Nearly 3 million Massachusetts households will have the chance to start saving money on heating next winter under new seasonal heat-pump rates from the state’s three major electric utilities.
Regulators have approved plans from Unitil and National Grid to reduce electricity rates for heat pump owners during the region’s often-frigid winter months, and Eversource is preparing its own proposal. Together, the three utilities provide service to about 86% of Massachusetts’ households.
The goal of the rates is to accelerate adoption of heat pumps by making it cheaper to run these super-efficient, low-carbon appliances in a region where the economics of switching from fossil-fueled heating don’t always pencil out for homeowners.
“The end result, all over Massachusetts, is that this will change the numbers. It will encourage heat pump adoption,” said Larry Chretien, executive director of the Green Energy Consumers Alliance. “Then the question will be: What do we do for an encore?”
Utility regulators are already looking into that question, opening an investigation in March to determine how to make future iterations of seasonal heat-pump rates as effective as possible.
Expanding the use of heat pumps is a major part of Massachusetts’ strategy for reaching its ambitious goal of going carbon-neutral by 2050. Today, nearly 80% of the state’s homes burn fossil fuels — natural gas, heating oil, or propane — for heat. Many of the remaining homes use inefficient electric resistance heating.
The state’s climate plan calls for installing 500,000 heat pumps by 2030 to tackle emissions associated with building operations. Air-source heat pumps, the most common version of the appliance, use electricity to extract thermal energy from the surrounding air to heat and cool homes. The only greenhouse gas emissions associated with the systems are those that come from generating the electricity used.
The economics of operating a heat pump in Massachusetts
The persistently high cost of electricity in Massachusetts — only three states had higher residential prices in January — is an obstacle for many homeowners interested in heat pumps. The Massachusetts Department of Energy Resources has expressed skepticism that the state can reach its heat pump goals without changes to current rates.
Most households now using oil, propane, or electric resistance heating would likely save money by using heat pumps, regardless of electric rates. But for many consumers using relatively cheap natural gas, the added electricity use from switching to heat pumps would drive their total costs up. That’s where seasonal heat-pump rates come into play, charging lower prices to homes using heat pumps so the added power consumption doesn’t translate into higher total energy bills.
Unitil was the first of Massachusetts’ three main investor-owned electric utilities to put forth a seasonal heat-pump rate, receiving regulatory approval in June for a discount of 7 cents per kilowatt-hour — 64% below the summer rate. Regulators then ordered National Grid to do the same; that proposal was approved in February. In the state Department of Public Utilities’ order launching the investigation into heat pump rates, regulators required Eversource to submit its own such plan by May 15 and committed to moving the proposal through the regulatory process quickly enough to make a new rate effective for the coming winter.
These lower rates are possible because utilities are essentially overcharging heat pump customers for their winter electricity use under the current system, said Mark Kresowik, senior policy director for the American Council for an Energy-Efficient Economy.
On each utility bill, customers pay, of course, for the electricity they use. They also pay a delivery charge that funds the construction and maintainence of a grid that can accommodate moments of peak demand: those few hot summer evenings when dishwashers, televisions, and millions of air conditioners are running at the same time.
In the winter, though, average demand is much lower, so the strain on the grid is much lighter. During these months, the delivery charge doesn’t properly reflect the actual costs of keeping the grid running, said Kyle Murray, Massachusetts program director for clean energy nonprofit Acadia Center.
Households that operate heat pumps in the winter are “not actually putting much stress on the system at all,” he said. “They really shouldn’t have to pay as much as they are.”
Public input will help refine Massachusetts heat pump discounts
A collaboration of state agencies, known as the Interagency Rates Working Group, modeled several possible rate designs and found that a 5-cent winter discount, compared to the existing rate, could slightly increase overall costs for a household switching from natural gas. A discount of 18 cents, however, would result in significant savings across the board: A house switching from natural gas could save up to $78 per month, and a home making the move from electric resistance heat could save more than $500 per month.
Though more numbers need to be crunched, energy advocates are inclined to support a deeper discount. Because of the high cost of electricity in Massachusetts, a larger rate reduction might be needed to make a heat pump a competitive choice, they said.
“You do need a pretty significant discount in some states to ensure that a heat pump is lower-cost than a gas furnace going forward,” Kresowik said.
As part of the investigation into seasonal heat-pump rate design, regulators have asked the public to submit comments by June 2. The approach to gathering feedback is a welcome departure from the usual process, Chretien said.
In most cases before utility regulators, outside organizations can only participate if they become formal intervenors and have a lawyer representing them. It is expensive, time-consuming, and beyond the reach of many advocacy groups and most individuals, Chretien said. The request for comments from any interested parties opens up the proceedings, he said, allowing anyone with a stake in climate or energy affordability issues to participate.
“The [Department of Public Utilities] is recognizing that their normal intervention process is onerous,” Chretien said. “To me, it’s good government to do it this way.”
For this approach to make a real impact, however, regulators must have a plan for reaching out to all communities, not just the narrow slice of people who are aware of public utilities regulations and issues, said Charles Hua, founder of consumer education nonprofit PowerLines. It will be important to connect with groups of different income and education levels, to ensure everyone has a voice.
“I would not expect in a vacuum that there would be awareness,” Hua said. “I suspect they need to proactively engage communities.”
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