If just received an estimate from a recognized A/C installer. He said my FEDERAL Pacific Electrical panel had to be replaced before/during A/C install. Also had to upgrade water heater and furnace.
Is replacing the panel really necessary?
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The basic answer is yes. Pictures of the panel and labels should confirm/deny whether it is one of the known problem types.
The reason the A/C installer is saying they require replacing is because they don't want to have any related liability. They will likely need to replace one or more breakers to add a circuit or make a circuit larger or smaller to match a new A/C system. Even if they have no problem doing their work, if there is a problem later with the panel, such as a house fire, they could be blamed since they were the last people to work on the panel. With a panel type that is known to have problems, that is just a risk they don't want to take.
As far as water heater, furnace, etc. we would need a lot more information. Depending on the type of A/C system, replacement of the air handler may be appropriate, and that would generally go along with replacement of the furnace. And if you replace an old furnace with a new high-efficiency furnace then exhaust vent changes could be needed which in turn would affect the water heater. Or the furnace and water heater may be old and showing signs of other problems. Or they may just be looking for a bigger job. Impossible to reliably guess without more data.
I would consider the panel replacement a priority, assuming it really is a problem type of panel. That would take priority over A/C, furnace and water heater unless one of them is actually failing to operate properly. If you do replace the panel, get a big panel - 30 spaces or larger, because while power requirements don't increase that frequently (except EVSE and (ugh) on-demand water heating), the number of circuits needed keeps growing due to dedicated circuits for various things and most new circuits in most areas (gradually changing as different areas adopt newer versions of the NEC) need AFCI and/or GFCI protection, which rules out "half size" breakers.
As far as the A/C, you should consider a heat pump. A well-designed (i.e., very efficient) heat pump can heat your house for less than the cost of natural gas (which historically was cheaper than electric heat) because a heat pump can heat much more efficiently than traditional resistance (a.k.a., toaster) electric heat. In theory a heat pump should cost very little more to install than a high efficiency air conditioner, but in practice that is not always the case.
I am skeptical of this know-it-all's advice, and the "water heater" is the red flag. Air conditioners bolt on top of forced-air furnaces, which have nothing to do with water heaters. Only a hydronic furnace (water, radiators) might tie to a water heater, and you can't put A/C units on a hydronic system.
Even if the person is right, the A/C business is semi-scammy because A/C tech has improved in leaps and bounds, but the old-guard domestic makers (Lennox, Carrier, etc.) manipulate the business to make it hard for contractors to offer it to you at any reasonable price. Many have asked and it's always the same story. $3-4000 will get you That 70's AC (begrudgingly inched up to 14 SEER) added to your forced-air furnace, an obsolete poor-preforming heat pump for $6000 that'll need emergency heat, or a modern-tech heat pump that beats (gosh] 20 SEER for $12,000. And they don't even really pitch the latter, they only quote it if asked, to make you abandon hope.
By contrast, every bombed out apartment block in Ukraine is covered with head units of extended range heat pumps, and their salaries are 1/10 America's. DIY mini-splits are under $1000 for a single-head unit, and under $3000 for a 4-head system. No refrigerant handling needed.
I recommend Technology Connections' series on heat pumps for a primer and look at the state of the art.
TC's experience is interesting because they used a mini-split that is designed for DIY (it avoids the necessity of handling refrigerant, which requires licensure, recovery equipment and a supply chain to dispose of recovered contaminated refrigerant). That supplier's baseline, cheapest unit is extended-range cold-climate - they don't sell "That 80's" non-cold-climate heat pumps or "That 70's" A/C only units. So they don't feel a need to artificially create a price differential between those things, and the economies of scale favor the best product rather than the worst.
All that to say, if they want to take on a wide view of your whole house, maybe take a wide view of their offerings.
SMH the water heater makes no sense unless they want to replace a hydronic system with forced air. I can see where some heat pumps have an issue with certain (furnace) air handlers because they run at a lower temp diff in heat mode, and need more airflow. But again, water heater is not involved. Heat pump water heater? Feeding heat to the water heater room? shrug
But onto your core question.
There are two critical problems with them.
First and foremost, the "Stab-Lok" bus design is inherently defective. There is no way to fix this. If there was Schneider or someone would make safe breakers for it and Bob's your uncle (much as Bryant did for faulty Challenger breakers). But since the bus is not fixable, there is no saving the panel.
Second, their breakers have a problem tripping when they're supposed to, and particularly their 2-pole breakers (such as those used with A/C units).