20081020Leveraging Info.pdf

Leveraging Nonfederal Resources For LIHEAP - LIHEAP Clearinghouse Page 10f8
Leveraging Nonfederal Resources For
LIHEAP
Compiled by the LIHEAP Clearnghouse
September 2003
BACKGROUND
Leveraging, or attg nonfederal supplementa fudi and other resources to supplement
federa LIHEAP and weatherization fuds, is a topic of great interest to stte and trbal
LIHEAP programs, especially with the continuig decline in federal fuds and the near-
depletion of oil overchage monies. It took on special importce with the leveraging
incentive provision of the 1990 LIHEAP reauthorization bil.
Under ths provision, effective in FY 1992, the Deparent of Health and Hum Servces
(HS) may allocate supplementa LIHEAP fuds to grantees that have acquied nonfederal
leveraged resources for their LIHEAP programs. Grtees wishig to compete for leveraging
incentive fuds must submit a report to HHS each year tht quatifies the amount of
leveraging accomplished by the grantee durg the previous year, less any costs incured by
the grtee and any costs imposed upon LIHEAP clients.
On Janua 16, 1992, HHS published an interim fial rue implementing the incentive
provision and providing criteria on what counts as leveraging. Ths interi final rue was in
effect unti the :f rue. was published May 1, 1995.
The par of the fin rue that applies to the leveraging incentive progra became effective
October 1, 1995, and the new requirements were used to evaluate grantees' FY 1996
leveraging activities. The fil rue's provision relatig to the grant allocation formula was
used in FY 1996 to reward grtees' FY 1995 leveraging activities.
Since FY 1991, LIHEAP grantees have competed for the leveraging incentive fuds available
each year as par of the Congressiona appropriation to LIHEAP. FY 1991 was the fist "base
period" of the program; paricipants were rewaded for their activities with FY 1992 fuds
(the "award period"). For each subsequent year ofleveragng, sttes were given awards for the
previous year's leveraging acvities.
Approximately $25 millon yearly was avaiable for the first thee years of the leveraging
incentive program; for FY 1994 activities the leveragig incentive fud increased to $30
millon. The amount Congress appropriated for FY 1995 leveraging activities was $22.5
millon; however, the appropriation also requied that up to 25 percent of the leveragg
amount be set aside for the new Residential Energy Assistace Challenge Progr (REACH),
leaving $16.875 millon for leveraging. Each year thereafer, an amount has been deduced
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from the leveraging appropriation for REACH. Jb...'?J.anl~ shows grantee leveraging and
awards totas since FY 1991.
Additionaly, the 1990 reauthorization of the Deparent of Energy (DOE) Weatherization
Assistace Program authorized a one-tie allocation of$3 milion for states which "obtaed
a signficant porton of income from non-federal sources for their weatherization progr or
increased significantly the porton of low-income weatherization assistce tht the state
obtaned from non-federal sources." This money was allocated to the state W AP grtees in
1993-94.
Also of importce to W AP grantees, the :w eatlierizaiion Pr.Qgnl!1 Regi!lmwlis at Sec. 44(1.1 4
Cb)J.2(xiYJ alow grantees to use a porton of their grt for leveraging activities, and they
must include in their plan: "The amount of Federa fuds to be used, and an explantion of
how they wil be used, to increase the amount of weatherization assistace that the State
obta from non-Federal sources, including private sources, and the expected leveragig
effect to be accomplished." Accordig to the National Communty Action Foundation, there is
no limit on the amount of fuds a grantee may use for leveraging so long as the leveraging
actvity is one that promotes expansion of energy conservation fudig for eligible
households.
Ths memorandum will provide a brief overvew of the LIHEAP fin rue and discuss some
examples of leveraging used by sttes and trbes. It is not an attempt to suarze al the
leveraging reguations or to recommend any paricular form of leveragig.
Each grantee should seek gudace from HHS as to whether a leveraged resource is countable
and meets all statutory criteria. Grantees may contat the Clearghouse for additiona
inormation on what other grantes have claimed and had approved by HHS as leveraged
resources. HHS sent each grantee a copy of the rue as par of Inormation Memorandum 95-
20 dated June 9, 1995. Grantees should fist consult the final rue, whose preamble provides
extensive discussion of all the reguations and can offer a great deal of gudance. The
LIHEAP Clearghouse anualy compiles a narative sumar and table of state andJribal
grantee leveraging activities, and more detaled inormtion from grantee leveraging plans is
available by contactig the Clearghouse.
It should be noted tht some grantees may engage in activities tht, while supplementig
energy resources available for energy assistace for low-income households, do not quaify as
leveraging because they do not meet the statutory criteria. Or some activities, though
countable and benefiting may low-income famlies, may tae too much of a grantee's
adinstrtive tie to adequately document and quatify.
HHS ha emphasized that such activities are importt and that grantees should contiue
them. And, because federal LIHEAP fuding fluctues from year to year, it is importt to
remember ths comment from the National Communty Action Foundation, a group that
lobbies for programs adminstered by communty action agencies: "A program tht leverages
LIHEAP or W AP resources is wortwhile in its own right, regardless of whether it qualifies
for the incentive fuds.
II
WHT COUNTS AS LEVERAGING
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Essentially, a resource or activity canot be counted as a leveraged resource under LIHEAP
uness it results in home energy benefits to LIHEAP-or federay-eligible households that can
be measured or quatied. The fial rue identifies thee categories of leveraged resources and
benefits tht can be countable provided they meet all other applicable provisions: (I) cash, (2)
home energy discounts and waivers, and (3) thd-par in-kid contrbutions.
(1) CASH RESOURCES
An example of the fit is cash from a non-federal source such as stte, trbal, or oil
overchage fuds, or private soures such as utility-sponsored fuel fuds. Certin oil
overchage fuds distrbuted to the states by DOE afer October 1, 1990, may also be
countable. The cash could be used to supplement a LIHEAP grantee's heati, coolig, crisis
or weatherition programs, to purchae fuels, or to instal weatherization materials.
State Supplements to LIHAP
Historically, states have supplemented LIHEAP with their own fuds. For exaple, in FY
2002, at least 26 states reported supplements totaing over $434 millon in state and local
fuds. Examples of ths in FY 2002 include $6.1 millon from Colorado's Propert Tax, Rent,
and Heat Rebate that allows ta rebates of up to $192 for home heating payments to income-
eligible residents at least 65 year old, survig spouses at least 58 years old, and those
totay disabled regardless of age. Another exaple is the $72 milion that New York's state
and local governents paid for energy costs of cert public assistace households.
Oter State Supplements: Since the advent of utility restrctug, a number of state
legislatues or reguatory commssions have authorid public benefits fuds, also known as
unversal servce, system benefits, or societ benefits fuds, as par of their utility
restrctug processes. As a result, utility customers in about 20 states pay a non-bypassable
chage on their electrc and/or natual gas bils th reverts to the public benefits fud for
cert public puroses such as low-income bil assistce and energy effciency, energy
effciency programs for all customer classes, and renewables and research and development
program.
The portion of public benefit fuds tht is spent on meetig the energy needs of a state's low-
income population can be counted as a leveraged resource if it meets all other criteria. For
more inormation about public benefits fuds being used for low-income energy needs, see
the y.lill'yr~St.n.£tuiill~s_eciiQll of the LIHEAP Clearnghouse's website for a "State-By-State
Overview Of Low-Income Restrtug Legislation And Implementation."
Note tht state-allocated fuds canot be counted as leveraged resources if the money is used
for admstrtive puroses.
Oil Overcharge Funds
Beging in the 1 980's, the DOE has distbuted to the states monies acquied though cost
judgements agait oil companes that violated petroleum pricing legislation and regulations.
These fuds are known as Petrleum Violation Escrow or oil overcharge fuds. In accordace
with federal statute, cour orders, and/or agreements, states may allocate a porton of their
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share to one or more offive federaly-fuded energy progras, including LIHEAP and the
DOE Weatheriation Assistace Program, and cert other puroses or uses for some of the
oil overchage fuds.
However, the major sources of oil overcharge fuds, Exxon and Strpper Well, are nearly
depleted and canot be relied upon as significant leveraged resources. These contrbutions to
LIHEAP totaed $25.6 millon in FY 1994, (compared with $872 millon in 1988), and had
dwidled to about $2 millon in FY 1996.
