STATEWIDE ADMINISTRATION OF LOW-INCOME PROGRAMS

STATEWIDE ADMINISTRATION OF LOW-INCOME PROGRAMS
UNDER ENERGY UTILITY RESTRUCTURING:
OPPORTUNITIES AND PITFALLS

Low-income and other advocates in various states are taking advantage of the upheaval of gas and electric industry restructuring to push for statewide independent administration of utility low-income bill assistance and energy efficiency programs. Proponents of statewide independent administration cite a variety of factors:

(A) Utilities have a self-interest in maintaining maximum billings and maximum usage, and so they will not run the best programs;

(B) Utilities are not committed to the successful operation of such programs, and the programs are not run well;

(C) The problems of low-income consumers are not different from utility service area to utility service area, and the solutions should therefore cross service-area lines;

(D) In some cases, existing organizations (such as LIHEAP or WAP offices) are in place that can provide statewide coverage and are closer to the customers to be served;

(E) Funds should be collected statewide from all customers, and then targeted to the areas with greatest need, rather than using utility-specific funding, which can result in lower levels of funds for low-income customers in the lower-income service areas;

(F) Utilities in states that permit utilities to continue to sell electricity or gas (whether directly or through affiliates) have conflict-of-interest problems in being the provider of special assistance to low-income customers, as it gives them a favorable image as compared to non-utility competitors for the commodity sales part of the business.

(G) A statewide administrator can achieve economies of scale and thus lower the costs of delivering program services.

; In response to these types of arguments, the Commissions in California and New York have determined to create statewide non-utility administration of a number of public benefit programs, including some low-income programs. In some cases, statewide administration of utility programs is mandated or fostered by industry restructuring legislation. This memorandum discusses the decisions of commissions and legislatures on this topic.

The California Commission ordered that energy efficiency and low-income bill assistance be transferred to independent administration, and created two boards to oversee the transfer and the new independent administrators.¹The advisory board overseeing the general energy efficiency programs is the California Board for Energy Efficiency. The Low Income Governing Board was created to supervise the independent low-income programs. The statute restructuring the California electric utilities, A.B. 1890, contemplates such statewide administration of low-income programs with its determination that the budgets of such programs shall be needs-based.² This could be interpreted to require that budgets be considered statewide, so that needs for individuals in one service area are placed on an equal footing with needs of customers in other service areas, and not differentiated by the accident of which service area the customer resides in.

In addition, the statute restructuring the California electric utilities explicitly determined that system benefits funds for research and development of renewable forms of energy should be administered by the California Energy Resources Conservation and Development Commission, on a statewide basis.³

The California PUC Low-Income Governing Board has been hampered since its creation in early 1997 with uncertainty about its legal status. As a result, it has taken a long time for the Board to begin addressing substantive issues such as budgets and program design and implementation. And recently, the entire effort to meet the Commission deadline for transfer of programs by January 1, 1999 was brought to a halt by the decision of the Executive Director of the California Personnel Board that the LIGB's sister Board, the CBEE, had illegally hired consultants for administration, legal advice, and technical (program design) support. 4 While the Commission may decide to appeal this decision, in the interim the Boards have had to relieve all their consultants from further work, thus effectively terminating most ongoing work of the Boards. This experience highlights the need to be sure of the legal status of any entity entrusted with a role in the independent administration of the programs.

Other questions arose in California that are not yet resolved, and that may present themselves to advocates in other states. First, some Board members worried about their personal legal liability for Administrator hiring decisions (including the drafting of the Request for Proposals for independent administrators, a key responsibility of the Boards) if unsuccessful bidders sued. It was not clear whether the Boards could obtain errors and omissions insurance, nor whether the California PUC or Attorney General would provide representation, and indemnification. The law in California about the status of such boards vis a vis the rights and responsibilities between the state and its employees is not clear. These boards have emerged in the last decade or two, as needs have become apparent, but without explicit legislative determination.

Further, the tax status of the funds was in doubt. If the funds came to the independent administrator, or to the Board, the Internal Revenue Service staff in the regional office were taking the position that the funds were taxable. This left the options of creating a non-profit corporation or foundation, but for reasons best known to the Boards' tax consultants, it was determined that the funds should go to the State directly (that is, to the Public Utility Commission), as a means of ensuring that no taxable event was created at their transfer from the utilities to the central funding repository. This question, along with many others, is now in limbo because the action of the Personnel Board essentially stops forward motion by the Boards towards creating a statewide administrative apparatus, pending resolution of the civil service issues.

