PRESENTATION TO THE CONSUMER, ENVIRONMENT AND EDUCATION TASK FORCE
August 18, 1998
by
Robert G. Goldsmith, President
Virginia Council Against Poverty

Good afternoon, Mr. Chairman and members of the Task Force. I am Robert Goldsmith, President of the Virginia Council Against Poverty--the association of Virginia's Community Action Agencies. Thank you for inviting me here today to talk about the need for consumer benefits programs in a deregulated electric utility industry.

Throughout this process, you and your colleagues have heard and will hear lots of very technical presentations, scores of acronyms, and many esoteric bits of information. With all the technical issues there are to restructuring, there is a very real danger that people will get lost in the shuffle. In the midst of discussions about ISOs and RPXs, there is concern that you may forget about the people who sent you here in the first place--the people who live and work in Virginia. You must not forget--we must not forget--that what is being done here will have a tremendous impact on these people, and we must do everything in our power to make that impact positive.

As I said this morning, more than a million residents of Virginia (1,053,509 according to 1990 Census counts) have incomes below 150% of the federal poverty guideline. This is the income eligibility criterion for receiving LIHEAP (Low Income Home Energy Assistance), the federal program which funds utility payment assistance in Virginia and across the nation. Many of these low-income residents are elderly or disabled, but even more are working poor families trying to make ends meet and stay self-sufficient and independent of government assistance. These are the Commonwealth's most vulnerable users of electricity.

Low-income families that don't heat with electricity are often faced with electric bills that hover around 20-25% of their household income. Low-income families with electric heat may pay as much as 40-50% of their monthly income in the winter months for electricity. By comparison, the median income customer usually pays less than 5% of his or her income on electricity. If low-income families are having difficulty paying regulated electric rates today, how much more difficulty will they have in a deregulated environment when not only consumers have the right to choose, but also electric service providers can reserve the right not to serve customers that are "undesirable."

Current Programs and Subsidies

Low-income Virginians have access to several programs that assist them in managing their utility needs. The first category of programs provides utility payment assistance. The Commonwealth of Virginia provides utility payment assistance through the Low-Income Home Energy Assistance Program (LIHEAP). LIHEAP is administered by the Virginia Department of Social Services through the network of local social services departments across the Commonwealth. Last year, the program provided fuel assistance to 218,732 people in 91,293 households (about 20% of the income-eligible population). Of the households served, nearly 35% were elderly; 35% were disabled, and nearly 23% were families with children under age 6. Nearly 60% had incomes of less than $8,000. About 40% of fuel assistance recipients used electricity for heating--the rest used kerosene, natural gas, fuel oil, wood, LP gas and coal, in that order. Around $15 million in federal funding provided this assistance--with the balance of the $19 million received going for administration (10%), the crisis program and weatherization assistance.

Community based organizations also provide utility payment assistance funded in any number of ways--by utilities (e.g. Virginia Power's EnergyShare), FEMA (Federal Emergency Management Administration), CSBG (Community Services Block Grant funding for Community Action Agencies), state homeless prevention programs, church benevolent funds, private and other contributions.

The second category of low-income programs provides energy conservation assistance. The Virginia Weatherization Assistance Program, administered by the Virginia Department of Housing and Community Development and operated through a network of weatherization providers, makes homes of low-income families more energy efficient, thereby reducing heating and cooling costs. Last year, nearly $3 million dollars (1/2 of it coming from LIHEAP) funded the weatherization of nearly 2,200 homes occupied by low-income Virginia families.

In addition to these programs, any discussion of what is currently available must take into account the argument I presented this morning that Virginia already has a de facto fee subsidy program. Low-income households, more expensive to serve, receive subsidized electric rates in a regulated environment. All costs of doing business are passed on to ratepayers under the current system of regulation. Thus the increased cost of providing electricity to low-income consumers--with relatively small usage, higher transaction costs, problem payment histories, high credit and collection expenses, etc.--is added to the cost of serving other consumers, and everyone pays the same average rate. With the restructuring of the industry, a mechanism must be developed to assume this responsibility. VACAP proposes the establishment of a consumer benefits fund to accomplish this.

A Recommendation for the Future

VACAP urges that the Commonwealth's restructuring legislation recognize electric service as essential to the health and well-being of all Virginians. We propose a "consumer benefits charge" in the form of a nonbypassable wires charge be paid by all consumers regardless of class. We recommend that the charge be calculated on a per kilowatt hour (kWh) basis so that no class of consumer pays a disproportionate share of the charge. This charge would be designed to fully fund utility payment assistance and weatherization. Federal funding for these programs has dropped dramatically in the last few years and currently is in jeopardy. State funding is needed to preserve these programs in the restructured future when we anticipate that the need for them will be greater than ever. A charge of 3/100 of a cent per kWh would generate $25 million per year--approximately the current federal funding level for LIHEAP and Weatherization. VACAP would hope that legislation would include this amount as a minimum for low-income programs, with the consideration of higher funding levels, as appropriate, in the future.

VACAP recommends that the consumer benefits fund be administered by a state agency. The Department of Housing and Community Development and the Department of Social Services would be the most logical choices to administer the low-income portion of the funds. We also recommend that the General Assembly legislate the establishment of an advisory board comprised of stakeholder representatives to assist in the development of the consumer benefits program and to oversee its implementation.

Thank you the opportunity to appear before you today and for your concern for low-income Virginians. I would be pleased to answer any questions.