I expect the reason why the town is still using copper is because their workers are familiar with copper and know what to do with it.

Every time you introduce something new somewhere, someone somehow is going to do it wrong or screw it up some way. As long as the town sticks with what everyone knows, then they have a minimum number of callbacks.

A $500 incremental cost to use copper seems a bit high to me too. For underground pipe installations, my understanding is that the plumbing code requires that Type K soft copper tubing be used, and that's the pipe with the thickest wall, so it's the most expensive. Also, your water heater inlet is 3/4 inch, so we're talking AT LEAST 3/4 inch pipe if not 1 inch to get the water to your house. Soft copper coils come in 66 foot lengths, and my price on a 3/4" type K 66 foot long soft copper coil is $366 and $467 for 1 inch diameter. Those are Canadian dollars which are worth about 90 cents US each. So, unless you have a long driveway, I'd get another estimate. I expect what's happening is that the contractor you're using is making a fat profit on the copper. Either that, or he figures he's going to have to buy a whole roll of copper tubing to do the job, and then he's gonna keep for himself what he doesn't use.

I'd get another estimate or two.