Maryland households are struggling with their home energy costs and need solutions now that lower bills. Modern, efficient heat pumps deliver improved comfort while drastically cutting household energy use and pollution compared to heating with fossil fuels. Maryland is committed to deploying millions of heat pumps over the next 20 years to meet its greenhouse gas emissions targets of 60 percent below 2006 levels by 2031 and net-zero by 2045.
So why does Maryland allow utilities to unfairly overcharge households with heat pumps for their electricity?
Recent analysis of electric rates in Maryland shows that Baltimore Gas & Electric (BGE) customers with heat pumps are overcharged by $359 per year, effectively subsidizing households that heat with methane gas. With the current unfair rates, only half of households would save money when they switch from methane gas to a heat pump. With fairer rates, 86% of households would save an average of $256 per year.
Maryland should require electric utilities to update to fairer electric rates for households heating with heat pumps.
Households with heat pumps are being overcharged Utilities in Maryland are unfairly overcharging households with heat pumps, with BGE customers overcharged $359 per year on average. Heat pump users are currently subsidizing electric costs for households that heat with fossil fuels.
Outdated rates are the problem Current rates charge for fixed transmission and distribution costs as a per kilowatt-hour (kWh) charge, which means households with heat pumps pay twice as much even though additional winter usage typically does not require new grid investment.
Fairer rates means lower bills With fairer electric rates 86% of households would save an average of $256 per year if they switch from methane gas to a heat pump, and customers switching from delivered fuels would save $1,925 per year on average.
Fairer rates means more heat pumps and less pollution Fair heat pump rates will help Marylanders upgrade to heat pumps for lower utility bills, healthier air, and reduced climate pollution.
Maryland Needs Fairer Electric Rates for Heat Pumps
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Maryland utilities are currently overcharging households with heat pumps for their electricity, raising their bills and discouraging some people from making home efficiency upgrades. Deployment of millions of efficient heat pumps is critical to Maryland meeting the requirements of the Climate Solutions Now Act (CSNA) which calls for reducing climate pollution to net-zero by 2045. Heat pumps will also help Maryland reduce air pollution and meet federal air quality standards. Given the state’s climate goals, pollution problems, and the current affordability crisis, it’s imperative that Maryland regulators and legislators take action to correct this overcharge and lower bills for heat pump users.
The problem with current rates is that utilities try to cover their fixed costs for transmission and distribution infrastructure as part of a price per kWh called a “delivery charge.” When a household installs a heat pump, winter electricity consumption roughly doubles. Paying more for the cost to supply energy makes sense—every kWh used has a cost to produce it. But they also pay roughly double for delivery, even though additional winter usage typically does not require new grid investment, because Baltimore Gas & Electric (BGE) and most Maryland utilities have most peak loads during hot summer months.
Recent analysis by Switchbox looked at BGE’s rates and found that under current residential electric rates, households heating with a heat pump are being charged an average of $359 per year more than the costs they impose on the system.
Electric grids are sized for peak demand, and in Maryland, most peak usage times fall in the summer months on the hottest days when air conditioners are running the most. Households with heat pumps primarily use more electricity in the winter when grid infrastructure sits underutilized, meaning heat pump customers use existing spare capacity and do not trigger additional upgrades or costs.
The result: heat pump customers are systematically overcharged for grid costs and end up subsidizing households that use methane gas to heat. This is an unintended consequence of legacy electricity rates designed around fossil fuel heating. Correcting this overcharge enables Marylanders with heat pumps to lower their heating bills while reducing climate pollution.
Fortunately there is a simple solution–a new electric rate for households with heat pumps that charges them fairly for their electricity use. SwitchBox calculated that a fair rate for BGE customers would charge heat pump users approximately 30% less than current rates for transmission, distribution, and energy efficiency programs (rates for energy supply would be unchanged). Such a rate would make a big difference for the long term affordability of heat pumps.
Current Residential Rate
Proposed Residential Heat Pump Rate
Percent change
Generation
11.7 ¢/kWh
11.7 ¢/kWh
0%
Distribution
4.8 ¢/kWh
3.3 ¢/kWh
-32%
Transmission
2.3 ¢/kWh
1.7 ¢/kWh
-27%
Energy Efficiency
1.1 ¢/kWh
0.7 ¢/kWh
-31%
Total
19.9 ¢/kWh
17.4 ¢/kWh
-13%
Under BGE’s current rates, switching from methane gas to a heat pump is a mixed bag. About half of households would see their energy bills go down, but the other half would see their bills increase slightly–an average of $60 per year. With the new fair heat pump rate, 86% of households switching from piped methane gas would see savings that average $256 per year. This is critical because it is much easier to drive adoption of heat pumps when you can confidently say “most people will see lower energy bills with a heat pump.”
For households using delivered fuels, the math looks even better. With a fair heat pump rate virtually all households will save money on their energy bills–a whopping $1,925 per year on average. Even with the overcharge from the current rates, delivered fuel customers can save $1,449 per year, so they should not delay in upgrading to an efficient heat pump.
Once a new heat pump rate is set, it’s essential to get eligible households enrolled fast so they can start saving money. That’s why it’s imperative that the rate be designed to allow auto-enrollment of customers with heat pumps. The key to that is having the rate be a simple discount for households with heat pumps so that it’s guaranteed that all of them will save money on the new rate. Other rate structures that have seasonal or time-of-use rates or changes to the fixed charge could have some benefits, but could also cause some customers to have higher bills which would make auto-enrollment more difficult.
Massachusetts has already adopted fairer heat pump rates and auto-enrolled households who are now saving on winter heating bills. Maryland should move quickly to have all electric utilities adopt fairer heat pump rates and stop overcharging households with heat pumps. It’s a win for affordability, a win for healthier air, and a win for the climate.
