ECONOMIC OPPORTUNITY STUDIES

400 NORTH CAPITOL STREET, SUITE G-80, WASHINGTON, D.C. 20001

Tel. (202) 628 4900        Fax (202) 393 1831        E-mail eori@earthlink.net

_________________________________________________

 

DECLARATION OF DR. MARGARET POWER

 

 

I, Margaret Power, hereby declare:

 

I am a citizen of the United States of America over the age of eighteen years.  I am employed as Executive Director of Economic Opportunity Studies, Inc.  I am a graduate of Radcliffe College in Harvard University and of the Massachusetts Institute of Technology, both of Cambridge, Massachusetts.  I have worked on policy issues and data related to low-income energy consumers' needs for 24 years.  I am President and Executive Director of Economic Opportunity Studies (EOS) of Washington, DC, a non-profit corporation that provides analysis, training, and support for organizations and projects that offer low-income families and communities resources to become more self-sufficient.  I have specialized in analyzing and designing programs that provide sustainable community development, energy efficiency, and fair access to energy services and environmental benefits.  I have also developed expertise in the management and information systems of the community-based organizations that provide such resources.  From 1975 - 1981, I served on the U.S. Senate staff; from 1975 – 1978, I was Legislative Assistant to Senator Edward W. Brooke (R, MA) and from 1979 – 1981 I was Minority Staff Director of the Energy and Nuclear Non-Proliferation Subcommittee of the Senate Governmental Affairs Committee.

 

1.       I have authored the following reports:

 

Power, Meg, “The Winter Energy Outlook for the Poor,” Washington, DC, December 20, 2000.

 

Power, Meg, “A Profile of the Energy Usage and Energy Needs of Low-Income Americans,” for The Association for Energy Affordability, New York, NY, 1999.

 

Power, Meg, “The Needs of Low-Income Energy Consumers in New York and the Northeast Census Region,” for The Association for Energy Affordability, New York, NY, 1999.

 

Power, Meg, “Briefing paper on Federal Programs and Resources with a Weatherization-Friendly Mission” for D & R International and the U.S. Department of Energy, January 1999.

 

The Community Services Block Grant Report  (annual reports for FY 1988 through FY 1998), N.A.S.C.S.P., Washington, D.C., under contract to the U.S. Department of Health and Human Services.

 

Low Income Home Energy Assistance Program Assurance 16 Services in F Y 1995 and FY 1996: Case Studies and Typology for the US Department of Health and Human Services, Energy Division, 1997.

 

I also contributed to the following:

 

Brown, Marilyn, Meg Power, et. al., Utility Investments in Low-Income Energy Efficiency Programs, Oak Ridge National Laboratory, 1994.

 

Brown, Marilyn, et. al., The Scope of the Weatherization Assistance Program, Oak Ridge National Laboratory, 1992.

 

2. I have performed an initial analysis of the impact on the poor in California of rising electricity rates, using the U.S. Department of Energy’s Residential Energy Consumption Survey, and I found that:

 

a)      Low-Income families in California pay a disproportionate share of their income for energy compared to the rest of the state's families;

b)      Low-income families use far less energy than the rest of the residential consumer population and have few options for reducing their bills;

c)       CARE has helped lower the burden of energy costs, but these still remain very high;

d)      The impact of even a small rate increase is disproportionately onerous to the poor, and reduces further their limited ability to supply their families with basic necessities – food, medicine and shelter;

e)      The impact of a $0.01 kWh increase on the poor is 6.7 times greater than the impact on a middle income consumer household, while the revenues gained therefrom are not dramatically large;

f)        The poor can only meet energy bills that are genuinely affordable, and deeper discounts are essential to achieving such a level of expenditure; and

g)      The costs to the system in growing arrearages and collection costs, and to the low-income community in human suffering and dangerous health and fire conditions outweigh many of the presumed benefits of higher charges.

3.       The above analysis which I completed on February 6, 2001, is based on the U.S. Department of Energy Data cited below and also on The Community Services Block Grant Information System Report, 1998, NASCSP, Washington, DC, and “Money Income In the U.S. 1999,” U.S. Bureau of the Census, Washington, DC.  The attached is a true and correct copy.

 

Required Disclaimer: The analysis summarized above was conducted, in part, under a grant from the U.S. Department of Energy Office of Building Technology and State and Community Programs.  The findings have not been reviewed by the U.S. DOE, do not represent the views of the Department, and you should not assume endorsement thereof.

 

I declare under penalty of perjury and the laws of the state of California that the foregoing is true and correct.

