PROTECTING LOW-INCOME CONSUMERS: BUILDING ON TWO DECADES OF LESSONS
LEARNED

**Jerrold Oppenheim, Esq.** **Theo MacGregor**

> **MacGregor Energy Consultancy**

**57 Middle Street**

**Gloucester, Mass. 01930**

**Phone: 978-283-0897**

**FAX: 978-283-0957**

**JerroldOpp@tgic.net**

**TheoMacG@tgic.net**

November 2000

TABLE OF CONTENTS

[EXECUTIVE SUMMARY 1](#executive-summary)

[I. INTRODUCTION 4](#introduction)

[A. System Benefits not a New Concept
4](#a.-system-benefits-not-a-new-concept)

[B. Willingness of Customers to Pay
5](#b.-willingness-of-customers-to-pay)

[C. Federal SBF Proposals 6](#c.-federal-sbf-proposals)

[Needs Assessment 7](#needs-assessment)

[II. The need for low-income energy assistance in the Entergy service
territories
9](#ii.-the-need-for-low-income-energy-assistance-in-the-entergy-service-territories)

[III. Addressing the need in Texas
19](#iii.-addressing-the-need-in-texas)

[IV. System Benefit Funds IN OTHER STATES
20](#iv.-system-benefit-funds-in-other-states)

[A. Low-Income Rate Assistance 20](#a.-low-income-rate-assistance)

[1. Discounts 20](#discounts)

[2. Income-Based Programs 24](#income-based-programs)

[3. Arrearage Management 25](#arrearage-management)

[B. Other Price-Related Protections
27](#b.-other-price-related-protections)

[1. Credit and collection 28](#credit-and-collection)

[2. Other protections that affect payment
28](#other-protections-that-affect-payment)

[C. Education 29](#c.-education)

[D. LOW-INCOME ENERGY EFFICIENCY AND WEATHERIZATION
30](#d.-low-income-energy-efficiency-and-weatherization)

[1. Program Design 31](#program-design)

[2. Program Funding 31](#program-funding)

[3. Options in Administration 33](#options-in-administration)

[4. Efficiency Measures 34](#efficiency-measures)

[Single Family Homes 34](#single-family-homes)

[Multi-family Dwellings 35](#multi-family-dwellings)

[New Construction or Renovation 35](#new-construction-or-renovation)

[E. Benefits and Cost-Effectiveness
36](#e.-benefits-and-cost-effectiveness)

[1. Elements of Cost-Effectiveness Tests
36](#elements-of-cost-effectiveness-tests)

[2. Benefits Quantified 39](#benefits-quantified)

[F. Eligibility 41](#f.-eligibility)

[G. Representative State Programs 44](#g.-representative-state-programs)

[1.Connecticut 45](#connecticut)

[2. Illinois 47](#illinois)

[3. Massachusetts 47](#massachusetts)

[4. Mississippi 49](#mississippi)

[5. Montana 50](#montana)

[7. Pennsylvania 51](#pennsylvania)

[8. Utah 53](#utah)

[V. Meeting the need for Low-Income Assistance in the Entergy Service
Areas
54](#v.-meeting-the-need-for-low-income-assistance-in-the-entergy-service-areas)

[A. Meeting the Need 54](#a.-meeting-the-need)

[B. Applying the Texas model to the rest of the Entergy Service Area
55](#b.-applying-the-texas-model-to-the-rest-of-the-entergy-service-area)

[C. General Considerations 56](#c.-general-considerations)

[VI. Conclusion. 59](#vi.-conclusion.)

[APPENDIX: TABLES 61](#appendix-tables)

PROTECTING LOW-INCOME CONSUMERS: BUILDING ON TWO DECADES OF LESSONS
LEARNED

Theo MacGregor and Jerrold Oppenheim

# EXECUTIVE SUMMARY

As part of Entergy's attempt to fulfill a vision of affordable
electricity for all, we have been charged with the task of determining
the need for and feasibility of developing System Benefit Funds (SBF)
for implementation in Louisiana, New Orleans, Arkansas, and Mississippi.
An SBF is a new name for a traditional concept: that public utilities
provide benefits in many ways to their customers and to the community at
large.

We have conducted research on the development and implementation of
programs funded by one or more SBFs in other states, including the size
of the fund before and after electric industry restructuring, if any;
the types of programs funded by each state's SBF; and the benefits to be
gained from implementing an SBF targeted to fixed- and low-income
customers. We have analyzed the results of this research to determine
the advantages and disadvantages of the various models currently in
place. One of the newly developed SBFs was enacted recently in Texas and
is in the process of being implemented by Entergy Gulf States-Texas.

We briefly address the proposal for a federal matching fund to provide
system benefits, and its implications for Entergy. We lay out principles
that should be included in any federal SBF mandated by Congress, and
note that states that adopt an SBF early on that suits their own needs
are likely to have their programs grandfathered.

In Section II, we report the results of a needs assessment for each of
the Entergy service territories. We show that residential electricity
consumption in the Entergy states is 17 to 42 percent above the national
average (Louisiana, Mississippi, and Texas rank numbers two, four, and
five in residential electricity consumption), and that residential
electricity bills in the Entergy states are six to 24 percent above the
national average. In addition, we discuss the recent spikes in energy
prices that have increased the difficulty for families of all incomes to
afford any of their necessities, including energy.

In Section III, we describe the model for an SBF in Texas that Entergy
has supported. The low-income Texas model consists largely of two
components, both for the benefit of households whose incomes are at or
below 125 percent of the federal poverty line:

1.  Energy efficiency, funded at 0.12 percent of revenues; and

2.  A low-income discount of up to 20 percent.

In Section IV, we describe the various types of programs that have been
adopted by many other states and funded through an SBF. We concentrate
on those programs that benefit low-income customers, describing several
types of assistance payment programs (including bill discounts,
arrearage forgiveness, credit and collection policies, and other
protections); customer education, including budget counseling; energy
efficiency and weatherization programs (including program designs,
funding, costs and benefits, and measures); and eligibility for both
types of programs. We then provide some specific examples of states that
are implementing programs through SBFs that were adopted either in the
context of electric industry restructuring or without restructuring.
Low-income SBF efficiency and discount programs are funded with as much
as 1.5 mills per kWh (New Hampshire) or 2.4 percent of revenue (PECo
discounts; note also low-income totals for Wisconsin 1.7 percent, New
Hampshire 1.3 percent, California and Massachusetts 1.2 percent, and
Illinois 0.9 percent).

In Section V, we apply the Texas model to the rest of Entergy's service
area and lay out the costs of fully meeting the electricity needs of all
of Entergy's low-income customers. On average, Entergy-system-wide, the
Texas model low-income efficiency budget (including the current federal
programs) is extremely modest compared to the low-income need for
efficiency improvements. We determine that it would take 108 years of
treatment before all low-income homes were weatherized under the Texas
model, and we provide data on the costs to do the job in ten. We also
describe other protections low-income advocates in Entergy's service
area would like to see, and list some of the programs that Entergy
already has in place to benefit low-income customers. System-wide, the
Texas model would require 0.36 mills per kilowatthour (kWh), or \$30.5
million (0.6 percent of revenue). Fully meeting the electricity needs of
Entergy's low-income customers would require 1.65 mills per kWh or
\$141.5 million (2.83 percent of revenue).

In Section VI, we conclude that low-income discount and efficiency
programs are most effectively established on a statewide basis. As in so
many worthwhile endeavors, it is often the case that action by one
forward-looking person or business will lead others to behave similarly.
Indeed, in many states, that is how low-income programs began. Therefore
we would not discourage the Company from establishing these programs
unilaterally. However, we recommend the objective of ultimately
persuading all utilities in the states Entergy serves, or the regulatory
agencies in those states, to adopt similar programs.

Tables in the Appendix quantify the graphs in the text, provide
additional socioeconomic data, and repeat the analysis of the cost to
meet low-income electricity needs in the Entergy territories.

We will be pleased to provide additional information on any of the
topics discussed herein or on other issues that may arise during the
Company's consideration of SBFs. We will also be happy to assist Entergy
in its efforts to continue the dialog it has begun with low-income
advocates and other stakeholders, including moderating negotiations
should they be useful in coming to agreement on the appropriate level
and type of SBF to institute.

PROTECTING LOW-INCOME CONSUMERS: BUILDING ON TWO DECADES OF LESSONS
LEARNED

Theo MacGregor and Jerrold Oppenheim

# INTRODUCTION

Wayne Leonard, CEO of Entergy Corporation, has a vision for Entergy that
includes ensuring that of all Entergy's customers can afford electricity
service. In his speech last November (1999) at the Low-Income Customer
Assistance Summit, he said that "no one in this country should have to
worry about whether they can afford electricity for their home." He also
recognized that: "As the third biggest power producer in the U.S., our
question is how do we make that the public policy of this region and
this country?"

## A. System Benefits not a New Concept

As part of Entergy's attempt to fulfill that vision of affordable
electricity for all, we have been charged with the task of determining
the need for and feasibility of developing System Benefit Funds (SBF)
for implementation in Louisiana, New Orleans, Arkansas, and Mississippi.
An SBF is a new name for a traditional concept: that public utilities
provide benefits in many ways to their customers and to the community at
large. Many of these benefits are not transparent or explicitly
accounted for, but their costs are embedded in rates, and all customers
support them, even though they may directly benefit some customers more
than others. Such benefits include community relations and economic
development services traditionally provided by utilities to the
communities they serve. The general principle is that everyone on the
system benefits in some ways; thus, everyone contributes to the costs.

For at least the last 20 years utilities have, for example, adopted
policies and programs to promote energy efficiency for low-income
customers and others; to support research and development on
reliability, efficiency and environmental benefits; and to provide
payment assistance. In some instances, payments are made to specific
funds for a program administered outside the utility, *e.g.*, by EPRI.
Often, the fund appears as an accounting entry or is simply rolled into
rates. All customers benefit from these activities.

Another example is average-cost ratemaking for distribution services.
High costs of additions to the distribution system in suburban or rural
areas (where new lines or substations must be built) are subsidized by
residents or businesses in older, urban areas. This concept is
fundamental to traditional regulation of monopoly utility services:
everyone pays because everyone ultimately benefits. The SBF simply makes
this concept explicit and identifies additional benefits that may not
have been recognized or accounted for before.

One of the newly developed SBFs was enacted recently in Texas and is in
the process of being implemented by Entergy Gulf States-Texas. We
describe application of the Texas model to Entergy's other
jurisdictions. We have also conducted research on the development and
implementation of programs funded by one or more SBFs[^1] in other
states, including the size of the fund before and after electric
industry restructuring, if any; the types of programs funded by each
state's SBF; and the benefits to be gained from implementing an SBF
targeted to fixed- and low-income customers. We have analyzed the
results of this research to determine the advantages and disadvantages
of the models currently in place.

## B. Willingness of Customers to Pay

Questions sometimes arise about the willingness of other customers to
pay for programs whose primary beneficiaries are fixed- and low-income
customers. However, in a poll of residential customers conducted by TXU
in October 1998 in Dallas, Texas, on a scale of 1 to 10 with 10 being
extremely important, customers ranked a 9.3 ensuring that "all
households have enough electricity to meet their basic needs." On the
same scale, customers gave the statement that the utility should "offer
low-income customers as many opportunities to take advantage of energy
efficiency programs as all other customers" an 8.0 ranking and, on
average, they said that they would be willing to pay \$2.42 extra per
month to provide energy efficiency program services to more low-income
customers than are currently being served.[^2] This would amount to 2.5
percent of an average residential monthly bill of \$98.51 or 1.9 mills
per kWh (\$1.85 per mWh).[^3]

## C. Federal SBF Proposals

We here briefly address the proposal for a federal matching fund to
provide system benefits, and its implications for Entergy. Although this
is primarily a paper about state-based system benefit funding, several
of the electric industry restructuring bills introduced in Congress have
included provisions for a federally mandated SBF. One proposal would
have the states "match" any funds received from the federal fund.

However, federal funding should not be seen as a substitute for
state-based utility activity since local utilities and low-income
agencies, and the states they are in, are well-suited to determine the
amount and type of funding and programming required. In any event,
federal funding is, at best, uncertain. Furthermore, we assume that any
federal enactment would "grandfather" then-existing state programs, so
states that take action early can tailor their programs to their own
needs.

Some of the federal funding proposals to date would result in inequities
between states. Any consideration of a federal system benefit funding
mechanism should include certain elements and principles to assure
fairness to all regions and sectors of the country. Thus, for example:

-   No system benefit funding should be tied to restructuring, since
    some states may conclude that it is not in their interests to
    restructure, or to do so right away;

-   While it may be appropriate to set-aside for the benefit of
    low-income families a specified portion of a national system benefit
    fund, state flexibility to allocate remaining funds and to tailor
    programs to local needs should also be preserved;

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-   Care should be taken to assure that benefits are returned
    proportionally to charges assessed each state's customers;

-   Care should also be taken to assure that there is equity among
    customer classes; and

-   Any matching program should take into account variations in need
    among the states, such as differences in low-income electricity
    burdens (fraction of income required to pay for frugal electricity
    use) .

We also note here that there is growing recognition that the federal Low
Income Home Energy Assistance Program (LIHEAP) and federal
Weatherization Assistance Program (WAP) are needed for all low-income
weather-related energy needs, not mostly for heating. Thus, as LIHEAP
and WAP appropriations are increased and utilities in warm-weather
states increase their commitments to protecting their low-income
customers, proportionately more federal funding should be devoted to the
cooling and dehumidification needs of fixed- and low-income families.

### Needs Assessment

In addition to researching activities in other states, we have gathered
data from the United States Census Bureau (Census), the U.S. Department
of Energy (DOE), the U.S. Department of Health and Human Services (HHS),
the U.S. Department of Labor (DOL), the U.S. Department of Agriculture
(USDA), the U.S. Center for Disease Control, the Social Security
Administration, the Center on Budget and Policy Priorities (CBPP), the
American Council for an Energy Efficient Economy (ACEEE), the Annie E.
Casey Foundation, the National Center for Appropriate Technology (NCAT)
LIHEAP Clearinghouse, the National Community Action Foundation (NCAF),
the Economic Opportunity Research Institute (EORI),[^4] and the National
Consumer Law Center (NCLC). Finally, we have interviewed low-income
advocates and leaders in community agencies who work directly with
fixed- and low-income people in Entergy's service area. We have
determined the estimated need for an SBF in each of the jurisdictions
served by Entergy -- that is, Arkansas, Louisiana, New Orleans, and
Mississippi, and have provided the same information for Texas as a
comparison. We focused on the high electricity consumption levels (and
thus high electricity burden for low-income customers) in these
territories, and analyzed the need for direct financial assistance for
utility bill payments (in the form of discounts, other payment
assistance mechanisms, and/or arrearage forgiveness); energy efficiency
and weatherization services (given the condition of the low-income
housing stock in each state); and consumer education (and/or budget
counseling).

We describe the economic rationale for, and the appropriate size and
design of, particular models of SBFs that might be adopted by each of
the jurisdictions in which Entergy operates, except Texas, in which
Entergy is already a leader. As requested, we provide details of the
application of the Texas model to the other Entergy jurisdictions. To
estimate the need for an SBF in each jurisdiction, we also provide
information on the amount of funding that would be necessary to fully
meet the needs of the low-income population both for weatherization and
assistance in paying their electric bills.