Grtees must consider oil overchage fuds carefuly when quatifyin their leveraged
resoures. The fial rule limits countable oil overcharge fuds to those fuds tht were
distrbuted to a state or terrtory by the DOE afr October 1, 1990, as well as interest eared
in accordance with DOE policies on oil overcharge fuds tht were distrbuted to a state or
terrtory. Ths means the date the fuds were distrbuted to the states by DOE, not the date
they were designated for LIHEAP by the stte or terrtory, which may have been later. Ths
rùes out Exxon fuds, which were distrbuted prior to October 1990, but may leave some
Strpper Well and Texaco fuds.
The fuds must have been usd to assist low-income households to meet the cost of home
energy though (tht is, withn and as a par of) a state or terrtory's LIHEAP program, another
federa program, or a non-federal program. They must not have been previously requied to be
allocated to low-income households.
Tribal grantees tht receive oil overcharge fuds from the state in which they are located
(and/or interest the state eared on oil overchage fuds) and use these fuds or the interest
they eared for home energy assistace, can count these fuds under the leveraging incentive
program as long as these fuds meet all the applicable statutory and regulatory requiements.
The same fuds may not also be counted by the state.
Fuel Funds
Usualy established by utilities in parershps with nonprofit groups, fuel fuds solicit
employee, customer or corporate contrbutions, which are eaarked for low-income
customers in crisis who have exhusted all public sources of help, whose need is
extraordiar, or who do not quite meet their state's requiements for assistance.
There are now nearly 300 fuel fuds nationwide in at least 47 states and in many metropolita
areas. Their combined fuel assistace totas nearly $125 milion a year, according to 2003
testiony by the National Fuel Funds Network (NFN) which represents over 200
organtions and individuas involved with fuel fuds or energ assistace issues. Whle
these fuds var widely as to their integrtion and coordition with LIHEAP, under the
leveraging regulations coordition with LIHAP is crucia. (To quaify, fuds must meet all
criteria of s.e\!tiQns.it9..,JfZf4KD. and at least one criterion in SeÇli.9lL2ti,li7(d)(2))
Some fuel fuds are operated by utilties and non-profits without integration with LIHAP, in
which case they canot be counted as leveraged resources under section 96.87(d)(2)(ii), even
if their clients were LIHEAP-eligible. Other fuel fuds were designed by states specificaly to
supplement LIHAP. However, states and fuel fud coordinators must ensure that resources
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counted went to serve households tht were "federally eligible," meang they meet the
stadads for LIHAP income eligibilty and/or LIHEAP categorical eligibilty as defined in
the LIHEAP statute. If a fud serves those beyond federal eligibilty requirements, those
people caot be counted in the tota ofleveraged resources.
The requiement (section (96.87( d) (ii) tht leveraged resources be coordiated and integrated
with LIHEAP is crucial for grantees wanting to clai benefits from fuel fuds under the
criterion.
Because the interi rue was somewhat vague on the meanng of coordiation and integration
of a resource with LIHEAP, and many grantees were confsed, the :f rue added eight
conditions describing specifc circumtaces that demonstrte that a resource is integrted
with the grantee's LIHEAP progr, and tht the resoure and LIHEAP fuction
cooperatively and in coordintion with each other to provide an interrelated larer unt or
whole. A leveraged resource must meet one of the eight conditions. Many of these conditions
will be of interest to states tht wish to clai fuel fuds. (See Attachment 1)
The above-stated reasons why fuel fuds canot be counted explai, at least in par why
reported leveraging totas for ful fuds, about $66 millon in FY 2002, are considerably less
than the amount cited by the NFFN.
For more inormation, see the LIHEAP Clearinghouse website.
(2) HOME ENERGY DISCOUNTS AN WAIRS
Home energy discounts or credits may include discounts or reductions in utility or bul fuel
prices or paral or ful waivers of cert utility and other home energy fees. Utilities and
delivered fuel vendors, individualy or in coordination with LIHEAP or other governenta
progr, have historically provided benefits from ths category to LIHEAP recipients and
other low-incoine households. Many of these discounts, waivers, and services may be
countable under the leveraging incentive rues.
In documentig a discount, only the actu discount is countable, and it must be subtrcted
from the "fai market value," or the price other customers ar chaged for the fueL. For
exaple, if a grantee obtaed oil for LIHEAP clients at $1.10 per gallon, and the fair market
value was $ 1.30, only the $.20 per gallon discount could be counted
According to Clearghouse records, at least 35 states receive discounts, special rates or fee
waivers for low-income persons frm one or more of their utiities. (In some restrctued
sttes, discounts or special rates have been incorporated under public benefits fuds, as
discussed above under the State Supplements section.) In Californa, all reguated utilities are
requied to offer a 20-percent discount to LIHAP recipients, and may non-reguated utilities
do so as well. Massachusetts, Monta Arzona, Washigton and the Distrct of Columbia are
among the other states where discounts are requied or offered by some utilities. Such
activities must meet the criteria of sections 96.87(d)(1) and one of the criteria in section 96.87
(d1(2.) to be countable.
A number of states and several trbes have negotiated contrctu arangements with
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paricipating delivered fuel vendors to provide LIHEAP recipients with discounts for bul fuel.
purchases. Such program in Connecticut, Marland and Massachusett have resulted in a
price brea for oil purchases (as well as propane and wood in Marland) for LIHEAP
recipients.
For more information, the Clearghouse ha a memorandum available titled "LIHEAP
Ns;g.QllJ!ti9.!1S._with Jimi::Regl!l.aie_4..tJ!eLy'ellg.Ql.S,.'.'.
(3) TmRD PARTY IN-KI CONTRIUTIONS
These could include fuels donated to LIHEAP, as well as donated materials, supplies and
labor, as long as the labor or materials are for activities mentioned in the :f rule and are not
for admstration or outreach puroses. For example, in an emergency crisis program with
donated oil, the oil could count, but not the tie to adster the emergency deliveries.
Materials, supplies and labor donated for weatherization of low-income homes could also
count.
GRATEE INOLVEMENT IN LEVERAGING
Whle only one of them is required, any of the thee criteria listed under section 2Q,8..1únaì
may be a deciding factor in whether a leveraged resource is countable.
The first criterion perts to involvement by the grantee's LIHEAP program in the
development and acquisition of a resource or benefit; the second involves whether the
leveraged resources were provided to low-income households as a par of the grantee's
LIHEAP program; and the thrd concerns whether they were appropriated or madated by the
state for distrbution under the grantee's LIHEAP plan and were integrated and coordinted
with the grantee's LIHEAP program.
Accordig to the section 96.87(d)(2)(i), if a grantee wishes to clai tht a resource resulted
from its involvement, "the grantee's LIHEAP program (must have) had an active, substative
role in developing and/or acquig the resource/benefits from home energy vendor(s) though
negotiation, reguation, and/or competitive bid."
For example, states or trbes should be able to document their LIHEAP program's
involvement in negotiations, competitive bids, wrttn ageements, legislation, reguations or
mandates though which leveraged resources are developed or acquied.
To show integration and coordination a resource must be identified and described in the
grantee's plan before September 30; and the description must include how the resource is
integrated and coordinated. The new rue adds eight objective conditions for coordination and
integration and a resource must meet at least one of them in order to be considered integrated
and coordinated with a grantee's LIHEAP program.
If resources in the above thee categories were obtaned by a county or subgrantee agency,
they could count if the county or subgrantee were actig in its role as a subgrantee or
contrtor of the stte LIHEAP grantee.
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WHT CANOT BE COUNTED
Section 96.87(f lists the resources and benefits tht canot be counted in the leveraging
reports. Included are budget couneling and energy conservation activities, which many
grantees consider essential components of their progrs. Another major "uncountable" is
fuds used as matchig or cost sharg for any federal progr.
The fial rule deleted as separate countable resources all servces involvig delivery and
transporttion, that is, delivery of fuel, weatherization materials, and other items, along with
purchae, rental, donation and loan of supplies and equipment used to deliver these thgs and
used to inst weatherization materials.
IDENTIFYIG, DEVELOPING AN DEMONSTRATING LEVERAGING
PROGRAS
The rue allows gratees to spend a cern porton of their LIHEAP fuds to identify,
develop, and demonstrate leveraging progras. States may spend up to the greater of $35,000
or 0.08 percent of their federal LIHEAP allotments to do so; tribes, trbal organzations and
terrtories may spend up to the greater of two percent or $100 of their federal LIHEAP
allotments.