Signed this Tuesday, February 13, 2001

 

_________________

Margaret Power, Ph.D.

ECONOMIC OPPORTUNITY STUDIES

400 NORTH CAPITOL STREET, SUITE G-80, WASHINGTON, D.C. 20001

Tel. (202) 628 4900        Fax (202) 393 1831        E-mail eori@earthlink.net

_________________________________________________

 

The Impact of Energy Costs on California’s Poor

 

Introduction to the data and analysis

To determine the impact of rate increases on California's lowest-income electricity consumers, we have reviewed the usage and expenditure data from the 1997 Residential Energy Consumption Survey (RECS) of the Energy Information Administration of U.S. Dept. Of Energy (1999).  All data below related to cost and usage are from our analysis of "RECS" data unless otherwise indicated.  These are data for 1997, and therefore reflect pre-deregulation conditions; where indicated, we have tried to update the electricity data to reflect current costs and low-income household incomes. It should be noted that 1997 was colder in winter and hotter in summer than normal.  We are not able to select a 2001 natural gas cost and have, therefore, not updated California’s natural gas prices, and thus the following substantially understates the total energy burden; total expenditures shown reflect 1997 natural gas expenditures and 1997 kWh at 2001 costs.  

In that year, the average kWh usage for the households with incomes at or below 150% of the poverty guideline in California was 5,652 kWh for electric heat users and 3,549 for others.  At today's CARE rates (Casey/ORA Tier 1 figures at p. 4-5, minus $.01/kwh Emergency Procurement Surcharge), those usage levels would cost $678 minus the 15% discount, or $576; for houses with gas heat, these usage levels would cost $426, or $362 after the CARE discount is applied.

These expenditures do not represent all a household’s energy costs.  Natural gas-heated low-income homes paid California's gas suppliers about $500 for their gas bills in 1997 and used about 540 cubic feet that year.  At the U.S. average price for the current winter, 96¢, this usage would again cost $515.  California's prices are higher.   Even electrically-heated homes used about $240 worth of other fuels, largely propane or natural gas, for cooking or auxiliary heat.  Table 1 shows some of these figures.

Table 1.  1997 & 2001 EST.:

 Low-Income Californians’ Expenditures and Usage, by Heat Source

Heat is	Avg. kWh per year	Avg. cu. ft. and Nat. gas per year	Electricity Expenditures 1997	Est. 2001 Electric Bills without discount*	Est. 2001 Electric Bills @ CARE rate
Natural Gas	3,549	540	$418	$426	$362
Electricity	5,652		$592	$678	$576
Data based on the 1997 U.S. Department of Energy, Energy Information Administration Residential Energy Consumption Survey, Washington, DC, 1999.  *2001 rate figured at $.12/kwh – see ORA/Casey testimony, p. 4-5.

         The Heating Degree Days, or number of days with temperature under 65° multiplied by 65° minus the number of degrees, averaged 2046 for low-income gas-heated homes and 2176 for those heating with electricity

 

Compared to the rest of Californians, these expenditures are modest. In 1997, the CARE-eligible group average bills were 32% less than the average for all other Californians for all home energy and 22% lower for electricity.  But the impact of their smaller bills was dramatically more burdensome.  The "Energy Burden" is a percentage used to measure shows how much of a household budget must be spent on energy bills.

 

The entire CARE-eligible group's average 1997 Energy Burden, shown in Table 2, was 10%, of which roughly 70% went to electricity.  For the poorest of the poor, the families with incomes lower than the official U.S. Poverty Threshold, now $14,150 for a family of three, energy bills demanded 12% of the average household's yearly income in 1997. As Table 2 also shows, the annual average Energy Burden for all other Californians was 3% in 1997, of which roughly two-thirds represented electricity costs.

 

Table 2.  California Households' Average 1997 Expenditures and Energy Burdens for All Energy and for Electricity, by Income Level

INCOME GROUP		Total 1997 Energy Expenditures	Total 1997 Energy Burden	1997 Electricity Expenditures	1997 Electricity Burden
In Poverty	$856		12%	$608	8%
All CARE-Eligible	$834		10%	$592	7%
Higher Income Mean	$1070		3%	$757	2%
Data based on the 1997 U.S. Department of Energy, Energy Information Administration Residential Energy Consumption Survey, Washington, DC, 1999.

 

 

The lowest-income households spent somewhat less on every kind of energy end use than did other consumers; further, they spent far less on air conditioning and the appliances which are common in middle-income homes, but are seen less frequently in low-income housing.   Table 3 shows the 1997 statistics for each major type of home energy end-use for Californians eligible for CARE and for all others.

