Designing Better Rates for Heat Pump Customers

This case study by RMI examines how electric rate design can reduce financial barriers to heat pump adoption by aligning utility tariffs with the actual costs of service. By analyzing four different approaches in the United States, the document demonstrates that electrification-friendly rates can lower energy bills for heat pump users and improve grid efficiency by recognizing that heat pumps primarily increase demand during winter months, often utilizing existing capacity in summer-peaking systems.

• Eversource Massachusetts implemented a heat pump customer sub-class that lowers winter per-kWh distribution and transmission charges by nearly 60% compared to standard rates. This design is calibrated to ensure the utility recovers the same annual distribution revenue from heat pump users as from average residential customers, acknowledging that heat pump users consume nearly three times more electricity in winter.
• Xcel Minnesota provides an electric space heating rate for customers using electricity as their primary heating system. Because Minnesota's grid is a summer-peaking system, the lower winter energy charge avoids charging these customers for capacity-related costs they do not drive, while still allowing the utility to recover necessary revenue.
• Pepco Maryland utilizes a reformed standard residential rate for all customers where winter per-kWh delivery rates are approximately half of the summer rates. While not explicitly designed for heat pumps, this cost-reflective pricing encourages winter utilization of available capacity and improves the economics of heating electrification.
• Central Maine Power (CMP) offers an optional electric technology rate for customers with large loads, such as heat pumps and electric vehicles. This rate increases the monthly fixed charge from $30 to $40 but reduces the year-round per-kWh charge by nearly 30% to align with the marginal costs of service.
• Analysis of the four rate designs shows that Eversource Massachusetts and Xcel Minnesota provide the most significant average annual bill improvements for electrified heating customers, at $770 and $689 respectively. Pepco Maryland and Central Maine Power offer more modest average improvements of $87 and $212 per year.
• Enrollment strategies significantly impact the reach of beneficial rates. Pepco Maryland has the broadest reach because the rate is the standard for all residential ratepayers. Eversource Massachusetts and Xcel Minnesota achieve higher adoption by automatically enrolling customers who receive heat pump rebates, whereas Central Maine Power's opt-in approach is used by only a minority of heat pump users.

APA

RMI (2026). Designing Better Rates for Heat Pump Customers. https://rmi.org/resources/designing-better-rates-for-heat-pump-customers/

Chicago

RMI. Designing Better Rates for Heat Pump Customers. 2026. https://rmi.org/resources/designing-better-rates-for-heat-pump-customers/.

Wikipedia

{{cite report |author=RMI |title=Designing Better Rates for Heat Pump Customers |date=17 June 2026 |url=https://rmi.org/resources/designing-better-rates-for-heat-pump-customers/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{rmi2026designing, author = {{RMI}}, title = {{Designing Better Rates for Heat Pump Customers}}, institution = {RMI}, year = {2026}, month = jun, url = {https://rmi.org/resources/designing-better-rates-for-heat-pump-customers/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }