THE MASSACHUSETTS MODEL FOR LOW-INCOME ENERGY SERVICE DELIVERY
The resources of most low-income families in Massachusetts, as in most of the US, have not improved since at least 1979. Low-income in Massachusetts is usually defined as 60% of median income and encompasses about a third of the population. The Donahue Institute at the University of Massachusetts analyzed quintiles of Massachusetts incomes over time. Showing this for the bottom 20%:
Significant advocacy on behalf of Massachusetts low-income energy consumers began in the 1970s and has continued since without a break. The result is an enviable net of protections. The Massachusetts Department of Public Utilities (DPU) first approved utility discount rates for certain low-income customers in 1979. Department-ordered low-income energy efficiency programs go back almost as far. In the meantime, federal policy had pioneered along a similar track, with Congress enacting what is now the Low Income Home Energy Assistance Program (LIHEAP) in 1974 and what is now the Weatherization Assistance Program (WAP) in 1975. However, in 1996 federal WAP funding was cut by about 50%.
While these programs came to be delivered by a network of community-based agencies, as provided by federal law, the network was not formalized under Massachusetts law until the Restructuring Act of 1997 (effective March 1998), the major purpose of which was to transfer regulation of generation to the Federal Energy Regulatory Commission, which largely deregulated it. The Act specifically provided that “The low-income residential demand-side management and education programs shall be implemented through the low-income weatherization and fuel assistance program network and shall be coordinated with all electric and gas distribution companies in the commonwealth with the objective of standardizing implementation.”
The Restructuring Act also codified important consumer protections (some previously only in DPU regulations), including a mandate for utility energy efficiency investments financed by a system benefit charge.
The Low-Income Energy Affordability Network (LEAN) was established shortly thereafter by the primary agencies of this network. Established originally to coordinate efficiency programs, LEAN has evolved to coordinate among program delivery agencies, program administrators (including utilities), and state and federal agencies to implement the entire panoply of low-income weatherization and fuel assistance programs in the Commonwealth. LEAN services include:
· Assistance in the development of the comprehensive low-income residential demand-side management and education programs, as required by statute.
· Assistance in monitoring and evaluating existing programs to improve cost-effectiveness and develop new program features. This includes development of evaluation strategies, coordination with evaluators, synthesizing statewide lessons from program evaluations, and coordinating a Best Practices effort.
· Support for the training of low-income weatherization and fuel assistance program network auditors, contractors, and administrators to achieve quality, cost-effectiveness, and consistency.
· Coordination among:
· 11 PAs and their contractors,
· 23 delivery agencies and their 94 auditors and 160 contractors,
· the Energy Efficiency Advisory Council (EEAC) and its contractors,
· the Massachusetts Department of Energy Resources (DOER),
· the Department of Public Utilities (DPU),
· the Massachusetts Clean Energy Centre (CEC),
· the Massachusetts Department of Housing and Community Development (DHCD),
· the US Department of Energy (DOE), and
· the US Department of Health and Human Services (HHS), including a network of about 90 contracts, to deliver multiple state and federal programs, including:
· Program Administrators' (PAs') efficiency programs under the Massachusetts Green Communities Act (GCA);
· DOE's Weatherization Assistance Program (WAP), administered by DHCD, including funds appropriated under the American Recovery and Reinvestment Act (ARRA);
· HHS Low Income Home Energy Assistance Program (LIHEAP or fuel assistance), administered by DHCD to include the Massachusetts Heating System Repair and Replacement Program (HEARTWAP);
· the Arrearage Management Program created by the General Court and overseen by the DPU; and
· research, development, and demonstration of innovative and renewable energy measures in low-income settings, overseen by the CEC pursuant to the GCA.
The LEAN network covers every corner of the Commonwealth:
The LEAN network of agencies and PAs is well represented by this chart created by The Cadmus Group Inc.:
In 2010, LEAN delivered $80M in efficiency improvements alone – projected to rise to $93M in 2011, more than doubling its 2009 achievement. Over 20 years, LEAN has delivered almost $800M in efficiency improvements.
· 20,000 homes will be weatherized using American Recovery and Reinvestment Act (ARRA) funding between fall 2009 and spring 2012, exceeding DOE goals.