 

Table 3.  California Household 1997 Energy Expenditures by End Use and Income Group

 

INCOME GROUP		1997 Space Heating	1997 Air-conditioning	1997 Water Heating	1997 Refrigeration	1997 Other Appliances & Lighting
CARE Eligible	Mean	$132	$91	$184	$112	$277
	Median	$93	$57	$158	$88	$210
All Other Consumers	Mean	$184	$144	$170	$144	$385
	Median	$149	$108	$151	$116	$318
Data based on the 1997 U.S. Department of Energy, Energy Information Administration Residential Energy Consumption Survey, Washington, DC, 1999.

 

These data suggest that the current prudent personal habits of those households leave little room for further cost reductions.  While their poor housing and equipment could benefit by major efficiency investments, they are already frugal.  The poor need lower prices.

 

The Impact of Higher Rates:

Each 1¢ per kWh added to the rate would cost an average CARE-eligible household an additional $52.34 at 1997 usage levels; this represents the entire low-income population average.  For electric heat users the comparable figure would be $67.25, and for natural gas users $45.91.  Table 4 shows these figures before and after the CARE discount.

 

Table 4.  Impact of 1¢ Increase per kWh, Based on 1997 Usage

By Low-Income Households Only

*Incomes updated from RECS 1997 as follows: eligible electric heat users' incomes averaged $8,334 in 1997

and may be as high as $9,000 now.  Eligible gas heat users income averaged $7,867 in 1997 and may now

 average as much as $8,500.

 

These energy cost figures sound modest when taken out of the context of the very low-income consumer resources.  The regressive nature of an apparently modest rate hike may best be understood in these terms: if the middle income household ($50,000) suffered a similar redistribution of its expenditures from other needs to energy bills, i.e. between .008 and .005 of income depending on their heat fuel, it would cost $400 more for electric heat users and $250 more for gas heat users! In essence, the impact of a $0.01 kWh increase on the poor is 6.7 times greater than the impact on a middle income consumer household, while the revenues gained therefrom are not dramatically large.

Yet, the poor cannot pay their bills now.  Increases would lead to more sacrifices of medication, nutrition, and other necessities. The poor can only meet energy bills that are genuinely affordable, and deeper discounts are essential to achieving such a level of expenditure.  As bills become increasingly out of reach, arrearages and, eventually, uncollectibles grow too.  The costs to the system in growing arrearages and collection costs, and to the low-income community in human suffering and dangerous health and fire conditions outweigh many of the presumed benefits of higher charges.

Most of the households recruited to CARE by the state Low-Income Home Energy assistance Program (LIHEAP) and by the Community Action Agencies providing federal Weatherization Assistance Program services have incomes below 75% of the federal Poverty threshold.  These two programs target the poorest of the poor, but have historically reached less than a quarter of those qualifying nationwide.  California receives a low share of the federal block grant resources when measured against its eligible population; although the current (FY 2001) federal LIHEAP Block Grant is nearly double its past level in FY 2001, California's share is now the equivalent of about $29 per eligible family, compared to $169 for New York.

The benefits provided by LIHEAP in California do not cover even half of the fuel bills for the average family that does participate.  Rate discounts are the only program design that can reach a large share of those in need.  However, the discounts must be deeper to bring bills to an affordable level.

 

Setting the Rate Benchmark: To bring down the average eligible electric heat user's bill to be the same Energy Burden as the non-eligible average, 2%, the bill would have to be $170.  For the electric bill of the average gas heat user, it would be $180.  Based on the projected total usage shown in Table 1 above, this would require a bill reduction averaging $210 for gas users, or a 54% discount.  For electric heat users, the comparable figures would be a $452 bill reduction, or a 73% discount.

While it is rare that rate policy completely equalizes the impacts on the poor, many states have instituted deep discounts for the comparable population; as cited by the Latino Issues Forum/Greenlining Institute, 30%–50% discounts are in place in several states.  Some differentiate among vulnerable groups (the elderly, disabled, young children), but the cost of administering the required data verification may exceed the difference between one discount and a lower discount.

As the Commission considers a standard of relief to bring closer parity in Energy Burdens to the neediest consumers, the data on usage above, or the utilities’ own data on, or samples of, participant bills, including those receiving Energy Assistance from the State program, can guide the choice.  The additional subsidies available from other programs for usage reduction and/or crisis relief can be targeted to extreme Poverty cases, bulk fuel users, families suffering emergencies, and, in the case of Direct Weatherization investments, to the homes and measures with the greatest savings potential.

Submitted Thursday, November 14, 2002