AGGREGATING LOW INCOME CUSTOMERS:
CAN MARKET-BASED SOLUTIONS
FIX MARKET-BASED PROBLEMS?

BY:

Pam Marshall
Energy CENTS Coalition

Roger Colton
Fisher, Sheehan and Colton

Customer aggregation is, fundamentally, a mixed bag. Because deregulation forces the separation of customers from their local utility as their generation supplier, customers are inherently less aggregated than they are under the current system. On the other hand, aggregation is one of the primary vehicles for mitigating against risks posed to small customers from deregulation. But purchasing entities assume the availability of a competitive electric market in which shopping for better electric rates and service is possible Because these markets are least likely to operate for low-income customers, broad consumer considerations are more fundamental than aggregation for protecting low-income customers. In other words, "aggregation alone Is not the answer to universal service. Aggregation does not change the fact that low-income households have little ability to shift their usage to off-peak periods and that low-income customers can be more costly to serve." ¹

Because of the more varied load characteristics contained in a larger aggregated pool, "the greater the size of the aggregate, the greater the ... opportunity for getting a good price."²  Separating low-income customers from any larger aggregated pool, therefore, is a disservice to low-income households. Fragmenting low-income customers into a stand alone subset of electric customers is exactly contrary to the ability of low-income customers to exercise the maximum amount of negotiating power in a competitive electricity market. While municipal aggregation still has significant problems to be worked out, municipal aggregation that includes low-income protections and mechanisms for making utility service more accessible, affordable, and manageable is the ideal option. Other aggregation options that do not isolate low-income consumers into a discrete group-the Vermont consumerco is one such example-are also appropriate aggregation models. Indeed municipal aggregation and the Vermont model are not at odds with each other.

A consumerco cooperative could easily be the competitive service provider in a municipal aggregation situation. In this case, the municipality actually Joins the cooperative as a member.

Municipal aggregation benefits small consumers in three primary ways.- it creates bargaining power for small, individual consumers, it stimulates competition, and it increases market efficiency by reducing the overall costs associated with serving small customers.³   Other advantages of municipal aggregation include the public's ability to comment on the selection process and criteria to be included in the selection of suppliers and the oversight of elected officials. Finally, specific low-income programs and provisions can be developed under municipal aggregation pools that may or may not be offered by private aggregators or power marketing targeted at individual customers.

If municipal aggregation is not allowed under deregulation legislation, a LIHEAP aggregation should be pursued if a better deal than the incumbent utility's standard offer can be negotiated. In this case, however, the State LIHEAP administrative agency should aggregate all LIHEAP households rather than individual LIHEAP providers aggregating only their local LIHEAP households. Particularly if universal service funding helps to make LIHEAP households more attractive to serve (since a portion of their electric bills will be paid), the State LIHEAP agency can administer those funds directly to the electric supplier. The combination of lower costs associated with enrolling a larger number of LIHEAP households, with administering universal service funds, and with negotiating one supply contract for all LIHEAP households, will make a combined LIHEAP pool more attractive than pools aggregated by individual LIHEAP providers Lower transaction costs mean lower prices for low-income households and securing lower energy costs for low-income households provides the best protection for their ability to maintain electric utility service in a deregulated industry.

1) Universal service, safety-net supply and standard offer provisions are the most important protections for ensuring that low-income customers maintain access to affordable electric service.

2) All consumer protections referenced in this report must be included in any changes to the industry to ensure that customer service standards are not degraded under deregulation.

3) Segregating low-income customers into a separate aggregation pool will undermine the ability of low-income people to participate in a broader, geographically based pool with the potential to negotiate more significant benefits and protections.

4) Municipal aggregation with specific low-income service provisions and considerations, combined with #1 and #2 above, is the most effective protection against deregulated electric rate increases.

5) If a low-income project is pursued, all of the regulatory considerations, state LIHEAP plan changes, and universal service funding decisions raised in the report will have to be addressed and implemented. The State LIHEAP agency should act as the aggregator of all LIHEAP households rather than individual LIHEAP agencies aggregating only their local LIHEAP households.

¹Carl K. Oshiro, Universal Service in a Restructured Electric Industry:   Can we ensure that all consumers have access to affordable electric service?,"   The Consumer Research Foundation, 1997, p. 13.
²Kay Guinane, National Consumer Law Center, report about small customer purchasing pools, p. 13.
³American Local Power New, January 1998.