As requested, we provide some information in Section IV. G, below, on
SBFs that fund programs on energy efficiency for other customer classes,
renewable energy, research, development and demonstration (RD&D).
However, after consultation with Entergy officials, we concentrated most
of our research on programs designed to alleviate the energy burden
faced by fixed- and low-income customers. If Entergy believes that there
is a need to fund additional benefit programs through an SBF, we can
provide more detailed information on these types of programs at a future
date.

# II. The need for low-income energy assistance in the Entergy service territories[^5]

In preparing this paper, we spoke with low-income advocates across the
Entergy service area. They told us, for example, of a 98-year-old lady
outside Dallas whose home they weatherized and whose lights they
replaced with lamps that are about 75 percent more efficient;
altogether, they reduced her energy bill by 66 percent. She was
grateful, but continued to dig up worms so she could fish for her meals
in the river.

They also told of us an elderly woman in Hot Spring County, Arkansas,
who literally had to choose between medicines that consumed half her
income and electricity to allow her to stay in her house. Indeed, it is
not unusual for people to ask their doctors to write half-prescriptions.
Only fuel assistance allowed her to both buy medicine and stay in her
home. "You are saving my life," she told her advocate.

A single mother, depending on occasional child support and SSI payments
for her two children with cystic fibrosis, was able to keep her children
out of the hospital during a prolonged 100-degree-plus heat wave only
with crisis assistance that bought her an air conditioner she could not
otherwise afford to buy or run. Without the air conditioner, her
children would not have been able to breathe in the heat.

New Orleans recipients of a former utility efficiency program were so
delighted with their large bill reductions that an efficiency measure
installer got a stream of telephone calls of thanks.

Some try to do without air conditioning. It is not unusual for elderly
agency clients, for example, to have an air conditioner but to not turn
it on for fear of an electricity bill they would not be able to pay.
Some die as result. In some urban areas, death can occur when an elderly
person locks his or her doors and windows to protect against crime, but
does not feel able to afford air conditioning against 100-degree heat.
Indeed, nationally, an average of 371 people a year die from excessive
heat -- as many as 1700 in one year -- and that only includes the cases
where death certificates report heat as the cause.[^6] Often, doctors
will list other causes, such as heart failure, to spare families the
embarrassment of their relative's inability to afford the electricity
that could have saved them. Nevertheless, last summer alone, more than
60 heat-related deaths were reported in Texas. Excessive cold may
account for even more deaths, even in such hot-weather states as
Mississippi and Arkansas.[^7]

These stories reflect a growing gap between fixed and low incomes and
the ability to provide energy for basic needs. But it is not limited to
the Entergy service area. This widening problem is a national one, as
recognized by enactment of the federal Low Income Home Energy Assistance
Program (LIHEAP) and federal Department of Energy Weatherization
Assistance Program (DOE WAP). The average low-income family in America
must devote 12.9 percent of its income to basic energy needs, compared
to the median income burden of only 3.5 percent. Thus, energy is close
to quadruple (3.7 times) the economic burden on low-income families as
it is on average families even though the average American low-income
family uses energy 20 percent more frugally.

![](media/image1.wmf)

The energy burdens in the Entergy states are very similar to the
national averages, although median income families are somewhat more
burdened than in the rest of the country. Not surprisingly, most of the
energy burden is in fact electricity burden. There, the gap between
Entergy states and the rest of the country is wider.

Nationally, the low-income electricity burden is 7.9 percent, compared
to the 2.2 percent burden on median income families. In the Entergy
states, the electricity burden on median income families is higher (2.7
percent in Texas to 3.5 percent in Arkansas). So is the burden on
low-income families (8.5 percent in Mississippi to 9.8 percent in
Louisiana). Electric heat, used in 15-35 percent of Entergy homes
depending on territory, adds about two percentage points to the
low-income burden, almost one point at median incomes. Thus a challenge
to assisting low-income customers in the Entergy service territories is
that, on average, low-income customers have a particularly difficult
struggle with their electricity bills -- and median income customers are
less able than the national average to help their neighbors out.

![](media/image2.wmf)

These realities are demonstrated by the fact that residential
electricity consumption in the Entergy states is 17 to 42 percent above
the national average -- Louisiana, Mississippi, and Texas rank numbers
two, four, and five in residential electricity consumption. Similarly,
residential electricity bills in the Entergy states are six to 24
percent above the national average -- Louisiana and Texas rank second
and third.

Except in Arkansas and Texas, Entergy residential use and bills track
statewide averages. Entergy Gulf States-Texas consumption is 12 percent
above the Texas average, although bills are three percent below the
Texas average. Entergy-Arkansas bills are nine percent above the
Arkansas average.

Entergy average residential prices declined 12 to 23 percent from 1992
through 1999, depending on the service territory, except for
approximately zero net change at Entergy-New Orleans and
Entergy-Louisiana. However, there have been increases since.

Recent spikes in energy prices have increased the difficulty for
families of all incomes to afford any of their necessities, including
energy. For example, the U.S. Department of Energy projects that the
wellhead (wholesale) price of natural gas in the first quarter of this
coming year will be 2.5 times the price it was as recently as two years
before.

![](media/image3.wmf)

Other energy prices, including oil products and wholesale electricity in
many places, are following similar trajectories.

The already daunting task of protecting Entergy's low-income customers
is made even more daunting by underlying socioeconomic realities.
Arkansas, Louisiana, and Mississippi are the three lowest ranking states
in a child welfare index devised by one foundation from U.S. Census data
. That 21 percent of American children live below the poverty line is
often described as a national disgrace, especially where the official
poverty line describes a standard of living that most would describe as
closer to destitution.[^8] Yet the facts are even more dire in the
Entergy states, where the fraction of children in poverty ranges from 26
to 30 percent. Similarly, 17 to 21 percent of the elderly live below the
official poverty level; 15 to 20 percent of the entire populace lives
below the official poverty line; and 20 to 24 percent live below 125
percent of the official poverty line. At the same time (except in
Texas), median incomes are 16 to 28 percent below the national average.

City-level data are published much more slowly than are state-level
data, but enough is known to say that a large fraction of New Orleans
residents are in particular economic distress. Median income in 1995 was
35 percent below the national average. More than a third of New Orleans
people lived below the federal poverty line \-- a higher fraction than
in 1989, contrary to trends in both Louisiana and the nation. Almost
half of New Orleans children lived in poverty a decade ago (1989). The
national trend since then, upon which it is fair to surmise New Orleans
has not been able to improve, is worse. In 1997, Louisiana mothers had a
higher incidence of low birth-weight babies than in any other state --
10.2 percent. In New Orleans (1994), 12.2 percent of babies were
underweight. Based on the 1989-1995 poverty trend, we estimate that 41
percent of New Orleans residents live below 125 percent of the federal
poverty line.

These data reflect a stark national trend toward growing income
inequality. In the late 1970s, the average income in the top quintile
was 7.7 times that of the bottom quintile; by the mid-1990s, this gap
had widened to 12.7 times. Residents of the Entergy states (except in
Arkansas, where the gap stayed the same) have suffered from a similar
increase in the income gap.

![](media/image4.wmf)

Across the country, average family income of the bottom quintile fell
two percent in real terms while income of the top quintile soared 46
percent from 1970 through 1996.[^9] Even the median family's real income
dropped 2.3 percent in the period 1989-1996. Parity with 1989 was
finally reached in 1997, but at the cost of 247 more hours of work
(about six weeks) for a typical couple.[^10] In the same period, average
inflation-adjusted wages fell 14 percent from 1970 through 1996.[^11]

![](media/image5.wmf)

![](media/image6.wmf){width="5.999305555555556in"
height="4.500694444444444in"}

Thus, across the nation, low-income families' ability to handle rising
energy bills has deteriorated in the last three decades as
inflation-adjusted wages have declined and average incomes of the
poorest quintile have stayed no better than flat compared to the soaring
incomes of wealthier families.

Seen this way, the ability to pay electricity bills \-- extremely
unevenly distributed in the United States -- reflects the general
inequality of incomes in the country. Furthermore, low-income families
are often economically disadvantaged in other ways, including:

-   inadequate education, in technical skills but often even such basics
    as reading;

-   discrimination in housing, credit, and even the ability to open a
    bank account; and

-   discrimination in employment.

These problems are addressed in more general ways, such as transfer
payments and education programs. However, electricity is also
specifically targeted because it is a necessity of life for heating,
cooking, and lighting.

Restructuring in the electricity industry has heightened the concern for
low-income electricity customers since restructuring has often led to
higher residential electricity prices. This past summer, for example,
retail electricity prices doubled in San Diego, California, and rose 43
percent in New York City. Deregulated wholesale prices -- normally two
or three cents per kilowatthour (kWh) -- have risen to \$9.00 per kWh in
the Midwest and \$6.00 in New England. However, as described below,
public utility concern for low-income ratepayers extends back at least
25 years -- long before restructuring.

# III. Addressing the need in Texas

In restructuring the electricity industry in Texas, the Legislature
addressed the challenge of protecting low-income families by
establishing a systems benefit fund.[^12] The fund is financed by a fee
of between 50 and 65 cents per megawatthour (mWh) (0.50 to 0.65 mills
per kWh), to be determined by the regulatory commission. For Entergy in
Texas, this amounts to 1.0 percent to 1.25 percent of revenues. The fund
is to have four purposes:

1.  Low-income energy efficiency. Although the statute did not set out
    an amount for this, several Texas Public Utilities Commission (PUC)
    orders established 0.12 percent of gross revenues as an appropriate
    amount for this purpose. Entergy in Texas is arguing for "uniform
    statewide funding for low-income weatherization programs at a level
    of 0.12% of gross Texas revenues"[^13] and has proposed such a plan
    for itself.

2.  A low-income discount of at least ten percent and, depending on
    funding availability, as much as 20 percent.

3.  Property-tax relief associated with the write-down of two nuclear
    reactors. (This does not relate to low-income issues and is beyond
    the scope of this paper.)

4.  An education program for consumers on the subject of electricity
    restructuring.

In addition, the Legislature mandated that all other existing public
benefit programs be retained.

# IV. System Benefit Funds IN OTHER STATES

As mentioned in the Introduction to this paper, we concentrated our
research on programs across the country designed to alleviate the energy
burden faced by fixed- and low-income customers. In Section G, below, we
summarize some of the other types of programs funded by an SBF in some
states in addition to low-income programs.

## A. Low-Income Rate Assistance[^14] 

We have found that there is no single model of low-income assistance to
help the most vulnerable customers pay their utility bills; rather, each
state has adopted a program that meets its particular circumstances.
However, while the details of programs vary considerably, they all fall
within four broad categories:

-   Affordability programs, which provide direct assistance in paying
    energy bills;[^15]

-   Consumer protections, such as collection practices and installment
    billing requirements, which make it easier to pay energy bills on
    time;

-   Education programs, which teach consumers about prudent energy use
    and counsel them about budgeting; and

-   Efficiency and weatherization programs, which make investments to
    help consumers control their energy bills by reducing their need for
    energy.

    Programs usually include more than one of these components. All
    programs also include outreach and evaluation components.

### 1. Discounts

No two states have implemented utility bill discounts in exactly the
same way; in some states, there are even great variations among
different utility companies. Each state or utility makes its own
assessment of the needs and circumstances of its customers, the number
of affected customers, the effect on other customers, and the political
will to provide relief. Some programs apply to only electric or gas
companies; others apply to both. Some states have had discount programs
in place for many years (Massachusetts for at least 20 years) and others
have instituted them with electric industry restructuring (Texas
codified statewide discounts in 1999).

While there are many variations in the details, there are three basic
types of discount programs:[^16]

-   Fixed percent of bill;

-   Fixed dollar discounts; and

-   Discounts that vary with usage

    The fixed percent of bill design has resulted in discounts ranging
    from seven to 40 percent, depending on the state and utility company
    (*e.g.*, California\'s is 15 percent; Massachusetts discounts range
    from 25 to close to 40 percent for electricity and up to 40 percent
    for gas). One way some states have structured the discount is to
    waive the tax on energy, which is by nature a fixed percent of the
    bill. In a small number of states, the discounts apply only during
    the costliest part of the year (*e.g.*, West Virginia provides a 20
    percent discount in the winter months).

    Other states provide a fixed dollar discount, most typically by
    waiving the customer charge for low-income customers (*e.g.*,
    Alabama, \$7.65 per month; Mississippi, \$8.55; New York customer
    charge frozen at \$5.00 while for other customers it rises to
    \$10.00). Others provide a fixed credit amount that has been
    determined in a rate case to be sufficient to the state\'s purposes
    (*e.g.*, New Jersey, up to \$18.75 per month).[^17]

    A percentage discount may also vary with a customer\'s usage, as in
    the original California Lifeline rate. This could take the form of a
    discount that applies only to a lifeline block \-- *i.e.*, the
    minimum amount of electricity deemed to be necessary to sustain life
    in today\'s society. Usage beyond this amount is priced at the
    regular residential rate. Thus, for example, usage up to 500 kWh per
    month in Minnesota is discounted 50 percent. In the District of
    Columbia, a 28 percent discount is applied to the first 400 kWh per
    month. Alternatively, the discount could decline, but still exist,
    as usage increases. Thus in Arizona the discount is 30 percent for
    usage at or below 400 kWh per month, 20 percent on usage between 401
    and 800 kWh, 10 percent on usage between 801 and 1200 kWh, and there
    is a \$10 credit for higher usage.

    Similar to this type of rate structure that results in a discount
    that varies with usage and is applied to all residential customers
    of a particular utility, is the inverted block rate, adopted in
    California and other states (*e.g.*, Houston Power & Light) at
    various times. In an inverted block rate, blocks of kWh consumption
    are established such that greater levels of consumption are charged
    higher unit costs.

    The most obvious virtue of the fixed percentage and fixed dollar
    discounts is that they are simple for the utility to administer and
    for customers to understand. On the other hand, a discount that
    varies with usage is preferred by some because it encourages
    conservation \-- or at least does not encourage consumption. (A
    fixed dollar discount shares this effect to some extent since the
    percentage discount declines as consumption increases.) However,
    these effects are probably very small, if not zero, because the
    elasticity of low-income demand is very small; *i.e.*, low-income
    consumers have so little income relative to their needs that
    decreasing the price of one necessity tends to result in larger
    consumption of another scarce necessity rather than an increase in
    discretionary consumption.[^18]

    Different discount strategies tend to target different sectors of
    the low-income population. Thus a fixed dollar discount, and
    discounts that vary directly with usage, tend to benefit most those
    electricity customers with the lowest incomes, to the extent that
    electricity consumption is correlated with income.[^19] Fixed
    percentage discounts better reach low-income households with high
    consumption that is not within their control, such as those with
    electric heat, large families, or exceptionally wasteful
    landlord-provided appliances.

    Discounts that vary with the seasons recognize the sharp differences
    in consumption that exist in certain climates and are thus designed
    to contribute to simplifying low-income budgeting. They are not
    appropriate where an energy utility use does not vary greatly by
    season (*e.g.*, electricity in New England, where there is little
    low-income electric heat).

    There is probably little difference among all these discount
    strategies in the predictability of their financial impact on all
    other customers since the number of low-income customers and their
    consumption tend to be similarly stable. The least predictable
    variable is usually the penetration of the rate; *i.e*., how
    successful outreach efforts will be. This depends on such variables
    as the penetration of a state\'s federally-funded Low Income Home
    Energy Assistance Program (LIHEAP), the penetration of other benefit
    programs, the fraction of low-income consumers in master-metered
    buildings or group living situations (group homes, nursing homes,
    and the like), the nature of the low-income population, the nature
    and extent of outreach efforts, and the presence of income
    self-declaration or automatic sign-up mechanisms.

