Winter savings are in store for more than 65,000 Massachusetts households as two electric utilities slash their rates for heat pump owners below last year’s already discounted prices.
Last winter, Massachusetts became the first state to require major utilities to offer a lower seasonal rate for all the electricity used by households with heat pumps, highly efficient systems that can both heat and cool spaces and are essential to weaning buildings off fossil-fueled furnaces. The reduced rates saved these residents more than $37 million in total.
Now, state public utility regulators have approved National Grid’s and Unitil’s proposals for even lower winter prices, to go into effect on Nov. 1. The move, supporters say, makes using a heat pump more affordable and more accurately reflects how these homes contribute to grid-maintenance costs.
“Heat pump rates are important for customer fairness, but they’re also really important to unlock the full greenhouse-gas reduction opportunities from heat pumps,” said Alex Lopez, senior manager for regulatory policy at electrification nonprofit Rewiring America.
Accelerating heat pump adoption is a major element of Massachusetts’ plan to reach net-zero emissions by 2050. Their cost, however, has been a persistent barrier. Rebates and low-interest loans exist to help pay for the equipment up front, but the cost of operating an electric heat source as power prices soar has kept many homeowners from making the switch. Heat pump rates address this obstacle.
Massachusetts remains the only state to require major utilities to offer heat pump rates, but utilities across the country are adopting or investigating the approach. Xcel Energy has established an electric heating rate in Minnesota, and Central Maine Power recently concluded a pilot. Climate think tank Switchbox is advocating for the idea in New York and Rhode Island.
With these latest rate changes, more than half of Massachusetts households would save money by switching from natural gas heat to a heat pump, according to analysis by Switchbox. National Grid and Unitil customers who have already made the change stand to save an additional $9.8 million this winter compared to last year, Switchbox calculates.
This season’s lower prices are the result of a regulatory order telling National Grid and Unitil to change the way they calculate their heat pump rates.
For last year’s seasonal heat pump rates, National Grid and Unitil applied discounts to the distribution portion of customers’ bills, which pays for the poles and wires that carry power to consumers. The state’s third major electric utility, Eversource, did the same but also cut transmission rates, which pay to carry high-voltage power over long distances. Think of distribution and transmission as the backroads and freeways of the power system.
In the spring, regulators decided Eversource had the right idea and ordered the other two utilities to follow suit. National Grid responded with a plan to drop transmission charges from $0.055 per kilowatt-hour to $0.02 per kWh. Unitil proposed lowering its transmission rate from $0.042 per kWh to $0.015 per kWh. The state Department of Public Utilities approved the rates in July.
At these rates, a household using 600 kWh of power a month can expect their bills to drop between $16 and $21 per month in addition to the savings created by the existing discounts.
A proposal from the Massachusetts Department of Energy Resources would have also had utilities reduce some of the surcharges and fees on electric bills, but regulators did not approve the request.
Supporters emphasize that these rates aren’t a handout for heat pump owners but are actually grounded in basic grid economics. Transmission and distribution rates — together, the delivery portion of the bill — are based on the cost of building and maintaining the grid.
However, this infrastructure is built big enough to handle all the power needed when demand is highest, typically on the hottest days of summer. In the winter, demand is much lower, so there’s plenty of room for the grid to handle the additional electron traffic created by heat pumps without added expense. So heat pump customers use more electricity and pay more in delivery charges, even though they’re not adding to utilities’ expenses.
Lowering the rate for heat pump users addresses this disparity, advocates say.
“Well over 140,000 customers were using heat pumps based on an outdated rate framework,” said Elizabeth Mahony, commissioner of the state’s Department of Energy Resources.
Heat pump rates are not a permanent solution for matching energy prices to grid demand. The logic behind them holds only as long as the grid’s peak demand days are in the summer. Grid operator Independent System Operator New England predicts the region will shift to winter peaks within the next 10 years.
Policymakers and utilities are already preparing for the change. Utilities have started rolling out advanced meters, which will allow consumers to access detailed data about their power usage. And regulators are considering a proposal to implement time-of-use rates that would be lower during times of decreased demand.
“It’s really about trying to maximize our thinking on when and how to use electricity,” Mahony said.
