The Climate Action and Sustainability Committee on Oct. 17 reviewed results from a pilot commercial heat-pump HVAC program and voted to recommend the City Council adopt new design guidelines to scale the program.

Shelby Sinclair, sustainability programs administrator for the utilities department, told the committee the pilot received 14 applications, of which six were approved and three projects were complete. "As of now, we have 14 projects that have applied. Of those 14, there are 6 that are approved," Sinclair said. She said the pilot found heat-pump HVAC retrofits averaged about 22% higher in initial cost than equivalent gas systems — roughly $142,000 in the sample — and that permitting and site-specific work often increased those costs further.

The recommendation package (Attachment A to the staff report) would move the program from a data-collection pilot toward a one-year, scalable offering that combines incentives, financing options and technical assistance. Committee members sought more detail on which commercial users are already participating; Sinclair said the completed projects included a daycare/preschool and small office buildings. "Some require more carpentry work and electrical work, and others are more simple swap outs," she said.

Why it matters: Staff said early, boosted incentives were needed to get projects installed and produce the cost, permitting and contractor data the city now uses to redesign the program. The committee approved a motion to recommend council adopt the staff’s draft design guidelines, providing the city an operational blueprint if the council accepts the recommendation.

Key pilot findings and design changes
- Enrollment and completion. Pilot: 14 applications, six approvals, three completed installations. Two applicants left the pilot (one emergency exchange did not meet efficiency standards; one private school dropped out because retrofit cost remained too high).
- Costs. Pilot data show an average 22% upfront premium for heat-pump HVAC systems vs. gas replacements in the sampled commercial projects; Sinclair said that translated to roughly $142,000 in the projects reviewed, not accounting for additional permitting studies.
- Incentives. Pilot offered a boosted incentive of $3,500 per ton; the standard rebate is $650 per ton. Staff said the boosted incentive was intentionally higher to seed projects and collect data.
- Permitting and technical barriers. Staff and committee members repeatedly raised permitting, sound studies and contractor capability as major friction points. Sinclair said some required studies (structural calculations, noise analysis, line-of-sight assessments) are not included in initial contractor estimates and can materially raise project costs.
- Proposed program features. Staff recommended multiple assistance modes: continued rebates, financing pathways (Go Green business loans, potential on-bill repayment), enhanced technical assistance, a contractor permitting guide and a curated contractor list, and improved integration between utilities staff and the planning & development counter to connect customers early.

Committee discussion and next steps
Committee members focused on how to target subsidies where the grant is most likely to change decisions, reduce permitting costs (for example, allowing manufacturer decibel specs to stand in some cases), and build contractor capacity. Staff said they are exploring contractor training partnerships (staff cited Sacramento Municipal Utility District and a DOE study through Pacific Northwest National Lab) and are working to refine a permitting checklist and a single city contact to resolve permitting questions.

Motion and vote
The committee voted to recommend the City Council adopt the design guidelines for the next iteration of the commercial heat-pump HVAC program. The motion carried 3-0 (recorded yes votes: Council Member Berg; Chair (name called during roll); Council Member Luke). The recommendation, if adopted by the council, would put roughly $1.1 million in subsidies and staff time into the next-year program design as described in the staff report.

Public comments and broader context
There were no public commenters on this item who opposed the measure. In separate public comment on the gas transition item, resident David Cole urged the city to simplify permitting rather than increase fines: "Fix the system. Don't find the people," he said. Another commenter, Steven Roosevelt, urged the city to expand renewable generation, storage and demand-response programs to lower electricity costs and accelerate electrification.

What the committee asked staff to provide going forward
Committee members requested clearer mapping of building types and project contexts that make electrification cost-effective, continued contractor outreach and training, more concrete permit-streamlining steps, and follow-up on financing design and on-bill repayment feasibility. Staff indicated they will return with refined guidelines and implementation details if council approves the recommendation.

Ending
The committee’s recommendation now goes to the City Council for consideration. Staff said it will continue contractor outreach, pursue financing partnerships and refine permit guidance while seeking council approval of program funding and guidelines.