    Because the costs of discount programs are small relative to
    rates,[^20] they are usually recovered on a per-kWh basis.[^21]
    Generally, rates are established on the basis of a predicted cost
    based on historical experience and other known parameters, and are
    reviewed periodically as part of general rate cases. Costs are
    usually recovered from all customers, on the principles that all
    customers benefit from the consequent cost reductions and that all
    customers share the social obligation to assist low-income families.

### 2. Income-Based Programs {#income-based-programs .unnumbered}

A type of payment program that is increasing in use is the percentage of
income payment plan (PIPP). This type of program takes the energy burden
of low-income customers strictly into account and structures a payment
program such that the burden faced by these customers will be no higher
than a predetermined percentage of their income. The percentage chosen
varies by state and may bear a direct relationship to the burden borne
by customers of average income in the state (*e.g.*, it could be
designed so that the energy burden for low-income customers is no more
than twice the burden for other residential customers).

As with discount programs, PIPP programs vary widely depending on the
state and/or utility company. The percentage of income usually varies
with whether the utility is used for heat. Some utilities use income
brackets to determine the percentage; others use income brackets and
level of consumption; still others apply a fixed percentage for all
eligible customers. An appendix to the NCLC report \"Access to Utility
Service/1998 Supplement\" summarizes the variations of both discount and
PIPP program designs that had been adopted by various states by the date
of the publication. In general, the range is 4 percent to 15 percent of
income.

Some electric utilities with a PIPP (Pennsylvania Electric Company,
Metropolitan Edison) distinguish between use for heat (9 percent, 10
percent, 15 percent of income) or non-heat usage (4 percent, 5 percent,
6 percent). The state-wide Ohio plan distinguishes between primary
heating service (10 percent of income) and secondary (5 percent). At
Central Maine Power, a similar result is achieved by varying the
percentage of income with electricity usage, as follows:

Below 75% FPL Above 75% FPL

\>5000 kWh 6% 7.1%

5001-13,999 kWh ((\[usage minus 5000\]/9000)\*5%) + 6%

*e.g.*, 9500 kWh 8.5%

14,000 kWh+ 11% 12.1%

PIPP payments can be made directly by an agency from which a customer is
receiving other benefits (such as SSI or transitional assistance),

but a major issue for low-income customers (especially elderly
customers) is pride and control over their lives. By giving control to
another entity, the utility (or the state) would take away part of the
motivation a customer feels to pay his or her bills. It also undermines
any financial and energy education provided to the customer if the
customer has no control over whether the bill is paid. This type of
education is a critical component of enabling the customer to better
manage energy use and to budget the limited income available in the most
effective way. In fact, as described below under Arrearage Management,
budget counseling may be one of the most effective components of an
overall arrearage reduction strategy. As described above, PIPPs are
often coupled with arrearage management on the basis of a fractional
forgiveness for each month of successful participation in the PIPP.

PIPPs obviously require an additional commitment of administrative
resources, but by showing low-income customers that there is a practical
way for them to do what they want to do \-- pay their bills \-- PIPPs
have succeeded in reducing arrearages and consequent collection and
termination costs. Columbia Gas, for example, found reduced arrearages
and improved payments. West Penn Power also found reduced arrearages and
confirmed that participants paid more than their variable costs so they
contributed to fixed costs. Pennsylvania Power & Light found
improvements in payment frequency and decreased account management
costs. All studies found no increase in consumption.

### 3. Arrearage Management {#arrearage-management .unnumbered}

A crucial component of many discount and PIPP programs is arrearage
forgiveness. While low-income customers do not constitute the customer
class with the majority of arrearages,[^22] low-income customers are
usually in arrears because they cannot afford to pay their bills \-- not
because they do not want to pay.[^23] Indeed, half of all customers fall
behind on utility bills because they do not have enough money due to
such causes as unemployment and medical bills.[^24] Thus, if the bills
are made more affordable, experience demonstrates that low-income
customers in general will pay more of their bill. As arrearages grow,
low-income customers are apt to become fearful of ever getting out from
under their debt; thus, increasing the late payment penalty,
disconnecting the customer and then charging a reconnection fee, or
setting a payment plan in place that requires more than the customer is
able to pay, are unlikely to generate much incremental revenue from the
low-income customer with a high arrearage. In fact, that customer is
likely to become discouraged and to stop making any payments at all.

Utility companies in various states have structured arrearage management
programs in different ways to meet the needs of their low-income
customers. As programs provide arrearage forgiveness coupled with other
discounts, energy conservation, education and budget counseling,
low-income customers with large arrearages are removed from the
collections rolls, and collection staff resources can be devoted to
going after those in arrears who have the money but have not paid their
bills for other reasons.

Arrearage management programs are based on the premise that, although
low-income customers cannot afford to pay the entire energy bill, they
can pay (and are willing to pay) something toward their bill each month.
The amount may be negotiated and based on what the customer agrees is
affordable, based on an analysis of income and expenses. In a program
instituted by the Niagara Mohawk Power Corporation (NMPC), customers
enrolling in its arrearage forgiveness program had to have a negative
cash flow to participate in the program; *i.e.*, their expenses
(including utility bills) were greater than their incomes.[^25] Payments
were negotiated based on percentage of income, and customers were
required to apply for LIHEAP and state crisis money. Several goals were
set for the program:

-   Increase the regularity of cash payments by participating customers;

-   Increase the total amount of cash payments by participating
    customers;

-   Increase the use of available assistance by participating customers;

-   Decrease the number of collections actions for participating
    customers;

-   Eliminate arrears for participating customers.[^26]

    According to the evaluation of the NMPC arrearage program, the
    program was successful in increasing both the number and amount of
    cash payments; it was not successful in increasing the use of
    available assistance payments; it did reduce the number of
    collections actions; and, for those who remained active in the
    program (despite limited follow-up by the company), arrearages were
    reduced by 50 percent. The evaluation concluded that, with greater
    support from the company and other improvements to the program
    design, more participants could have reduced arrearages and the
    program would have been cost-effective compared to the prior system
    of collections and disconnects.[^27]

    Clark Public Utilities Company in Vancouver, Washington, instituted
    a \"Guarantee of Service Plan\" in 1988 to assist low-income
    customers in paying their utility bills.[^28] The present plan
    requires customers to pay no more than 9 percent of their income for
    electric service and includes an arrearage forgiveness component, as
    well as education and weatherization where applicable. The plan
    serves all customers with incomes up to 150 percent of the federal
    poverty level (some up to 175 per cent), eliminates security
    deposits for participants, requires participation in energy
    assistance grant programs, exempts participants from late charges,
    and provides rewards in the form of \"Energy Savings Certificates\"
    for reduction in energy use.[^29] The results to date of this
    program are as follows:[^30]

-   Delinquency has been reduced from 74 percent to 18 percent;
    write-offs have dropped 36 per cent;

-   The average assistance grant has been reduced from \$230 to \$169;

-   The average customer contribution to revenue is \$55 per month,
    compared to \$22 per month prior to plan entry;

-   The average adjustment from pre-plan arrears is \$227, compared to a
    \$252 traditional average loss;

-   Disconnection of service to low-income customers is down 64
    percent;[^31] and

-   Direct annual utility benefits exceed costs by 11 percent; *i.e.*,
    the benefit cost ratio is 1.11.

## B. Other Price-Related Protections {#b.-other-price-related-protections .unnumbered}

States have adopted many protections that make it easier for customers
to pay their utility bills. In one form or another, these protections
are universal across the country, although details vary.[^32]

### 1. Credit and collection {#credit-and-collection .unnumbered}

States regulate deposits, late charges, and reconnection fees, in some
cases prohibiting them. Where allowed, they are restricted. For example,
late charges and reconnection fees, if allowed, must generally be based
on cost (for late charges, this is rarely found to be higher than one
percent or 1.5 percent per month). Deposits, if allowed, are generally
limited in size and to those who cannot establish credit any other way.

In most states with long periods of extreme weather causing large
seasonal changes in utility service consumption for heating and/or
cooling, levelized billing plans are provided to make it possible for
customers to budget the same payment each month. A true-up adjustment is
made at least annually. Some states allow customers to choose the date
each month that they would prefer to have their bills come due, thus
letting customers align bill payment with revenue streams. Similarly,
many states provide for deferred payment arrangements for arrearages. As
described above, in some states these arrangements are coupled with
arrearage forgiveness and discount plans. In any event, the most
successful programs tailor the payments in some way to make it more
likely that the customer will be able to make the payments.

Most states recognize situations where the need to protect the most
vulnerable mandates that disconnection for nonpayment not be allowed.
Budget counseling and payment arrangements can be effective in making
payment possible in these difficult situations. The shut-off moratorium
conditions include:

-   extreme weather;

-   medical emergencies and serious medical conditions; and

-   presence of elderly people or infants in the home.

### 2. Other protections that affect payment

Most states require regular meter reading and many states restrict a
utility\'s right to back-bill when it has failed to read a meter for a
lengthy period of time. At a minimum, such states usually allow as much
time to pay the back bill as it took the utility to read the meter. In
addition, many states abate the bill on the theory that consumers could
have adjusted their usage had they only known what the bill was.

Most states, through both utility regulation and (at least arguably)
through unfair and deceptive trade practices statutes, require
disclosure to each customer of the most favorable rate available to him
or her.

In many states, upon the failure of a landlord to pay a utility bill,
tenants must be notified and given the opportunity to take over
responsibility for the service, adjusting their rent payments
accordingly.

In some states, customers with billing arrearages (or those who request
help in managing their budgets through levelized billing or other
mechanisms) are referred to other forms of assistance by the utility,
such as fuel assistance, telephone Lifeline rates, gas company
discounts, or even transitional assistance programs. Any form of
assistance that can lower the total household financial burden
contributes to the payment of utility bills.

## C. Education

An important component of all of the programs described so far \--
whether discounts, PIPP, or arrearage forgiveness \-- is education for
affected customers. As stated earlier, most of the low-income customers
with difficulties paying their bills want to pay but are unable to.
Often, this inability has as much to do with lack of knowledge about
budgeting as it does with lack of income. Therefore, providing budget
and money management counseling along with payment assistance can
greatly increase the odds of bill payment. Education is also an
important component of weatherization and efficiency programs, teaching
consumers to control their utility bills by wise usage. Indeed, as
described in the cost-effectiveness section below, education increases
the impact of efficiency programs by seven to nine percentage points.

Budget counseling is often provided at the same time as, and in
conjunction with, payment assistance or made a condition of arrearage
forgiveness. Sometimes, a utility company will have on staff community
relations people who can provide budget counseling as well as other
community interface activities such as outreach to human service
agencies. At other times, community service agency personnel are
contracted with to provide budget counseling as part of a comprehensive
weatherization and energy conservation package. It is probably most
effective to have both systems in place because not every customer who
needs payment assistance will be eligible for weatherization and, even
when they are, not every customer can be served immediately.

The most successful education materials are consistent, easy to use and
understand, clear, humorous, and useful. Obviously, to maximize their
value, they are provided in all of the major languages spoken in the
service territory. Utilities have put helpful hints on sticky notes,
refrigerator magnets, calendars, or other useful places to help
reinforce the messages.

Utilities conduct workshops for local community action or other service
agencies in order to disseminate consistent information. Since these
agencies are often known and trusted by members of the community, this
avenue is often the most effective avenue of communication to low-income
families.

Another educational service that utility companies provide to better
enable their low-income customers to pay their bills is information on
the Earned Income Tax Credit (EITC). Most people who are eligible for
the EITC do not even know about it and do not apply for it. Much like
fuel assistance, by making this information available, companies
increase their customers\' ability to pay their utility bills and build
goodwill for the company at the same time.

Brooklyn Union Gas Company (now KeySpan) instituted a program in 1995
called \"On Track\" that provides education as well as more
comprehensive counseling services to 1500 payment-delinquent low-income
customers each year. Most of the customers receive telephone counseling,
money management advice, a video cassette recorder with instructional
videos, and a box to help them organize their bills. They are also
forgiven \$400 in arrearages. A small number \-- with the greatest debt
\-- are assigned a social worker. The program costs the company just
over \$1 million a year, but the company has found that it pays for
itself in reduced carrying and collection costs. Customers who receive
this type of help are grateful to the company and, therefore, more
likely to pay their utility bills first. Brooklyn Union thought it would
take five years for the program to become self-supporting but found that
they were making a profit in less than two years.[^33]

## D. LOW-INCOME ENERGY EFFICIENCY AND WEATHERIZATION

In addition to payment assistance and arrearage forgiveness programs,
the best way to lower bills for low-income customers is to provide them
with comprehensive weatherization, education, and energy efficiency
services. Besides lowering their bills, these types of programs enable
low-income customers to better manage their usage, making energy more
affordable and thus empowering them to take better control of their
finances.

### 1. Program Design

In the early years of utility companies\' providing energy efficiency
services to low-income customers, the \"neighborhood blitz\" approach
was widely used. This approach entailed a team of installers going to a
particular neighborhood (after providing notice a week before) and
knocking on doors to install conservation measures. While there was some
success from this approach early on, companies had soon saturated
targeted neighborhoods by serving those households who would allow
entry.[^34] Savings from measures installed in the blitz were often
small and difficult to evaluate. There was no education provided, and no
follow-up was conducted.

For the past several years, the trend has been to build on the existing
infrastructure of community action agencies that implement the U.S.
Department of Energy Weatherization Assistance Programs (DOE WAP) to
deliver utility-funded energy efficiency services to fixed- and
low-income people. In these coordinated programs, the agency (either
through its own crews or through sub-contractors) provide customized
audits in previously scheduled visits, along with education,
refrigerator metering (to determine energy use for possible
replacement), and installation of all measures that can be installed at
the time, with appointments scheduled for any further work necessary
(such as ceiling, wall or floor insulation). A blower door test is often
conducted to determine the need for insulation and/or air sealing.[^35]

### 2. Program Funding

Most utility energy efficiency programs for low-income customers are
funded through a non-bypassable cents-per-kWh charge on all utility
ratepayer bills, including large commercial and industrial customers.
This practice is equitable because all utility ratepayers benefit when
low-income customers can afford to pay their utility bills, as described
below. Recently approved charges include 0.12 percent of total revenue
in Texas for low-income energy efficiency;[^36] 0.25 mills per kWh in
Massachusetts (which yields between \$10 and \$11 million annually, or
0.26 percent of revenues)[^37], and \$157 million or 1.2 percent of
revenues in California (for a 15 percent discount in addition to energy
efficiency.[^38]

Energy efficiency spending by utility companies on low-income customers
can range from less than \$100 per household, (for low-cost measures
like compact fluorescent lightbulbs (CFLs) and low-flow showerheads) to
several thousand dollars (for comprehensive weatherization and
insulation measures), depending on each household's needs. Low-income
customers are not required to pay any direct costs of measures installed
through most of these programs, although they usually pay the per-kWh
system benefits charge that funds the programs through their rates.
Paying the SBF enables recipients of the program benefits to take
"ownership" of them, because they know they have contributed to the
costs.