These fuds are not subject to the limtation on fuds tht may be used for costs of plang
and adstration, and they may be spent for either adinstrative or non-adistrtive
activities. When preparg the leveraging report they must be deducted as offsettg costs
from the tota amount of resources leveraged, whether or not there are any resulting leveraged
benefits.
QUANTIFYING AND DOCUMENTING LEVERAGED RESOURCES
With each leveraged resource, grantees must be able to document that the resource has been
used to benefit only federally-eligible, low-income households. They must also document the
gross valuation of the benefit and its net value, tht is, less the associated costs or chages to
the recipient households and the costs to the grantee to leverage the resource. Two-par
leveraging report forms distrbuted to the grantees provide a method of distiling the essential
inormation tht grantees will need to quantify the resources.
ALOCATION OF THE LEVERAGING INCENTIV FU
After exprienting with several different formulas for determg grantee shaes in the
leveraging fud, HHS arved at a two-par formula that it believes cares out the intent of the
leveragig incentive fud: to reward grtees tht are most successfu in leveraging their
LIHEAP dollars, taing into account the size of their regular LIHEAP allotment. In ths way,
if two grantees leverage the same amount, but one ha a larger allotment, the one with the
smaler allotment would receive a larger proportionate award.
Under the formula, one half of the amount appropriated for leveraging incentive awards is
distrbuted to an applicat based on the fuds it leveraged relative to its net LIHEAP allotment
durg the base period, as a proporton of the total amount of fuds leveraged by all grantees
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in relation to their alotments.
The remaining half is distbuted based on the amount of leveraged resources that a grantee
leveraged during the year as a proporton of the tota amount leveraged by all grantees. No
grtee can receive an award greater than its reguar LIHAP allotment; if the formula results
in such an excess, the fuds will be reallocated to the other grantees.
Effective with FY 1995 activities, no grtee can receive more than 12 percent of the tota
amount avàIlable for leveraging. Ths was baed upon comments HHS received that the bulk
of the leveraging incentive fuds should not go to just a few large grantees, leaving litte for
others. During the first thee years ofleveraging, two large states each received more th 12
percent of the available fuds, and the four grtees with the largest amount of leveraged
resources received a tota of between 47 and 49.7 percent of the tota leveraging incentive
fuds awarded durg those years.
Also effective for FY 1995 activities, a grantee canot receive a leveraging incentive award
that is more th the smaler of its regular LIHEAP net allotment durg the base period or
twce the net value of its countable leveraged resources for the base period. Ths was to
prevent what was seen under the interi formula as providig disproportionate and unai
award amounts to some trbes because it was not uncommon for trbes to receive awards as
much as 1 1 times larger than their amounts leveraged.
Grantees must use their leveraging incentive awad fuds to increase or mata heating,
cooling, energy crisis, and/or weatherition benefits, though (tht is, with and as a par of)
the grantee's LIHEAP program.
Leveraging incentive fud are available for obligation durg both the award period and the
fiscal year followig the award period.
SUMMAY
Ths memorandum is an overview of leverag and the requiements of the leveraging
incentive implementation rue. Specific gudace on whether an activity qualifies as
leveraging can only be provided by HHS. The Clearghouse can provide examples of
leveraging resources from states and trbes tht were accepted by HHS.
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Idaho % of
Total Total #of Idaho Idaho Award to
FY Leveragina Awards Participants Leveraging Award Leveraging
2002 $1,319,718,763 $18,906,602 41 $0 $0 0.0000
2001 $1,140,092,380 $19,003,357 39 $832,386 $51,154 0.0615
2000 $683,979,362 $19,166,115 37 $466,093 $33,266 0.0714
1999 $619,689,057 $18,930,270 37 $0 $0 0.0000
1998 $534,619,538 $19,606,616 33 $773,171 $49,365 0.0638
1997 $587,497,146 $17,671,364 39 $703,913 $52,427 0.0745
1996 $574,618,350 $17,636,917 39 $758,973 $46,258 0.0609
EXALES OF LIHEAP ENERGY VENDORLEVERAGING PROGRAS Page 10f28
H.Q1Je ::Example ofLllP Energy Vendor Leveraging Progrs (NADA)
EXAMPLES OF LffEAP ENERGY VENDOR
LEVERAGING PROGRAMS
Prepared by
National Energy Assistance Directors' Association
under contract to the
National Center for Appropriate Technology
for
u.S. Departent of Health and Human Services
Administration for Children and Familes
Office of Community Services
Division of Energy Assistance
Contract No. 105-94-8200
November 15, 1997
Acknowledgments
The National Energy Assistace Directors' Association (NEADA) would like to thnk Kay Joslin,
Director of the LIHEAP Clearghouse at the National Center for Appropriate Technology (NCAT), for
providing helpful comments and guidance on developing the outline for the report. NEADA also ths
Jan Fox, Linda Hil, and Leon Litow with the U.S. Offce of Communty Services (OCS), for assistig
with the publication's design and its fina review.
NEADA would also like to than the following state offcials who provided inormtion on their
progr and suggestions on options for leveri program fuds: Steve Caralo, Deputy Director,
Bureau of Energy Programs, Massachusetts Executive Offce of Communty Development; MarAn
Manoogian, New Hampshire Governor's Office of Energy and Communty Servces; Steve Pta Home
Energy Assistace Program Coordiator, New York State Deparent of Social Services; and Maron
Wojick, Connecticut Deparent of Social Servces.
Ths project was diected by Mark Wolfe, Executive Director ofNEADA. Chuck Guinn, John Smith and
Jeff Genzr provided consultation on the section on systems benefit chages and An Matteis provided
final editing of the report. Comments about the report or requests for techncal assistance should be
directed to Mark Wolfe, NEADA, (202-237-5199).
This publication was prepared by NEADA under contract to the NCAT under contract # 1 05-94-8200
fuded by the Division of Energy Assistance, Offce of Communty Services, Admnistration for
Children and Familes, U.S. Deparent of Health and Human Services. It was prepared to assist states
developing strategies for increasing leveraging of non-Federal, energy assistace resources. The
examples discussed in ths publication wonit necessarly work everywhere and OCS doesn't necessarly
agree with or recommend them for other grantees. Each grantee should decide whether simlar
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leveraging projects are appropriate in their jurisdiction.
Table of Contents
L,JNIR.QJ21J.~ric.l"N
II. DISCUSSION OF STATE APPROACHES
Volume Discounts for Heating Oil Puchases
Utilty Restrctug
IlLHEA Il"NILQlL..M.ARKEIS;.APRIMER
Heatg Oil Pricing
What is the Savings Potential?
Bul Purchase
Bid Programs
Magin-Over-Rack Programs
Vendor Agreement
Protection Against Price Volatilty
LY,..NAIlJ.RAL.JJ:.ASJ2.ERE.QULAi'IQ.l~_AJ?R.lMEß.
Natual Gas Market Restrctues
New York State/National Fuel Gas Pilot Project
Y-,..ELEÇ;IßlÇI1=-Y_Qr~RE(ililATI()N: A PRIMER
Makg the Case for Systems Benefit Chages
Cooperatives: An Old Idea Reborn
Vermont's Consumerco Lowers Bils, Not Just Rates
Vermont's Fuel Buyers Group: A Model For Oter States
YL.JìLQSS.ARX...QE_SE1.ECIED...IERMS.
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APPENDIX
SUMMY OF STATE RESTRUCTURIG PROVISION FOR SYSTEM BENEFIT CHARGES
I. INTRODUCTION
The Federal Low-Income Home Energy Assistace Program (LIHEAP) assists low-income households
with meeting the cost of their home energy bils. Durg FY 1997, $ 1.2 bilion was provided in reguar
and emergency LIHEAP assistance.
LIHAP fuds are provided to the states in the form of formula-basd block grants which are used to
provide heating and cooling assistace to about 5.0 milion low-income households. These grants are
distrbuted primaly on the basis of relative weather conditions and povert population. In many states,
the LIHEAP office is the largest single public or private purchaser of energy in the state. As a result,
some states have been able to negotiate volume discounts from vendors in order to maximze the
purchasing power of federal LIHEAP fuds.
The purose of the project described in ths publication was to look at strategies tht could be considered
by thee states to increase the purchaing power of their LIHEAP program fuds. Leveraging
opportties were examed in the followig thee energy markets: natual gas, electricity and heating
oiL.
