# Presentation: 515510

## National Low-Income Energy Consortium June 14, 2005Phoenix, Arizona

- The Illinois Affordable Energy PlanbyJohn Colgan, Director of Public Policy  Illinois Community Action Association

- The Problem

## Illinois Affordable Energy Plan

- The Problem
- 	- Natural gas prices have risen dramatically
- 	- Weather and volatile markets have caused dramatic price increases
- 	- Leaves consumers unable to predict or reliably plan for energy bills
- 	- This is most worrisome for L-I households who have little or no flexibility in spending
- 	- One bad winter could push vulnerable households over the edge

## Illinois Affordable Energy Plan

- The Problem (continued)
- According to the IDNR
- The cost of home heating fuels increased by 15% in December of 2000
- The cost of home heating fuels increased by 38% in January of 2001
- This created huge bills which led to arrears that in many cases have still not been paid down

## Illinois Affordable Energy Plan

- A Call To Action
- In January 2003 advocates gathered in Chicago to address this issue
- We formed what became known as the IL Affordable Energy Campaign
- Included were advocates, service providers, researchers and policy experts
- The goals was to identify and recommend policy changes to the current LIHEAP Program in IL

## Illinois Affordable Energy Plan

- Who Are The Stakeholders and How Will They Benefits From This?
- Taxpayers:
- - They will benefit by making the Federal and State funded LIHEAP program more streamlined and fiscally efficient
- Utilities:
- They benefit by reducing the number of customers who get behind on their payments and fall into the cycle of costly disconnection and reconnection
- LIHEAP Customer:
- They benefit by making energy more affordable, especially for those customers who need assistance the most

## Illinois Affordable Energy Plan

- Energy Is Not Affordable
- Energy costs are severe and a continuing source of stress for thousands of IL households
- These households are faced with painful decisions regarding which bills to pay
- The average IL household pays 4% - 6% for energy
- L-I households pay much more

## Illinois Affordable Energy Plan

- Energy Solutions
- LIHEAP is vital and essential, but the program can be greatly improved
- The Affordable Energy Plan will:
- Make energy more affordable for a much higher percentage of LIHEAP program participants
- Fund program changes through targeting existing program resources and suggesting additional resource solutions
- Improve IL capacity to manage the cost of providing energy services to L-I consumers

## Illinois Affordable Energy Plan

- The Goals
- Make energy more affordable for more LIHEAP consumers by implementing an affordable payment plan that breaks the vicious cycle of disconnection-reconnection
- Reduce the number of households unable to afford monthly payments and avoid arrearage
- Develop a program that maximizes program resources, controls the costs of LIHEAP to the state, and reduces bad debt for utilities

## Illinois Affordable Energy Plan

- Strategies to achieve the goals
- Propose a portfolio of cost containment and revenue enhancing mechanisms needed to serve the LIHEAP eligible populations
- Simplify program regulations and distribute program resources more effectively
- Utilize market-based mechanisms to stabilize the cost of natural gas

## Illinois Affordable Energy Plan

- The IAEC has developed this plan using conservative estimates of available program funding in IL.  While this plan improves the use of those resources, some constraints remain.  If additional revenue sources are secured, the scope of these goals could be expanded, the level of benefits further improved, or more households could be served.

## Illinois Affordable Energy Plan

- The Existing LIHEAP Program in IL
- The current program funding:
- HHS Program – Illinois gets about $75 million a year
- Illinois Program – Meter Charge for regulated utilities – we get about $65 million per year
- This $140 million serves approx 316,000 households per year

## Illinois Affordable Energy Plan

- Program eligibility
- 150% of poverty
- Single person this is $13,470 per year
- Family of four this is $27,600 per year
- payments are indexed by family size and income

## Illinois Affordable Energy Plan

- Program services:
- Once a year grants called DVP
- Called DVP because $$’s go directly to the utility
- Average grants for last year were $496.71 (including ES)
- ES average grant last year was $436
- Can be as much as $750
- ES also includes furnace replacements which average $2,040.88.

## Illinois Affordable Energy Plan

- Is LIHEAP a good program?
- The answer is absolutely yes
- Not only a good program but a vital program
- Provides for the public health and safety for over 300,000 HH’s
- The need for the program is statewide (show the overhead on areas of need)

## Illinois Affordable Energy Plan

- Can the program be improved?
- Reasonable people may argue that the program is fine the way it is.
- It provides vital and needed services
- It has strong bipartisan support in Congress
- Others are arguing that the program can be improved.
- Because arguments to improve the program challenge the status quo and the current paradigm we expected opposition.

## Illinois Affordable Energy Plan

**The Affordable Energy Plan has seven (7) Components**
**1) A Percentage of Income Payment Plan**. This will stabilize the bills for participants.
**2) New Reconnection Rules.** These will update and formalize the December 2003 agreement between Lt. Governor Patrick Quinn and the utilities.
**3) Reprioritization of Weatherization and new emphasis on energy efficiency. ** LIHEAP funds will go further if participants use less energy.
**4) Strategic Hedging. **This creates the equivalent of insurance for the state. It will use no more than 15% of funds to cap the price of natural gas.

