New Report: New York Heat Pump Customers Overpay for Electricity Delivery Rates, Here’s how Utilities can Fix the Discrepancy

New Report: New York Heat Pump Customers Overpay for Electricity Delivery Rates, Here's how Utilities can Fix the Discrepancy

Utilities overcharge heat pump customers $855 per year, on average, for electric delivery rates; Utilities must create fair rates for heat pump customers

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Nydia Gutiérrez, [email protected]

Joyceline Kwarko, [email protected]

Today, Alliance for a Green Economy (AGREE) and Earthjustice release a report conducted by Switchbox, "Heat Pump Rates in New York State: An Analysis of Cost-Based and Cost-Reflective Rates for Heat Pump Customers." The report finds that when customers switch from gas heating to heat pumps they dramatically cut their energy use, however, most of these same customers see their bills go up due to outdated electric pricing policies. The report details solutions for a modernized and fair electric rate structure that advances affordability and supports New York's transition to clean energy.

Energy efficient technologies are coming to market and utility customers are upgrading from gas furnaces to electric heat pumps for heating and cooling their homes. New York State has identified heat pumps as a key technology to help meet its goal of 85% reduction in greenhouse gas emissions by 2050. Heat pumps heat and cool homes by using electricity to move heat from inside or outside buildings, making them two to four times more efficient than traditional combustion technologies like gas furnaces. To meet this goal, New Yorkers need electrical rates that don't overcharge heat pump customers

Even though their electric delivery cost of service is only 2% higher than that of customers that heat their homes with gas, their electric delivery bills are 109% higher. As a result, utilities in New York overcharge heat pump users by $855 per year on average - approximately $170 million statewide, creating a major disincentive for customers to buy heat pumps.

To address this cost discrepancy, the analysis models alternative rate options for heat pump customers that reflects what these customers actually cost to serve.These new rates would transform the economics of operating heat pumps. By eliminating the overpayments, 72% of gas-heated households would save by upgrading to heat pumps (up from 27% under today's rates), and the share losing more than $1,000 per year would drop from 14% to just 1%.

Additionally, the heat pump rates could improve energy affordability for low-income households. If low- to moderate-income households installing heat pumps are enrolled in this new rate and available utility bill discount programs at the same time, the share of highly energy-burdened households would drop by 15 percentage points compared to today.

In New York, heating and cooling in buildings represents 32% of the state's carbon emissions. Nationwide, 13% of climate pollution comes directly from fossil fuel use in our homes and buildings, largely from burning methane gas for heat.

Burning gas in our buildings is a little-known culprit of air pollution like NOx or PM2.5 that increase our risk for lung disease, heart problems, reduced cognitive function, and even early death. According to the American Lung Association, over 1 million children in New York are breathing unhealthy levels of air pollution.

As utility bills soar, summers get hotter, and New Yorkers need relief from toxic air pollution, the New York State Public Service Commission (PSC) holds the authority to reexamine, revise, and implement updated utility rate structures. A fair rate for heat pump customers will incentivize the switch to energy efficient home heating and cooling, while helping meet New York's emission reduction mandates.

"New Yorkers who are doing the right thing by upgrading to clean, efficient heating are being charged more for it," said Jessica Azulay, Executive Director of Alliance for a Green Economy. "That is not only unfair, but these energy pricing policies are standing in the way of the clean energy future New York has committed to. The PSC has the power to fix this today and we are calling on them to act."

"The current New York utility rate structure is stuck in the past, failing to reflect the reality of modern, energy-efficient heat pump technology. These systems heat and cool homes two to three times more efficiently than outdated gas furnaces, yet families who make the choice to adopt cleaner, healthier technology are penalized paying more than $800 extra each year in electricity delivery costs alone. That's not just outdated policy, it's a direct barrier to progress," said Meagan Burton, Senior Attorney at Earthjustice. "Updating the rate structure isn't optional, it's essential. Fair rates for heat pump users would cut household costs, accelerate the transition to cleaner air, and deliver a clear win for both public health and New Yorkers' wallets."

"The data is clear: utilities are overcharging New Yorkers who install heat pumps by an average of $855 a year, which runs directly counter to New York State's push to electrify the state's buildings" said Juan-Pablo Velez, Executive Director of Switchbox. "Simply offering fair rates to these customers would make heat pumps the cheapest way to heat 83% of homes in New York State."

"New York utilities should charge customers fairly for the energy they use - but right now heat pump customers are overpaying for electricity. This analysis shows that rates can be more fair and affordable for electric heat customers in New York." - Erin Murphy, Senior Attorney, Environmental Defense Fund

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