As par of ths project, thee issue briefs were prepared on developments in energy industr restrctuing
and their impact on energy assistace program. The fist was released in Februar 1997, the second in
June 1997, and the third in September 1997. In addition, a previous report, A Manual for Leveraging
Funds in Energy Markets with the Low-Income Home Energy Assistance Program, was prepared last
March as par of ths project. Please call NEADA (202-237-5199) or the Clearghouse at 1-888-294-
8662 if you would like to receive copies of these documents.
Ths publication includes information tht was provided to the three states (Connecticut, New
Hampshie, and Marland) to assist them in developing new approaches to increase program leveraging.
Also included is a description of the meetigs that were held with the thee states and the planng
process that is underway.
The publication of ths report concludes the HHS fuded portion of the project. The projects are
expected to be continued, and will be fuded by other sources. Ths is because development of new state
programs to maximize program purchaing power canot be done quickly. These programs often requie
agreements among suppliers, local adinstrative agencies and state agencies, as well as possible
chages to state legislation. As a result, even though it might appear at first glance that states can easily
and quickly improve the purchasing power of their block grant fuds, the reality of the negotiation
process suggests that these activities can tae a considerably longer period of tie.
This publication was prepared by NEADA under contract to the NCAT under contract #105-94-8200
fuded by the Division of Energy Assistace, Office of Communty Services, Admstration for
Children and Familes, U.S. Deparent of Health and Human Services. It was prepared to assist states
developing strategies for increasing leveraging of non-Federal, energy assistace resources. The
examples discussed in ths publication won't necessarly work everyhere and OCS doesn't necessarly
agree with or recommend them for other grantees. Each grantee should decide whether similar
leveraging projects are appropriate in their jursdiction.
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II. DISCUSSION OF STATE APPROACHES
A number of the state LIHEAP agencies have negotiated significant discounts with energy vendors in
order to maximize the purchasing power of the federal program fuds. These discounts reflect two
factors:
. the purchaing power ofLIHEAP grants allows states to negotiate volume discounts with vendors; and
. vendors have recognzed that by providig discounts, home energy can be made more afordable to
LIHEAP recipients.
The approaches described in ths paper are still in the plang phae, however, and are not meant to
appear as :f decisions. In addition, because the planng discussions involve sensitive negotiations
with vendors, the specific detals of the programs are not discussed.
The complex natue of the negotiation process is described on page 14 in the section that discusses the
recently completed pilot project negotiations between New York State and Natual Fuel Gas. Even
though at first glance it might appear that the aggregation project agreement was relatively straight
forward and could have been negotiated in a few weeks, in practice it took more than a year of
negotiations, data anysis, and plang in order to develop the program.
Volume Discounts for Heating Oil Purchases
Unlike natual gas and electrcity, the retal market for heating oil is not reguated. The product is
produced and refied in many areas of the world and delivered by pipeline, trck and ship. The
wholesale price is determined by the laws of supply and demand. The retail price is based on the market
price plus a mark-up for sales and delivery.
The final price is also a fuction of competition and volume purchaed. Generally, large commercial and
industral consumers pay less than small residential consumers. In several states, residential consumers
paricipating in low-income energy assistace programs have been pooled as par of an aggregation
strategy to negotiate lower retail prices from fuel vendors.
Connecticut and Massachusetts are two states tht have successfuy implemented aggregation programs.
The aggregation strategy followed by these states is simple and straightforward; parcipating dealers are
paid a fixed 25 cents per galon over the wholesale price, adjusted weekly (known as "margin-over-
rack"). Tht amount is on average about 1 5 cents per gallon less than the price chaged by dealers to
residential customers. In retu, oil dealers receive a guaanteed payment from the state LIHEAP
program.
The purose of the project effort in New Hampshire was to help the state develop a plan for maximzing
its purchases of heating oiL. Five plan elements are being explored:
. Compare the differential between the wholesale and retal price of heatig oil in New Hampshie and
the range of prices paid with the prices paid by the LIHEAP program in Connecticut and Massachusetts.
. Determne whether the price differential, if any, is due to other factors, such as transporttion or the
proporton of the population living in hard to reach rual areas, as compared to urban areas.
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. If a price differential exists, determe whether additional savings could be achieved though margin-
over-rack or other discount pricing plan.
. Determine whether fuer price savings could be achieved though use of a sumer fuel purchasing
program, when prices for heating oil are generally considerably lower.
. If appropriate, develop model agreement forms with vendors.
Project sta visited New Hampshie in October 1997 and met with state and local program sta to
discuss options. A prelimar anysis of prices paid though the state LIHEAP program was completed
and several possible pricing strategies were discussed. The next step in the process will be for the project
team to complete a weighted average of prices paid and develop several alternative plans for the stte's
purchasing power. This tak wil be done afer the HHS project is completed.
A discussion of the inormation that was developed for the New Hampshie LIHEAP staff is provided in
Section III. These matenals include an overview of the heatig oil market and a sum of the
Massachusett progra. They also include a discussion of the potential advantages associated with
combing a margin-over rack program with an options program to limit price volatiity.
Utilty Restructuring
The restrctung of the electrc and natu gas markets will provide a new opportty to increase
resources for low-income households by providig opportties to aggregate low-income clients to
achieve market discounts and by obtanig new subsidies by applying either a flat or volume chage
agaist the natual gas and electrc transporttion and distrbution systems. These "systems benefit
charges" have been approved in Californa, Maie, Monta New Hampshire, and Rhode Island, while
low-income market aggregation pools have been developed in New York State and Ohio.
The project staha been working with the states of Marland and Connecticut to develop proposals
similar to those underway in the above mentioned sttes. Project meetings and visits have been
inormationa and designed to assist stte planers in crafting long term solutions to meeting the energy
needs of LIHEAP eligible population. Agencies in both states are interested in developing plans to
support the implementation of wies charges and distrbution charges tht could be used to fud low-
income programs. The purose of the plan in each state is to develop the necessar inormation that
could be used by policy makers to evaluate the costs and benefits of these programs, and then develop
the necessar legislative languge to support their implementation. The followig sumarzes the steps
that would be needed to support the development of ths approach.
Task 1: Develop Preliminary Data Base
. Gather natual gas and electrcity consumption data on taget populations.
. Obtan the most recent rate case filings and load profie data from the state public utilties
commssion and review ths inormation.
. Gather data on curent subsidies
. Review legal options for aggregation strategies under existing and proposed law.
Task 2: Preliminary Legislative Investigation
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. Identify and meet with interested state legislators to discuss legal options.
. Draf legal options and legislative languge that can be pursued as par of state
restrctug and/or aggregation legislation to support transporttion and distrbution
charges.
Task 3: Support Aggregation
. Determe level of subsidy needed to make aggregation attactive to private sector to
cover additional costs associate with servg low-income households.
. Work with utilities, local distrbution companes and others to discuss options for either
receivig lower prices for aggregated pool customers or placing the pool out for bids.
. If bidding process is necessar, explore strategies for fudig Request for Quaifications
(RQ) and Request for Proposals (RP) from energy providers.
Sections IV and V sumarize the inormation developed by the project sta to assist the states of
Connecticut and Marland, as well as other states interested in options for increasing the purchaing
power ofLIHEAP fuds in the new emerging world of "consumer choice" in electrcity and natual gas
markets. For natual gas, it includes a discussion of how the aggregation oflow-income households as
par of a single buying group can be used to obta price discounts. For electrcity, it includes a
discussion on how a systems benefit or wies chage on the distrbution of all electrcity can be used to
support additiona energy assistce for low-income households. Of course, aggregation can also work
for electrcity, and a systems benefit charge can work for natual gas.
ID. HEATING oa MATS: A PRIR
Unlike electrcity and natual gas, wholesale and retal prices for home heatig oil are not set by state
public utility commssions. Rather, prices for #2 oil ( home heating oil) are set in the marketplace
according to the laws of supply and demand. Daily wholesale "spot" prices are set in the major oil
trading markets, located in New York and Rotterdam, Netherlands. Spot prices are a one-tie, open-
market traction, which represents curent maket rates. The retal price is the final price chaged by a
local retal dealer to the final consumer. It includes the dealer's price at the termal delivery point plus
the cost of loca tranporttion, insurance, and marketing.
The options discussed in ths section have been tried by other states in the Norteast and have, in some
caes, resulted in substatial savings in price and resultig increases in purchasing power.
