,550 per
home) plus $211,000 to set up the program, $369,000 per year for program administration,
$120,000 per year for home electrification plans and technical assistance.
FISCAL/RESOURCE IMPACT
The first year of the program requires $1.78 million in budget authority to launch. The second
and third years would require similar levels of funding if the program continued into future
years. Of the first-year funding, $1.43 million represents a new budget request and the
remainder comes from the already approved Advanced Heat Pump Water Heater Pilot Program
budget, which was funded by a combination of Public Benefits and Gas Cap and Trade funding
sources. If this program is recommended for approval, staff will recommend Council approve a
$1.43 million amendment to the FY 2025 budget, funded from Gas Cap and Trade Reserves, to
provide this authority. Future year funding would be considered through future year budget
processes. Funding for low-income program services is already established in the approved
FY 2025 budget using annual collected Public Benefits revenues, which exceed the amount
needed for this purpose. Staff already has a provider for these services. Including the optional
provision of low-income services in the contract enables a backup service provision.
The Gas Cap and Trade reserves are currently at $13.5 million, with projected annual revenues
of $3 million to $4 million per year as authorized through 2030. This spending would not
directly impact gas rates, but Gas Cap and Trade reserves can potentially be used to provide
climate credits. $1.45 million is equivalent to about a 0.5% decrease in gas rates if spread over
five years. The Finance Committee will be considering potential uses of the funding sources for
this $1.45 million (and for other proposed Climate Programs in the FY 2026 Proposed Budget)
before this item goes to Council for approval.
The use of Gas Cap and Trade revenues is governed by Title 17 California Code of Regulations
Section 95893(d), which requires that it be used for the primary benefit of retail natural gas
ratepayers, subject to any limitations imposed by Council, and must be used for:
•Energy efficiency, including energy efficiency equipment rebates, building retrofits and
other projects that reduce energy demand;
•GHG emissions reducing activities, which include projects to reduce gas leaks that are
not mandated by federal, state or local health and safety requirements;
•Non-volumetric return to some or all ratepayers in the form of a climate credit;
•Administrative and outreach costs and educational programs
The Council adopted a policy on the use of Gas Cap and Trade Revenue on January 26, 2015
(Resolution 5397) and updated it October 3, 2022 (Resolution 10077),2 which stated that:
The following uses of the City’s auction proceeds from the sale of Allocated Allowances are
permitted, with a preference that greenhouse gas reduction measures be pursued before
providing rebates:
a.Investment in energy efficiency programs for the natural gas portfolio and retail customers;
b.Purchases or investment in cost effective renewable bio-gas resources for the gas portfolio;
c.Fuel switching from natural gas to electricity that reduces greenhouse gas emissions;
d.Investment in other carbon reduction activities for the natural gas utility, including system
maintenance or replacement to reduce fugitive gas emissions;
e.Rebates to natural gas retail ratepayers. Rebates, if provided, must be allocated on a non-
volumetric basis as stated in Title 17 CCR Section 95893 (d)(3).
Program promotion and outreach will be funded through the climate reduction outreach
budget established in the FY 2025 Adopted Budget. The entire Advanced Single Family
Electrification Pilot Program is projected to require 2 FTE of existing staff in CY 2025, with staff
time requirements likely declining slightly once this new program is fully launched.
STAKEHOLDER ENGAGEMENT
Staff has done some level of stakeholder engagement for each of the programs listed above
and intends to do more in development of new programs:
•Staff held several Working Group and S/CAP Committee meetings on this program
throughout 2023 and 2024.
•Staff learned from participants in each of its existing programs through customer surveys
and discussions with individual participants, as well as outreach to contractors.
2 https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=61567
ENVIRONMENTAL REVIEW
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APPROVED BY: