Overview of Low-Income Restructuring
Legislation and Implementation

California
Last Updated: March 2009
Summary

Despite the turmoil caused by electric deregulation in California, low-income programs have remained mostly intact, although they were significantly expanded in response to the skyrocketing electric and natural gas rates the state experienced during 2000 and 2001 and again in 2005-06.

Another significant expansion occurred in 2008, providing the low-income programs new direction, broadening their scope and increasing their funding, especially for low-income energy efficiency. (See below).

Beyond that, the low-income programs continue much as they did prior to restructuring. California’s utilities continue to operate and administer the mandated low-income electric and gas rate discount (CARE or California Alternate Rates for Energy), and the low-income conservation program (Low-Income Energy Efficiency or LIEE), also referred to as the Direct Assistance Program. The two programs had been legislatively mandated for at least a decade prior to deregulation.

The California Public Utilities Commission (CPUC) and the 1996 deregulation legislation stipulated that low-income program funding continue at not less than 1996 authorized levels, but the commission added that this "does not preclude consideration of higher levels, as appropriate, in the future."

At the beginning of 2001, CARE spending by the four largest utilities totaled about $126 million; by the end of 2008 it amounted to over $818 million, with over 3.9 million customers receiving gas and electric bill discounts. This total is discount spending only; it does not include administrative, outreach and other utility expenses. (The four major utilities are San Diego Gas & Electric (SDG&E), Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and Southern California Gas Company (SCG).

Likewise, LIEE spending levels have increased since 2001. The four largest utilities spent about $143.7 million during 2008, compared to $56 million in 1996. This total is for efficiency measures only and does not include administrative and indirect costs, or costs of inspections and oversight. Measures include repair and replacement of gas and electric heating and water heating systems, air conditioners and evaporative coolers, refrigerator and lighting upgrades, weatherization and energy efficiency education. Over 184,000 low-income households received one or more of these measures during 2008.

Other utilities, whether investor-owned or publicly-owned, must spend at least 2.85 percent of their 1994 revenues on public goods programs which must include: "services provided for low-income electricity customers, including but not limited to, targeted energy efficiency service and rate discounts." Low-income energy expenditures for the other utilities total at least $40 million yearly.

In June of 2004, a new commission-approved program went into effect that allows an electric bill discount to low- to middle-income households of three or more people. Under the program, called Family Electric Rate Assistance (FERA), an eligible household of four may earn from $43,201 to $54,000 per year in 2008-09. The program was approved by the PUC in a November 2003 order.

Program participants save on their electric bills by being billed at a lower rate. FERA participants’ Tier 3 usage (131 percent to 200 percent of baseline) is billed at Tier 2 rates. Usage in Tier 4 (201-300 percent of baseline) and Tier 5 (above 300 percent of baseline) continues to be billed at the original rates for those tiers. Utilities and the CPUC have noted that more than one third of residential customers do not exceed usage above 130 percent of baseline. (Baseline is a quantity of electricity or gas that is billed at the lowest rate. By law, the commission must set baseline quantities for gas and electricity at a "significant portion of the reasonable energy needs of the average residential customer.")

In approving FERA, the commission heeded recommendations from the advocacy groups The Utility Reform Network (TURN) and Latino Issues Forum who testified that the existing baseline determination method was unfair because the household size of residential customers wasn’t taken into account. As a result, a large family was expected to use the same amount of energy as a single person living alone, and often large families exceeded the baseline allowance and paid more expensive rates, the advocates testified.

The program applies only to the three larger utilities: PGE, SCE and SDG&E. PGE estimated in 2004 that approximately 200,000 of its 4.3 million residential customers met the FERA eligibility requirements. At the end of 2007, FERA served about 34,000 households and the utilities spent about $3.7 million for benefits.

The commission said it did not extend FERA to the smaller electric utilities because their upper tier rates weren’t as high as those of the major utilities, therefore they didn’t appear to have a comparable need for rate relief.

2008 Expansion

In 2007, the state began a comprehensive, longterm, statewide energy efficiency planning process to achieve maximum energy savings across all major consumer groups and sectors in California. The CPUC directed the utilities to develop a single, statewide strategic plan for energy efficiency through 2020 and beyond, and it also sought participation from a range of stakeholders.

In September 2008, the CPUC adopted California’s first Long Term Energy Efficiency Strategic Plan, which encompassed LIEE and other energy efficiency programs.

In a decision issued in 2007, the commission set forth a new direction for LIEE, stating that in addition to promoting the quality of life of eligible customers, it should serve as a “resource program,” that is, it should save energy, help limit the need for new power plants, and help curb greenhouse gas emissions.

Under the commission's long-term vision for LIEE, as stated in D.07-12-051, utilities must provide all eligible LIEE customers the opportunity to participate in LIEE programs and to offer those who wish to participate all cost-effective energy efficiency measures in their residences by 2020.

The decision directed the utilities to emphasize the following in their future programs: (1) treat LIEE as a resource program by focusing on energy savings, in addition to customers’ quality of life, (2) propose substantial budget increases so as to provide LIEE measures for 25 percent of eligible and willing customers in the 2009-11 period, (3) emphasize long term and enduring savings, rather than quick fixes, and (4) focus LIEE programs on customers with high energy use, while continuing to serve all eligible low-income populations.

As directed, the utilities submitted LIEE and CARE program budgets on a three- year cycle, from 2009 through 2011; these were approved in November 2008 in Decision 08-11-031.

The 2009 LIEE budgets reflect an increase of 53 percent over 2008 funding – utilities were authorized to spend $240 million in 2009 versus $156.9 million in 2008 – along with further increases for the next two years. Utilities also planned to serve nearly 306,000 households in 2009, compared to 184,695 served during 2008.

On the other hand, CARE budgets for the three-year period are lower than those for 2007 and 2008. The CPUC approved 2009 CARE spending of $868 million, compared to $913.7 million for 2008.

The decline in funding is partly due to the CPUC's revised emphasis on maximizing CARE enrollment. The commission revised a goal it had adopted in 2002 of attaining 100 percent enrollment of all CARE-eligible customers, stating that 90 percent penetration is a more reasonable goal. The revision was based on the state's low-income energy programs needs assessment, released in 2007, which found that about 10 percent of eligible households are unwilling or unlikely to participate in CARE. Reasons for this, according to the report, include the difficulty, as well as excessive costs, in identifying and reaching certain customers, plus some customers have a very low energy burden and would not benefit greatly by participating in the program.

Background

In the wake of rate hikes resulting from California’s energy crisis and subsequent rate hikes, the following initiatives have impacted CARE and LIEE:

• In June 2001, the California Public Utility commission (CPUC) raised the amount of the CARE discount from its historic level of 15 percent to 20 percent, and increased income eligibility levels from 150 percent of federal poverty guidelines to 175 percent. At that time the expansion only applied to customers of the four largest IOUs. In January 2002, the CPUC increased the income limit for eight smaller gas and electric utilities’ discount programs and increased the discount amount, so they would be consistent with the four large utilities.
  
  
• In response to escalating energy prices that were expected to raise utility bills by 70 percent, the CPUC issued an emergency order in October 2005 that expanded CARE and LIEE income eligibility levels from 175 percent of federal poverty guidelines to 200 percent. Additionally, CARE customers were allowed to enroll by telephone and could not be dropped from the program during the winter for failure to recertify income eligibility. LIEE program enrollment was simplified in several ways to help speed up the provision of services and utilities were authorized to accelerate the replacement of gas forced-air furnaces, leaky or broken gas water heaters, and inefficient refrigerators and light bulbs for low-income customers during the winter.
  
  
• The CPUC also exempted CARE recipients from electricity rate hikes that it had approved during 2001. With these exemptions, some CARE electric customers may receive a discount of up to 44 percent.
  
