City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Utilities
Meeting Date: April 20, 2026
Report #:2602-5891
TITLE
Approval of Contract Amendment No. 3 to Contract S25190354 with Larratt Brothers Plumbing Inc. in the Amount of $950,000, for a Revised Total Not to Exceed $1,445,000 and to Extend the Contract Term for One Additional Year ending July 21, 2027, for the Residential Emergency Water Heater Replacement Pilot Program Within Electrification Programs; CEQA Status – Not a Project.
RECOMMENDATION
Staff recommends that City Council approve and authorize the City Manager or their designee to execute Amendment No. 3 (Attachment A) to Contract S25190354 with Larratt Brothers Plumbing Inc. for the Emergency Water Heater Replacement (REWHR) Pilot Program, increase the contract in an amount not-to-exceed $950,000, and amend Exhibit C to add one measure covering administrative fees and to extend the contract term by one additional year to a three- year term. This amendment results in a revised total contract not-to-exceed amount of $1,445,000.
EXECUTIVE SUMMARY
Staff is seeking approval for contract amendment number 3 to Contract S25190354 for the Single-Family Residential Emergency Water Heater Replacement (REWHR) Pilot Program to contribute to the success of the Advanced Heat Pump Water Heater (HPWH) Pilot Program in replacing a total of 1,000 gas water heaters. Staff is requesting to extend the REWHR contract term by one additional year, increase the contract by an additional $950,000, and update Exhibit C to continue offering the REWHR Pilot Program with a minor program improvement.
Staff will offset the amendment amount by disencumbering $950,000 from the previous vendor under contract No. C23181953A1 for the Advanced HPWH Pilot Program. Emergency water heater replacements have accounted for more of the HPWH replacements than initially 1 Contract S25190354 with Larratt Brothers Plumbing
http://www.paloalto.gov/files/assets/public/v/1/utilities/linking-documents/s25190354-larrett-brothers- plumbing.pdf
expected, the program receives high customer satisfaction and is helping the City achieve the goal of replacing 1,000 gas water heaters with HPWHs. The current two-year contract is set to end on July 31, 2026. This amendment will extend the contract term to July 31, 2027This amount is part of the originally budgeted HPWH program approved by Council on October 3, 2022, funded through the Electric Utility’s Electrification Reserve and Gas Cap and Trade revenues (see Staff Report 14720 and Council Resolution 10075, and Resolution 10076).3
BACKGROUND
Staff and the community have been working to achieve the community’s greenhouse gas (GHG) emissions reduction goals of reducing GHG emissions 80% from 1990 levels by 2030, as adopted in the Sustainability and Climate Action Plan (S/CAP). The current S/CAP was adopted in June 2023 along with the 2023-2025 S/CAP Work Plan.4 The 2023-2025 S/CAP Work Plan included work item 2.1 D, which called for the launch of a HPWH pilot to achieve the replacement of 1,000 gas water heaters with HPWHs. The “Advanced HPWH Pilot Program” was launched in March 20235. It includes rebates for residents who hire their own contractors and a Full-Service program for those who want the City to take care of the whole process, as well as the addition of the REWHR program in September 2024. As of January 2025, 743 installations had been completed across the City’s Rebate, Full-Service, and REWHR programs, with 195, 489, and 59 installations completed under each program, respectively since the Advanced HPWH Pilot Program was adopted in October 2022. The REWHR program was created to facilitate the swift replacement of gas water heaters with heat pump alternatives, addressing the gap left by the Full Service HPWH program, which was not designed for emergency installations. The 2026- 2027 S/CAP Work Plan was approved by City Council on March 2, 2026, continuing the residential electrification programs.6
3 Staff Report 14720, October 3, 2022:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=82036&dbid=0&repo=PaloAlto&searchid=595cfc83- 730f-4a8e-acb8-2a711994f8de&cr=1 ; Council