Several of the options, including bul purchase and fixed price purchaing, involve additiona risks or
costs and might not represent viable options for state programs. The priar option being considered by
New Hampshie is the margin-over-rack program, which is discussed in detaL. A sumar of other
price reduction and control strategies is included as well.
Heating Oil Pricing
Two factors infuence the price of home heatig oil:
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. the wholesale or "rack price"; and
. the magin chaged by retal dealers over the rack price.
Wholesale prices var considerably and can spike quickly durg periods when seasonal temperatues
increase rapidly. Obviously, a change in price directly inuences how much fuel can be purchased. In
some years, the degree of fluctutions can be considerable. For example, durg the 1996-97 witer
heatig season, home heatig oil prices jumped from about $.94 per gallon in September 1996 to $1.12
per gallon in Janua 1997. Prices can also increase rapidly durg periods of war, environmenta
diasters, and interntiona political developments. Durng the las few years, the Irai invasion of
Kuwait and the Exxon Valdez disater both led to signficant and unticipated temporar increases in
the price of home heatig oiL.
Price risk, due to a sudden unexpected price spike, ca dratically affect a LIHEAP maager's abilty
to provide fuel assistace. For example, ifprogram projections anticipate a purchae of one millon
gallons of fuel at $.60 per gallon, an unexpected price increase of a nickel per gallon would result in a
loss of purchaing power of alost 77,000 gallons. An additiona $50,000 would be needed to purchae
the projected one millon gallons of fueL.
Another factor inuencing home energy purchases is the spread between the wholesale and retal prices
chaged. The dierence between these two types of prices for heating oil vares considerably by stte.
The regiona wholesale price average for the Norteast states in April 1997 was 60 cents; the residential
price was $1.03. The magin over the wholesale or "rack" price therefore averaged 40.3 cents. Durg
the same time period, the average wholesale price in New Hampshie was 62.7 cents per gallon while
the average retal price was 95.2 cents per gallon. The margin-over-rack price averaged 32.5 cents per
gallon. The price varies by state because of differences in tranporttion from the term point.
What is the Savings Potential?
Unless a state is considerig going into the refing business, the maimum savings potential is the
diference between the wholesale price of refied product from the closest delivery point and the retal
price to residential consumers. The potential is reduced by the mium amount needed to deliver the
fuel, pay the insurance costs, and cover other transporttion-related expenses. These expenses will var
by dealer size, the amount of fuel purchaed, and the distace of the customer base from the fuel
delivery point.
Recent data published by the Energy Inormtion Agency (EIA) provide an indication of the margin
requied by dealers to provide heatig oil to end-use consumers. According to the EIA, the magin for
residential. consumers was 30 cents per gallon, for commercial consumers about 6 cents per gallon, and
for industral consumers about 11 cents per gallon.
Bulk Purchase
Some experts argue tht a major money-savings option for states is a direct purchae offuel from the
wholesale termal. Ths method is more commonly referred to as a "bulk purchase." This prograi
would requie the state to tae the same steps as a retal dealer in deliverig oiL. The state would
purchase the fuel oil directly from the termnal, fid and store the purchased oil at a termna site, and
contract with companes to have the oil delivered diectly to the LIHEAP client. In addition, the state
would have to assign personnel to monitor the delivery companes to assure the oil is delivered on tie
and to the correct customer
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None of the sttes operate a bul purchase program. Several oil industr anysts have suggested tht
bul fuel programs would not have produced signficant savis beyond the 15 cents per gallon savings
found in margin-over-rack progras and would create major mangement problems for traditionally
thnly staed LIHEAP offces. Prices charged by non-profit heating oil cooperatives in Massachusetts,
which ru similar operations, are about the same as the margin-over-rack price paid by the state
program.
Bid Programs
Unless the state is considerig going into the heatig oil delivery business, the maum savings
potential can only be determned though the free market. States have the option of puttng the program
out to bid or negotiating a discount rate with the curnt dealer network. The bid approach is normally
used by large commercial and indusal customers in order to obta the most attactive price.
The bid approach is simple -- a customer issues a notice to the heating oil dealers in his area, sttig the
terms and conditions of the purchase requiement. Bids are submitted and the most attactive offer is
accepted. Whle the savings over the reguar retal price can be considerable, they ar generally
premised on assumption that the product is being delivered to only one location and to only one
customer for billig puroses.
With the exception Of a smal pilot project tred in Massachusett, none of the states use bid programs
for LIHEAP because they could requie residential customers to use a dealer other th the one they are
curently using. Since most energy assistace grants are less than the tota fuel consumption requied by
the household, states have been reluctant to interfere with established dealer networks and servcing
program.
Margin-Over-Rack Programs
Several states have generally followed a second path of negotiating a discount program with retal
dealers to reflect the program's purchasing power. In many cases, the state program is one of the largest
tota purchaers of heating oil in the state. At the same tie, the state is not necessarly the largest
purchaer from each vendor since not all vendors will have a large percentage of energy assistace
clients.
Connecticut and Massachusett developed a formula to pay dealers for delivering heating oil purchaed
though the state progr. While dealers may contiue to chage their regular retal price for delivered
heatig oil that is not paid for with energy assistace dollars, all fuel paid for with energy assistace
dollars will be reimbursed according to the state formula. .
The rack price refers to the wholesale price of oil charged to the retal dealer. The rack price will
generally reflect the cost of refing the oil plus its delivery and storage costs at the term where the
product is sold to retail deaers. The margin-over-rack price is the fin cost to the consumer of the rack
price, plus the dealer's operatig cost, plus profit.
States have tred several strtegies to reduce the margin-over-rack price charged by dealers to low-
income households. The most effective approach has been implemented in Connecticut and
Massachusett. In those states, dealers can only provide oil though the LIHEAP program if they agree
to sell the oil at a fixed price of 25 cents over the rack price. Since retal prices average about 40 cents
over the rack price in both states, the program effectively requires a discount of about 15 cents per
gallon.
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A margin-over-rack program, as used in Connecticut and Massachusett, would work as follows:
. It provides parcipating dealers with a magin of 25 cents per gallon over a weekly average rack (or
wholesale) price of home heatig oil, or their curent retal pnce, whichever is less.
. The margin-over-rack pnce would be based on the weekly average of the daily wholesale price for fuel
oil, delivered at the major terminal areas. Dealers would be assigned a term price accordig to the
termal site used by a majority of dealers in each dealer's servce area. The margin-over-rack pnce only
applies to heating oil purchased with LIHEAP fuds. Oil delivered in excess of a client's LIHEAP
allotment would not be subject to the margin-over-rack price.
. Dealers are not required to parcipate in the program; however, LIHEAP paricipation can only be
extended to dealers who have agreed to parcipate in the program and accept its pricing agreement Fuel
assistce clients must select a paricipatig dealer to receive their fuel benefits. The state provides each
LIHEAP client with a list of approved paricipatg dealers at the beginng of the heatig season. Since
most dealers would not want to risk losing a customer, it is likely that most, if not all, dealers would
parcipate in the progr.
Under some limited circumstaces, a state might be requied to pay the full retail price. These include:
. The client does not have the option to choose a paricipating oil vendor (e.g., the client utilizes the only
vendor in an area, and that vendor is not parcipatig);
. The client shares a fuel ta with other pares who are not eligible for LIHEAP;
. The client's usage is determed by a meterig device; or
. The client received delivery from a nonparcipating vendor prior to eligibilty determnation.
Some oil dealers, however, have charged that margin-over-rack programs do not provide a sufficient
magin to support small, established ful dealers and inad, the programs support large discount
dealers who do not provide the same level of servces. Whle dealers have protested the establishment of
discount oil program, few have dropped out of the progr in Connecticut and Massachusett.
Replacement dealers have been found for those who have dropped out of the program.
The savigs achieved in margi-over-rack program are more signficant for states tht have not
established any other dealer discount progr. The 1997 margin-over-rack savings report prepard by
Massachusett is indicative of potential savigs that could be achieved by using ths approach to
purchae heatig oiL. During the 1996/97 winter heating season, the state purchased 10.9 millon gallons
of heating oil for $10.4 millon dollars. Ths represented a discount of 14.6 cents frm the reguar reta
price of about$1.09 per gallon, for a tota savings of $1.5 millon.
