WARWICK, R.I. — Are heat pump users getting overcharged for electricity?

It sounds like an ephemeral question; after all isn’t everyone simply charged for the electricity they use? But it’s one of the policy debates happening at the state Public Utilities Commission this summer as the commission weighs its first rate hikes on utility distribution in almost a decade.

Organizations such as the Conservation Law Foundation are arguing heat pump users are paying more for electricity and subsidizing non-heat pump users since bills are calculated volumetrically, or by how much each customer uses, and not based on cost of the distribution system of poles, wires, substations, and other electric infrastructure.

CLF filed a proposal for a heat pump electric rate that would reduce winter electric rates for heat pump users by 41% compared to current delivery rates, while everyone else pays an additional $1.57, around a 2% hike on delivery rates.

The proposal is aimed at boosting heat pump adoption rates, which can be expensive to install. But heat pumps will be the keystone to the state’s decarbonization mandates under the Act on Climate law.

Special electric heat pump rates are not an innovative idea. Massachusetts required its three electric companies to offer a heat pump rate in the winter starting last year. Canary Media reported in April the new rates helped 140,000 Massachusetts households with heat pumps save $37 million on their power bills, an average of more than $250 per customer.

Switchbox, a climate and clean technology think tank, wrote in a report commissioned by CLF that Rhode Island heat pump users overpay on distribution charges by an average of $902 a year.

“Their delivery cost-of-service is only 29% higher than that of fossil fuel-heated customers, but their delivery bills are 143% higher — a direct consequence of volumetric delivery rates applied to customers who use more electricity,” according to the report.

Why the cost difference? It comes down to a difference in the seasons, according to Switchbox. The electrical grid is under peak load during the summer when everyone is turning air-conditioning on, but most heat pump users use their units during the winter, when the grid has plenty of electricity to spare.

“When a home installs a heat pump and begins using more electricity for heating, its delivery bill jumps proportionally — even though most of that new consumption falls in winter, when the grid has ample spare capacity and the cost of delivering electricity is low,” according to the report. “The result is a cross-subsidy: heat pump customers systematically overpay for delivery, and the excess effectively subsidizes customers who heat with fossil fuels.”

Utility bills in Rhode Island, whether gas or electric, have two halves: the supply side and the distribution side. The supply side is made up of pass-through costs, or the amount of money Rhode Island Energy spends on procuring electricity in any given period.

Supply rates are changed twice a year, once in the spring and again in early fall. They’ve attracted a great deal of media and public attention in recent years as supply rates continue to be high in the wake of COVID, the Russian invasion of Ukraine, the war with Iran, and the region’s overreliance on natural gas for electricity generation and heating.

The distribution side of the bill is a much wider universe. It encompasses customer service charges, state mandated taxes and fees that fund energy-efficiency initiatives and low-income energy assistance programs, and the actual cost of distributing energy to Rhode Island’s homes and businesses, known as the base distribution rate.

It’s the default rate charged to customers for the actual cost of delivering electricity. Think electrical poles, wires, substations, transformers, everything Rhode Island Energy needs to keep the lights on and electricity flowing, and the same is true for gas bills.

How much should each household or business pay for poles and wires is a question with an answer that’s probably more philosophical than scientific.

Rhode Island Energy rejected the Switchback report and arguments from CLF, arguing in its own testimony to the PUC that the formulas behind Switchbox’s calculations were faulty, and many homes have electric-only appliances, complicating the rate.

“Technology-based rate concepts unravel as soon as it is understood that customers can have a variety of technologies that would have conflicting rate structures,” wrote Ryan Constable, an engineering manager with Rhode Island Energy, in testimony submitted to state regulators. “Homes with heat pumps also might have electric vehicles and electric dryers, or homes with natural gas heating might have electric vehicles and have gas or electric dryers.”

But as with many public benefit programs, much of the execution comes down to enrollment. In its testimony for its proposal, CLF pointed toward the Massachusetts model of opt-out enrollment, essentially enrolling heat pump users automatically so long as they received a heat pump incentive from the Mass Save rebate program.

Customers who didn’t participate in the Mass Save program would have to enroll themselves manually.

CLF’s solution is to auto enroll customers in the Heating Electrification and Appliance Rebate (HEAR) program run by the state Office of Energy Resources, as well as Rhode Island Energy’s own residential electric heating and cooling rebate program.