III. NEW YORK SYSTEM BENEFITS TRUST

The New York Commission has determined that systems benefits shall be provided through statewide administration. In approving two individual utility restructuring plan settlements, the Commission approved centralized administration. In its determination on the generic issue of systems benefits costs the Commission selected the New York State Energy Research and Development Authority, a quasi-governmental agency, to administer certain public goods programs, including low-income pilot energy efficiency programs, and energy efficiency programs generally.5 The Commission explicitly approved the request of advocates for low-income consumers that rate discounts not be provided under the auspices of the NYSERDA, but rather be provided as part of utility rate design.6 The New York Commission has ordered a three-year transition period, at the end of which time it will determine whether to continue the programs funded through the systems benefits program.7

The New York Commission was vague in its determination concerning the allocation of funds between utility service areas, stating:

With respect to low-income energy affordability programs, the New York Commission determined that SBC funds should be used to

The Commission stated that if utility programs prove successful in reducing rates and are implemented on a large scale, funding should be moved from the SBC into base rates.

The Massachusetts Legislature has determined that coordination should be pursued not only across company lines, but across industry lines (gas and electric):

Representatives of low-income consumers, seniors and the disabled, along with the Community Action network, have been negotiating with electric and gas utilities for replicating consistent models of electric and gas low-income demand-side management programs across service areas. Utilities are receptive to industry-wide programs, and potentially to a statewide program, but such a development may be some years away. In the meanwhile, utilities are contracting with weatherization providers, through a lead vendor selected from among the agencies, to implement DSM programs. Rate discounts continue to be provided on a utility-by-utility basis as a component of separate distribution utility tariffs.

The affordable service and energy efficiency programs established in Illinois pursuant to that state's electricity restructuring statute are set up to be statewide funds. Section 6-6 8 creates an Energy Efficiency Trust Fund 9 in the State Treasury, consisting of $3,000,000 contributed by electric utilities and alternative retail electric suppliers. The funds are collected by the Illinois Department of Commerce and Community Affairs pro rata from the suppliers based on their relative shares of kilowatt-hour sales in the state. Energy Efficiency Trust Fund moneys are to be spent by the Department for "supporting energy efficiency efforts for low-income households," replacing inefficient windows, appliances and lighting, insulating dwellings and other buildings, and other projects that will increase energy efficiency in homes and rental properties.10 Article 6 expressly directs the Department to focus on low-income customers' efficiency needs:

The Illinois restructuring statute likewise creates a statewide fund for bill affordability. Section 85 of the Senate Bill 55 amends The Energy Assistance Act of 1989, to add Sections 13 and 14, creating a Supplemental Low-Income Energy Assistance Fund. This fund, like the Energy Efficiency Fund, is created as a Trust Fund of the State Treasury. Subject to appropriation by the General Assembly, the Department of Commerce and Community Affairs is directed to use the fund to pay electric and gas utilities (including municipal and cooperative utilities, as well as investor-owned utilities) on behalf of their low-income customers who participate in the energy assistance program created by the Energy Assistance Act of 1989.11 The program is primarily a bill assistance program but low-income weatherization can be funded, up to a maximum of 10% of the moneys. Weatherization funds must be targeted to customers with the greatest energy burden.12

The funds for this statewide supplement to LIHEAP will come from a customer charge of 40 cents per month on each residential gas and electric customer, $4.00 per month on each small non-residential gas and electric customer, and $300 per month on each large non-residential gas and electric customer.13 An Energy Assistance Program Design Group is established by the statute to advise the General Assembly with regards to long-term program requirements for low-income energy assistance.14The statutory language and the use of the Department of Commerce and Community Affairs and LIHEAP and WAP program infrastructure make it clear that the program is intended to be run on a statewide, as well as a combined gas and electric, basis.

The Montana statutory scheme contemplates a statewide fund, but permits credits by utilities for their service-area-specific offerings.15 The statute requires utilities to state in their transition plans how they propose to provide for universal systems benefits programs.16 The overall funding level for universal system benefits programs is set at 2.4% of the annual retail sales revenues of each utility for the calendar year ending December 31, 1995.17 For low-income energy and weatherization assistance, the minimum funding level is 17% of the total universal system benefits fund, (or 0.41 %of 1995 revenues).18 If a utility does not fulfill its annual funding requirement for low-income energy and weatherization assistance, and so is not entitled to a credit against its fund responsibilities, the utility must make a payment to the fund for the difference.19

The Montana statute provides for a Transition Advisory Committee comprised of legislators, with non-voting representation from executive branch agencies, utilities, the governor, identified customer groups, a low-income program provider, and other interested parties.20 Among other things, the Transition Advisory Committee is responsible for making recommendations to the governor concerning the implementation of statewide universal system benefits and universal energy assistance funds, in time for those funds to be created by January 1, 1999.21 These include the option of recommending that the task of fund administration be assigned to an existing government agency, or a private, nonprofit entity. This committee will also advise the governor on proposed rules for how the funds shall be used. 22 Thus, Montana contemplates a mixed system of utility-specific programs and a statewide fund to fill in gaps in utility efforts.