New Hampshie has negotiated a program with its local dealers to receive a discount equa to the price
charged to customers that pay cash on delivery. The average savings works out to about 10 cents per
gallon. Assumg tht retal pnces in New Hampshie are similar to those charged in Massachusetts, as
indicated by recent data provided by the Energy Information Agency, margin-over rack pricing could
provide an increased savings of alost 50 percent.
Vendor Agreement
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States that paricipate in margin-over-rack or other simlar discount programs need to develop
contractu agreements with parcipating heatig oil dealers to assure that there are no
misunderstadigs. The agreement should conta information regardig bilin, delivery, payment
procedures, and termnation provisions.
The following provisions are contaned in the Massachusett agrement requie that parcipatig
vendors agree to the following requirements:
. Submit a bil to the Agency at the posted price per gallon charge to non-eligible simlarly situated
customers;
. Apply payments received against curent deliveries only, and not bils incured prior to November 1;
. Until the customers' benefits under the program are exhausted or until March 31, whichever occurs
earlier, bil the customer diectly only for tota accounts receivable covering bils incured prior to
November 1 and lor other non-heating oil expenses not eligible for payment under the Program. The
customer will not be biled in any amount for gallons of oil delivered under the Progra and paid for by
the Agency pursuat to ths Agreement.
. Not discrinate agaist the customer in price or services, includig offerig deferred payment, level
payment, credit, discount, budget, advance payment, or other credit plans.
. Make curent deliveries to customers regardless of debt arearage statu, or will hold haress the
Agency for aranging oil delivery by another oil vendor.
. If requested by Agency, the Vendor will provide, at no cost to the Agency or the Certfied Customer,
an anual oil cost and consumption record for each Customer, as specified by the Agency.
. The Vendor will make deliveries in accordance with norm business pratice, and accordingly secure
the customer's signtue on the metered delivery ticket. When ths is not possible, the Vendor agrees tht
the trck drver or other Vendor will leave a copy of the metered delivery ticket with the Customer.
Minmum delivery authorid shall be 100 gallons, uness otherwse agreed on by the Vendor and
Agency and subject to the customer's maxmum benefit leveL.
. The Vendor wil submit a metered delivery slip showing a customer's nae and address, date of
deliver, number of galons delivered, vendor's posted price, and tota delivery cost. With 30 days of
the date the invoice is received by the Agency, the Agency will make payment to the vendor.
. For each and every gallon of oil delivered to a customer under the progr, the agency wil pay to the
vendor the amount which equas the lessor of the Vendor's posted price on the date of delivery or the
price calculated by adding a magin of25 cents to a weekly average rack price based on the "Oil Price
Information Service Rak Fax" (OPISRF) in order to determne ths rack price. The OPIS average price
will be averaged weekly by the Agency on a five-day basis.
. The Agency and the Vendor agree tht in periods of unusua oil market volatility resultig in
significant changes in the wholesale pricing of #2 home heating oil, the Agency may, at its discretion,
suspend temporarly or otherwse the pricing method set fort in order to provide emergency relief to its
vendors.
Protection Against Price Volatilty
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An enhancement to the magin-over-rack progra would be to include a price volatilty option to limit
the impact of price fluctutions. Most state LIHEAP programs curently mage their operations by
reducing purchases durg periods of price increases, and conversely increasing their purchaes durng
periods of price decreases. Ths approach makes it extemely diffcult for the state to plan with any
certnty how much oil it will be able to buy at the beging of the heatig season. For example, if the
stte has sufcient fuds at the beging of the witer heatig season to buy one millon gallons of
home heating oil for its LIHEAP clients at $ i .00 per galon, a five-cent increase in the price would
effectively reduce its buyin power by $50,000, and its purhases by almost 50,000 gallons. Similarly, a
five-cent reduction in price would allow the state to purchase an additional 50,000 gallons of heatig oiL.
Combined with a margin-over-rack program, a biddig process -- which not only requests a bid for the
purchase price of fuel oil, but also requests a bid for a price ceiling -- would provide state LIHEAP
programs with a price risk mangement tool which does not requi that they diectly enter the market.
By manging price risk, state LIHEAP managers can leverage LIHEAP dollars and maxze the
purchasing power of available resources.
By requirig the dealers to provide a ceiling on price fluctuons, State LIHEAP programs do not need
to enter the futues market directly to gain the advantaes of options. Instead a state can requi tht
parcipatg dealers offer a ceiling on the price they would chage for oil durng the winter heatig
season. Under ths proposal, dealers would agre to limt changes in heatig oil prices to no more than a
set amount per gallon durg the course of the winter heatig season. May dealers curently purchase
their oil supplies from termin operators tht will guantee tht the price will remai constat
thoughout the witer heatig season. These operators are probably using futue market-to- purhase
contrts to hedge agait price increases.
The futues maket allows fuel oil buyers and sellers to manage risks resulting from price volatilty.
Futues markets provide two importt economic fuctions: price tranparncy (price discovery) and
hedgig or risk-shiftg (risk maagement). Price tranpaency is the constat reportg of price
inormtion on actul trdes made at the futues exchages. Price inormation on hundreds of thousands
of contracts traded daly is available instataeously and contiuously, thus providing a world reference
price. Futues and options contracts for crude oil, gasoline, natual gas, propane and heatig oil are
publicly traded on the New York Mercantile Exchange. Trades can also be made privately though
brokers and other pares.
An options contrct elimates the uncertnty associated with the cash maket. Average monthy prices
can var considerably thoughout the year, mag it diffcult to predict the amount of oil that a state can
purchae with its LIHEAP allotment. By managin price risk, fuel oil purchaers can accurately plan
their purchaes without worring whether a price change will reduce their buying power. Additionay,
an option allows the holder to tae advantage of price declines tht increase purchaing power.
To the extent tht purchaing options contracts with LIHEAP fuds ha the potential to increase the cost
of fuel to LIHEAP recipients (i.e., the actul price is below the option price, but the cost of the option
must be recovered), ths approach may be inconsistent with Section 2605(b )(7) of the LIHEAP statute
(Assurance 7). Assurance 7 requies grtees to ensure tht vendors do not chage LIHEAP recipients
more for services or goods paid for with LIHAP fuds than non-LIHEAP recipients. At least one
grantee, Massachusetts, has purchased futues contracts with non-LIHEAP fuds.
IV. NATURA GAS DEREGULATION: A PRIR
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There are thee mai parcipants in the natual gas distrbution business:
. Gas producers who drll and sell natual gas;
. Interstate natural gas pipeline companies tht purchase gas from producers, transport the gas though
their own pipeline system, and sell the product to large customers and local distribution companes; and
. Local distributon companies that purchase gas from the pipeline companes and then deliver and sell
the gas to retal customers.
Prior to the mid-1980's, local distrbution companes (LDCs) were the exclusive vendors of natu gas
to residential, commercial and business customers. The LDCs provided the ful rage of gas delivery
and storage servces to retail customers upon demand, and they guanteed tht adequate natual gas
supplies would be available durg peak winter demand periods. In effect, natual gas was delivered as a
"bundled servce;" tht is, customers received one bil and dealt with one company to receive all their
services, which included the transporttion of natu gas frm the wellhead source to the fial burer
tip. It was up to the LDC to arange for the tranporttion of the natual gas to its local area or storage
facilty.
Ths system was very reliable and provided very stable prices. Generally, LDCs would enter into long-
term contracts for the purchase of natual gas from the pipeline companes, thereby asurg steady
supplies. Because the number of pipeline companes is limted, the FERC set interstate pipeline rates.
State public utility commssions set the prices chaged by LDCs to deliver the natual gas from the
city gate to end users. The downside of the system was obvious; few suppliers and high prices.
The result was a heavily regulated industr with prices regulated by stte and federal agencies. There
were few surrises. Pipeline companes and LDCs were allowed to charge prices that recovered all
reasonable costs of delivering gas to their customers. Cusmers had no choice but to pay the price if
they wanted to purchae natual gas. In addition, reguators requied LDCs to purchase sufcient
pipeline capacity to meet their maximum seasona requiments. As a result, LDCs would often enter
into long term contracts to assure stable supplies and prices.
The benefit to the consumer was clear; reliable servce at a predictable price. Unlike the price of
electricity which incorporates all the costs of producing and convertng fuels to energy, natual gas
prices are relatively easy to ascert because they reflect, prily, the cost of transportg the product
and the price of the gas. The downside of ths system is tht cusomers had few opportties to
negotiate better, more effcient, or less expensive arangements, such as discount rates made possible by
the reroutig of gas, alterntive contract vehicles, or moving gas from one system to another.