In many cases, the efficiency program is \"piggy-backed\" onto a
previously existing network of experienced administrators (often local
community action agencies) to minimize costs and maximize efficiencies.
[^39] Indeed, an important feature of most successful programs is to
coordinate (piggy-back) among all resources available to a particular
home, including electric and gas utilities, the DOE WAP, and state
funds.[^40]

### 3. Options in Administration

Virtually all current utility-funded low-income efficiency programs are
built on the existing DOE WAP delivery system. In nearly all cases,
contracting with the WAP agencies is conducted by the utilities. There
is insufficient experience to date to make a judgment about other
administrative models.

Since restructuring, there have been a small number of efforts to
administer low-income efficiency programs outside the utility.
California's Low Income Governing Board (now the Low Income Advisory
Board) suffered from difficulties probably unique to California's size
and political structure. New York State's Energy Research and
Development Authority (NYSERDA) began administration of many of New
York's electricity efficiency programs just two years ago and has
therefore only now published an interim evaluation. (Preliminary results
are promising, with documented electricity bill savings up to 30
percent. However, it is too soon for complete impact evaluations.)[^41]
Vermont recently established a statewide efficiency utility which will
run low-income efficiency programs across the scores of Vermont utility
territories, but it has almost no operational experience to date. Cape
Cod Light is proposing to run a two-county-wide efficiency program in
Massachusetts, also including low-income programs, once it receives
regulatory authority to do so.

In Texas, a standard offer efficiency program for "hard-to-reach"
customers will be set for bidding by energy service companies (ESCOs).

In Massachusetts, we frequently work with a model that is
utility-administered but implemented and coordinated, by statute, by the
low-income weatherization network. At least in that state, with a long
history of good and cooperative relationships among utilities and
low-income advocates, this blended administrative model appears to have
successfully captured the technical expertise of the utilities along
with the community and weatherization expertise of the low-income
agencies.

### 4. Efficiency Measures

Measures included in utility energy efficiency programs vary in their
cost-effectiveness. In general, it has been found that it is most
cost-effective to determine ahead of time and prescribe the measures
that will be installed in households, rather than conducting a costly,
house-specific energy audit. For example, DOE has determined that
replacing inefficient refrigerators in warm-climate states yields a
benefit-to-cost ratio of over 2.0, including only energy savings![^42]
That means that, for every dollar spent on new refrigerators, at least
two dollars are saved. The same study determined that replacing
incandescent lights that are used more than two-to-four hours a day with
CFLs, and installing low-cost water heating measures are almost always
cost-effective in warm climates.[^43] Other measures, such as building
shell, solar units, and energy efficient clothes washer replacements
depend on usage to determine cost-effectiveness.[^44] However, when
other benefits, such as those described in Section IV.E, below, are
taken into account, the savings are even higher, and many more measures
become cost-effective.

### [Single Family Homes]{.underline} {#single-family-homes .unnumbered}

Specific examples of heating, cooling, and domestic hot water measures
that are often included in energy efficiency programs for low-income
customers:

-   attic, wall, and floor insulation;

-   pipe and duct insulation and sealing;

-   ventilation;

-   window, storm window, and door replacement;

-   clock thermostats;

-   other controls;

-   blower door-assisted air sealing;

-   hot water tank wraps;

-   low-flow showerheads and low-flow faucet aerators;

-   water heaters, including heat pump water heaters;

-   heating system tune-ups;

-   heating safety repairs and replacements; and

-   solar domestic hot water systems.

    Other measures that are installed to reduce electric use only
    include the following:

-   compact fluorescent lightbulbs (CFLs);

-   CFL torchieres to replace halogen torchieres;

-   dedicated table lamps that accommodate only CFLs;

-   energy efficient refrigerators;

-   water bed covers (or replacement mattresses); and

-   clothes washers (also appropriate in gas and water conservation
    programs).

### [Multi-family Dwellings]{.underline} {#multi-family-dwellings .unnumbered}

For multi-family dwellings, other measures could include common area
lighting fixtures that accommodate only efficient fluorescents, as well
as insulation, air sealing, motors, controls, and energy efficient
clothes washers. Many programs require contributions by landlords for
measures installed in multi-family dwellings, although there is some
evidence that this requirement greatly reduces landlord participation.
Eligibility for services provided through a low-income program is
usually based on the percent of low-income tenants in a building \--
most often, if at least 50 percent of the tenants in a building are
low-income, the building is eligible for services under the program.

### [New Construction or Renovation]{.underline} {#new-construction-or-renovation .unnumbered}

For a low-income new construction or rehabilitation program, many other
issues may arise that must be dealt with in order to implement a
successful program:

-   recognition that this is a difficult market to reach, with many
    barriers, but a true lost opportunity if not successful;

-   provision of design assistance, training, and education on energy
    efficient building practices and technologies to builders of
    low-income housing;

-   tenant or owner education on energy use and management;

-   measures to be installed in new or renovated buildings:

    \* building shell

    \* domestic hot water

    \* lighting and appliances

-   payments from the utility company need only cover the incremental
    cost of the efficient measures compared to the cost of standard
    measures and practices (although larger payments may be required to
    leverage investment in efficient new construction or rehabilitation
    projects);

-   assistance to builders in obtaining financing for more efficient
    housing; and

-   coordination with community-based housing efforts such as Habitat
    for Humanity and community development corporations.

## E. Benefits and Cost-Effectiveness

### 1. Elements of Cost-Effectiveness Tests

While many states have instituted payment assistance and energy
efficiency programs to help lower the energy burden faced by the most
vulnerable citizens, most cost-effectiveness analysis has been conducted
on efficiency programs alone, or on combined efficiency and assistance
programs. However, the economic principle is the same for both types of
programs: if one lowers the amount a low-income customer must spend for
energy, that customer will be better able to pay the energy bill,
thereby saving all other customers the utility costs associated with
low-income payment troubles, such as carrying costs on late payments,
collection costs, and costs of disconnection and reconnection.

The cost-effectiveness of most traditional energy efficiency programs
has been estimated using either the "utility cost test" or the "total
resource cost test" (or both). However, some states have used a
"societal test" that includes benefits not captured in the former two
but very real, nonetheless. Briefly, the utility cost test evaluates the
costs and benefits of a program to determine its net economic value to
an electric or gas company; it does not take into account customer costs
and benefits that are unrelated to a utility company's system.[^45] The
total resource cost test estimates the net economic value of all direct
costs and benefits to customers as well as to the utility company,
although in most cases, the direct benefits are limited to easily
quantifiable elements such as amount of water saved, or lower repair and
maintenance bills.

The societal test incorporates all of the elements of the total resource
cost test and adds benefits that either affect society as a whole, such
as environmental externalities or lower health-care costs, or particular
segments of society (*e.g.*, economically disadvantaged areas or
low-income consumers), such as job retention or lower energy bills. For
instance, the societal test used to determine the cost-effectiveness of
a commercial and industrial conservation program could include the
benefit of reducing the energy bill of a manufacturing firm enough to
enable it to stay in business and provide jobs for 1000 people that
might otherwise become unemployed. The societal test for a program
targeting low-income customers could include the value of reducing fire
damage from using alternative heat sources such as stoves or kerosene
heaters.[^46]

Howat and Oppenheim surveyed the considerable amount of research that
has been conducted to identify and quantify the non-energy benefits of
low-income payment assistance and efficiency programs.[^47] Where
possible, their paper computes those non-energy benefits as a function
of the value of energy saved. The result is justification for an
\"adder\" that can be used in cost-benefit calculations. Eleven
Massachusetts gas and electric utilities, together with nine other
parties, filed that paper in 1999 as part of a package justifying a
cost-benefit calculation that adds together all the benefits that energy
efficiency programs create. These benefits, in addition to energy
savings, include low-income-specific benefits such as:

-   benefits to the utility and to non-participant ratepayers, including
    arrearage reduction and reduced costs of collection, termination,
    and reconnection;

-   benefits to taxpayers, including reduced costs of fire and health
    departments, homeless shelters, and Medicaid funds, as well as
    increased property values that generate real estate taxes;

-   benefits to low-income families, including less frequent moving
    costs, fewer utility disconnections, and improved health; and

-   the benefits to society of an increase in equity.[^48]

The 11 utilities agreed that these non-energy low-income benefits
amounted in value to at least 50 percent of the energy benefits.[^49]
The 11 Massachusetts utilities that agreed to the 50 percent "adder"
also agreed that environmental and economic development benefits[^50]
amount in value to an additional 25 percent of the energy benefits, for
a total benefit from low-income efficiency programs of 1.75 times the
energy savings.[^51]

In their latest efficiency plan filings, the major Massachusetts
electric companies computed benefit:cost ratios (BCRs) of their
low-income programs of as much as 2.8. [^52] This means that the
utilities found the dollar value of the benefits of their low-income
efficiency efforts were as much as nearly triple the cost of those
programs. Each utility relied on a different selection from the menu of
utility, resource, and participant (but, pursuant to regulatory order,
not taxpayer or other societal) benefits set out in the Howat and
Oppenheim paper, including:

1.  avoided electricity resources;

2.  avoided water resources;

3.  avoided oil resources;

4.  value of arrearage reduction;

5.  reduced costs of terminations and reconnections;

6.  value of discounts on reduced sales;

7.  savings to participants due to reduced fires, improvements in
    health, reduced mobility, uninterrupted service, and increased
    comfort; and

8.  benefit to participants from increased property value, deferred
    refrigerator purchase, and reduced lighting fixture maintenance
    costs.

### 2. Benefits Quantified

There is little doubt that even payment assistance programs alone
provide similar benefits to non-participants by making it more possible
for low-income customers to pay their bills. Research that has been
conducted on assistance and efficiency programs indicates that they both
have a proven effect on payment-related costs that would otherwise be
paid through rates by all other customers. For example, a Pacific Gas &
Electric study found reduced carrying costs on arrearages of \$4 to \$63
per weatherized household, or up to 8.8 percent of program cost.[^53]
Another 2.1 percent or more is saved on utilities\' administrative costs
of collection, including termination and reconnection.[^54] Introduction
of an efficiency program in Colorado brought a drop in arrearages of 26
percent and in uncollectibles of 18 percent. The latter represented 8.5
percent of program costs.[^55] These savings to all ratepayers can thus
alone amount to almost 20 percent of program costs before any energy or
other savings are counted.

The Ohio Department of Development\'s Office of Energy Efficiency
contracted with five independent evaluators between 1996 and 1998 to
thoroughly analyze Ohio\'s weatherization program. These analyses found
that the program not only reduced energy consumption and corresponding
bills, but it also had a positive effect on payment behavior, customer
health and safety, environmental impacts, and the state\'s economy.[^56]
For example, disconnections were cut 38 percent, collection actions ten
percent.[^57] Similarly, Pennsylvania\'s low-income efficiency programs
led to an increase in the proportion of bills paid by as much as 38
percent.[^58] An efficiency program in Kentucky reduced shut-off
notices, and shut-offs, by 23 percent; late payments by 15 percent; and
non-payments by eight percent.[^59] At Boston Gas, 76 percent of
participating efficiency customers had trouble paying their bills \-- 60
percent of those payment-troubled customers found it easier to pay their
bills after participating in the efficiency program, with half (30
percent) now able to pay their entire bill.[^60] On average, consumption
savings from this program are 16 percent.[^61]

Evaluations of assistance programs show similar results. Columbia Gas of
Pennsylvania operates a percentage-of-income based (PIPP) assistance
program together with arrearage management and efficiency.
Participants\' arrearages fell 18 percent, disputes by 61 percent, new
payment agreements by 53 percent, and cancellation of payment plans by
69 percent.[^62] At Louisville Gas & Electric, a PIPP and weatherization
program led to a 39 percent drop in shut-off notices and a shut-off rate
that decreased 84 percent.[^63] When Niagara Mohawk Power Corp.
negotiated low-income payment plans with a realistic view of the
payments low incomes can support, cash coverage of bills by program
participants rose 12 percent; customers with the worst previous payment
records had the best improvement: 36 percent.[^64] An Equitable Gas
Company PIPP and weatherization program in Pennsylvania led to missed
payments dropping by more than two-thirds and low-income bill payments
rising from 50 percent to 63-to-69 percent, an increase in collections
of at least 26 percent.[^65]

In addition, taxpayer-supported expenditures are saved by reductions in
low-income consumer demands for such services as medical care,[^66] fire
calls due to the use of dangerous alternative heat sources,[^67] and
homeless shelters.[^68] Further, by contributing to housing maintenance
and helping to prevent housing abandonment and homelessness, efficiency
and assistance programs contribute to the maintenance of a community\'s
real estate tax base.

In these ways, low-income assistance and efficiency programs have been
found to virtually pay for themselves. As the Equitable Gas evaluation
explained:

> Equitable\'s Energy Assistance Program (EAP) is probably best viewed
> as a business product. While it is true that EAP offers significant
> benefits to customers who meet its conditions, it is not a benefit
> program\.... EAP is a practical arrangement designed to be mutually
> beneficial to the participant, to Equitable, and to other
> customers\....
>
> The pricing model which underlies EAP is a variant of the kind of
> negotiated rate which many utilities set for a large industrial
> customer which might leave the system. This is, in fact, the precedent
> for pricing which does not fully cover costs, but yet \[does cover
> marginal costs and make a contribution to fixed costs\].[^69]

## F. Eligibility

Eligibility for payment assistance and energy efficiency programs also
varies by state. Some are open to only elderly and/or disabled
low-income customers, but most are available to all customers for whom
household income is less than a certain percent of the federal poverty
level (FPL). The standard is typically 125 or 150 percent of the
FPL,[^70] although the state of Connecticut provides some payment
assistance and most energy efficiency services to customers with incomes
as high as 200 percent (although Connecticut does not provide price
discounts). The most typical criteria are probably 150 percent of FPL
(Arizona, California, Maine, Ohio, Pennsylvania, West Virginia,
Wisconsin) or receipt of (or eligibility to receive) LIHEAP
(Massachusetts, Minnesota, New York). Usually the level is set to match
the criterion of the state\'s LIHEAP. The obvious trade-off in setting
the same standard for both LIHEAP and utility programs is between cost
(or size of benefit) and the number of people helped. The details of
this trade-off vary widely by state, depending on such factors as the
relative wealth of the state, the relative size of the low-income
population, rate levels, and consumption levels.

We are aware of no payment assistance program that includes families who
are not direct customers of the utility, such as tenants in
master-metered buildings (which include certain public housing
buildings) or people in nursing homes. Some utilities will extend their
discount to group homes that are on a residential rate.[^71] However,
the principal means of providing utility energy assistance to low-income
families who are not direct customers has been through energy efficiency
programs.

Eligibility requirements for energy efficiency and utility-funded
weatherization programs are often the same as those for payment
assistance programs, although in at least one state, they are more
generous for efficiency programs. This is true because the budgets for
efficiency are not dependent on eligibility as they are for discounts or
other payment assistance programs. In other words, the number of
eligible customers for a payment assistance program would determine the
amount that must be collected through rates to fund that program. When a
millage rate is set by the legislature or the PUC to fund efficiency
programs (such as it is in Massachusetts at a minimum of 0.25 mills per
kWh to fund low-income efficiency and education services), only a
certain number of customers will be served in any given year, but
eligibility criteria can be more inclusive. For example, in
Massachusetts, eligibility for the low-income discount rate is a
household that earns up to 175 percent of the federal poverty rate;
while eligibility for energy efficiency and education services through
the community action agencies (as well as for fuel assistance) is 200
percent of the FPL.