  
• Declaring that "California is currently experiencing an energy crisis which threatens to adversely affect the economic and environmental well-being of the state," in May 2001 the California legislature passed SBX1 5, a massive $850 million electricity conservation bill. It added $100 million to CARE (of which $84 million was later rescinded due to state budget cuts), $20 million to the LIEE, and provided $50 million to an energy efficient appliance purchase and replacement program targeted at low-income households. All were one-time allocations.
  
  
• In May 2001, in response to SBX1 5 and the crisis facing low-income households, the commission adopted a "rapid deployment" program to expand enrollment and increase spending on CARE and LIEE, a program which continues to the present, in part through the $15 million from SB X1 5 funds for expanded CARE outreach.

Other Low-Income Program Issues

In the years since restructuring was authorized in 1996 legislation, the low-income programs have been the subject of statewide debate and decision-making focusing on several key issues:

• Administration of CARE and LIEE,
  
  
• A low-income needs assessment in order to meet the legislative mandate that the programs "be funded at not less than 1996 authorized levels based on an assessment of customer need,"
  
  
• Program outreach and participation levels.

These issues have been addressed several times through various CPUC orders and state legislation, and some are still ongoing. The following summarizes major actions by the CPUC and the legislature on some of the key issues.

1) Administration

The issue of program administration occupied the CPUC, the legislature and low-income program stakeholders from the passage of restructuring legislation until late 1999, when additional legislation settled the matter.

SB 1393, signed into law in October 1999, required gas and electric companies that participate in CARE to administer low-income rate assistance and energy efficiency subject to commission oversight.

The law also stated that utilities must work with state and local agencies, community-based organizations, and other entities to ensure efficient and effective delivery of low-income efficiency programs. The law required participating utilities to competitively bid, to the extent practical, service delivery components of these programs.

2) Needs assessment

The issue of how a needs assessment should be conducted occupied the CPUC, its advisory boards, and the utilities until 2000 when the commission assigned the task of conducting the needs assessment to its Energy Division, and stated that the study would "help to define the energy-related requirements of the low income population and whether or not the current utility programs are, or are not, meeting those needs."

The purpose of the first phase, finished in early 2002, was to identify the study objectives, current relevant data, and data gaps to be filled as part of Phase 2; to design Phase 2, and create an RFP for hiring the Phase 2 contractors. This study is available at: www.liob.org/docs/PhaseIReport.zip

After four years in the making, the Final Report on Phase 2 Low Income Needs Assessment was released to the public in September, 2007. Its purpose was to determine the following: the number of households eligible for and being served by CARE and LIEE, whether the programs were reaching the appropriate populations and whether there were under- or over-served segments of the population, whether they were achieving their maximum potential in terms of participation and energy savings, and whether there was adequate coordination with other programs.

Performed by KEMA, the Phase 2 results suggest that, “over time, the programs have effectively targeted and provided services to low-income households that have the greatest need.”

According to the report's executive summary, “As of year-end 2006, however, there remains significant untapped potential in terms of the number of eligible households not enrolled in CARE and the number of households for which LIEE measures would be technically feasible, applicable and needed.”

KEMA's calculations show that as of the end of 2006, nearly 3.7 million households were served by CARE; however, nearly 1.5 million households were eligible for, but not receiving it, including 500,000 households in the territory of Southern California Gas, another 500,000 eligible households in PG&E's territory, plus 300,000 in Southern California Edison and 115,000 in San Diego Gas and Electric territories.

When KEMA first began its study, the CARE and LIEE income maximum was 175 percent of federal poverty guidelines; it was increased to 200 percent in October of 2005. As a result, KEMA had to expand its study to take the increase into account.

Regarding LIEE, the report shows that compact fluorescent light bulbs (CFLs), faucet aerators, water heater pipe wrap and blankets, and weather-stripping were among the most commonly applicable and needed measures, and that CFLs, replacement refrigerators, and ceiling insulation present the largest available electricity savings potential. Measures with the largest available natural gas savings potential included ceiling insulation and water heater tank wraps.

