Widespread building and vehicle electrification are key parts of the Commonwealth of Massachusetts’s ambitious plans to decarbonize its economy. The Massachusetts Clean Energy and Climate Plans (CECP) call for 900,000 electric vehicles on the road and 500,000 heat pumps installed in homes by 2030. However, customers seeking to adopt clean electric technologies, especially those transitioning away from natural gas heating, risk bill increases due to the existing structure of electric rates in the Commonwealth. The drive to decarbonize the energy system in Massachusetts is occurring against the backdrop of a broader affordability crisis for low-income customers. As the economy undergoes this transformation, electric rate designs must evolve to better support electrification as well as energy affordability for low-income customers in the Commonwealth.
The Massachusetts Interagency Rates Working Group (IRWG) has brought together representatives from different state agencies to advance near- and long-term electric rate designs that align with the Commonwealths’ decarbonization and affordability goals. E3 is supporting the IRWG by developing two reports: a Near-Term Rate Design Study, focused on the next 5 years, and a companion Long-Term Ratemaking Study. The IRWG will use these reports to develop Near- and Long-Term Recommendations to inform policy actions and support state agency positions in regulatory proceedings. Over the past year, we have worked with the IRWG and a broad group of stakeholders to identify and evaluate promising rate design strategies. We are glad to share that the Near-Term Rate Design Study was published at the end of December and is available here.
In the Near-Term Rate Design Study, we first evaluate existing residential electric rates in Massachusetts, which rely on volumetric per-kWh charges to recover 95-97% of electric system costs, including the costs of programs and policies that are not tied to electricity usage. This approach to rate design reflects a historical policy choice that was broadly intended to create price signals that encourage conservation and efficiency, but it is fundamentally at odds with the state’s contemporary goals to support electrification. We find that these rates often lead to bill increases for customers considering home electrification, especially for customers with natural gas heating.
Next, we consider four new rate options that could be developed in the near term, prior to the rollout of Advanced Metering Infrastructure (AMI). Although we find that all four new rate options would improve customer economics for electrification relative to existing rates, we find that heat pump–specific rates could enable greater rate bill savings for electrifying customers while limiting risks of adverse impacts to non-electrifying customers in the near term. However, these heat pump–specific rate options, which are designed to reduce winter volumetric pricing, may not be durable, i.e., they would need to be sunset when the electric grid shifts to winter-peaking, which is forecast to occur in the 2030s. Ultimately, the most effective near-term design will likely combine elements from multiple rate options and work in concert with programs that promote affordability, demand flexibility, and clean technology adoption.
Download the full study here.
This report was prepared by Vivan Malkani, Andrew DeBenedictis, Ari Gold-Parker, Paul Picciano, Brendan Mahoney, Morgan Santoni-Colvin, Dyami Andrews, Disha Trivedi, and Tory Clark.
E3 would like to express our deep appreciation to the organizations and individuals who contributed
to this study. We want to thank the stakeholders for attending workshops, participating in feedback
sessions, and providing written commentary. We would also like to thank all the members of the
Interagency Rates Working Group for their cooperation and guidance.