Another eligibility criterion often imposed by utility efficiency
programs is a threshold level of electricity usage. For instance, a home
heated by electricity will have a much higher usage level than a home
that uses electricity for just appliances or even water heating. This
home would be more cost-effective for the electric utility to weatherize
than would a home heated by gas or oil, unless all resource and
non-resource savings are taken into account. Thus, an electric utility
might be inclined to give priority to the electrically heated home. As
the company treats more of these homes in its service territory, there
will be fewer eligible homes to treat. In these circumstances, a company
will often lower the eligibility threshold as the program matures,
and/or will expand treatment of fossil-fuel heated homes. As discussed
in Section IV.E, above, on the benefits and cost-effectiveness of
programs that lower the energy burden for low-income people, we strongly
support taking into account [all]{.underline} benefits provided by these
programs, including savings of all resources as well as non-resource
benefits. There are also equity considerations in treating all
low-income homes, regardless of their level of electricity usage.

Certification of income is rarely performed by utilities and is usually
performed by state agencies.[^72] One common strategy is to accept as
eligible all those who can demonstrate they are receiving benefits from
a program that uses an income screen that is no more generous than that
of the discount program. Typically, however, this type of screening will
miss some eligible customers for whom the program is intended. Some
eligible customers will have decided not to avail themselves of other
benefits. And some eligible customers may not be eligible for any other
benefits.[^73] A state or community agency can fill these gaps at
minimal cost. For example, Pennsylvania utilities use community action
agencies for outreach and intake.

## G. Representative State Programs

At least 33 states now provide some level of assistance to their fixed-
and low-income customers, and many of them also support other public
benefits through an SBF. In states without restructuring legislation (or
prior to restructuring in some states), funding for these programs was
usually embedded in base rates, although in some cases (like
Massachusetts), a separate charge to fund energy conservation was
determined each year and added to the base rate without being stated
separately on the bill.

Nearly every state that has restructured its electricity utility
industry[^74] has provided a low-income discount. In almost every
instance, the discount codified or expanded an existing discount
established by the regulatory agency. In Pennsylvania, for example,
utility-by-utility funding of low-income discounts was approximately
doubled as a result of restructuring. Many of those discounts began as
one-utility programs (usually introduced in a regulatory proceeding).
For example, the Massachusetts electricity discount that now provides as
much as a 35 percent discount to low-income customers with household
incomes at or below 175 percent of the federal poverty line started out,
two decades ago, as a one-utility 20 percent discount only for
recipients of Supplemental Security Income (SSI), a disability program.
Other programs, such as that in Texas, were expanded from discounts
limited to low-income elderly customers.

In some cases, however, such as Texas, restructuring did bring the first
statewide low-income discount. On the other hand, other states, such as
Utah, recently adopted low-income discounts without restructuring. And
another state, New York, has begun to adopt broad-eligibility low-income
discounts some time after restructuring.

In almost every instance, low-income discounts have been established by
legislatures or regulatory agencies upon a showing \-- in the context of
a utility petition for a rate increase, restructuring, or approval of a
merger \-- by advocates for low-income consumers of the need for
low-income assistance.

Most states require that utility companies acquire energy resources at
the lowest cost to their ratepayers. Many states (before restructuring)
interpreted this requirement to mean that electric (and sometimes
natural gas) utilities must do integrated resource planning (IRP);
support energy efficiency; fund research, development and demonstration
projects; and promote renewable energy. More than half the states also
require that utilities provide assistance to their most vulnerable
customers -- both for social equity reasons and because it makes
economic sense.

IRP was a formal regulatory procedure applied to integrated utilities to
oversee least-cost planning of generation construction and/or
purchasing. One early finding in most IRP analyses was that many energy
efficiency measures, including low-income measures, are far less costly
than new electricity generation. This led over the past fifteen years to
many regulatory orders requiring utilities to meet a portion of their
demand growth through energy efficiency programs. Since these programs
were financed by ratepayers, just as generation plants are at integrated
utilities, they were generally required as a matter of equity to serve
all customer sectors, including low-income customers. Low-income
programs were often given particular attention for equity reasons and
because of the non-energy benefits described above.

After restructuring, all of the states we investigated kept currently
existing programs either at the same or a higher level of funding;
instituted new programs; or did both. In no case did we find a
diminution of benefit programs. Many examples of programs targeting
low-income customers are provided throughout the paper. In this section,
we present a summary description of low-income and other benefit
programs and their funding levels through SBFs (or in base rates) prior
to -- or without -- restructuring, and after restructuring, in several
representative states.

### 1.Connecticut

#### Pre-Restructuring

Connecticut Light & Power Company (CL&P), a subsidiary of Northeast
Utilities (NU), has an arrearage management program called \"NU Start\"
that is available to customers with incomes below 200 percent of the
federal poverty level. The customer\'s total arrearage is divided into
12 even amounts; a payment plan for current bills is worked out; the
customer is given budget counseling and energy education; and she is
referred to the weatherization and energy conservation program for all
applicable measures to be installed. For each month that the customer
makes a payment according to the agreed-upon schedule, a month\'s worth
of arrearage is forgiven. If a customer misses a payment due to
unforeseen circumstances (like a medical emergency or other unforeseen
event), he is allowed to begin again in the program with a new payment
schedule; the arrearage is recalculated. The company has learned that
this type of program is the most effective means of retaining customers
and receiving some revenue from those who would otherwise have been
disconnected for failure to pay.

Connecticut also funded energy efficiency programs for all customer
classes, with about \$1.5 million going to low-income customers out of
\$34 million total spending in the last year before restructuring.

[Post-Restructuring]{.underline}

Connecticut's Legislature passed an electric restructuring bill in April
1998.[^75] This bill continued the arrearage forgiveness program
described above, as well as all other consumer protections already in
place. The bill also mandated an SBF for energy efficiency of 3.0 mills
per kWh to be assessed on all electricity sold by the electric IOUs, for
a total state funding level of about \$80,000,000 in 2000, or three
percent of total revenues.[^76] This amount funds programs for all
customer classes, including load management programs. economic
development efficiency programs, market transformation efforts, and RD&D
on new technologies that can improve the efficiency of Connecticut's
businesses and households. Of this amount, CL&P and the other
Connecticut IOU, United Illuminating Company, are spending about \$6.5
million on low-income energy efficiency (primarily to be delivered
through the local community action agency network),[^77] and another
\$2.2 million on payment assistance, or about 0.3 percent of total
revenues on low-income programs.

In addition to this SBF for energy efficiency, the restructuring bill
mandated a separate charge that ramps up over time and averages 0.75
mills per kWh to fund the development and commercialization of renewable
energy resources. This fund totals \$22 million per year.[^78]

### 2. Illinois

[Post-Restructuring]{.underline}

The Illinois Electric Service Customer Choice and Rate Relief Law of
1997 mandates a per customer -- or per meter -- charge of \$0.40 per
month for residential electric and gas customers to be included in the
customer charge on monthly bills. This charge will fund the Supplemental
Energy Assistance Fund at about \$76 million annually, about 0.9 percent
of revenues, to help low-income customers pay their energy bills through
direct payment assistance and energy efficiency (10 percent of the
fund). The fund will be administered by the State's Energy Assistance
Program which delivers the DOE WAP and LIHEAP programs. This fund is
permanent and marks the first significant state-mandated funding for
low-income energy assistance in Illinois.[^79]

### 3. Massachusetts

[Pre-Restructuring]{.underline}

Prior to the restructuring its electric industry by the Legislature in
1997, Massachusetts had a long history of protecting low- and
fixed-income consumers through regulatory actions. Beginning in 1978,
Massachusetts regulators approved discounted electricity rates for
customers receiving Supplemental Security Income (SSI) in utility
company rate cases. The regulators gradually expanded eligibility for
the discounted rates to all electric and gas investor-owned utilities
(IOU's) in the state and to all customers receiving benefits under
federal or state welfare programs, including food stamps, SSI, LIHEAP,
Medicare, and certain veterans benefits. Discounts range between 20 and
40 percent, depending on the utility.

In addition to low-income discounts, Massachusetts required both
electric and gas utilities to fund energy efficiency programs for all
customer classes. Some of these efforts began as early as 1982, but they
were greatly expanded through the IRP process until electric companies
were spending approximately 3.5 percent of revenues on energy efficiency
alone in 1996. (Charges to individual customer classes ranged from
\$0.00052 per kWh for large commercial and industrial customers in
Cambridge Electric Light Company's service territory to \$0.00484 for
the same customer class in Eastern Edison's territory.)[^80]

A small portion of the energy efficiency funds were spent on renewable
energy projects by some companies, and New England Electric System
(NEES) funded some projects and flowed the costs through FERC-approved
rates to its retail electric companies.

[Post-Restructuring]{.underline}

In the Massachusetts Electric Industry Restructuring Act (Act),[^81] the
Legislature mandated that historic levels of low-income discounts be
applied to the distribution and transmission components of the electric
bill such that the amount discounted would equal the amount that was
originally applied to the total bill (except for fuel). The cost of
these discounts is to be borne by all other customers of the utility.
Eligibility was expanded to include all households with income below 175
percent of the FPL who were receiving public benefits or who were
eligible to receive LIHEAP (even if not currently receiving it because
of lack of funds in the program). The Act also requires that the
utilities conduct "substantial outreach" to obtain a high penetration
rate for this program, including exploring the possibility of doing
computer matches with agencies that administer other benefit programs,
such as the Department of Transitional Assistance.[^82]

The Act also mandates that distribution electric companies collect a
non-bypassable charge to fund and administer energy efficiency programs
for all customer classes. This charge is to be assessed on each kWh of
electricity sold, at a rate that declines over a five-year period from
3.3 mills (tenths of a cent) per kWh in 1998 to 2.5 mills per kWh in
2002 (totaling approximately \$500 million over five years). Before the
end of 2001, the need to continue this funding beyond 2002 will be
re-evaluated. However, at the same time, the Act requires that at least
0.25 mills per kWh be collected and used to fund energy efficiency and
education programs for low-income customers, and this charge does not
sunset in 2002. Programs funded through this charge are to be
implemented by the local community action agencies, and coordinated with
the DOE WAP program and with energy efficiency programs delivered by the
natural gas companies.[^83] Low-income discounts and energy efficiency
programs together amount to at least \$44 million, or 1.2 percent of
total revenues.[^84]

In addition to funding low-income payment assistance and energy
efficiency and education, the Act mandates a charge to fund development
and commercialization of renewable energy resources that ranges from
0.75 mills per kWh in 1998 to 1.25 mills in 2000, and then down to 0.5
mills every year after 2002. These charges result in total funding for
renewables in the first five years of about \$210 million, and
approximately \$20 million per year after 2002. The renewables fund is
to be administered by the Massachusetts Technology Park Corporation, a
quasi-state agency independent of the utility companies.[^85]

The Act also preserves (and in some cases expands) traditional consumer
protections such as winter and medical emergency shut-off moratoria, the
right to a levelized payment plan, clear dispute resolution protocols,
no late payment fees, and disclosure of the terms under which
electricity is provided to the customer.[^86]

### 4. Mississippi

Mississippi has not restructured, but Mississippi Power Company provides
a 10 percent discount for its low-income and elderly customers by
waiving its customer charge. In 1997, the customer charge was
\$8.55[^87] on an average residential monthly bill of \$84.76. This
discount amounts to nearly 0.3 percent of total revenues for Mississippi
Power Company.[^88]

### 5. Montana

[Post-Restructuring]{.underline}

Montana's restructuring bill was signed into law in May 1997.[^89] The
bill approves the use of energy efficiency and renewable resource funds
for RD&D and states that the funds will be collected using a "universal
system benefit charge". They are to total 2.4 percent of retail sales
revenue (approximately \$14 million), with \$8.9 million for energy
efficiency, \$1.8 million for renewable energy resources, and at least
17 percent of the funds (0.41 percent of revenues), or \$3.3 million,
for low-income energy efficiency and weatherization.[^90] The law states
that "public interest requires the continued protection of consumers
through: ... funding ... for public purpose programs for: (i)
cost-effective local energy conservation; (ii) low-income customer
weatherization; (iii) renewable resource projects and applications; (iv)
research and development programs related to energy conservation and
renewables; (v) market transformation; and (vi) low-income energy
assistance."[^91]

**6. New York**

Although in most states restructuring was enacted by the Legislature,
New York's electric industry restructuring was a result of regulatory
action, as was the adoption of an SBF in July of 1998 by the New York
Public Service Commission. New York's SBF funds energy efficiency,
renewable energy, low-income programs, research and development, and
environmental protection. The SBF is largely administered by the New
York State Energy Research and Development Authority (NYSERDA), a
semi-independent agency formed by the state government in 1975.[^92]
Statewide, about \$78 million (0.7 percent of revenue) in SBF funds will
be collected annually, \$10 million of which will be devoted to
low-income programs.[^93]

### 7. Pennsylvania

[Pre-Restructuring]{.underline}

Beginning with two natural gas companies (Equitable Gas and National
Fuel Gas Distribution) in 1991, each of the major IOUs in Pennsylvania
was directed to provide payment assistance to its low-income customers
through a Customer Assistance Program, or CAP.[^94] Although details
vary by individual utility, most CAPs provided a percentage of bill or
percentage of income (PIPP) plan along with an arrearage forgiveness
plan. The actual percentage of income paid depends on the level of
income as well as on whether the customer uses electricity or gas for
heat, depending on the utility. The programs target payment-troubled
customers, such as those with large arrearages, and eligible customers
are referred to the Low-Income Usage Reduction Program (LIURP) which
provides weatherization services.[^95]

Programs offered by Columbia Gas and Duquesne Light are typical. In each
plan, the fraction of income paid depends on the level of poverty
(expressed as a percent of the Federal Poverty Level, or FPL). Duquesne
offers both a PIPP and a percent-of-the-bill discount option, which also
varies with income. Thus:

FPL Columbia PIPP Duquesne PIPP or Discount

0-50% 5% 5% 50%

51-100% 7% 7% 30%

101-150% 9% 9% 20%

In addition to the discounts, Columbia forgives a quarter of an
arrearage for every 12 months of successful participation in the PIPP;
Duquesne forgives one-twelfth each three months.

Total funding for low-income assistance was approximately \$26 million,
including 20 percent for energy efficiency.[^96] Funding sources for
these programs vary by utility, but generally revenue shortfalls and
administrative costs are recovered through residential rates.[^97] On
the other hand, these programs often pay for themselves. As mentioned
above, an Equitable Gas evaluation explained:

> Equitable\'s Energy Assistance Program (EAP) is probably best viewed
> as a business product. While it is true that EAP offers significant
> benefits to customers who meet its conditions, it is not a benefit
> program\.... EAP is a practical arrangement designed to be mutually
> beneficial to the participant, to Equitable, and to other
> customers.[^98]
>
> [Post-Restructuring]{.underline}
>
> The Pennsylvania Legislature passed an electric industry restructuring
> act in December 1996 that requires all Pennsylvania electric utilities
> to offer universal service, such as through a CAP, and energy
> efficiency programs, at least at existing funding levels (\$10 million
> for efficiency and \$26 million for low-income).[^99] The law expanded
> existing programs and instituted others, but it is being implemented
> on a utility-by-utility basis. Together, the mandated amount in the
> two funds total about two percent of revenues, but individual
> companies have negotiated higher funding levels in their restructuring
> settlements.[^100] As of May 1999, in final decisions on utility
> company restructuring filings, the Commission had significantly
> expanded funding levels for both the CAPs and for LIURP and had
> ordered the utilities to track their costs and recover them through a
> non-bypassable charge added to residential customer bills.[^101] For
> example, PECO Energy, in a settlement approved on May 14, 1998,
> established a \$50 million fund (0.024 percent of revenues) just for
> universal service (payment assistance) programs expected to enroll
> 100,000 customers, with a separate cost recovery mechanism if costs
> should exceed that amount.[^102]
>
> In addition, as part of a negotiated restructuring settlement with one
> of the electric companies, Pennsylvania Power & Light, the Commission
> created a \$21 million Green Energy Fund to be used for investment in
> renewable energy projects such as wind, solar, and biomass.[^103]

### 8. Utah

While Utah has not restructured, its regulatory commission recently
enacted low-income payment assistance and energy efficiency programs in
conjunction with PacifiCorp's merger with Scottish Power. Utah is a
low-cost electricity state, but the electricity burden for customers on
welfare and food stamps was still five times greater than it was for
customers earning the median income in the state. For customers earning
the minimum wage, the burden was 6.6 percent of their monthly
income.[^104] After being apprised of the burden and informed about what
other states were doing to lower the burden for their low-income
customers, Utah adopted a Lifeline Rate, or discount of \$8.00 per month
for customers whose income was no more than 125 percent of the FPL, for
an estimated cost to the utility of \$1.7 million. In addition, Scottish
Power agreed to fund an energy efficiency program for low-income
customers for \$600,000 annually. Together, these amounts total about
0.3 percent of annual revenues.

