New York Coalition Urges Regulators to Modernize Electric Rates to Unlock Clean Heat Affordability

New York Coalition Urges Regulators to Modernize Electric Rates to Unlock Clean Heat Affordability

Coalition flags $170M in overpayments, says rate reform could save households ~$250-600 annually and speed heat pump adoption

Contacts

Nydia Gutiérrez, [email protected]

Mica Crouse, [email protected]

A coalition of environmental groups today filed a petition calling on the New York Public Service Commission to fix electric rate designs that unfairly overcharge households that switch to clean electric heating. The petition was filed by Alliance for a Green Economy, Building Decarbonization Coalition, Earthjustice, Environmental Defense Fund, New Yorkers for Clean Power, Rewiring America, and Sierra Club.

The problem is not the technology. It is the electricity pricing. At a time when New Yorkers are facing rising energy costs, households that install heat pumps often see higher utility bills - not because heat pumps are expensive to run, but because current rate structures require them to pay more than their fair share of grid costs. The result is a clear mismatch between what customers pay and what it costs to serve them. New analysis from Switchbox submitted with the petition finds:

• Heat pump customers pay about $855 more per year in delivery charges than their cost of service justifies, adding up to roughly $170 million annually statewide
• Only 27% of households save money by switching from gas to heat pumps under current default rates, compared to 72% under fairly -designed electric rate

The coalition is urging the Commission to act through its Grid of the Future proceeding, launched in April 2024, to ensure customers pay their fair share, eliminate overpayments for electric heating customers and establish consistent, statewide rate options that support affordability and electrification, including rates that better reflect lower system costs during winter heating months. Fixing rate design would help accelerate the shift to cleaner, lower-emissions heating by removing a key financial barrier.

Massachusetts is already showing what's possible. Updated winter electric rates helped roughly 140,000 heat pump households each save over $250 this past winter, demonstrating how smarter rate design can lower bills while supporting clean heating.

The petition argues that current rates violate a core regulatory principle that customers should pay in line with the costs they impose on the system. While heat pump customers' cost of service is only about 2% higher than gas-heated homes, their delivery bills are 109% higher on average. This mismatch effectively shifts costs from fossil fuel heating customers onto households that switch to cleaner electric heating, with overpayments totaling nearly $20,000 over the lifetime of a heat pump.

Electric resistance heat customers also overpay by about $873 per year on average under current default rates. These customers are likely to be lower-income, renters, and in multifamily housing. Modernizing rate design for electric heating customers could reduce this unfair financial burden.

Today, New York electric heating customers are overpaying for electricity, while gas heating customers are underpaying, all because of outdated rate structures. The Commission can correct this imbalance by implementing rate design improvements while minimizing impacts on other customers. Even under full adoption, the average bill impact on non-participating customers would be about $2 per month, and this would be a one-time adjustment as rates are corrected. Fixing rate design could also improve affordability for low- and moderate-income households, reducing the share of heat pump households with high energy burdens by up to 15 percent.

State regulators have already directed staff to evaluate rate design as part of the Grid of the Future process, but despite that clear direction, the issue remains unaddressed. Without reform, flawed pricing risks slowing heat pump adoption and undermining the state's affordability, climate, and building decarbonization goals. The Commission is expected to release the next iteration of that plan by June 30.

Quotes from groups that submitted the petition:

"New Yorkers should not be penalized for switching to cleaner, more efficient heating. Modernizing rate design is one of the fastest ways to lower energy bills and make it easier for customers to move away from fossil fuels, and the Commission should direct utilities to implement fairer rates." - Erin Murphy, Director & Senior Attorney, Clean Air & Energy Markets, EDF

"Renters, lower income households, and families in multifamily buildings are bearing the biggest burden of this broken rate structure, and those are exactly the people who can least afford it. Massachusetts fixed this, and households saved $250 in a single winter. New York has no excuse for dragging its feet. We call on the Public Service Commission to act quickly to fix these unfair rates." - Jessica Azulay, Executive Director of Alliance for a Green Economy.

"The current New York utility rate structure is stuck in the past, failing to reflect the reality of modern, energy-efficient heat pump technology. Equitable rates for customers who transition off fossil fuels would reduce household costs, accelerate the transition to cleaner air, and deliver a clear win for both public health and New Yorkers' wallets." - Meagan Burton, Senior Attorney with Earthjustice

"Equitable electrification only scales if it pencils out for families. New York must reform electric rates so heat pump customers aren't charged yesterday's prices for tomorrow's grid." - Alex Lopez, Senior Manager for Regulatory Policy, Rewiring America

"Heat pumps are the most efficient technology for heating and cooling our homes, but current outdated electric rates deny heat pump customers the bill savings they deserve. We are eager for the Commission to address this inequity and improve public health and reduce climate pollution by accelerating deployment of cleaner heat pump technology." - Josh Berman, Senior Attorney, Sierra Club

"New Yorkers are increasingly choosing heat pumps as the most efficient, effective and safe way to heat and cool their homes. But current utility rate structures unfairly overcharge these customers for heat pump operation. The Public Service Commission can accelerate heat pump adoption and better reflect the true benefits of heat pumps to the grid and to customers by advancing new heat pump rates, unlocking a win for affordable decarbonization." - Nicole Abene, NY Associate Director, Building Decarbonization Coalition

"The Switchbox report reaffirms what the state has known since 2019 - that heat pump owners spend more on energy than it costs to serve them. Now, as heat pump adoption is set to rise with the elimination of gas line extension allowances, this rate inequity is a critical energy affordability issue for New Yorkers that the Public Service Commission must address in a timely manner." - Anshul Gupta, Policy & Research Director, New Yorkers for Clean Power

Additional Resources

• About the Northeast Office

About Earthjustice

Earthjustice is the premier nonprofit environmental law organization. We wield the power of law and the strength of partnership to protect people's health, to preserve magnificent places and wildlife, to advance clean energy, and to combat climate change. We are here because the earth needs a good lawyer.