CLF advanced its proposal as part of the larger base rate distribution case under consideration from the PUC this summer. It’s already had some results, with Rhode Island Energy signing a settlement agreement with CLF with a promise to develop potential incentives for heat pump users as early as next year, so long as regulators at the PUC approve.

The agreement stipulates a rigorous timeline. Rhode Island Energy is expected to finish developing an incentive proposal by the end of this month, which then is to be shared with CLF, the Division of Public Utilities and Carriers, and the Energy Efficiency Council by the end of August. The proposal will be officially filed as its own docket with the PUC on Oct. 1, and Rhode Island Energy will commission a study on the proposal’s effects on enrollment and ratemaking, and other impacts.

For environmental groups like the CLF, enacting an electric heat pump proposal rate via the base rate distribution case is one of the ways to keep the Act on Climate included in the conversation.

The 2021 landmark law puts a number of real, enforceable emission reduction mandates on state leaders, but five years after the legislation’s passage, Rhode Island is not on track to make the goals.

In the early years, the Act on Climate was propelled by a number of federal Biden-era appropriation bills like the Inflation Reduction Act, which sent states and municipalities billions of dollars for renewable technology and climate projects.

But the inauguration of the second Trump administration last year was disastrous for the state’s climate efforts. President Trump was openly hostile to offshore wind, and his administration froze or withheld many federal grants issued by Biden.

Benchmarking legislation, another key policy that could reduce emissions from large buildings, remains elusive for policymakers. The General Assembly this year passed legislation requiring the state’s largest buildings to begin tracking their energy usage and emissions, but it was ultimately vetoed by Gov. Dan McKee, in his only veto of the session.

Green Energy Consumers Alliance executive director Larry Chretien testified before the PUC in support of CLF’s heat pump electric rate to emphasize the commission’s need to consider the Act on Climate in its base rate distribution case proceedings.

Given the gap between the current greenhouse gas inventory and what is required by AOC, PUC orders made later than 2026 would be insufficient to help Rhode Island achieve its mandate for 2030. By contrast, a strong order resulting from this rate case could move the needle significantly on emissions reductions.”
— Larry Chretien, Green Energy Consumers Alliance executive director

Chretien pointed toward the state’s own climate action strategy, written and approved by the Executive Coordinating Climate Change (EC4) last year, as the chief evidence the state would not meet its obligations under the Act on Climate. The strategy relies on Advanced Clean Cars II and Advanced Clean Trucks, two California regulations Rhode Island had adopted via its own regulations.

California had its own active waiver from the Environmental Protection Agency to enact stricter emission standards on vehicles. But the U.S. Senate voted last year to rescind the waiver, rendering Rhode Island’s emission reduction strategy for vehicles moot as well.

Chretien also noted the state’s climate action strategy had optimistic emission reduction projections. The plan projects a reduction in GHG emissions of 5% annually, while, said Chretien, Rhode Island had only achieved a 5.4% reduction in emissions over the past five years.

“While RICAS outlines many potential policies that could improve the state’s chances of reaching the mandated 45% emissions reduction, none of the measures with the greatest emissions reduction potential have yet been established through statute or regulation except for the Renewable Energy Standard,” Chretien wrote in his testimony.

Meanwhile, heat pump adoption in buildings in Rhode Island remains sluggish. A 2024 report from Rhode Island Energy forecasting future electricity loads estimated the state installed around 11,000 heat pumps. By 2039, the company estimated there would be 85,000 heat pumps installed, around 18% of all electric customers in Rhode Island.

Installation of heat pumps was expected to peak in 2030 at 6,500 units installed in one year before declining over the following decade.

Still, not all is lost. Rhode Island is still receiving federal dollars for heat pump installations. In March, OER announced it received $35 million from the New England Heat Pump Accelerator, a regional collaborative in the six New England states to install heat pumps in 500,000 homes.

The new pot of money is meant “to be a complementary not competing market force” with existing state efforts on heat pumps and energy efficiency, including the Clean Heat Rhode Island program.

Clean Heat Rhode Island has, to date, been the state’s primary vehicle to facilitate heat pump installation. Since launching in September 2023, the program has paid out more than 5,000 incentives and spent $25 million to install heat pumps in 4,900 homes and businesses.