It is well documented that low-income households live in less efficient housing and devote a greater proportion of their income to utility bills than do higher-income households. To help alleviate this burden, many states have passed legislation, enacted regulations, or issued commission orders intended to encourage utilities to increase participation among low-income households in energy efficiency programs.
Regulators play a key role in encouraging utilities to carefully consider how low-income energy efficiency programs can fit within their portfolios. The following information on best practices outlines the importance of low-income energy efficiency programs and steps that regulators can take to encourage the development and delivery of these programs.
Why Low-Income Energy Efficiency Programs Matter
About 23% of US households have incomes at or below 150% of the federal poverty line. ACEEE research has found that low-income, African-American, Latino, and renting households pay up to three times more on home energy costs, as a proportion of total income, than the average household does. Some low-income households are spending nearly 20% of their income on their utility bills. This makes it much more difficult for these families to afford other necessities. Although maintaining reasonable rates is a priority of every regulator, energy affordability cannot be addressed by low rates alone.
Low-income utility customers face numerous disadvantages when it comes to energy affordability. They typically have older and less-efficient appliances and heating and cooling equipment and live in homes that are structurally less efficient. Energy efficiency can help address many of the underlying factors contributing to a high energy burden by helping homeowners, multifamily building owners, and tenants replace appliances, seal leaky doors and windows, and install insulation. However, low-income customers face numerous barriers to participation in efficiency programs. This makes well-designed, specifically targeted efficiency programs for low-income customers an important consideration for utility portfolios.
How Regulators Can Encourage Low-Income Energy Efficiency Program Development
Regulators play an important role in developing wide-reaching and effective energy efficiency programs for low-income customers. Typically, regulatory bodies have undertaken the following three approaches to encourage utilities to focus on low-income energy efficiency programs.
1. Set a goal for energy efficiency delivered to low-income customers.
States have taken a variety of approaches to goal setting for low-income programs, including requirements that low-income programs be included in portfolios, spending requirements, and portfolio savings carve-outs for low-income programs. Spending requirements are the most common, although these vary widely in terms of structure and the overall percentage of funds directed toward low-income programs. Below, we list several examples of spending, savings, and other requirements.
- Illinois. The Future Energy Jobs Bill (SB 2814) directs utilities to implement low-income energy efficiency measures costing no less than $25 million per year for electric utilities that serve more than 3 million retail customers in the state, and no less than $8.35 million per year for electric utilities that serve less than 3 million but more than 500,000 retail customers in the state.
- Maine. Efficiency Maine Trust is required by LD-1559 to “target at least 10% of funds for electricity conservation . . . or $2,600,000, whichever is greater, to programs for low-income residential consumers.”
- Nevada. Legislation requires that 25% of the money in the Nevada Fund for Energy Assistance and Conservation (FEAC) be “distributed to the Housing Division for programs of energy conservation, weatherization and energy efficiency for eligible [low-income] households.”
- Oklahoma. Although the Oklahoma Commerce Commission has not set explicit spending or savings requirements for low-income efficiency programs, it has promulgated rules requiring that all utility portfolios include low-income programs “to assure proportionate Demand Programs are deployed in these customer groups despite higher barriers to energy efficiency investments.”
- Pennsylvania. Pennsylvania utilities are subject to long-term energy savings goals. In the current implementation phase, 5.5% of the total savings target must be met through programs delivered in the low-income sector.
- Texas. Efficiency rules require that each utility aim at least 10% of its annual efficiency expenditures toward the low-income sector.
2. Develop cost-effectiveness rules that reflect the additional benefits associated with low-income programs.
Efficiency providers have found that in order to deliver effective energy efficiency programs to low-income customers, it is often necessary to simultaneously deal with issues associated with health, safety, and home durability. Because of this, many low-income programs contain measures (and associated costs) that are not included in traditional energy efficiency programs. As a result, it is particularly important that the value of low-income energy efficiency measures be characterized in terms of both the energy and the non-energy benefits they provide to low-income customers.
States account for the additional costs and benefits of low-income programs in a variety of ways. Some states have quantified non-energy benefits associated with low-income programs and included these benefits in cost-effectiveness tests. Others have developed generic “adders” for low-income programs that effectively account for health and safety benefits. Many states have developed guidance that notes that low-income programs do not have to meet cost-effectiveness tests, or that utilities must meet cost-effectiveness requirements only at the portfolio level, allowing them to balance more cost-effective programs with higher-cost low-income programs.
Below, we offer some examples of how states have accommodated the inclusion of low-income programs in energy efficiency portfolios through adjustments to cost-effectiveness rules.
- Arizona. The Arizona Corporation Commission has ordered that costs associated with health and safety components of efficiency upgrades not be used in the calculation of cost-effectiveness.
- Arkansas. Regulators do not require program-level cost-effectiveness for low-income programs.
- Colorado. In applying the Total Resource Cost Test to low-income programs, benefits included in the calculation are increased by 20% “to reflect the higher level of non-energy benefits likely to accrue from DSM services to low-income customers.” These costs are also not applied toward the calculation of utility performance incentives, which are based on net benefits.
- Iowa. Low-income programs do not need to be tested for cost-effectiveness, although utilities may do so for planning and informational purposes.
- Kentucky. Low-income programs are exempt from program-level screening. Furthermore, the Public Service Commission has stated that should a low-income program fail any of the traditional cost-benefit tests, utilities and their associated collaboratives may supply additional documentation to justify the need for the program.
- Vermont. The societal cost test is Vermont’s primary test for energy-efficiency decision making. A 15% adjustment is applied to the cost-effectiveness screening tool for low-income customer programs.
- Washington. Washington’s primary test for energy-efficiency programs is the Total Resource Cost Test. Companies may implement low-income programs that have a TRC ratio of 0.67 or above. The TRC must include all non-energy impacts that can be monetized, and an additional 10% benefit is applied to account for nonquantifiable externalities.
3. Convene a stakeholder group to ensure that programs are well designed to meet the needs of low-income customers.
Regulators can facilitate improved program design by bringing together utility-specific working groups or a statewide collaborative focused on low-income consumer issues. Several states have used working groups to inform program design. Eighteen states have permanent statewide collaboratives, and many others have utility-specific collaboratives, efficiency advisory boards, or temporary stakeholder working groups that convene as needed. While many of these working groups have a broad focus, some states have developed subgroups or specific low-income working groups to address the specific barriers to low-income program implementation and participation. Below, we list examples.
- Tennessee Valley Authority. TVA facilitates an Energy Efficiency Information Exchange group made up of representatives from the seven state service districts. The group has examined various critical issues in the past and is currently focused exclusively on low-income weatherization. Stakeholders include utilities, low-income financing authorities, community activists, state agencies, and others. The group meets quarterly with the goal of creating a uniform low-income program to serve the TVA territory.
- Massachusetts. The Low-Income Energy Affordability Network (LEAN) is a network of community action agencies, public and private housing owners, government organizations, and public utilities across the state. The collaborative’s goal is to coordinate utility programs, programs implemented by other agencies and nonprofits, and a variety of funding sources to deliver streamlined and comprehensive solutions to low-income customers.
- Delaware. The statewide Delaware Energy Efficiency Advisory Committee has a subcommittee focused on low-income issues. Subcommittee members include representatives from each utility, the statewide Sustainable Energy Utility, the state energy office, a low-income advocate, and community members from each county across the state. The subcommittee’s mission is to support all Delaware low-income energy efficiency programs and initiatives by providing feedback and guidance on the development and implementation of program offerings.