Heat Pump vs Gas Furnace Operating Costs in California

Everyone wants to know the bottom line: What will it actually cost to heat my home each month?

With California's push toward electrification, rising PG&E rates, and generous heat pump rebates, the answer isn't as simple as "gas is always cheaper."

Let's break down the real numbers for Bay Area homeowners.

Current PG&E Rates (2025)

Natural Gas:

• Baseline rate: ~$2.50/therm (including delivery)
• Average Bay Area bill: $80-$150/month in winter

Electricity:

• Baseline rate: ~$0.25-$0.30/kWh (Tier 1)
• Tier 2 rate: ~$0.35-$0.40/kWh (above baseline)
• Average Bay Area bill: $150-$250/month year-round

Key Point: California electricity is expensive, but that doesn't automatically make gas cheaper for heating.

The Efficiency Factor

Gas Furnace Efficiency:

• Old furnace (15+ years): 80% AFUE
• Standard new furnace: 95% AFUE
• Premium furnace: 97-98.5% AFUE

Translation: For every dollar of gas, you get 80-98 cents of heat. The rest goes up the chimney.

Heat Pump Efficiency:

• Coefficient of Performance (COP): 2.5-3.5 in Bay Area temps
• HSPF2 Rating: 9.0-12.0+ (heating)
• SEER2 Rating: 16-30+ (cooling)

Translation: For every dollar of electricity, you get $2.50-$3.50 worth of heat because heat pumps move heat rather than generate it.

This efficiency advantage is why heat pumps can compete despite higher electricity rates.

Real Monthly Costs: 1,800 Sq Ft Home

Winter Heating (November - February)

Gas Furnace (95% AFUE):

• Monthly usage: 100-125 therms
• Cost at $2.50/therm: $250-$315/month
• 4-month total: $1,000-$1,260

Heat Pump:

• Monthly usage: 650-800 kWh
• Cost at $0.30/kWh: $195-$240/month
• 4-month total: $780-$960

Monthly Savings with Heat Pump: $55-$75 Winter Savings: $220-$300

Shoulder Season (March - April, October)

Gas Furnace:

• Monthly usage: 30-50 therms
• Cost: $75-$125/month
• 3-month total: $225-$375

Heat Pump:

• Monthly usage: 200-300 kWh (heating)
• Cost: $60-$90/month
• 3-month total: $180-$270

Shoulder Season Savings: $45-$105

Summer Cooling (May - September)

Central AC (SEER2 16):

• Monthly usage: 500-600 kWh
• Cost: $150-$180/month
• 5-month total: $750-$900

Heat Pump (SEER2 22):

• Monthly usage: 360-450 kWh
• Cost: $108-$135/month
• 5-month total: $540-$675

Summer Savings: $210-$225

Annual Total

Gas Furnace + AC System:

• Heating: $1,225-$1,635
• Cooling: $750-$900
• Total: $1,975-$2,535

Heat Pump (heating + cooling):

• Winter: $780-$960
• Shoulder: $180-$270
• Summer: $540-$675
• Total: $1,500-$1,905

Annual Savings with Heat Pump: $475-$630

Over 15 years: $7,125-$9,450 in energy savings

Cost Breakdown by Home Size

1,200 Sq Ft (Condo/Small Home)

Gas Furnace + AC:

• Annual cost: $1,400-$1,800

Heat Pump:

• Annual cost: $1,000-$1,300

Annual Savings: $400-$500

1,800 Sq Ft (Typical Home)

Gas Furnace + AC:

• Annual cost: $1,975-$2,535

Heat Pump:

• Annual cost: $1,500-$1,905

Annual Savings: $475-$630

2,500 Sq Ft (Large Home)

Gas Furnace + AC:

• Annual cost: $2,600-$3,400

Heat Pump:

• Annual cost: $2,000-$2,650

Annual Savings: $600-$750

Geographic Variations in Bay Area

San Francisco (Coastal)

Winter avg low: 45-50°F

• Gas furnace: $900-$1,100 (heating only)
• Heat pump: $650-$850 (heating + cooling)
• Savings: $250-$250/year

Oakland/Berkeley (East Bay)

Winter avg low: 40-45°F

• Gas furnace: $1,100-$1,400
• Heat pump: $850-$1,100
• Savings: $250-$300/year

Walnut Creek/Concord (Inland)

Winter avg low: 35-42°F, Summer high: 85-95°F

• Gas furnace: $1,300-$1,700
• Heat pump: $1,000-$1,300
• Savings: $300-$400/year

San Jose (South Bay)

Winter avg low: 40-45°F

• Gas furnace: $1,200-$1,500
• Heat pump: $900-$1,200
• Savings: $300-$300/year

Pattern: Hotter summers and cooler winters = bigger heat pump savings.

