Published: April 29, 2024
By: Concentric Staff Writer
Affordability has become front of mind for utilities and their regulators, who are now struggling to meet emissions goals while decarbonizing the electricity grid and switching to renewables, a transition that currently poses significant affordability concerns.
Central to these goals and the regulatory targeting of affordability are retail rates. When designing retail energy rates through rate cases at the state level, there has been a shift in the discussion from how to allocate costs to how various customer classes will afford those costs, Concentric Vice President Gregg Therrien said.
Therrien focuses on the electric, gas, and water sectors, primarily in Connecticut, New Hampshire, and New Mexico. Historically, rate cases have been about how to allocate costs across the different customer bases, including residential, commercial and industrial customers, municipalities, schools, and governments, Therrien said. But over the past year, more discussion has arisen in the context of affordability and lower income discount rates, also known as LIDR, he said.
“It’s a much bigger discussion than we’ve ever seen before, and that’s significant,” Therrien said of energy affordability. “I think it’s really in recognition that everybody knows prices are increasing.”
“LIDR is an acronym that has been around for a while but has gained prominence in rate design in the past couple of years,” he said. A discount rate in Massachusetts or New Hampshire has typically been 15 percent of either the distribution portion of a customer’s bill or their total bill. But now the trend for discounts is rising significantly, up to 50 percent or 60 percent of the total bill as recommended in Connecticut ongoing regulatory proceedings, he said.
Another guideline developed in the industry is the concept that an energy bill should be no more than 6 percent of monthly household income. This was an income threshold that was mentioned several times by Concentric experts.
“Now, with the energy transition, there’s the realization that there are people who need to have significantly discounted rates for the energy transition to occur without major disruption,” Therrien said. The current debate is how to structure these programs; for instance, should it be a straight discount for specific customer categories, or should it involve more detailed calculations?
Electric heat pumps, electric vehicles, and home solar equipment are examples of products that can be difficult for lower-income customers to afford. States are responding to zero-emission policies with more subsidies for cleaner equipment. Vermont has a program to give away electric heat pumps, and Maine has discount programs for such appliances. The federal government has incentives nationwide for customers to purchase electric vehicles.
Costs for these programs are often socialized across higher income brackets, according to Therrien. In California, state legislation has mandated that retail electricity charges be based on personal income, a contentious political issue that is receiving pushback from some (new legislation has been introduced to repeal that law). Another question is whether such programs should be subsidized only for residential customers or also for commercial and industrial customers.
Affordability is front and center when designing rates, according to Bickey Rimal, an Assistant Vice President at Concentric Energy Advisors. He said that a fixed monthly charge based on the cost of service tends to have a more significant impact on low-usage customers than a volumetric charge for energy usage. This is mainly due to the fact that the current fixed charges only recover a small proportion of the fixed costs, with the remainder of the fixed cost recovered from volumetric charges.
There is pushback because there are certain parties that incorrectly assume that low-usage customers are necessarily lower-income customers. According to Rimal, low-income customers are not necessarily low users, however, and similarly, high-income customers are not necessarily high users. Mr. Rimal recently conducted statistical analysis to compare the consumption patterns of low-income and non-low-income customers of a mid-western electric utility and found that the usage between the two groups was not statistically different.
For example, higher-income customers who own home solar might have lower overall usage than middle- and lower-income customer classes. On the other hand, low-income customers may have inefficient appliances or poor home insulation leading to higher usage, comparatively. For this reason, trying to keep the fixed charges artificially lower and volumetric charges artificially higher does not necessarily help the low-income customers, Rimal said.
It’s important to consider the significant challenges that low-income customers face in affording their energy bills. Additionally, there is growing concern that some customers may be left behind in the energy transition.
—
All views expressed by the article contributors are solely the contributors’ current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, related companies, or clients. The contributors’ views are based upon information the contributors consider reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.
Published: June 6, 2023
By: Concentric Staff Writer
“Energy insecure” households in the U.S. were billed at a higher rate for energy than other households in 2020, according to a new report from the U.S. Energy Information Administration (EIA).
Households identified as “energy insecure”—those in which there is an inability to meet basic energy needs and there are challenges in purchasing adequate energy—were billed 20 cents more per square foot than the national average of $1.04 per square foot, EIA said. Energy insecure households were also billed at 26 cents more per square foot than houses that are not energy insecure.
“Household energy expenditures are influenced by many factors, including weather, the types of energy sources used, household behavior, and the energy-consuming space (or square footage) of the home,” EIA said May 30. “Energy insecure households are more likely to report their homes are drafty, poorly or not insulated, and smaller than households that did not experience energy insecurity.”
EIA said its Residential Energy Consumption Survey (RECS) uses energy insecurity as a measure to identify households that have received a disconnection notice, have reduced or foregone basic necessities to pay bills, kept their houses at unsafe temperatures to reduce costs, or have been unable to repair cooling or heating equipment because of cost.
Data from the survey showed that in 2020, households making less than $10,000 per year were billed at a rate of $1.31 per square foot for energy while households with incomes higher than $100,000 were billed at $1.21 per square foot. Survey respondents in rented homes were billed 28 cents more across all energy sources than owners were. The EIA said that “differences greater than $0.05 per square foot are statistically significant at the 5% level, meaning that there’s a less than 5% chance that the difference is explainable by chance alone.”
The 2020 RECS collected data from about 19,000 households, the largest sample in its history, the agency said, and for the first time the data is available at the state level in all 50 states and the District of Columbia.
—
All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.