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=61564&dbid=0&repo=PaloAlto Resolution of the Council of the City of Palo Alto Adopting Design Guidelines for an Advanced Heat Pump Water Heater Pilot Program to Further the City’s Sustainability and Climate Action Plan Goals https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=61564&dbid=0&repo=PaloAlto; and Council https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=61565&dbid=0&repo=PaloAlto Resolution of the Council of the City of Palo Alto Establishing an Electrification Reserve and Amending the Electric Utility Reserves Management Practices
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=61565&dbid=0&repo=PaloAlto 4 2023-2025 S/CAP Work Plan
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=82107&dbid=0&repo=PaloAlto&searchid=2893517 6-b25e-40fe-8f67-106930338767&cr=1
5 On October 3, 2022, City Council approved the contract with Synergy Companies, which includes, among other tasks, the administration of an Advanced Heat Pump Water Heater Pilot (https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=81976&dbid=0&repo=PaloAlto) 6 2026-2027 S/CAP Work Plan
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=85324&dbid=0&repo=PaloAlto&searchid=b2427f35 -4f5e-45e1-a2a0-3fac0fad9e95
The REWHR program has received high customer satisfaction, achieving a score of 9 out of 10.
Installations have been successfully completed within two business days, demonstrating Larratt Bros Plumbing Inc.'s commitment to providing excellent customer service. Their unique customer service tool, called Plunjr, allows homeowners to enter the program quickly and obtain an assessment and quote for a new HPWH.
The REWHR program was initially established in August 2024 for $85,000, and the program launched to the community in September 2024. The contract was first amended11 in October 2024 to accommodate an increased budget of $410,000. Amendment No. 212 made a clerical correction to add an optional Additional Services Provision. In November 2025, a Task Order was executed that allowed Larratt Bros Plumbing Inc. to temporarily serve the Full Service HPWH program during the transition away from the City’s contract with Synergy Companies (contract No. C23181953A), to a new Turnkey Home Electrification Program developed with Franklin Energy Services (contract No. C25193676) called “Electrify My Home.”13 Due to increased incentives from the State’s TECH Clean California program, heightened demand to complete installations prior to the expiration of Federal Tax Credits, and higher participation from the Full Service HPWH program, more funds were utilized at a faster pace than anticipated. The City will receive an estimated $170,000 in reimbursement from the State for the TECH funds disbursed. Amendment number 3 will ensure the REWHR program can continue for one additional year, serving an estimated 150 more HPWH installations (generated from an estimated 300 home assessments). This extension will facilitate further installations throughout Palo Alto, enhancing the transition from gas to heat pump water heaters under emergency circumstances.
ANALYSIS
Gas tank water heaters typically last between 10 to 12 years. It is not uncommon for homeowners to wait until the water heater shows signs of needing a replacement before they call a plumber. Up to 85 percent of water heater replacements occur in an “emergency” when the current water heater fails.14 In such an emergency scenario, the task of switching from a gas water heater to an HPWH is often too complicated and takes too much time for the average homeowner to handle when they are focused on restoring hot water to their family. The REWHR Pilot Program is designed to serve the many homes experiencing water heater failures that require rapid action, with a goal to restore hot water to customers within two business 11 Amendment No. 1 with Larratt Brothers Plumbing
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=83038&dbid=0&repo=PaloAlto&searchid=b540650 7-db33-4482-b4e6-fa48c313aef6
12 Contract S25190354 Amendment No. 2 with Larratt Brothers Plumbing http://www.paloalto.gov/files/assets/public/v/1/utilities/linking-documents/s25190354a2-larratt-bros- amendment-no-2.pdf
13 https://www.paloalto.gov/Departments/Utilities/Electrification/Electrify-My-Home 14 New Buildings Institute, 2022. https://newbuildings.org/scaling-up-market-transformation-for-heat-pump- water-heaters/
days while helping the homeowner switch from a gas water heater to an HPWH. Customers could opt to pay a premium covering work outside of standard business hours if faster service is desired.
Summary of Proposed Contract Terms
Staff recommends extending the current Residential Emergency Water Heater Replacement (REWHR) program contract term by one additional year, increasing the contract not-to-exceed amount by $950,000, and amending Exhibit C to add one measure covering contractors’ administrative fees. This amendment results in a revised total contract not-to-exceed amount of $1,445,000.
Larratt Brothers Plumbing Inc. requires a minimum of eight installations per month to cover the costs of a dedicated program manager that can provide an immediate response to customers with water heater emergencies. The proposed administrative fee measure aims to help Larratt Brothers Plumbing Inc. maintain full-time staff dedicated to the City's program during periods of low sign-ups. Participation in the REWHR program fluctuates significantly, resulting in some months with minimal engagement. The team is still determining the optimal marketing strategies for the REWHR program. Staff proposes an $8,000 administrative fee in any month with fewer than 20 sign-ups (equivalent to 15 home assessments or eight HPWH installations) to ensure program continuity. Because sign-ups can be difficult to track, the contract instead measures home assessments (clearly identified on monthly invoices). The month with the highest home assessments was October 2025 with 20 site assessments. The month with the lowest number of home assessments was April 2025 with only 4 site assessments. The average number of home assessments is 10 per month. While the average to date is below the proposed threshold of 15 home assessments per month, staff plans to increase communications and marketing outreach to customers in concert with the “Electrify My Home” program including website upgrades and doorhangers to spread the word about this program.
Acknowledging the monthly administrative cost, staff is only recommending a one year extension to evaluate the performance and utility of this service.
FISCAL/RESOURCE IMPACT
Funding for this amendment is available under the FY 2026 budget for the Advanced Heat Pump Water Heater Pilot Program, which includes budgets in both the electric and gas utility funds and is funded by a combination of the Electric Utility’s Electrification Reserve funds and Gas Cap and Trade revenues.19
19 For the Full Service HPWH Program, City Council approved $1.25 million from Gas Cap and Trade Revenues, $4.5 million from Electrification Reserve (funded by the electric utility’s Electric Special Projects Reserve) discussed at the September 27, 2022 Council meeting, see
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=81997&dbid=0&repo=PaloAlto&searchid=67b1ec98 -3e85-4ae9-868b-c7513b8ff43e&cr=1; and approved at the October 3, 2022 Council meeting, see The HPWHs installed through the REWHR Pilot will count towards the goal of 1,000 HPWHs in Palo Alto. The additional funds requested here come from disencumbering $950,000 from the previous vendor under contract No. C23181953A for the Advanced HPWH Pilot Program.
Program promotion and outreach will be funded through the climate action outreach budget established in the FY 2026 Adopted Budget. Funding in subsequent fiscal years is subject to Council’s approval of annual budget appropriations.11
STAKEHOLDER ENGAGEMENT
Feedback collected from program participants and collaboration with strategic partners have been instrumental in shaping this program. Engagement with stakeholders like Silicon Valley Clean Energy and others ensures program alignment and efficacy.
ENVIRONMENTAL REVIEW
Council’s approval of the attached agreement described in this staff report does not meet the definition of a project under the California Environmental Quality Act (CEQA), pursuant to the California Public Resources Code Section 21065, because it is not an activity that will cause a direct physical change in the environment. In the alternative, Council’s approval of this agreement is exempt from review under CEQA Guidelines Section 15302, as replacement of existing facilities, and Section 15308, as an action taken for the protection of the environment.
ATTACHMENTS
Attachment A: Contract S25190354 Amendment No. 3 with Larratt Brothers Plumbing APPROVED BY:
Alan Kurotori, Director Utilities
Staff: Linda Grand, Sustainability Programs Administrator https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=82036&dbid=0&repo=PaloAlto&searchid=1d57fc3a -c6b9-46a6-aa21-ab6b0fe2a000