1996

Executive Summary

The nation's low-income population bears an inordinate energy burden, paying, on average, three to seven times more on energy than the median-income household pays as a percentage of income. Utilities have made some good progress toward ameliorating this burden by providing energy efficiency programs for their low-income customers. Many of these programs have been implemented by utilities in response to regulatory mandates and were not expected to be cost effective. Certain utilities, however, have proven that these programs can operate cost effectively. Despite the fact that regulatory changes are creating an uncertain future, this does not indicate a necessary death of energy efficiency. It is most likely that some sort of funding will be required to continue energy efficiency programs for low-income households. This period of transition presents opportunities to pursue new, innovative approaches to achieving energy efficiency goals for customers in general and low-income customers in particular.

As utilities deregulate and become more focused on the "bottom line," they will change the way they do business. If low-income programs are mandated, utilities will want to operate them as cost effectively as possible. The recommendations detailed in this paper speak to this goal. This paper also discusses the business advantages--from a utility perspective--of providing energy efficiency services to their low-income customers:

- Energy efficiency programs for low-income customers can be operated cost effectively.

- The low-income sector, because of its generally older, draftier, substandard housing, presents greater opportunities for energy savings than the average customer.

- Many deaths occur each year due to inadequate heating and cooling or termination of utility service. Energy efficiency programs for low-income customers can reduce the incidence of such deaths and create good public relations, which utilities will value more as they become more competitive.

- Energy efficiency is good for the local economy because saving money on energy (money that usually goes outside the local area) increases discretionary dollars, which tend to be spent locally. Energy savings also tend to have a positive net effect on providing jobs. A strong local economy is good for the utility's business.

- Reducing the low-income energy burden has non-energy benefits for the utility, including reducing arrearages, disconnect/reconnect costs, working capital needs, and customer goodwill.

This report draws on the research and experience of some of the country's leaders in providing energy efficiency services to low-income households. In addition, several of the more successful and progressive energy efficiency programs for low-income customers are profiled. The case studies, experience, and research compiled in this report provide many ideas regarding how energy efficiency services can be provided to low-income customers most effectively, from both a cost-of-service perspective and a benefit-to-customer perspective. Recommendations fall into six categories: forming partnerships, targeting high-use customers, education, energy efficiency measure selection, marketing, and avoiding lost opportunities.

Utilities may form partnerships with other utilities (e.g., water, alternate fuel), government programs (WAP and LIHEAP), or local community agencies. Potential synergies also exist with affordable-housing developers, banks, first-time home ownership programs, local housing financing agencies, state and local land trusts, and community development financial institutions. These partnerships can provide effective cost controls by making possible such activities as bulk purchasing; centralized participant recruitment; large, more competitive subcontracting; increased energy savings through increased comprehensiveness; sharing of trained energy efficiency professionals; and development of joint delivery. The result of sharing expertise and resources is to provide more comprehensive energy efficiency services to more people more efficiently and more cost effectively. In some cases, partnerships allow the utility to enable someone else to operate energy efficiency programs, without having a substantial day-to-day role itself.

Most of the programs profiled indicate the importance of targeting customers with high-energy use. These customers tend to use energy the most inefficiently and therefore have the highest potential to save energy both through efficiency measures and by becoming more aware and involved in conserving energy. Targeting these customers helps make a program more cost effective because savings are maximized while effort is minimized. High-use low-income customers also tend to have higher arrears, so by targeting them, the utility increases its opportunity to reduce bad debt and the administrative cost of credit and collections. Although many utilities do not yet quantify these non-energy savings, as utilities become more streamlined under competitive pressures, the savings in this area will get increased attention.

Education has proven to be a valuable component of energy efficiency programs, not just education of the customer, but also education of the service providers and program sponsors. Experience has shown that energy efficiency programs increase energy savings and enhance the persistence of savings by providing customer education, and providing training to maintenance staff. Education helps the customer feel more committed to the program and gives the customer some control over their energy usage and savings.

Measure selection directly affects the energy savings of a program. Many criteria will affect which measures will provide the greatest, most cost-effective energy savings in any one home for any specific utility in a particular climate. For example, because electric heating is less common than gas heating, electric utilities will probably find the greatest energy savings resulting from replacement of electric appliances. Gas utilities, on the other hand, get the most energy savings from measures that reduce the energy needed to heat the home (e.g., attic and wall insulation, replacing inefficient heating systems, and increasing attention to heating system distribution systems). Ideally, electric and gas utilities will work together so that a comprehensive set of measures can be provided cost effectively through one customer contact.

Marketing is an important facet of any energy efficiency program. In order for a program to be successful, customers must be interested in participating. The utility must understand and identify the low-income market segment, and market the program in a way that will minimize barriers and maximize participation. An important component of this marketing strategy is that customers be contacted by someone they trust.

In the case of energy efficiency, lost opportunities occur when we miss an occasion to install energy-efficient measures at minimal incremental cost. In order to avoid lost opportunities, it is important that a program is comprehensive, maximizing the savings in each home. This can be achieved by analyzing all end uses and technologies that may be cost effective, and installing as many types and numbers of measures as is cost effective in as few visits to the home as possible. This approach increases program costs in the short term, but increases program benefits, reducing costs in the long term.

These approaches have proven to be valuable to many utilities, allowing them to provide energy efficiency programs to their low-income population more cost effectively. These programs fulfill some very important social needs, but also have value that stretches beyond social benefits. Serving the low-income customer sector can be good for society, good for the economy, and good for business.

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35 pp., 1996, $11.00 U964

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