# V. Meeting the need for Low-Income Assistance in the Entergy Service Areas

## A. Meeting the Need

As described in Section II above, the need for low-income assistance is
very substantial in the Entergy service area, as it is across the
country. As described in the immediately preceding section, this need is
usually addressed by adopting low-income rate discounts as well as by a
utility-financed supplement to the federal Weatherization Assistance
Program. Two reasonable objectives in meeting need through these types
of programs are:

1.  Reduce the average low-income electricity burden from current levels
    \-- as much as triple the burden on median-income households in the
    Entergy area -- to a level that is no more than double the burden on
    median-income households; and

2.  Install all cost-effective efficiency measures in low-income homes
    over a period of ten years.

Participation levels in utility low-income programs are usually about a
third of eligible families. At utilities with aggressive outreach
programs, participation levels reach 50 percent. With a program of
computer matching between public benefit lists and utility customer
lists, participation has been raised to about two-thirds, which is the
level of participation we assume represents full saturation of a program
to fully meet low-income electricity assistance needs. (A certain
fraction of low-income people are not utility customers because they
live in institutions such as nursing homes or in other buildings where
usage is master-metered.)

The table below summarizes the cost in each Entergy service area of
meeting low-income electricity needs in this fashion.

  --------------- ------ -------------- -------------- -------------- -------------- -------------- ---------------
                                        **Cost to Meet                                               
                                        Need\*:**                                                   

  **Discount                                                                                        
  (min. 20%) to                                                                                     
  bring                                                                                             
  low-income                                                                                        
  burden to 2x                                                                                      
  median-income                                                                                     
  burden;                                                                                           
  weatherize                                                                                        
  homes in 10                                                                                       
  years**                                                                                           

                         Arkansas       Entergy-La.    EGS-LA         NOPSI          Mississippi    Total

  Discount               23%            34%            34%            20%            28%            28%

  Total cost of          \$28,257,161   \$48,998,383   \$24,415,426   \$20,042,672   \$19,792,799   \$141,506,442
  program                                                                                           

  Efficiency             \$15,434,134   \$22,768,642   \$11,501,538   \$13,167,276   \$10,372,273   \$73,243,863

  Discount               \$12,823,028   \$26,229,741   \$12,913,888   \$6,875,396    \$9,420,526    \$68,262,579

  Total cost as %        2.41%          2.91%          2.40%          5.09%          2.69%          2.83%
  rev                                                                                               

  Cost per kwh           1.51           1.68           1.25           3.40           1.58           1.65
  (mills)                                                                                           

  Avg res cost/mo        \$1.51         \$2.11         \$1.61         \$3.49         \$1.88         \$2.09

  Avg indus              \$39.82        \$304.10       \$141.63       \$149.89       \$133.51       \$200.34
  cost/mo                                                                                           

                                                                                                     

  \*                                                                                                 
  Participation                                                                                     
  rate = 67%                                                                                        
  --------------- ------ -------------- -------------- -------------- -------------- -------------- ---------------

##  B. Applying the Texas model to the rest of the Entergy Service Area

As described in Section III. above, the low-income Texas model consists
largely of two components, both for the benefit of households whose
incomes are at or below 125 percent of the federal poverty line:

3.  Energy efficiency, funded at 0.12 percent of revenues; and

4.  A low-income discount of up to 20 percent.

We have computed the impact of such a public benefit plan on each of the
five Entergy jurisdictions other than Texas as well as on the customers
in each of those service territories. In doing so, we made one
adjustment to the Texas model. At 0.12 percent of revenue, the Arkansas
weatherization budget (*i.e.*, including the federal program) receives
the smallest proportionate increase in the Entergy system. The clearly
demonstrated need and strong low-income weatherization infrastructure in
Arkansas can be accommodated with an increase of five basis points
(*i.e.*, to 0.17 percent of revenue) with little adverse customer
impact. At this level, the total Arkansas weatherization budget would
receive about the same proportionate increase as Mississippi and still
much less than the other territories. The monthly cost to residential
customers would average 41 cents, less than in all territories except
Entergy Gulf States-Louisiana. The monthly cost to industrial customers
would average \$10.75, by far the lowest in the system.

The table below summarizes the cost of the Texas model in the Entergy
territories alone.[^105] However, low-income discount and efficiency
programs are most effectively established on a statewide basis. As in so
many worthwhile endeavors, it is often the case that action by one
forward-looking person or business will lead others to behave similarly.
Indeed, in many states, that is how low-income programs began. Therefore
we would not discourage the Company from establishing these programs
unilaterally. (In New Orleans, of course, there is no other electricity
utility.) However, we recommend the objective of ultimately persuading
all utilities in the states Entergy serves, or the regulatory agencies
in those states, to adopt similar programs.

  --------------- ------- -------------- ------------- ------------- ------------- ------------- --------------
                          ** **          **Cost of                                                
                                         Texas                                                   
                                         Model:**                                                

                          **Discount of                                                           
                          20% at 125%                                                            
                          FPL (1); 0.12%                                                         
                          of revenues                                                            
                          for                                                                    
                          efficiency**                                                           

                          Arkansas (2)   Entergy-La.   EGS-LA        NOPSI         Mississippi   Total

  Total cost of           \$7,630,561    \$9,748,481   \$5,026,104   \$3,910,411   \$4,205,076   \$30,520,634
  program                                                                                        

  Efficiency              \$1,992,999    \$2,023,731   \$1,222,919   \$472,713     \$884,543     \$6,596,906

  Discounts               \$5,637,562    \$7,724,750   \$3,803,185   \$3,437,698   \$3,320,533   \$23,923,728

  Total cost as %         0.65%          0.58%         0.49%         0.99%         0.57%         0.61%
  rev                                                                                            

  Cost per kwh            0.41           0.34          0.26          0.66          0.34          0.36
  (mills)                                                                                        

  Cents per mWh           41             34            26            66            34            36

  Avg res cost/mo         \$0.41         \$0.42        \$0.33        \$0.68        \$0.40        \$0.44

  Avg indus               \$10.75        \$60.50       \$29.16       \$29.24       \$28.37       \$40.55
  cost/mo                                                                                        

                                                                                                  

  \(1\)                                                                                           
  Participation                                                                                  
  rate 33%                                                                                       

  \(2\) 0.17% of                                                                                  
  revenues for                                                                                   
  efficiency                                                                                     
  --------------- ------- -------------- ------------- ------------- ------------- ------------- --------------

## 

## C. General Considerations

The structure of any discount deserves careful consideration. As noted
above, for example, in several states all or part of the low-income
discount is structured as a waiver of the customer charge. While this
has the advantage of providing a larger proportionate benefit to low-use
customers, who tend to have lower incomes, customer charges are rarely
much more than ten percent of a customer's bill.[^106] The balance of a
20-34 percent could be designed as a per-kWh reduction.

Consideration might also be given to Percentage of Income Plans (PIPPs),
especially in areas (such as New Orleans) of substantial low-income. As
described above, PIPPs generally target the greatest benefit to the
poorest customers, which may be the most equitable manner to distribute
a significantly limited pool of funds.

Low-income advocates have also raised these program design issues that
should be considered:

-   For customers who are struggling to pay their bills, late charges
    operate more as a punishment than as an inducement to pay on time or
    as a cost-recovery device. Where they exist, such as in New Orleans,
    they should be abolished for low-income customers. Where they do not
    currently exist, they should not be adopted for low-income
    customers.

-   Eligibility screening may be important but it should not become a
    barrier to service. For example, there is little reason to
    re-establish eligibility for those who qualify on the basis of their
    age or permanent disability since such qualifications will not
    change. For others, a reasonable period of qualification should be
    established, such as two years. This will save administrative costs
    and is unlikely to benefit anyone with great wealth.

-   Restoring local offices would make it possible to reach customers
    otherwise difficult to reach. The intimate knowledge of the
    communities that the now-closed offices had would also aid in
    qualifying customers and determining what help they need.

-   Automatic qualification procedures should be considered, *e.g.*,
    certification by fuel assistance agencies.

-   Consideration should be given to devoting a small portion of the
    payment assistance program budget to arrearage forgiveness, perhaps
    conditioned on continuing prompt payment (as is successfully done at
    several utilities, as described above). Among other things, this
    would make it feasible to provide emergency shut-off moratoria and
    level billing plans in cases where there are high arrearages.

-   Service should be continued as long as all undisputed amounts are
    paid or subject to a payment plan.

-   In all or parts of some territories, it may be wise to devote some
    of the funding to building infrastructure in order to operate
    superior programs in the future.

-   In most cases, the efficiency programs proposed represent
    substantial additions to existing federally-funded programs. It may
    be most prudent to ramp up new efforts over time, preserving and
    carrying over any temporarily unspent funds.

Entergy already has in place programs that benefit low-income customers.
In some instances, such as customer charge waivers at Entergy Gulf
States-Louisiana for low-income elderly, these might best be folded into
an expanded discount program.[^107] Other valuable programs could be
retained and expanded, including:

-   Notification of eligibility for programs outside the utility, such
    as the Arkansas sales tax exemption;

-   Company and customer contributions to fuel funds;

-   Disconnection moratoria for those on life support and during extreme
    weather periods; third-party notification in other cases;

-   Referrals to agencies for fuel assistance funds and other help; and

-   Levelized billing, payment plans, and scheduled billing plans.

These considerations apply whatever level of low-income assistance is
adopted.

# VI. Conclusion.

Low-income electricity burdens in the Entergy system are now 2.6 to
three times the median-income burden. A 20 percent discount will reduce
this inequity to 1.9 to 2.6 times the average burden. Larger discounts
bring the average low-income burden at all Entergy utilities to two
times the average burden at median incomes. The discounts required to
reduce Entergy low-income burdens to twice those at median incomes are
23-34 percent. As described in Section IV., these discount levels are
consistent with low-income discounts provided in some other states. Such
reductions will make a very big difference in customers' ability to
afford the necessities of life, including their electricity bills.
However, low-income customers will still be paying a disproportionate
share of their meager incomes for essential electricity.

In the long-run, low-income efficiency programs will have the most
substantial impact on low-income electricity bills because they help
people help themselves, while also lowering bills. Oak Ridge National
Laboratory research shows that, for example:

-   replacement of an inefficient refrigerator in a warm climate can
    save a customer as much as \$280 each year for the life of the
    appliance for an investment of \$500;

-   a \$100 investment in efficient lighting saves as much as \$56 a
    year;

-   slab foundation insulation costs \$5-20 and saves as much annually;

-   insulating an electric hot water tank costs \$30 and saves \$17 a
    year;

-   tuning up an air conditioner costs \$80 and saves as much as \$64
    per year; and

-   education packages increase savings at little cost by teaching
    consumers how to conserve energy.

On average, Entergy-system-wide, the Texas model low-income efficiency
budget (including the current federal programs) is extremely modest
compared to the low-income need for efficiency improvements. It would
take 108 years of treatment before all low-income homes were
weatherized. Meeting a more reasonable ten-year schedule would, of
course, require a very substantial increment in resources.

Obviously, fully meeting a need is more expensive than partially meeting
it. However, these costs might be considered in comparison with the
corporate parent's[^108] recent dividend increase to common shareholders
(\$15 million a year), increases in earnings (\$14 million increase in
the most recently-ended quarter), or savings from the corporation's
scheduled merger (\$110 to \$150 million a year among the regulated
utilities as well as \$40 to \$125 million a year in savings plus
capital savings to the merged corporation's non-regulated businesses).
Thus the projected annual utility merger savings alone might fund a
program to meet all low-income electricity needs in the Entergy service
territory outside Texas.

The research in this paper has been conducted at Entergy's request to
provide the Company with the information it needs to design a system
benefit fund for implementation in each of the jurisdictions in which it
operates. We will be pleased to provide additional information on any of
the topics discussed herein or on other issues that may arise during the
Company's consideration of SBFs. We will also be happy to assist Entergy
in its efforts to continue the dialog it has begun with low-income
advocates and other stakeholders, including moderating settlement
negotiations should they be useful in coming to agreement on the
appropriate level and type of SBF to institute.

# 

# APPENDIX: TABLES

  --------------------------- ---------- ----------- ------------- ---------- --------
  **Energy Burden**           Arkansas   Louisiana   Mississippi   Texas      US

  Median Income               5.0%       4.3%        4.5%          3.7%       3.5%

  At 125% Federal Poverty     6.9%       6.9%        6.7%          6.8%       6.8%
  Line for 3                                                                  

  Average Social Security     8.4%       8.4%        8.1%          8.2%       8.2%
  couple                                                                      

  At Federal Poverty Line (3  8.6%       8.6%        8.3%          8.5%       8.5%
  people)                                                                     

  Minimum wage                11.8%      11.9%       11.4%         11.6%      11.6%

  Average HH in Region \<     13.2%      13.2%       12.7%         13.0%      12.9%
  125% FPL                                                                    

  SSI - Disability            17.5%      17.6%       16.9%         17.3%      17.2%
  (Individual)                                                                
  --------------------------- ---------- ----------- ------------- ---------- --------

Sources: US Census, DOE, HHS, SSA, EORI

Note: Reflects 14% less expenditures at lower incomes, 20% for average
low-income, 25% SSI

  ------------------------ ---------- ---------- ----------- --------- ------------- ------- -------
  **Entergy Electricity    Arkansas   Ark-elec   Louisiana   New       Mississippi   Texas   US
  Burden**                            ht                     Orleans                         

  Median Income            3.5%       4.2%       3.2%        3.5%      3.0%          2.7%    2.2%

  At 125% Federal Poverty  4.8%       5.8%       5.3%        4.5%      4.6%          6.2%    5.3%
  Line for 3                                                                                 

  Average Social Security  5.8%       7.0%       6.4%        5.5%      5.5%          6.0%    5.2%
  couple                                                                                     

  At Federal Poverty Line  6.0%       7.3%       6.6%        5.7%      5.7%          6.2%    5.3%
  (3 people)                                                                                 

  Minimum wage             8.3%       10.0%      9.0%        7.8%      7.8%          8.5%    7.3%

  Average HH in Region \<  9.0%       10.8%      9.8%        8.5%      8.5%          9.3%    7.9%
  125% FPL                                                                                   

  SSI - Disability         11.9%      14.3%      13.0%       11.2%     11.2%         12.3%   10.5%
  (Individual)                                                                               
  ------------------------ ---------- ---------- ----------- --------- ------------- ------- -------

Sources: US Census, DOE, HHS, SSA, EORI

Notes: 1. Reflects 14% less expenditures at lower incomes, 21% for
average low-income, 28% SSI.