Beging in the mid-1980's, the Federal Energy Regulatory Commssion (PERC) began to transform
the way the natual gas industr operates by deregulating the wholesale segment of the market, the
process used by tranmission companes to set rates. FERC abolished the bundled service system in
favor of a system which allows wholesale customers the option of purchasing natual gas directly from
the source, or purchaing transporttion and storage serices tht best met their needs. The pipeline
companes and LDCs are requied to tranmit the natual gas to the commercial customers thugh their
pipeline facilties for a fee.
Natural Gas Market Restructures
States have also begu the process of unbundlg natual gas services down to the end-use customer.
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New York State is one of the first states to begin offerig unbundling services down to the local
customer leveL. Elements of the New York system include:
. LDCs are requied to provide custmers with access to pipeline capacity, storage and receipt points;
. Thd par maketers may aggregate smal custmer loads to meet minium volume requirements for
receiving unbundled loads;
. LDCs must offer backup services at market based rates;
. LDCs can recover strded costs associated with endig long-term contracts;
. Customers may be charged different rates depending on market conditions and the value attched to
gas serices by individual customer classes; and
. Marketers are allowed to combine small residential and commercial customers to meet the LDCsl
mium purhase requiement, with the LDCs retag responsibilty for biling, meter reading, and
other customer services.
New York's dereguation provisions do not specifically deal with the distrbution of servces to payment
troubled customers. Under the curent system, the stte provides energy assistace to low-income
customers, includig federal LIHEAP fuds, supplemented by utility-sponsored discount program. In
adtion, LDCs are prohibited under the curent system from disconnecting energy servces for non-
payment durg the winter heating season.
In a dereguated envionment, customers will have an opportty to seek out suppliers who provide
attactive rates and terms that meet their specific needs, rather than contiuig to subscribe to the limted
number of rate options avaiable from the trtiona LDCs. Without market aggregators, most
residential customers will not be able to tae advantage of the lower natual gas prices available though
the maketplace because they do not have sufcient maket power to purchase unbundled services
though a direct contrct arangement for servces.
In addition to the upsides of unbundlg, there are also many downsides. For example, customers are
exposed to the risk of high prices which oftn result from periodic price spikes. For low-income
customers, companes may be less willing to provide discounte services and forgive non-payments
uness requied to by the state PUC.
Each state will set rules for aggregation as par of the process of allowig retal choice. These rues
could include:
. What is the mium level of gas that must be purchaed that will allow the benefits of unbundled
servces to pass on to residential consumers?
. What unbundled services may be offered to residential consumers at competitive prices and should
they include traditiona LDC services such as meter reading, repais, and biling?
. What is the obligation of an LDC to be a supplier of last resort for customers who have purchaed gas
though a thd par? What is the obligation of an LDC to serve customers who have poor payment
records or who canot aford high witer bils?
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New York State/National Fuel Gas Pilot Project
New York is one of the first states in the countr to experiment with the application of retal choice
benefits to residential gas customers. Under the N ew York plan thd par marketers will be able to
aggregate residential customers and provide them with natual gas servces at competitive prices.
The opportty to achieve market discounts was not lost on the New York Social Service Agency.
Public assistace and LIHEAP programs together purchae the largest volume of residential energy in
the state. These programs provide energy subsidies to more th 600,000 households. Welfare
households in New York receive full payment for their energy costs. Eligible households with higher
incomes receive a paral payment.
New York State and National Fuel Gas have created a parership to test ways of mag the low-
income market attactive to aggregators. Both pares were concerned that if their parershp was not
successfu, then low-income customers would not have the same level of servce that they curently
receive and would, instead, have to go to a provider oflast resort.
As a first step, New York and Nationa Fuel Ga (NG) examed the marketing characteristics of the
low-income market in Erie County to develop a model for assurng the delivery of services. The market
was examined in thee segments:
. Low-income households on public assistce tht receive an allowance to pay their fuel bil;
. Low-income households on public assistace that have missed payments and, to prevent the
discontinuace of servce, the state makes the payment directly to the utility; the appropriate energy
allowance is then deducted from the recipients' monthy public assistace grt (known as "vendor
restrcted households"); and
. Low-income households tht are not on public assistace, but that receive energy assistace coverig
par of their bil .
The focus of the pilot is to provide services to the public assistace population, which generally has the
lowest incomes and the fewest resources. The first year of the pilot is to explore the level of discount
tht could be achieved by aggregatig the vendor restrcted households. By guanteeing payment for a
large number of households, the state believes tht it could achieve a significant discount and assure that
ths population would contiue to receive servces.
Pilot Partcipation Prorde: Durg the 1996-97 HEAP program, a tota of 9,782 recipients received a
reguar HEAP payment benefit though the public assistace (P A) automatic payment component. Of
ths tota, 3,026 cases were classified as vendor restrcted. These households reported the followig
characteristics: over 60 years old, 4 cases; disabled, 63 cases; child under 6 in residence, 2,959 cases.
Natural Gas Usage Pattern: NFG prepared a customer anysis of P A recipient accounts and those of
the average residential consumer. The average anua gas consumption ofPA voucher accounts is 33
percent higher than the average residential consumer usage. The reasons for ths disparty include:
. energy ineffcient housing stock;
. lack of basic energy conservation knowledge;
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. lack of incentive to conserve since Erie County is paying the bil; and
. intaces where P A clients are biled for servces beyond their own residential use (i.e., multiple
dwellings/shaed meter situtions).
Pilot Project Structure: Under the curent system, Nationa Fuel Ga buys the natu gas and then
bils Erie County for the gas used by public assistace clients at its curent rate for fuel supply and
transporttion cost. The county pays the rate for natual gas as all residential customers in the area.
Under the proposed system, Erie County will buy gas in the open market for the public asistce
households and then pay a distrbution fee to National Fuel Gas.
Can Savings be Achieved? For the last few years, Erie County has been buying gas diectly in the open
market at rates that are up to 20 percent lower th the rates charged by Nationa Fuel Gas.
Tranporttion charges are simar to those charged to other purchaers. National Fuel Gas has agreed to
chage the lowest transporttion rate and storage chages to pilot project parcipants. Whle the state
public utilities commssion must first review and approve the rate, it is expected that the transporttion
chage wil be about 5 percent below the curnt rate charged for ths service.
Transportation: The New York public utilities commssion ha the responsibilty for settg fees for
the tranporttion of natual gas from the citygate to the residential end-usr. As par of its negotiations
with National Fuel Gas to develop the most effective strtegy for serving low-income customers, the
company ha proposed a discounted transporttion rate for consumers who are par of the aggregated
group. The rate is being proposed to the public utility commsion. The rationale for the discount is tht
restrctuing will work more effectively if the low-income market is served and tht the savigs from
the discounted rate will help to make energy more afordable to these households.
Fuel Cost: The other major cost is the price of natual gas, which combines the well-head price and the
cost of transporting the gas from the well-head to the citygate. Thee options are generally available at
ths tie:
. A price based on las year's price;
. Index to the curent wholesale maket with or without option prcing; and
. Percentage of the price charged by the local distrbution company curent taff.
Under the first two scenaos, it might be possible to beat the market or do worse than the market price.
Under the thrd scenao, the state will also come out ahead of the curent price. In ths case, New York
ha chosen to use option 3, which provides for a discounted percentae from the curent market price.
Under the previous contract, Erie County negotiated a 20 percent discount off the reguar retail price.
Assumg that the curent discount ca be continued and the state achieves a 5 percent discount off the
transporttion charges, then New York public assistace clients could achieve a savings of up to 22
percent off the reguar price curently paid for natual gas (trporttion plus natual gas savings). For
the average customer in Erie County, the savings would be equa to about $65 per household. The
savigs will accrue to the recipients. Lower utility bils should result lead to less need for emergency
assistace and help to limit resultig shut-offs.
Lessons Learned: Whle the project is still in its preli stges, it is clear tht there are severa
importt lessons to be leared:
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. It is in the interest of the utility indus, state agency, and local communty to develop a aggregation
scenao early in the process of deregulation to achieve the maximum benefits for low-income
households. Deregulation will not work if a signficant number of households canot benefit from lower
prices, but are intead, locked out of the benefits.
