It has been my experience that every aspect of the green energy transition is more complicated than it appears at first. This is an example of the unintended consequences of a transition component. I recently met Scott Endler who provided this guest post describing a proposal to change the electric rate structure to support heat pumps. The proposed solution is not what it seems.
Scott is a self taught efficiency and energy analyst in Central New York.
I acknowledge the use of Perplexity AI to convert Endler’s study into this post.
Background
On May 5, 2026, “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 basis for the petition is 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 claims 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heat pumps they dramatically cut their energy use, however, most of these same customers see their bills go up due to outdated electric pricing policies. My initial impression is that if cost savings are only possible by changing policies then the proposed “solution” is not all it is cracked up to be. Endler explains why this is more complicated below.
Why heat pump carve‑outs are a dead‑end
Advocates like Earthjustice and Switchbox argue that New York utilities are overcharging heat pump customers for delivery service—on the order of hundreds of dollars per year—and propose a dedicated “heat pump rate” to fix the problem. Their basic case rests on two current facts about the New York grid.
- The system is still summer‑peaking, so much of the winter distribution network is treated as “already paid for,” with plenty of headroom when heat pumps run on cold but not extreme days.
- A customer who electrifies heat can see roughly a doubling of their kWh volume, so volumetric delivery charges go up even if the utility’s embedded winter distribution costs barely move.
From there, the coalition jumps to a political conclusion: create a boutique, technology‑specific discount so heat pump adopters pay less for winter delivery while everyone else stays on the old schedule. That might satisfy the coalition in this rate case, but it fails three basic tests: fairness, durability, and alignment with the Climate Leadership & Community Protection Act (CLCPA) long‑term grid trajectory.
The transition paradox: today’s spare winter capacity won’t last
The core problem with the carve‑out logic is that it freezes today’s grid snapshot and pretends it is permanent. CLCPA‑driven electrification of buildings and transportation all but guarantees that New York will flip from a summer‑peaking to a winter‑peaking system sometime in the 2030s, as electric heat and winter peak EV charging push load into the coldest hours.
Under that future paradigm, heat pumps are no longer opportunistic users of “free” winter capacity; they become the main driver of localized peak demand, transformer overloads, and the next round of capital projects. The very customers who are being framed today as victims of an unfair delivery rate will, in a decade or so, be the marginal cost causers when the system is strained on sub‑zero January mornings.
Designing a permanent special discount for a technology that is on track to become the dominant driver of winter peaks is a textbook example of a policy that works only as long as it doesn’t succeed.
Horizontal equity: same wires, same rules
If the wires are a shared public asset, then any consumer who pushes current through those wires at a constrained hour should face the same price signal regardless of what device is on the other end of the cord. I frame this as “horizontal equity”: identical structural rules for every ratepayer.
In a horizontal‑equity framework, a kilowatt‑hour is charged based on the physical state of the network and the prevailing supply price, not on whether it feeds a heat pump, a resistance heater, an EV, or a Bitcoin rig. That approach avoids cross‑subsidies from non‑adopters to relatively affluent early adopters of new technologies, a regressive pattern that is already visible in some rooftop solar and EV incentives.
By contrast, a bespoke “heat pump” class asks a single mom in a gas‑heated apartment to pay higher delivery charges so that a homeowner with a brand‑new variable‑speed HP and smart thermostat can enjoy a tailored discount in the name of climate justice.
A dynamic, capacity‑based delivery price
The counter‑proposal coming out of the feasibility study is a dynamic, capacity‑based delivery tariff that works much more like the wholesale energy market. Instead of a static cents‑per‑kWh delivery rate smeared over all hours, the distribution price would move up and down with remaining localized grid capacity.
- When local transformers, feeders, and substation capacity are plentiful—say, on a quiet winter night—the marginal cost of using the network is low and the delivery price falls toward zero for everyone.