· The network has added more than 400 full time jobs in Massachusetts since ARRA-funded Weatherization, at livable wages as established by federal law (Davis-Bacon or equivalent), which have been extended to all workers. The network now engages 94 auditors and 130 contractors.
· Measures are competitively priced. Contractors are licensed, insured, and fully trained.
· The network exceeded DOE WAP goals by 27%, weatherizing 822 units in 2011 as of June 15.
· The network served 24,000 units in PA programs in calendar 2010, expending $29.4 million, 97% of budgets.
· Deep, comprehensive, cost-effective investments are made in low-income homes, with a focus on upgrading inefficient heating systems and other large appliances as well as air sealing, lighting, health and safety. Savings to low-income families are typically 20% of heating bills (from air sealing), 10% of electricity bills.
· ARRA, WAP and PA programs are coordinated to maximize measure installation and efficiency of program administration.
· The network conducts 100% Quality Control (QC) inspections of contractor work to assure savings at a high level of confidence as well as customer satisfaction. In addition, there is a 20% independent QC inspection.
· Innovative and renewable measures in low-income settings include solar hot water, high efficiency domestic hot water and clothes washers, micro-combined-heat-and-power, high-efficiency wall insulation, smart electric strips, and LED lamps.
· Winter activities of the Heating System Repair And Replacement Program (HEARTWAP) focus on responding to no-heat emergencies; Spring/Summer activities focus on efficiency measures. $12M in 2010 efficiency measures included 2,150 “clean and tunes,” 5,360 system repairs, 2,500 system replacements, and 300 oil tank replacements. Typical heating system savings are 25%, or $760 a year at current prices for oil heat.
· It is projected that 1,400 HUD “Expiring Use” units (private low-income housing with subsidized mortgages about to expire) will be weatherized in 2011 at a cost of $6M. The result is to preserve these units as low-income housing while making them more energy efficient.
· Utility Arrearage Management Programs were established by law in 2005 after several LEAN-led pilots, some financed by HHS. They are overseen by the DPU, which expanded them in 2009. The programs resulted in 2010 debt forgiveness by the utilities of more than $14.5 million and payments of more than $13.6 million by low-income customers who would otherwise have faced service termination. The utility arrearage management programs are open to all verified low-income customers in arrears for at least 60 days who owe at least $300 on their gas bills and/or $100 on their electric bills. In exchange for debt forgiveness, customers agree to a levelized budget billing plan and to pay an affordable amount on time each month. Fuel assistance, or LIHEAP, is credited to the customer before the monthly payment amount is calculated, and participants receive the utility low-income discount rate. Program participants are referred to the Network for weatherization and energy efficiency services to permanently lower their bills.
· The federal LIHEAP, administered by DHCD, helped 211,000 households heat their homes in 2010, with $181M. This included 41,000 households with a vulnerable member; i.e., someone elderly, under five, or disabled. The LIHEAP caseload grew nearly 45% since 2008, yet the federal budget is projecting that only half of 2010’s benefit level will be available in 2012. LIHEAP eligibility for Massachusetts is set at 60% of the state median income, or just over $59,000 for a family of four.
· Low-income rate discounts now range to 35% of the total utility bill, depending on the utility, and include 25% for natural gas, the predominant heating fuel.
· Underlying these programs is a longstanding safety net of customer service protections enacted by the General Court and the DPU over the years and codified in 1997 by the Restructuring Act. These protections include:
- Protection from disconnection while a bill is in dispute.
- A goal of universal service.
- Arrearage management (forgiveness) for low-income customers in arrears who keep to payment plans.
- Customers in arrears not in the arrearage management program have the right to negotiate a payment plan at least four months long to eliminate the arrears and cannot have service terminated during the repayment term.
- Protections against service terminations (“No company may shut off or fail to restore utility service . . .”) for customers with a serious illness in the household, with an infant in the household, and during the winter period of Nov. 15 to Mar. 15.
- Service to households where all occupants are over age 65 cannot be terminated without permission of the DPU.
The progress of low-income energy efficiency programs in Massachusetts can be seen in this chart:
Regulatory oversight of these increasing expenditures has expanded on a similar scale and includes:
- Aggressive budgeting by the Massachusetts Energy Efficiency Advisory Council (EEAC), pursuant to the Green Communities Act and the Global Warming Solutions Act.