## Illinois Affordable Energy Plan

**The Affordable Energy Plan Components (Continued)**
**5) Arrearage Reduction for Regular Payments.** Many LIHEAP participants struggle with both their current bills and debts from past bills. This proposal will help participants relieve their past debts by giving them credit for making regular payments. Utilities will also be asked to make changes in how they account for debt reduction and how they write off bad debt.
**6) Increased Reporting Requirements. **To help assess the impact of LIHEAP and the state of energy costs for low-income residents of Illinois, utilities will be asked to report additional data.
**7) Explore Additional Funding Sources. **While Illinois has significant LIHEAP resources, they do not meet the needs of all low-income households. This plan proposes methods to secure new sources of revenue to increase program funding.

## Illinois Affordable Energy Plan

- Notes on the PIPP:
- As one means of controlling the costs of the PIPP program, the PIPP will have a maxim benefit level for households whose energy use is very large.
- Households who have utility costs included as an undesignated portion of their rent and households that have home delivered fuel will continue to be served under the current direct vendor payment program (DVP).  Consumers who have heat included in their rent but pay for electricity can be placed in a 3 percent PIPP for their electric bill.  Consumers who have electricity included in their rent but pay a gas bill can be placed in a 7 percent PIPP for their gas bill.

## Illinois Affordable Energy Plan

- Notes on the PIPP: (continued)
- Other eligible LIHEAP consumers who choose not to participate in the PIPP will receive a basic flat grant.  The flat grant amount will be set annually by the Illinois Department of Public Aid in consultation with the LIHEAP Policy Advisory Council (PAC).  The flat grant amount will be determined by taking into consideration the amount of available program resources and should be set at a level to encourage participation in the PIPP.

## Illinois Affordable Energy Plan

**(3)****	****Energy Efficiency:**
- The plan call for the LIHEAP Policy Advisory Council to establish an energy efficiency and weatherization curriculum.
- Participation in this program curriculum will reduce the energy bills of the PIPP participants and the costs of the program.
- There are two main goals for the energy efficiency component of the Affordable Energy Plan:
- Targeting the highest cost households for weatherization.
- Providing no-cost, low-cost efficiency strategies for all participants.

## Illinois Affordable Energy Plan

**Hedging on Natural Gas Costs:**
- Natural gas prices have been extremely volatile for the past several years.
- Natural gas is expensive, and is likely to remain so for the foreseeable future.
- The prices vary year to year and even dramatically within one heating season.
- This makes the increasingly common price spikes even more difficult for consumers to afford.

## Illinois Affordable Energy Plan

**Hedging on Natural Gas Costs: (continued)**
**To protect the LIHEAP program from very high gas prices, the Affordable Energy Plan proposes to use financial hedging tools. **
**The amount of funding allocated for this purpose each year, is not to exceed 15 percent of the state program funding. **
**The amount should be based upon projections in the price of natural gas, and the consumption of gas by program participants.  **
**If hedging results in the accrual of program resources, these resources should be carried over to the next year for hedging costs for the next program year.**

## Illinois Affordable Energy Plan

**Hedging on Natural Gas Costs: (continued)**
- The most practical way of understanding hedging is to view it as purchasing insurance that natural gas prices will not exceed a certain amount.
- The current IL LIHEAP design simply allows higher natural gas costs to be passed on to the LIHEAP consumers.
- During a warmer than average heating season, the hedging will be a cost to the program much as car insurance is a cost even when there are no accidents or repairs that can be claimed against the insurance.
- With hedging, program planning will be simpler due to the ability to project program costs outside the parameters of market fluctuations.

## Illinois Affordable Energy Plan

**Arrearage Reductions for Regular Payments**
- Each time a customer with arrearages makes three on-time regular monthly payments, the utility will give them credit for a 10% reduction of what the consumer owes in default or arrears.
- This will make the plan more affordable for consumers, and it will help create better customers by encouraging regular payments.

## Illinois Affordable Energy Plan

**Increase reporting requirements for utilities**:
- Require every public utility to report  the following information:
- 1) the number of accounts that are past due each month
- 2) the aggregate amount of past due balances each month
- 3) the number of disconnection notices issued to residential customers each month,
- 4) the number of residential customers disconnected each month
- 5) the number of residential customers eligible for emergency services under the Energy Assistance Act each year, and
- 6) the aggregate amount of arrears that are written off as business bad debt each year

## Illinois Affordable Energy Plan

**Explore Increased Funding**
- 	The Illinois Affordable Energy Campaign (IAEC) has discussed three additional alternatives to in crease funding for energy assistance in Illinois.
**Gas Revenue Tax:**  In Illinois, natural gas consumers pay a 5% tax on their gas bill.  If this amount of money were diverted, it could be used to pay for the cost of the hedging proposed in this plan.
**The Ohio Plan:**  Ohio’s Percentage of Income Payment Plan (PIPP) is actually two separate plans – an electric program operated by the Ohio Department of Development and a natural gas program operated by the major local distribution companies
**Increase Current Revenues:**  The Illinois LIHEAP program could achieve increased revenue through adjustments to the meter charge.