- When capacity is tight—say, during a frigid morning when Winter Storm Fern pushed downstate resources to the brink—the delivery component spikes exactly when the system is most stressed.
This preserves cost‑recovery for the utilities over the year while sending a sharp, physics‑based price signal in the hours when grid use is genuinely expensive. Crucially, the signal is identical for any customer whose load shows up in that hour.
Why this beats Straight Fixed‑Variable (SFV)
Some utility economists default to Straight Fixed‑Variable designs—high fixed monthly charges and very low volumetric delivery rates—to stabilize revenue as electrification reshapes load. The problem is that SFV guts the conservation signal: once you’ve paid your hefty monthly fee, each extra kilowatt‑hour costs very little, so the customer’s incentive to invest in efficiency or to shift load out of peak hours is weak.
A capacity‑prorated volumetric charge keeps the usage‑based signal intact. Customers still save real money by using less energy over the billing period, and they get an additional incentive to avoid precisely those hours when both supply and wires are constrained. That is exactly what CLCPA‑era demand management is supposed to reward.
In other words, this is a way to modernize rate design without flattening everything into a subscription fee that severs the link between behavior and system cost.
Behavioral and planning benefits
Under a dynamic distribution price, a heat pump owner is not punished for having electrified; they are only penalized if they insist on running at full load in the same hour that everyone else is trying to do the same thing on a constrained circuit. The rational response is not to rip out the heat pump, but to invest in insulation, envelope upgrades, and smarter controls that quietly shave load exactly when the grid is tight.
This architecture also makes grid planning more honest. When the delivery price spikes repeatedly on a certain circuit, it is a market signal that the wires and transformers there are under‑sized relative to demand, justifying targeted capital upgrades instead of generalized rate hikes. Because every technology sees that same price shape, the planner’s data isn’t distorted by carve‑outs and exemptions.
You can think of it as bringing distributed marginal‑cost pricing down from the wholesale level into the distribution system, instead of trying to fine‑tune social policy via ever more fragmented rate classes.
How this plays out as CLCPA bites
Look at the CLCPA trajectory and the recent Winter Storm Fern emergency order for a preview of the stakes. As more load is pushed into winter mornings and evenings, the occasional near‑miss we saw in January 2026 becomes more common unless billions are poured into wires and flexible resources.
In a world of boutique heat pump discounts, those marginal infrastructure costs get socialized onto everyone else while the prime driver of the peak enjoys a protected class rate. In a capacity‑based, technology‑neutral regime, the households and businesses that draw power at the worst times pay the highest delivery price, regardless of whether they are doing the “right thing” in some broader climate narrative.
That may be politically uncomfortable, but it is honest—and if CLCPA is supposed to be about aligning economic signals with physical reality, it is hard to justify anything else.
Where advocates are right—and what regulators should do instead
The Earthjustice coalition is not wrong to say that current volumetric delivery tariffs can make early electrifiers look like suckers. But the fix should address the structural flaw in the rate design, not just the optics for one favored technology.
Regulators who genuinely care about affordability and equity should focus on:
- Deploying interval‑capable meters fast enough to make capacity‑based delivery pricing administratively feasible.
- Phasing in a simple, transparent distribution price that reflects localized capacity conditions, starting with the most constrained circuits.
- Avoiding the temptation to endorse technology‑specific carve‑outs that will be impossible to unwind once the political beneficiaries are numerous and vocal.
That path doesn’t lend itself to a press release about “fixing heat pump delivery rates,” but it would actually modernize the tariff architecture for a high‑electrification, high‑constraint grid.
Conclusion
New York’s new “heat pump rates” campaign gets one thing right: today’s delivery tariffs are a blunt instrument that can punish electrification. But carving out a special rate class for heat pumps is the wrong fix; a capacity‑based, technology‑neutral delivery charge tied to real‑time grid conditions would be fairer, more durable, and far more honest about who actually drives system costs.
Pragmatic Environmentalist of New York 