Factors That Impact Your Costs

1. Home Insulation

Poor insulation:

• Increases costs 30-50% for both systems
• Heat pump still saves money but less dramatically

Good insulation:

• Maximizes heat pump efficiency
• Reduces runtime and costs

2. Thermostat Settings

Every degree matters:

• Winter: 68°F vs 72°F saves 10-15% on heating
• Summer: 78°F vs 74°F saves 10-15% on cooling

Smart thermostats:

• Program for occupied/unoccupied periods
• Save 10-20% on bills

3. Home Orientation

Solar gain:

• South-facing windows reduce heating costs
• West-facing windows increase cooling costs

Shading:

• Trees/awnings reduce summer AC needs
• Open curtains in winter for free solar heat

4. Usage Patterns

Occupied all day:

• Higher costs for both systems
• Heat pumps maintain advantage

Gone during work hours:

• Program thermostat setback
• Heat pumps' quick recovery works well

Total Cost of Ownership: 15-Year Analysis

Gas Furnace + Central AC

Initial Cost:

• Equipment & installation: $14,000
• Rebates: -$1,500
• Net upfront: $12,500

Operating Costs (15 years):

• Energy: $29,625 ($1,975/year)
• Maintenance: $3,750 ($250/year)
• Repairs: $2,500 (avg)
• Total operating: $35,875

TOTAL 15-YEAR COST: $48,375

Heat Pump System

Initial Cost:

• Equipment & installation: $18,000
• Federal tax credit: -$2,000
• TECH Clean California: -$4,500
• PG&E rebate: -$500
• Net upfront: $11,000

Operating Costs (15 years):

• Energy: $22,500 ($1,500/year)
• Maintenance: $3,375 ($225/year)
• Repairs: $2,000 (avg)
• Total operating: $27,875

TOTAL 15-YEAR COST: $38,875

Heat Pump Saves: $9,500 over 15 years

When Gas Might Be Cheaper

Scenario 1: Very Low Usage

If you rarely heat/cool your home (vacation property, mild area, high tolerance for temperature swings), gas's lower fixed costs might win.

Scenario 2: You Already Have Working Gas Furnace

If your furnace is only 5-7 years old and working fine, waiting to replace makes sense. But when it's time, choose heat pump.

Scenario 3: Cheap Natural Gas (Not in Bay Area)

Some regions have gas at $1.00/therm or less. That's not Bay Area reality.

PG&E Rate Tiers Explained

How Tiered Rates Work:

• Tier 1 (Baseline): First 10-12 kWh/day at ~$0.30/kWh
• Tier 2: Above baseline at ~$0.38/kWh

Heat Pump Impact: Running a heat pump pushes you into Tier 2 faster, but:

• You eliminate gas service charge ($10-15/month)
• Overall costs still lower than gas + AC
• Consider Time-of-Use rates (charge less off-peak)

Time-of-Use (TOU) Rate Optimization

PG&E TOU Rates:

• Peak (4-9 PM): $0.40-$0.50/kWh
• Off-peak (9 PM-4 PM): $0.25-$0.30/kWh

Heat Pump Strategy:

• Pre-heat/cool during off-peak hours
• Use smart thermostat scheduling
• Save 15-25% on electric bills

Example: Standard rate: $150/month TOU optimized: $120/month Savings: $30/month = $360/year

California Incentives Update

2025 Available Rebates:

Federal:

• Energy Efficient Home Improvement Credit: Up to $2,000 (heat pump)
• Tax credit, not rebate (reduces taxes owed)

State (TECH Clean California):

• $3,000-$6,000 for heat pump installation
• Income-qualified: Additional $1,000-$3,000
• Application through participating contractors

PG&E:

• Varies by model: $200-$1,000
• Check current programs

Total Potential: $5,000-$9,000

These rebates dramatically change the math, making heat pumps the obvious financial choice.

Payback Period

Heat Pump vs Gas (with rebates):

• Upfront cost difference: $18,000 - $14,000 = $4,000
• Less rebates: $4,000 - $6,500 = -$2,500

You save money immediately (heat pump costs less upfront after rebates)

Plus annual savings: $475-$630/year

Even without rebates:

• Extra cost: $4,000
• Annual savings: $550
• Payback: 7.3 years (on a 15-20 year system)

Final Recommendation

Heat pumps are cheaper to operate in the Bay Area despite California's high electricity rates because:

1. Efficiency advantage (2.5-3.5x) beats rate difference
2. Combined heating + cooling eliminates need for separate AC
3. Rebates make upfront cost lower than gas systems
4. California's mild climate = peak heat pump performance year-round
5. Future-proofing against gas bans and rate increases

Best Strategy:

1. Apply for all available rebates
2. Choose a high-efficiency heat pump (HSPF2 10+)
3. Improve home insulation if needed
4. Install smart thermostat
5. Consider TOU rate plan

Contact Galaxy Heating & Air Conditioning for a personalized cost analysis. We'll calculate your specific savings based on your home size, location, and usage patterns—and help you maximize available rebates.