Electrification is another idea recommend by the task force, but this is also clearly cost prohibitive. Electrification would require significant infrastructure costs for each U.P. household as they trade the investment they had already made in propane infrastructure and appliances for similar investments in electric options. Compounding this expensive problem, the U.P. has some of the highest electricity rates in the country.
Electricity Rates in the Upper Peninsula
In 2019, residential customers of the Upper Peninsula Power Co. paid 22.23 cents per kilowatt hour, which is higher than the 19.22 cents per kWh paid by the average residential customer in California, one of the most expensive areas in the nation for electricity supply. U.P. electricity rates are almost double the 2019 national average residential rate of 13.04 cents per kWh. These high rates make the U.P. uniquely unsuitable for transitioning from propane to electric heat.
Electricity in the U.P. is also much more expensive than propane on a per-unit of energy basis. According to propane retailers in Upper Michigan, a gallon of propane in the U.P. retails for $1.20 to $1.60 per gallon. A recent price listed for the state of Michigan by the Energy Information Administration is $1.66 per gallon. One gallon of propane contains approximately 91,502 British thermal units, but one kWh of electricity contains just 3,412 Btus. This means a gallon of propane contains 26.8 times more energy than a kWh of electricity.
The average household using propane in the U.P. consumes 991 gallons of propane per year, which amounts to annual expenses of $1,189 at $1.20 per gallon and $1,645 at $1.66 per gallon. After accounting for the fact that electric heating systems are generally 14% more efficient than propane systems, and based on recent average electricity prices, U.P. residents would need to spend $5,081 on electricity bills to provide similar heating outcomes as propane does — an increase of between $3,436 and $3,892 each year. Electrification, therefore, could result in a two- to three-fold increase in energy costs for Upper Peninsula households.
Electric Air Source Heat Pumps
Electric Air Source Heat Pumps, referred to as “heat pumps” for the remainder of this report, are often discussed as an alternative technology to natural gas, propane and electric heat sources. Heat pumps efficiently transfer existing heat that occurs naturally outside of the home into houses.
For these reasons, heat pumps are often selected as the heating system of choice in mild to moderate climates, such as the southern United States where heating needs are limited. However, heat pumps become far less effective at providing adequate heat for homes when temperatures are below 25-30 degrees Fahrenheit.
At lower temperatures, supplemental heating systems will be required to adequately heat homes. In the U.P., these supplemental systems will most likely consist of propane or electric heat. As a result, U.P. residents would incur the additional costs of purchasing and operating heat pumps, along with the necessary backup heating systems.
Installation Costs for Electric Heat Sources
The cost of installing heat pumps varies based on the type of unit installed. According to EnergySage.com — an online source for matching homeowners with solar energy installers — ductless air source heat pumps cost $3,500 to $5,000 per indoor unit installed. In these instances, each room in the house often has an indoor unit. Central heat pump systems cost between $12,000 and $20,000, varying based on the size of the house and the capacity of the heating system.
In the U.P., supplemental heating systems will be required as the temperature regularly dips below 25 degrees Fahrenheit. If there is an inadequate supply of propane, electric baseboard heaters would need to be used as this supplemental heat source. These systems cost between $525 to $675, with the average homeowner spending approximately $600 installing a single, 800-watt 240-volt electric baseboard heater to heat a 100-square-foot room.
The average newly built American home in 2018 was 2,435 square feet, 45% had four or more bedrooms, 36% had 3 or more bathrooms, another 25% had a full or partial basement. For the sake of simplicity, we will only consider the costs of installing electric baseboards heaters for five 100-square-foot rooms: a kitchen, a living room and three bedrooms. We will also include two 50-square-foot bathrooms. We will ignore basements, hallways, entryways, dining rooms and other areas.
This level of heating represents a low-end cost estimate of installation costs of electric heating units. Based on the current cost estimates, it would cost at minimum $3,600 per house to install these supplemental heaters. Supplying the average-sized American home with this electric heat would at least double this cost estimate.
Lastly, many of the homes that currently heat with propane also use propane as a source of energy for their water heaters. As a result, a switch from propane to electric heat may require the purchase of an electric water heater. These systems have higher operating costs than propane water heaters and have upfront costs of $620 to $1,035 for parts, labor and permits.
This would bring the total cost of switching from propane heating systems to electric heating systems to between about $15,000, to $25,000 per household.
 “Comparison of Average Rates For MPSC-Regulated Electric Utilities in Michigan” (Michigan Public Service Commission, Aug. 1, 2020), https://perma.cc/V8HL-KE7M. Average rate for Jan-Dec 2019 rates (250, 500 and 1,000 kWh) for Upper Peninsula Power residential customers. “Average Retail Price of Electricty, United States, Annual” (U.S. Energy Information Administration, 2020), https://perma.cc/L9E9-GEJY.
 “Weekly Heating Oil and Propane Prices” (U.S. Energy Information Administration, April 1, 2020), https://perma.cc/ E6LC-2QZ3.
 There are 91,502 British thermal units in a gallon of propane compared to 3,412 Btus per kilowatt hour. This calculation assumes an efficiency of 83% for propane furnaces and a 97% efficiency, meaning electric users would require 14% fewer Btus to provide an equivalent level of heating if they used electric resistance heat.
 “Is A Heat Pump Right For Your Home?” (Trane Technologies), https://perma.cc/25GS-MFQE.
 “Costs and Benefits of Air Source Heat Pumps” (EnergySage, LLC., Sept. 27, 2019), https://perma.cc/H3EL-X8XR.
 “Install Electric Baseboard Heater Cost” (Fixr), https://perma.cc/PKK8-4YT7.
 Peter Andrew, “Is Your Home the ‘Typical American Home?’” (HSH, Jan. 26, 2020), https://perma.cc/WE7R-66YT.
 “Electric Water Heater Installation Cost” (Fixr), https://perma.cc/AW5B-PDZ2.