2\. New Orleans values estimated from 1998-1995 poverty trend and
1989-1995 Louisiana income data

  --------------- ------------ ------------------------------------------
  **Wellhead                   
  price of gas is              
  rising                       
  sharply**                    

                  \$/MCF       increase from 1999 Q1

  1990            1.71         

  1991            1.64         

  1992            1.74         

  1993            2.04         

  1994            1.85         

  1995            1.55         

  1996            2.17         

  1997            2.32         

  1998            1.94         

  1999Q1          1.74         

  1999            2.07         

  2000Q1          2.26         30%

  *2001Q1*        *4.39*       152%
  --------------- ------------ ------------------------------------------

Source: US DOE EIA

  ------------------------ ------------------------ -------------------- ------------------- ----------------------- -------------------- ---
  [Entergy                 [Res. KWH]{.underline}   [Rank]{.underline}   [State vs.          [Entergy                [Entergy v           
  State]{.underline}                                                     U.S.]{.underline}   KWH]{.underline}        State]{.underline}   

  Arkansas                 1009                     14                   117%                999                     99%                   

  Louisiana                1229                     2                    142%                1225                    100%                  

  Mississippi              1180                     4                    136%                1188                    101%                  

  Texas                    1155                     5                    133%                1290                    112%                  

  U.S.                                                                   866                                                               

                                                                                                                                           

                           [Avg.Bill]{.underline}   [Rank]{.underline}   [State vs.          [Entergy]{.underline}   [Entergy v.          
                                                                         US]{.underline}                             State]{.underline}   

  Arkansas                 \$74.94                  18                   106%                \$82.06                 109%                  

  Louisiana                \$87.54                  2                    124%                \$89.65                 102%                  

  Mississippi              \$79.70                  14                   113%                \$77.72                 98%                   

  Texas                    \$87.26                  3                    123%                \$84.78                 97%                   

  U.S.                                                                   \$70.68                                                           
  ------------------------ ------------------------ -------------------- ------------------- ----------------------- -------------------- ---

Source: US DOE EIA

  -------------------- ------------ --- ------------ -------------- --------------
  **Inequality of                                                   
  Inflation-adjusted                                                
  incomes of families                                               
  with children is                                                  
  growing**                                                         

                                        1978-80      1985-87        1994-96

  Arkansas             bottom 20%       \$7,969      \$6,445        \$8,995

                       top 20%          \$73,325     \$77,362       \$83,434

  Louisiana            bottom 20%       \$9,312      \$5,766        \$6,430

                       top 20%          \$87,823     \$96,252       \$102,330

  Mississippi          bottom 20%       \$8,631      \$6,424        \$6,257

                       top 20%          \$77,866     \$78,639       \$80,980

  Texas                bottom 20%       \$10,301     \$8,906        \$8,642

                       top 20%          \$94,031     \$102,517      \$113,140

  U.S.                 bottom 20%       \$11,759     \$9,529        \$9,254

                       top 20%          \$90,728     \$101,035      \$117,499
  -------------------- ------------ --- ------------ -------------- --------------

+----------------+----------------+----------------+-----------------+
| top/bottom     |                |                | change in ratio |
| ratio\         |                |                |                 |
| -\-\-\-\-\-\-\ |                |                |                 |
| -\-\-\-\-\-\-\ |                |                |                 |
| -\-\-\-\-\-\-- |                |                |                 |
|                |                |                |                 |
| ==========     |                |                |                 |
| ============== |                |                |                 |
+----------------+----------------+----------------+-----------------+
| 1978-80        | 1985-87        | 1994-96        | 70s-90s         |
+----------------+----------------+----------------+-----------------+
| 9.2            | 12.0           | 9.3            | 101%            |
+----------------+----------------+----------------+-----------------+
|                |                |                |                 |
+----------------+----------------+----------------+-----------------+
| 9.4            | 16.7           | 15.9           | 169%            |
+----------------+----------------+----------------+-----------------+
|                |                |                |                 |
+----------------+----------------+----------------+-----------------+
| 9.0            | 12.2           | 12.9           | 143%            |
+----------------+----------------+----------------+-----------------+
|                |                |                |                 |
+----------------+----------------+----------------+-----------------+
| 9.1            | 11.5           | 13.1           | 143%            |
+----------------+----------------+----------------+-----------------+
|                |                |                |                 |
+----------------+----------------+----------------+-----------------+
| 7.7            | 10.6           | 12.7           | 165%            |
+----------------+----------------+----------------+-----------------+
|                |                |                |                 |
+----------------+----------------+----------------+-----------------+

Source: Center on Budget and Policy Priorities from U.S. Census

(insert landscape table of socioeconomic data here)

  --------------- ------- -------------- -------------- -------------- -------------- -------------- ---------------
                                         **Cost to Meet                                               
                                         Need\*:**                                                   

  **Discount                                                                                         
  (min. 20%) to                                                                                      
  bring                                                                                              
  low-income                                                                                         
  burden to 2x                                                                                       
  median-income                                                                                      
  burden;                                                                                            
  weatherize                                                                                         
  homes in 10                                                                                        
  years**                                                                                            

                          Arkansas       Entergy-La.    EGS-LA         NOPSI          Mississippi    Total

  Discount                23%            34%            34%            20%            28%            28%

  Total cost of           \$28,257,161   \$48,998,383   \$24,415,426   \$20,042,672   \$19,792,799   \$141,506,442
  program                                                                                            

  Efficiency              \$15,434,134   \$22,768,642   \$11,501,538   \$13,167,276   \$10,372,273   \$73,243,863

  Discount                \$12,823,028   \$26,229,741   \$12,913,888   \$6,875,396    \$9,420,526    \$68,262,579

  Total cost as %         2.41%          2.91%          2.40%          5.09%          2.69%          2.83%
  rev                                                                                                

  Cost per kwh            1.51           1.68           1.25           3.40           1.58           1.65
  (mills)                                                                                            

  Avg res cost/mo         \$1.51         \$2.11         \$1.61         \$3.49         \$1.88         \$2.09

  Avg indus               \$39.82        \$304.10       \$141.63       \$149.89       \$133.51       \$200.34
  cost/mo                                                                                            

                                                                                                      

  \*                                                                                                  
  Participation                                                                                      
  rate = 67%                                                                                         
  --------------- ------- -------------- -------------- -------------- -------------- -------------- ---------------

  --------------- ------- -------------- ------------- ------------- ------------- ------------- --------------
                          ** **          **Cost of                                                
                                         Texas                                                   
                                         Model:**                                                

                          **Discount of                                                           
                          20% at 125%                                                            
                          FPL (1); 0.12%                                                         
                          of revenues                                                            
                          for                                                                    
                          efficiency**                                                           

                          Arkansas (2)   Entergy-La.   EGS-LA        NOPSI         Mississippi   Total

  Total cost of           \$7,630,561    \$9,748,481   \$5,026,104   \$3,910,411   \$4,205,076   \$30,520,634
  program                                                                                        

  Efficiency              \$1,992,999    \$2,023,731   \$1,222,919   \$472,713     \$884,543     \$6,596,906

  Discounts               \$5,637,562    \$7,724,750   \$3,803,185   \$3,437,698   \$3,320,533   \$23,923,728

  Total cost as %         0.65%          0.58%         0.49%         0.99%         0.57%         0.61%
  rev                                                                                            

  Cost per kwh            0.41           0.34          0.26          0.66          0.34          0.36
  (mills)                                                                                        

  Cents per mWh           41             34            26            66            34            36

  Avg res cost/mo         \$0.41         \$0.42        \$0.33        \$0.68        \$0.40        \$0.44

  Avg indus               \$10.75        \$60.50       \$29.16       \$29.24       \$28.37       \$40.55
  cost/mo                                                                                        

                                                                                                  

  \(1\)                                                                                           
  Participation                                                                                  
  rate 33%                                                                                       

  \(2\) 0.17% of                                                                                  
  revenues for                                                                                   
  efficiency                                                                                     
  --------------- ------- -------------- ------------- ------------- ------------- ------------- --------------

# 

[^1]: Not always so characterized: especially in states that have not
    restructured their electric industry, or prior to restructuring,
    these benefits are often implicit in regulatory policy, as described
    above.

[^2]: Texas Utilities Electric Deliberative Poll™ Summary Results:
    Residential Participants (1998).

[^3]: [Www.eia.doe.gov/cneaf/electricity/chg_str/pbp.html](http://Www.eia.doe.gov/cneaf/electricity/chg_str/pbp.html)

[^4]: Meg Power of EORI, under contract to the U.S. DOE, analyzed the
    1997 U.S. Census/DOE Residential Energy Consumption Survey (RECS)
    database to determine low-income electricity and energy use and
    burden. DOE is not responsible for the content of the analysis, and
    neither DOE nor EORI is responsible for our use of the data.

[^5]: Please see the Appendix for tabular documentation of the graphs
    and quantitative statements in this section.

[^6]: US Center for Disease Control (CDC), Morbidity and Mortality
    Weekly Report, "Heat-Related Illnesses, Deaths, and Risk Factors --
    Cincinnati and Dayton, Ohio, 1999, and United States, 1979-1997"
    (June 2, 2000).

[^7]: US Center for Disease Control (CDC), Morbidity and Mortality
    Weekly Report, "Hypothermia-Related Deaths -- Georgia, January
    1996-December 1997, and United States, 1979-1995" (Dec. 11, 1998).

[^8]: When first developed, the poverty line was calculated as three
    times a minimally adequate food budget since food then represented a
    third of the average family budget. Food now represents about a
    sixth of the average family budget, but the poverty line is still
    calculated as three times a minimally adequate food budget. Thus the
    poverty line has sunk from 59 percent of median income of
    married-couple families to 33 percent. Adjusting the poverty line
    for this one item (fraction of budget devoted to food) would raise
    the family-of-four poverty line (in 1994) from \$15,100 to \$26,000.
    J. Schwarz, "The Hidden Side of the Clinton Economy," [The Atlantic
    Monthly]{.underline} at 18, 20 (October 1998). [See
    also]{.underline} "K. Porter, "Proposed Changes in The Official
    Measure of Poverty" (Center on Budget and Policy Priorities 1999).

    Even so, the official fraction of Americans in poverty has barely
    changed since 1970 -- and child poverty has markedly increased. A.
    Hacker, [Money: Who Has How Much and Why]{.underline} at 63
    (Scribner 1997); "Low Unemployment, Rising Wages Fuel Poverty
    Decline" (Center on Budget and Policy Priorities 1999); "Poverty
    Rate Hits Lowest Level Since 1979 as Unemployment Reaches a 30-Year
    Low" (Center on Budget and Policy Priorities 2000). The actual
    fraction of Americans in poverty, as would have originally been
    computed, has risen 50%, from 17% to 25%. J. Schwarz,
    [id.]{.underline}

[^9]: U.S. Census Bureau, in Miringoff, [The Social Health of the
    Nation]{.underline} (Oxford 1999).

[^10]: I. Shapiro et al., [The Widening Income Gulf]{.underline} (Center
    on Budget and Policy Priorities 1999).

[^11]: Economic Report of the President, in Miringoff, [The Social
    Health of the Nation]{.underline} (Oxford 1999).

[^12]: SB 7, sec, 39 (1999). See Proposed Rules, c. 25 (PUC).

[^13]: Initial Comments of Entergy Gulf States, Inc. in [Rulemaking to
    Address System Benefit Fee and Associated Programs]{.underline},
    Project No. 22429 (Oct. 16, 2000).

[^14]: By its nature, virtually all utility-funded low-income payment
    assistance is administered by the funding utility.

[^15]: Generally, assistance is either a fixed dollar amount or a fixed
    percentage of the bill. Many programs include an arrearage
    management component. In some programs, benefits are targeted
    depending on income. In others, benefits are targeted according to
    special needs such as a Supplemental Security Income
    (SSI)-qualifying disability.

[^16]: [See generally]{.underline} NCLC, [Access to Utility Services,
    1998 Supplement]{.underline}, App. B.

[^17]: Note that, where customer charges are very low, waiver of the
    customer charge would have little benefit, and a larger fixed dollar
    amount is therefore more appropriate.

[^18]: Robinson and Chalfant, "Economic Revitalization Through Energy
    Conservation" at 19 (The Energy Coordinating Council of
    Philadelphia, 1993). As Section II, above, shows, low-income
    families tend to be very thrifty consumers of electricity; this is
    because every dollar saved on a utility bill is a dollar available
    for food, clothing, or medicine.

[^19]: For example, an Argonne National Laboratory study, based on U.S.
    Department of Energy national consumption data by income, found that
    the poorest quintile used 26 percent less electricity than average
    while the richest used 24 percent more than average. The poorest
    quintile used only 14 percent less natural gas, while the richest
    used 25 percent more. Poyer and Allison, Energy Consumption and
    Expenditure Projections by Income Quintiles on the Basis of the
    Annual Energy Outlook 1997 Forecast at 7 (1998).

    There is a range of estimates for residential electricity price
    elasticity, with many studies showing very little price
    responsiveness irrespective of income. The range is -0.05 to -0.80
    (short-run) and -0.30 to -4.54 (long-run); *i.e.*, a one percent
    increase in price leads to the indicated decrease in demand. EPRI,
    TR-105045 at 197 (1997); Laurits R. Christenson Assocs., \"Customer
    Price Responsiveness,\" EPRI Retail Electricity Book. A value of
    less than 1.0 is considered inelastic. In any event, it is clear
    that electricity consumption varies to some extent with income.
    Results are 0.30- 0.61. D. Chapman et al., \"Electricity Demand
    Growth and the Energy Crisis, Science, Nov. 17, 1972; R. F.
    Halvorsen, \"Residential Demand for Electricity,\" Ph.D.
    Dissertation, Harvard Univ., Dec. 1972.

    The correlation between income and gas usage is smaller because many
    low-income families live in substandard, poorly weatherized homes
    that require excessive consumption of gas to heat.

[^20]: The typical funding level among the states is about one mill per
    kWh for low-income affordability and efficiency combined.

[^21]: However, the Illinois restructuring statute provides for a
    per-meter charge for gas and electricity that is graduated by
    customer size (*i.e.*, residential customers pay \$0.40 per meter
    per month, small businesses \$8.00, and large businesses \$600.00).
    There is as yet no operational experience with this mechanism.

[^22]: M. Quaid and S. Pigg. \"Measuring the Effects of Low-Income
    Energy Services on Utility Customer Payment Behavior,\" Proceedings
    of the 1991 Fifth International Energy Program Evaluation
    Conference, 1991.

[^23]: *E.g.*, Ron Grosse, \"Win-Win Alternatives to Credit &
    Collections\", Wisconsin Public Service Co., 1997.

[^24]: Matousek and Radue, \"Wisconsin Public Services Corp. Lifestyles
    II\" at 25 (Matousek & Assocs. 1993).

[^25]: Niagara Mohawk Power Corporation Affordable Payment and Arrearage
    Forgiveness Program Evaluation, prepared by Response Analysis
    Corporation, Princeton, NJ, May 1992.