The Maine statute leaves open the possibility of instituting a statewide program. Section 3 of the restructuring statute 23 provides that the Commission shall receive funds collected by all transmission and distribution utilities in the state in order to "continue existing levels of financial assistance for low-income households and to meet future increases in need caused by economic exigencies..."24 This language suggests that the commission is intended to function as the repository of a statewide fund. The interpretation of this section will be addressed by the Commission if and when the Legislature takes up the question of a General Fund appropriation for low-income assistance programs, contemplated by the Act. 25 If, as is likely, the legislature decides to continue utility funding, rather than substituting General Funds, the Commission will take up the question of a statewide fund. In the meanwhile, utilities are continuing their separate program, and the Commission is considering requirements on all utilities to offer assistance programs.

For energy efficiency, the Maine statute is clear that the utilities must mount such programs, and that conservation programs are to be funded by inclusion of program costs in such companies' rates.26 The Commission has the job of establishing a funding level for such programs. The statute does require that utilities must select energy efficiency service providers through periodic competitive bid processes, but the language again appears to contemplate utility-by-utility programs. 27

In Pennsylvania, the statute is silent on how the programs are to be administered, although the language suggests that a utility-by-utility effort was contemplated, 28 and the commission has ruled out a statewide approach, at least for now.29

Nevada's statute does not include specifics for low-income programs, beyond the general principle that the Commission's restructuring plans must provide "effective protection of persons who depend upon electric services." 30

Rhode Island appears to contemplate utility-by-utility programs. 31 The statute does not bar statewide administration, but there have as yet been no efforts to establish a statewide fund, at least for low-income programs.

Oklahoma's statute also appears to contemplate utility by utility efforts, in that it defines "Public benefit programs" as social, economic and environmental programs "currently funded through rates". 32 The Corporation Commission is charged with undertaking a study of all issues relevant to restructuring the electric industry, and reporting back to the Joint Electric Utility Task Force. Among the topics on which the Commission must report is "programs and mechanisms that enable residential consumers with limited incomes to obtain affordable essential electric service..."33 Conceivably the Commission could return with a recommendation for statewide programs. The Commission is scheduled to conclude its examination of issues including the consumer safeguards issue noted by December 31, 1999.34

Finally, the New Hampshire statute set forth broad principles of affordability and energy management for low-income customers, and left it to the Commission to set specific policy on how to mount programs to accomplish these goals.35 The New Hampshire Commission, in its order on restructuring plan requirements, established a statewide percentage-of-income-payment type universal service bill assistance program for low-income customers, to be implemented by the fuel assistance network. 36

Two other states bear particular mention regarding the issue of statewide administration. In Wisconsin, the working group of stakeholders meeting over several weeks to develop consensus restructuring recommendations for the Commission voted to propose a statewide low-income program.37 The Commission recently enunciated its view that low-income utility programs should be administered by a state agency, the Department of Administration - Division of Housing.38 The Commission called for legislation to implement its recommendations. The drive to restructure the Wisconsin electric industry has slowed, and it is not clear at this writing what further steps will be taken to implement the working group's recommendations.

Vermont has a statewide Home Weatherization Assistance Trust Fund established by the legislature.39 Under the legislation, a 0.5% tax is levied on the gross receipts of all non-transportation energy vendors in the State. The :funds are placed in a trust within the state treasury, and administered by the Vermont agency that provides energy efficiency weatherization services and LIHEAP services for low-income Vermonters (Home Energy Assistance Office). Utilities can obtain credit against their tax responsibility for qualifying expenditures on demandside management programs.

The attached table summarizes the current status of determinations on the extent of statewide program administration in electric industry restructuring proceedings to date. As can be seen, five of the eleven states reviewed have moved strongly in the direction of statewide administration (California, Illinois, New Hampshire [PIPP], New York, Wisconsin [PSC recommendation]). Another two (Maine, Massachusetts) have recognized the value of statewide programs. Montana has a mixed statewide and utility-based program (which functions like Vermont's home energy assistance trust, in that utilities can receive credits against statewide obligations for local programs). Some of the remaining states have not yet addressed the question of program design and implementation.