The study used in-depth interviews, energy audits, census data, utility billing records and on-site surveys to develop a profile of the demographic, socio-economic, dwelling-type and geographic characteristics of the eligible low-income population in California.

Issues such as energy burden, energy insecurity, need for energy efficiency measures, and household comfort, health and safety were explored in the study, along with an assessment of barriers to program participation such as levels of program awareness, reluctance to accept aid, fear or distrust, and structural barriers to LIEE installations.

In addition to characterizing the population of low-income households across the state, the needs assessment provided characterizations within individual utility service territories, including the four major investor-owned utilities mentioned above, and seven smaller multi-jurisdictional utilities serving other areas of the state.

The KEMA report included several recommendations about targeting,enrollment and other strategies to improve LIEE, several of which were incorporated into the energy efficiency strategic plan and the new direction for LIEE outlined in Decision 08-11-031.

3) Program outreach and participation levels

As with the needs assessment and administration issues, the various stakeholders have made recommendations on program outreach. The impacts of the energy price spikes, the expanded eligibility and discount amount for CARE, the CAL-LIHEAP funding, and the CPUC rapid deployment strategy have all combined to create a greater outreach effort from June 2001 to the present. Utilities report to the CPUC each year their success through various outreach initiatives such as utilizing more community groups, targeting ethnic and non-English speaking neighborhoods, and extending assistance hotline hours. Another outreach strategy is the use of "capitation fees' for community-based organizations. These organizations may receive up to $12 for each successfully enrolled new CARE customer. These and other expanded activities have been continued under the rapid deployment strategy that continues through the present.

Program participation levels – the percent of eligible households enrolled in CARE – has long been of concern to advocates and the CPUC. In a ruling issued in November 2001, the commission expressed its continued interest in CARE enrollment, in particular through automatic enrollment, and said it would “proceed to consider expeditiously whether automatic enrollment of customers into the CARE and LIEE programs is feasible. Automatic enrollment will likely lead to significant increases in penetration levels and help to reduce administrative costs."

On July 17, 2002, after reviewing responses, studies and issuing a draft opinion, the commission announced that its goal is to reach 100 percent of low-income customers that are eligible for, and desire to participate in, the CARE program. Noting that utilities report that more than one million low-income customers meet the CARE eligibility criteria but are not currently participating in the program, the commission pledged to enroll each and every one of these customers that wants to participate. As mentioned above, as part of 2008 changes, the commission revised this goal based on recommendations from the needs assessment; the goal is now 90 percent.

In the July 17ruling, the commission adopted an automatic enrollment program that would enroll into CARE those utility customers who were recipients of several means-tested human service programs including Medicaid. As of 2009, despite intervention by the state legislature, and several avenues pursued by the commission, the automatic enrollment process has stalled, in part because the state departments administering the human service programs had confidentiality and privacy concerns.

SB 580, passed by the legislature and signed by the governor in September 2005, would have significantly increased CARE participation through automatic enrollment. The bill ordered the state Health and Human Services Agency to evaluate, on or before April 1, 2006, how the use of certain state programs and databases can be optimized to facilitate the automatic enrollment of eligible customers into CARE. The law hasn't been implemented; however, during 2004 and 2005, through agreements between the utilities and the Department of Community Services and Development, the LIHEAP grantee, automatic enrollment of LIHEAP households has gotten underway. Utilities followed guidelines in a ruling released in May 2004.

Through another directive in Decision 08-11-031, utilities will step up enrollment attempts through categorical eligibility, which the commission had approved in December 2006. Since then utilities have utilized categorical eligibility, thus permitting customers to document that they or someone in their household are recipients of any of several government means-tested programs, rather than having to provide documentation of income. The 2008 decision added more programs.

As of December 2008, according to utility reports to the CPUC, the CARE enrollment penetration rate averaged around 78 percent of eligible households for the four largest utilities.

More information, including CPUC decisions and utility reports can be found on the website of the Low Income Oversight Board, (LIOB) an advisory board to the commission.

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Page Last Updated: April 1, 2009