Prior to the deployment of advanced metering infrastructure (AMI), the adoption of simple, near-term rate reforms could help Massachusetts achieve its electrification goals while minimizing effects on ratepayers, an interagency working group concluded in a report released in late December.
The Massachusetts Interagency Rates Working Group (IRWG) recommended that each utility adopt an opt-in seasonal heat pump rate and establish a “non-bypassable fixed charge” to encompass some of the policy costs that currently are recovered through volumetric charges.
The working group includes members of the Department of Energy Resources, the Executive Office of Energy and Environmental Affairs, the Massachusetts Clean Energy Center and the Attorney General’s Office.
“The Working Group’s primary recommendation for the near term is for the DPU [Department of Public Utilities] to require all the EDCs [electric distribution companies] to establish a seasonal heat pump rate, similar to those recently approved and directed by the DPU for Unitil and National Grid, but with larger winter differentiation to ensure energy bill savings for customers transitioning from gas heating to electric heat pumps,” the IRWG wrote.
Under the current rate structure, electrifying a natural gas heating system typically increases a household’s total energy costs, the group noted. It added that the cost disincentive to electrification could become more pronounced in the coming years, as both distribution and transmission rates are set to increase.
About 54% of homes in Massachusetts use natural gas heating, 26% use oil and 13% use electric resistance, the working group noted.
The working group recommended seasonal household-wide heat pump discounts on distribution and transmission charges. It noted that the New England power system currently peaks during the summer, and the increased winter electricity demand would be unlikely to significantly increase overall system costs. Supply rates would not be affected by the discount.
“The winter volumetric charge of a seasonal heat pump rate can be set on a revenue neutral basis, such that, based on the expectation for increased kWh usage, the rate will still recover the same level of total fixed costs,” the IRWG wrote.
If adopted, the seasonal heat pump rate may be a short-lived design. The rollout of AMI, combined with the expected transition of the New England grid to a winter-peaking system by the mid-2030s due to heating electrification, likely will necessitate broader changes to rate design.
The report’s other major recommendation was for a fixed charge to cover some state policy costs and system reliability costs that currently are calculated based on electricity consumption.
While programs related to energy efficiency, decarbonization and low-income discounts historically have been funded through volumetric charges to incentivize lower energy use, high electricity rates can inhibit customers from electrifying, the report said.
“A non-bypassable fixed charge could fund crucial programs that support the state’s energy, affordability and decarbonization goals in a way that does not increase volumetric charges, a key barrier to electrification,” the working group noted.
“These recommendations, principally the seasonal heat pump rate, can be implemented in the near term and are essential for affordability and decarbonization,” the working group added. It called on the state’s DPU to facilitate the rapid deployment of the seasonal heat pump rate for the winter of 2025/26.
The DPU has an ongoing investigation into energy affordability and tiered discount rates (DPU 24-15). The IRWG said its recommendations are intended to be complementary to this proceeding and added that it’s considering petitioning the DPU to take up its short-term recommendations.
The working group said it plans to issue more long-term recommendations focused on “AMI-enabled rate design, ratemaking, and regulatory mechanisms,” noting that a DPU investigation likely will be necessary for implementing these long-term changes.
The group said the state’s three electric utilities are scheduled to complete their rollouts of AMI between 2025 and 2029, and “widespread [time-varying rates] will likely be in effect between 2029 and 2033.”
Larry Chretien, executive director of the Green Energy Consumers Alliance, expressed strong support for the working group’s main recommendations.
Chretien wrote that implementing the recommendations likely would require action from the DPU, adding that, “based upon some recent actions by the DPU, we anticipate that the recommendations will be met with favor.”
“To enable a proper level of civic engagement, we encourage the DPU to consolidate the recommendations into one statewide docket,” Chretien said.