[^26]: [Id.]{.underline}

[^27]: [Id.]{.underline}

[^28]: \"Guarantee of Service Plan\", p. 1, Clark Public Utilities,
    Vancouver, Washington, 1999.

[^29]: [Id.]{.underline} pp. 2-3.

[^30]: [Id.]{.underline}; Weiss, \"Low-Income Assistance Pays for
    Itself,\" Northwest Energy Coalition, 1998.

[^31]: [Id.]{.underline}

[^32]: [See generally]{.underline} NCLC, Access to Utilities, chps. 3
    and 6 (shut-off protections), 4 (credit and deposits), 5 (late
    charges and payment plans), 9 and 10 (landlords).

[^33]: \"The Gas Company as Social Worker\", The New York Times, January
    17, 1999.

[^34]: United Illuminating Company in Connecticut is still implementing
    a neighborhood low-income program in addition to -- not instead of
    -- a program piggy-backed onto the DOE weatherization program and
    implemented by the community action agencies. Connecticut Light &
    Power Company has agreed to pilot such a neighborhood program
    beginning in 2001 in order to comply with a CPUC directive for the
    two IOUs to implement the same programs for residential customers
    throughout Connecticut.

[^35]: For discussion of program design, see Brown *et al.*, Utility
    Investments in Low-Income Energy-Efficiency Programs (Oak Ridge
    National Laboratory 1992); Spade and Brockway, A Guide to Low-Income
    Energy Efficiency (National Consumer Law Center 1996); Pye, \"Energy
    Efficiency Programs for Low-Income Households: Successful Approaches
    for a Competitive Environment\" (summary of seven utility programs)
    (American Council for an Energy Efficient Economy, 1996); Brockway
    *et al.*, Approaches to Electric Utility Energy Efficiency for Low
    Income Customers in a Changing Regulatory Environment (utility
    programs in seven restructuring states) (Oak Ridge National
    Laboratory 1998).

[^36]: In addition, Texas will provide a low-income discount of between
    10 and 20 percent of the total bill, so the percentage of revenues
    spent on these programs will be larger than 0.12 percent. The
    specific discount has not yet been determined.

[^37]: Massachusetts Electric Industry Restructuring Act; DOE EIA
    Electric Sales and Revenue 1999 (October 2000). In addition to the
    energy efficiency funds, approximately three times that amount, or
    \$33 million, is built into base rates to fund a low-income
    discount, yielding a total for all low-income program funding of 1.2
    percent of revenues.

[^38]: Barbara Alexander, "Summary of State Electric Restructuring
    Legislation: Universal Service Provisions", (May 1999).

[^39]: For a discussion of the Weatherization Assistance Program (WAP)
    network, including community action agencies, see Mihlmester *et
    al*., Characterization of the Weatherization Assistance Program
    Network (Oak Ridge National Laboratory 1992).

[^40]: A newly designed community-based energy efficiency program that
    will likely be implemented as a pilot by the Northeast Utilities and
    United Illuminating Companies in Connecticut in 2001 will attempt to
    coordinate efficiency services to low-income customers within a
    selected community with the local lead-abatement program.

[^41]: Paul A. DeCotis, Program Manager, New York Energy Smart Program
    Evaluation and Status Report -- Interim Report (NYSERDA *et al.*,
    Sept. 2000). A New York Public Service Commission Staff proposal now
    pending would raise efficiency funding to 1.4 mills per kWh. Staff
    Proposal for the Extension, with Modifications, of System Benefit
    Charge-Funded Public Benefit Programs (Sept. 29, 2000). The portion
    devoted to low-income efficiency would be 19.6 percent, or 0.2744
    mills, which is about 0.25 percent of revenues (about the same as
    Massachusetts).

[^42]: These savings were determined by studying refrigerator
    replacements in Texas, where energy consumption in the existing
    stock of refrigerators ranged from 1000 to 4000 kWh per year, and
    electricity bills for that usage ranged from \$80 to \$320. When
    replaced by energy efficient refrigerators, savings in usage ranged
    from 50 to 88 percent, and savings in dollars ranged from \$40 to
    \$280 annually. Linda Berry, "Identifying the Best Opportunities for
    Energy Bill Savings in Warm Climate Homes", presented at National
    Community Action Foundation's "Energy Programs Leveraging
    Conference" (Oak Ridge National Laboratory, U.S. DOE, October 2000).

[^43]: [Id.]{.underline}

[^44]: [Id.]{.underline}

[^45]: For a distribution-only utility, some argue that this test should
    not include generation or gas supply costs. On the other hand, the
    utility cost test should, but usually does not, include savings
    achieved through reduced arrearages due to lower energy bills:
    increased cash flow; fewer terminations and reconnections; lower
    debt collection costs; less administrative time spent in resolving
    payment disputes; etc.

[^46]: For a more comprehensive list of non-energy benefits of energy
    efficiency programs, see report prepared for The Boston Edison
    Settlement Board, *Non-Price Factors of Boston Edison's Demand-Side
    Management Programs: A Review of the Societal Benefits of Energy
    Efficiency*, prepared by the Tellus Institute, Bruce Biewald,
    Project Manager, S. Bernow, W. Dougherty, M. Duckworth, I. Peters,
    A. Rudkevich, K. Shapiro, and T. Woolf, August 1995.

[^47]: Howat and Oppenheim, \"Analysis of Low-Income Benefits in
    Determining Cost-Effectiveness of Energy Efficiency Programs\"
    (National Consumer Law Center, 1999).

[^48]: As noted above, surveys show consumer willingness to pay small
    amounts monthly to support low-income families. Willingness to pay
    for such public goods is markedly greater when it is known that all
    are contributing.

[^49]: The Department of Telecommunications and Energy declined to adopt
    one 50 percent adder across the board, but it ruled that most of the
    benefits enumerated should be set out on a utility-by-utility basis.
    DTE 98-100 (1999).

[^50]: Many studies show the economic development benefits of
    utility-funded demand-side management or energy efficiency programs.
    Job growth occurs from funds directly spent as well as from
    multiplier effects. This increased economic activity also generates
    increased state and local tax revenue. *E.g.*, Goldberg and Laitner,
    \"Energy Efficiency and Renewable Energy Technologies as an Economic
    Development Strategy for Texas\" (Texas Dept. of Economic
    Development 1998); Laitner and Bernow, \"Employment and other
    macroeconomic benefits of an innovation-led climate strategy for the
    United States,\" 26 Energy Policy 425 (1998); Galvin, \"Examination
    of Components of an Environmental/Economic Benefit Adder\" (Optimal
    Energy 1999).

[^51]: Twenty parties (Action, Inc. *et al.*), Joint Motion for Approval
    of Proposed Guidelines Regarding Cost Effectiveness, Monitoring and
    Evaluation Issues and Shareholder Incentives, filed in Mass. DTE
    Docket no. 98-100, April 14, 1999.

[^52]: NStar (BCR of 2.1), Massachusetts Electric Co. (a subsidiary of
    National Grid USA) (1.94, but 2.01 with oil and gas prices updated
    for the year 2000), and Western Massachusetts Electric Co. (a
    subsidiary of Northeast Utilities) (2.8). Utility-specific
    determinations of cost-effectiveness are pending at the Department
    as of the date of this report.

[^53]: Skumatz and Dickerson, \"Extra! Extra! Non-Energy Benefits Swamp
    Load Impacts for PG&E Program!\" 1998 Summer Study on Energy
    Efficiency in Buildings Proceedings at 8.301 (American Council for
    an Energy Efficient Economy 1998).

[^54]: Berry *et al*., Progress Report of the National Weatherization
    Assistance Program at 38, 45 (Oak Ridge National Laboratory 1997).

[^55]: Magouirk, \"Evaluation of Non-energy benefits from the Energy
    Savings Partners Program,\" 1995 Energy Program Evaluation
    Conference at 155.

[^56]: \"Ohio\'s Weatherization Assistance Program: An Independent
    Evaluation\", by Proctor Engineering Group, Tellus Institute, and
    Residential Building Analysis, 1996-1998.

[^57]: Blasnik, \"Impact Evaluation of Ohio\'s Home Weatherization
    Assistance Program\" at 37 (Proctor Engineering Group 1999).

[^58]: Pennsylvania Public Utility Commission Bureau of Consumer
    Services, \"Low Income Usage Reduction Program\" at 10 (1995).

[^59]: Blasnik, \"Impact Evaluation of Louisville Gas & Electric Co.\'s
    Energy Partners Program\" (Proctor Engineering Group 1997).

[^60]: Megdal & Associates, Process Evaluation of the Demand-Side
    Management Residential Low-Income Energy Savings Program, submitted
    to the Boston Gas Co., at 15 (1998).

[^61]: Megdal & Associates, Cost-Effectiveness Analysis of the
    Demand-Side Management Residential Low-Income Energy Savings
    Program, submitted to the Boston Gas Co., at 8 (1998).

[^62]: A & C Enercom Inc. *et al*., \"Final Report: Process and Impact
    Evaluation Customer Assistance Program\" at iii, 11, 13,
    18-19.(1996).

[^63]: Meyer and Curry-White, \"The Affordable Energy Corporation\'s All
    Seasons Assurance Plan at 59 (1994?).

[^64]: Response Analysis Corp., \"Niagara Mohawk Power Corp.\'s
    Affordability Plan\" at 4 (1996).

[^65]: Scan America *et al*., \"Impact Assessment of the Equitable Gas
    Co. Energy Assistance Program\" at 46, 112 (Scanada Consultants Ltd.
    et al. 1996).

[^66]: Skumatz, above, at 8.307.

[^67]: Berry, above, at 38, 39.

[^68]: Robinson, \"An Examination of the Relationship Between Utility
    Terminations, Housing Abandonment and Homelessness\" at 1,2 (eight
    percent of homeless respondents cite utility cut-off as the cause;
    32 percent of electric and 24 percent of gas cut-offs led to
    abandonment within one year) (Energy Coordinating Agency of
    Philadelphia 1991).

[^69]: Scan America *et al*., above, at 30-31.

[^70]: Federal LIHEAP rules permit the cut-off to be as high as 60 per
    cent of a state\'s median income.

[^71]: Extending the discount to other institutions is certainly
    possible. The obstacles to date have probably been the additional
    administrative effort required and some doubt about whether the
    benefit would flow through to the low-income consumers.

[^72]: California relies on self-certification, which has resulted in a
    high penetration of the discount rate. While it is possible that
    some technically ineligible households qualify for the rate in this
    way, it seems unlikely to us that many families without true need
    would go to the trouble of declaring themselves needy.

[^73]: For example, the Massachusetts electricity restructuring statute
    extended the low-income rate discount to those at or below 175
    percent of the FPL and set as the screening device receipt of a
    public benefit the eligibility for which was an income of 175
    percent of FPL or below or eligibility for LIHEAP (with income at
    175 percent of FPL). The fuel assistance network (mostly community
    action agencies) will certify eligibility for LIHEAP, even if LIHEAP
    funds are exhausted, in order to qualify a household for the
    discount rate. It turned out that, for households of two or more
    with incomes between 150 percent and 175 percent of FPL, there are
    no public benefit programs. This unintended gap was corrected by
    raising the eligibility screen for LIHEAP, ultimately to 200 percent
    for all households. This experience demonstrates the care that is
    needed when surrogates are used for intended eligibility standards.

[^74]: Only New York has done so without legislation. In most other
    states, details are established by a combination of legislative and
    regulatory action.

[^75]: Public Act 98-28.

[^76]: American Council for an Energy Efficient Economy
    (www.ACEEE.org/pubs/mktabl.htm).

[^77]: Energy Efficiency Plan filings made by CL&P and UI to the
    Connecticut Department of Public Utility Control (October 1999).

[^78]: Www.ACEEE.org/pubs/mktabl.htm.

[^79]: Barbara Alexander, Summary of State Electric Restructuring
    Legislation: Universal Service Provisions (May 1999).

[^80]: Massachusetts Department of Telecommunications and Energy
    Conservation Charge Annual Reports (1998).

[^81]: Electric Industry Restructuring Act, Chapter 164, Acts of 1997
    (effective November 25, 1997).

[^82]: [Id.]{.underline}

[^83]: [Id.]{.underline}

[^84]: NCAT LIHEAP Clearinghouse;
    [www.eia.doe.gov/cneaf/electricity/chg_str/pbp.html](http://Www.eia.doe.gov/cneaf/electricity/chg_str/pbp.html)
    .

[^85]: [Id.]{.underline}

[^86]: [Id.]{.underline}

[^87]: NCLC, [Access to Utility Services, 1998 Supplement]{.underline},
    Apdx. B.

[^88]: NCAT LIHEAP Clearinghouse;
    [Www.eia.doe.gov/cneaf/electricity/chg_str/pbp.html](http://Www.eia.doe.gov/cneaf/electricity/chg_str/pbp.html).

[^89]: Montana Laws Chapter 505.

[^90]: [Www.ACEEE.org/pubs/mktabl.htm](http://Www.ACEEE.org/pubs/mktabl.htm);
    Nancy Brockway, Electric Competition Statutes & Low-Income Americans
    (1999).

[^91]: Barbara Alexander, Summary of State Electric Restructuring
    Legislation: Universal Service Provisions (May 1999).

[^92]: Steven Nadel and Marty Kushler, Public Benefit Funds: "A Key
    Strategy for Advancing Energy Efficiency", The Electricity Journal
    (October 2000).

[^93]: [Www.ACEEE.org/pubs/mktabl.htm](http://Www.ACEEE.org/pubs/mktabl.htm)
    .

[^94]: NCLC, [Access to Utility Services, 1998 Supplement]{.underline},
    Apdx. B.

[^95]: [Id.]{.underline}

[^96]: [Www.ACEEE.org/pubs/mktabl.htm](http://Www.ACEEE.org/pubs/mktabl.htm)
    .

[^97]: NCLC, [Access to Utility Services, 1998 Supplement]{.underline},
    Apdx. B.

[^98]: Scan America [et al.]{.underline}, above, at 30-31;
    [www.ACEEE.org/pubs/mktabl.htm](http://www.ACEEE.org/pubs/mktabl.htm)
    .

[^99]: NCLC, [Access to Utility Services, 1998 Supplement]{.underline},
    Apdx. B.

[^100]: [Www.ACEEE.org/pubs/mktabl.htm](http://Www.ACEEE.org/pubs/mktabl.htm).

[^101]: Barbara Alexander, Summary of State Electric Restructuring
    Legislation: Universal Service Provisions (May 1999).

[^102]: [Id.]{.underline}

[^103]: [Www.eia.doe.gov/cneaf/electricity/chg_str/pbp.html](http://Www.eia.doe.gov/cneaf/electricity/chg_str/pbp.html)
    .

[^104]: Oppenheim and MacGregor, Low-Income Consumer Utility Issues: A
    National Perspective (for the Utah Committee on Consumer Services,
    1999).

[^105]: We will be pleased to provide statewide data if desired.

[^106]: For example, as noted above, the Mississippi Power customer
    charge (waived for low-income customers) is \$8.55, about 13 percent
    of the average low-income bill (residential average of \$84.76 \*
    78%).

[^107]: The New Orleans Elderly and Handicapped Fund, which is a newly
    established fund for payment assistance established with what would
    otherwise have been a rate refund, should be considered over and
    above the system benefit fund commitments discussed in this paper.
    This is because the New Orleans fund has been established with
    ratepayer money that is, in effect, being contributed to this
    purpose. The need in New Orleans is the most substantial in the
    Entergy system.

[^108]: Data from Entergy web site, www.entergy.com.