State	Statewide?	Who Administers
CA	Yes	Independent Administrator under representative Governing Board
NY	Yes	NY State Energy Resource Development Authority
IL	Yes	Illinois Department of Commerce and Community Affairs
NH	Yes - PIPP	Through LIHEAP/WAP network
ME	Probably	Not yet determined
MA	Possibly - at least statewide program consistency, and gas/electric coordination	Through LIHEAP/WAP network
MT	Mixed service area/statewide	State fund, with utility credits for qualifying utility-specific actions
NV	Nor clear	No specific programs discussed in statute
PA	Not at present, but all service areas must have programs meeting state guidelines	Utilities, with greater use of CBOs
OK	Probably not	Task Force report and recommendations due 12/99
WI	Probably (PSC recommendation to legislature)	State LIHEAP/WAP agency and network

4 Memorandum from Walter Vaughn, Acting Executive Officer, California State Personnel Board, to Wesley M. Franklin, Executive Director, California Public Utilities Commission, February 4,1998, Subject: Personal Services Contracting (LIGB/CBEE).

5 In the Matter of Competitive Opportunities Regarding Electric Service, Case No. 94-E0952, Opinion and Order Concerning Systems Benefits Charge Issues, issued and effective January 30, 1998. See also orders approving various settlements of proposed restructuring plans, cited in Case No. 94-E-0952.

7 Id., at 6. The four types of programs are (a) PSC-approved energy efficiency programs and services, (b) PSC-approved public benefit research, development and demonstration projects related to energy service, generation or energy storage, the environment ... and renewables, (c) PSC-approved low-income energy efficiency and energy management pilot programs, and (d) environmental programs that go beyond compliance with the law or permit requirements. Id., at 3,4.

8 Senate Bill 55, signed into law in 1997. Article 6 generally deals with funding of public purpose programs. Section 6-4 sets up a Renewable Energy Resources Trust Fund, funded by customer charges of 5 cents per month for residential electricity and gas customers, and 50 cents per month for non-residential electricity and gas customers.

9 Typically Trust Funds in state treasuries are funds set aside for designated purposes, which cannot be tapped for use on other projects, and therefore are not part of the general revenues of the state.

13 Id. For the purposes of this statute, a small non-residential gas customer took less than 4 million therms in the prior year, a small non-residential electricity customer had less than 10 megawatts of peak demand in the prior year.

151997 Mont. Laws Ch. 505, enacted and effective May 2,1997 (S.B. 390, Section 22), Universal system benefits programs.

17 Id., Section 22(2). Universal system benefits are defined to include energy conservation, renewable resource projects and applications, and low-income energy assistance. Id., Section 22(l).

19 Id., Section 22(5)(b). A sliding scale is to be used to assess individual customer contributions to the utilities' fund obligations, except that very large customers (loads over I megawatt) can receive a credit for funding energy efficiency in their own premises, and have a payment obligation capped at 0.9 mills (0.9 tenths of a cent, or .09 cents) per kilowatt-hour. Id., Section 22(7).

22 Id. The Transition Advisory Committee also will make recommendations to the legislature regarding future funding levels for such programs. Section 29(15).

28 P.L. 802, No. 138, amends Penn. Stat. Ann. title 66, sections 2801 et seq. Section 2802(17) talks about "continuing" universal service and energy conservation policies, protections and services, which suggests that existing utility programs should be continued, instead of creating a new apparatus to implement them. Section 2802(10) says that "the Commonwealth" [of Pennsylvania] is the entity that "must, at a minimum, continue" universal service efforts. But Section 2804(9) states that the Commission must ensure that such services are "available in each electric distribution territory."

29 Re: Guidelines for Universal Service and Energy Conservation Programs Made Pursuant to 66 Pa. C. S. Sections 2803, 2802(17) and 2804(9), Final Order, July 10, 1997.

31 1996 R.I. Laws Ch. 96-316, amends R.I. Gen. Laws Title 39, R.I. St. section 39-21.2(b)(preservation of existing electric company environmental and low-income programs, permission for utilities to propose additional programs).

32 1997 Okla. Sess. Laws Ch. 162, section 3, adding Okla. Stat. tit. 17, section 190.3.

351996 N.H. Laws Ch. 129, approved and effective May 29, 1996. Adds N.H. Rev. Stat. Ann. ch. 374-F.

37 See, Investigation on the Commission's Own Mortion of Appropriate Measures to Maintain or Enhance Existing Levels of Energy Efficiency, Services to Low-income Customers, Renewable Resources, and Research and Development ('Public Benefits' ) in Restructured Electric and Natural Gas Industries, Enunciation of Policy and Principles, Docket No. 05-BU 100, Public Service Commission of Wisconsin, December 22, 1997, internet download from PSC website, pp. 4-5 of printout.

38 Id., at 9th page of printout. The recommendation for centralized statewide administration applies to energy efficiency and other public benefits, as well.