- Development of programs and budgets by the newly established EEAC with stakeholder input that includes the Attorney General, residential and commercial customer interests, and environmental representatives.
- Additional 5% quality control overseen by the EEAC, in addition to the 100% internal quality control already undertaken by the agencies (including in process QC) and 20% QC by DHCD.
- Updated process and impact evaluations overseen by the EEAC.
- Continued oversight by the DPU with particular focus on cost-effectiveness.
- Significantly expanded Weatherization Assistance Program funding, including for innovative efficiency technologies, by the ARRA, with accompanying expansions in inspections and audits.
- Updated federal process and impact evaluations.
- Massachusetts Clean Energy Center oversight over innovative efficiency technologies.
Stakeholder communication is a key part of the low-income efficiency programs and is, in addition to daily management and the EEAC, accomplished largely through a Best Practices task force (“Best Practices”) that brings together the implementing agencies and program administrators (mostly utilities) and all other interested stakeholders. Interested stakeholders usually include DHCD and a consultant on behalf of the EEAC; all others are welcome. Any topic can be raised at Best Practices, which usually focuses on training and recruitment of contractors and auditors, program delivery questions, and assessment of possible new measures and installation protocols. Where appropriate, statewide decisions are made.
A Best Practices working group has also been established for the utility arrearage management programs. The group meets at least quarterly to discuss implementation, participation rates, and outreach, as well to solve problems and share solutions. The working group comprises all of the utilities, the Network, the DPU, DHCD and the Attorney General.
Additional coordination of the agencies is conducted by periodic meetings of the lead agencies (LEAN), to which other stakeholders are also invited; as well as monthly meetings of agency energy directors (Massachusetts Energy Directors Association, MEDA). LEAN and MEDA oversee all low-income energy programs.
Research has shown that programs designed to keep essential utility services affordable for low-income families provides benefits not only to those families but also to society as a whole. Total benefits far outweigh the costs of the programs.
In Massachusetts, as is typical, budgets are set mostly with reference to the desired level of efficiency to be achieved and constrained primarily by bill impacts. Budgeting is thus largely a function of political decisions.
Once a budget is set, the role of cost-effectiveness analysis is to help determine which measures are best deployed to achieve the desired level of efficiency. Cost-effectiveness does also play a role in budget-setting, however. In some states, such as Massachusetts, the statutory mandate is to achieve “all available energy efficiency and demand reduction resources that are cost effective.” In others, cost-effectiveness analysis is used to demonstrate the economic rationale for making efficiency improvements in the first place.
Cost-effectiveness analysis is usually reduced to a benefit:cost ratio (BCR), where cost is the program cost (measures plus all overheads) and benefits are the net present value of an array of benefits. The most obvious benefits are costs directly avoided by energy efficiency -- avoided energy commodity costs, and avoided transmission and distribution costs, projected over the measure life of the efficiency improvements. Also included are other internalized costs, principally charges related to environmental pollution. Somewhat more controversial is demand-reduction-induced price effects (DRIPE), a calculation of price reductions due to reductions in demand for commodity.
For many measures in high-cost utility service territories, cost-effectiveness can be established on this basis alone. However, non-energy benefits (NEBs) are often also determined. As a result, additional measures (and programs with additional measures) will pass cost-effectiveness screening. Thus, although some NEBs represent additional direct utility cost reductions, to some extent NEBs represent social or policy judgements about valuation of benefits that flow from energy efficiency other than direct energy savings. Prominent examples include low-income affordability, job development, and clean air.
NEBs are generally classified as utility (ratepayer) benefits, participant benefits, or societal benefits, in accordance with the principal beneficiary. Examples of such benefits follow.
Historically, less than one half of utility arrearages are actually attributable to low-income customers. Low-income customers are more likely to be in arrears due to lack of funds with which to pay utility bills than are non-low-income customers. Since studies show these customers want to pay their bills if they can, energy efficiency measures that release funds are more likely to result in payments against arrearages (and thus fewer write-offs) from low-income customers than from others. The benefits flowing from arrearage reduction (cost of money, uncollectibles, collection costs) have been long and widely studied.
Other utility benefits that have been studied include:
· Reduced costs of termination for non-payment and subsequent reconnection,
· Low-income discounts avoided (where they exist) due to reduced sales,