. The least complicated approach is likely to wi the most support, even if it is not necessarly the most
ficially advantageous in all cases. In New York's case, it might be possible to achieve better pricing
though the use of futus contracts or fixed price agreements. Whle signficant savings could be
achieved, the possibilty looms that higher prices or no savigs over the curent system could result. In
contrast, a simpler model tht provides a straight discount is easier to understand and to "sell" to agency
offcials, utility providers and low-income advocates.
. It is suggested tht a maket analysis be prepared of the low-income market tht will be required to
paricipate in the program. The analysis should include the following: fuel consumption data and the
cost of service; options for reducing prices and guanteeing servces; options tht must be reviewed by
the PUC; the level of subsidy tht is curently being provided; an assessment of the porton of the
population that has a troubled payment history (ths group will be the most diffcult to sere); and
options for a provider of last resort and how losses will be paid.
Next Steps: The pilot proposal will be reviewed by the state public utilities commission for approval of
its tranporttion provisions. The fina price for natual gas will be negotiated by Erie County.
v. ELECTRICITY DEREGULATION: A PRIR
The reguation of electrcity prices is chagin as the industr is being restctued. Once considered
among the nation's most heavily reguatd industries, the electrc industr is in the process of becomig
less reguated and more open to competition. The restrctug of the system is being drven by
technological advances tht have reduced the cost of power generation, a belief by legislators and
consumers tht competition will brig lower prices, and federal actions dereguating cert interstate
elements of the industr.
Whle the federal governent has taen responsibilty for openig up the wholesale market for
electrcity.as a result of the passage of the Energy Policy Act of 1992, state governents ar tag the
lead in opening up the reta maket for electrcity for all classes of consumers. As a result, the vertcally
integrated system of today, where each utility is responsible for providig all aspects of utility
generation, transmission, and distribution of electricity as a set of reguated "bundled" servces in its
service terrtory is grdualy being ended.
Many observers believe that the system that is emerging is one where the generation and distrbution
fuctions will likely be "unbundled" and offered on a competitive basis to consumers, in the same
maer tht long distce telephone service is curently marketed by MCI and ATT. The retal market is
expected to be unegulated with respect to price, which in tu wil be the product of negotiation
between sellers and buyers. In ths scenaro, the market power of buyers and their electrcity use profie
will be major factors in the price of their electrcity. Aggregation of buyers will become a mean to
improve the market power of customers. The remainig monopoly fuctions of trsmission and
distrbution (i.e. the wies companes) will likely be reguated by price caps to encourage cost effcient
operation and service.
The foreseeable potentially negative consequences of electrcity restrctuing include "stranded utiity
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costs" and "stranded benefits." "Stranded utlity costs" refers to utility assets, such as uneconomic
generation unts (i.e. many nuclea unts) in a totaly competitive generation market and power purchase
contracts tht are above market clearg prices. "Stranded public benefits" refers to varous public policy
program tht society chooses to have the reguated utility provide and/or fud. These programs include
low-income assistance, such as the weatherization of homes, varous energy effciency programs,
renewable energy procurement, and research and development focused on effciency and diversity of
resources.
Restrctug activities are now underway in most states, though many are proceedig slowly and
waitig to determe if the benefits will be sufcient to justify opening their markets to competition.
States are opening their markets at varing speeds. States with higher than average prices, primary in
the Norteast and Californa, have moved fist. These states are the ones that are also the most burdened
by standed assets. States with lower cost power, priarly in the south and southwest,
are moving slower, concerned that open competition might not necessarly lead to lower prices, or might
even lead to higher prices, if their in-state generators sell power into higher priced markets in other
states.
Under retal competition, generation companes may not be able to recover the cost of their stranded
costs if they are requied to charge a low enough price to compete with other generation not burdened
with such costs. Also, stranded benefits may fall by the wayside uness all entities providing serce are
requied to offer them. The recovery of "strded costs" and the preservation of "stranded benefits" are
decisions that states are makg as they implement their specific restrctug laws.
The financial mechansms for the "recovery" and the "preservation" are very similar; charges placed on
the state-reguted distrbution system (i.e. "wires" charges). Since "standed costs" and "stranded
benefits" are being addressed in a common foru (usualy the state legislatue), they tend to be lined
though the search for a consensus position.
One way to fud the preservation of the public benefits program is a systems benefit charge on the
distrbution of al electrcity collected by the regulated distribution company and included in the
distrbution bils to all customers. More than likely, the charge would be based on a per kilowatt hour of
consumption. The fees would be collected by the distrbution company and tranferred to the appropriate
fuds of an adnistrative agency or agencies. The specific fee level and use categories for the collected
fuds are likely to be determed when the legislative process results in the final law. The actul chage
in many sttes will be detered by the state PUC at an amount needed to contiue existig progras.
Systems benefit charges are generally expressed in terms of mis per kiowatt hour. One mil is equal to
1/10 ($0.001) of one cent. In other words, for every one millon kilowat hours generated, a one mil
chage would raise $1,000 (1,000,000 kilowatt hours ties $0.001). Nationaly, as shown in Table 1
(page 22), a one mil charge would raise about $3 bilion if applied across all consumer end-uses of
electricity -- residential, commercial, and industral.
Systems benefit charges are aleady in place in Californa, Maie, Montaa, New Hampshie, and Rhode
Island. They are also under active consideration in other states includig Massachusetts and Vermont.
Californa, for exaple, has the most extensive systems benefit chages and the highest level of chage.
The systems benefit chages for stranded benefits (energy conservation and afordabilty progrs),
enacted or proposed, range from about one mil per kilowatt hour ($.00 I) to over five mils per kilowatt
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hour ($.005). The systems benefit charge in New Hampshie, on the other had, is limted to only energy
afordabilty, and provides a charge of up to five mils ($.005) per kilowatt hour, with an anua
cumulative cap of $13.2 millon.
A sum of state restrctug provisions for systems benefit charges is included as an appendix to
ths publication.
Making the Case for Systems Benefit Charges
The New Hampshie legislation ilustrates the steps and background informtion tht is necessar to
"make the case" that a systems benefit chage is necessar to provide a long-term solution to the energy
needs of low-income households. The fial plan approved a systems benefit charge to fud energy
assistce; it relied heavily on information presented durg public hearings that described the need for
energy assistace for low-income households on the basis of the energy burden, size of the eligible
populatìon, and the importce of providing afordable electricity servces.
Excerpts from a report prepared by the state's Public Utiities Commssion, Restrctug New
Hampshie's Electrc Utility Industr (DR 96-150, Febru 28,1997), testify to the effectveness of
providig an analytcal base for decisìon makg:
Rationale for providing low-income subsidy: Restrctug of the electrc utility industr should be
implemented in a maner tht benefits all consumers equally, tht is one customer class does not benefit
to the detrment of another. Costs should not be shifted unaily among customers. A non-bypassable
and competitively neutral systems benefit chage applied to the distrbution system may be used to fwd
public benefits related to the provision of electrcity.
Population to be served: The Communty Action Program (CAP) testified that there are 50,000
households in New Hampshire at or below 150 percent of the federa povert level, a widely recogned
stdard for determ low-income eligibilty. CAP quatified the magntude of the problem in New
Hampshie, "The average non-heating customer pays approximately 2.5 percent of income towards the
electrc bil and the average heatig customer pays approxiately five percent of income towards the
electrc bil."
For low-income customers, the percentages are drasticaly differnt, however. CAP broke down the
percentage of income going towards electrcity into thee categories:
. Customers whose incomes are between 0 and 49 percent of the federa povert level;
. Customers whose incomes are between 50 and 100 percent of the federal povert level; and
. Customers whose incomes were between 100 and 150 percent of the federal povert leveL.
Non-heatig, low-income customers paid 23.4 percent, 7.8 percent and 4.7 of their incomes for
electricity, respectively. Heatig low-income customers paid 47.4 percent, 15.8 percent, and 9.5 percent
of their incomes for electrcity respectively. CAP argued tht, though the use of a fixed credit model
percentage payment plan, payment levels for low-income customers should be reduced to a level
ranging from 2.5 percent to five percent of income.
Other Program Benefits: In addition to the direct benefits provided to low-income customers, there are
may societa benefits whch accrue from the establishment of a low-income energy assistace program.
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It reduces the utilties' uncollectible accounts, which is a cost of serice item recovered from all
customers. Additionally, it is possible tht there will be a beneficial impact on povert taes as low-
income bils are made affordable and fewer muncipal fuds are needed for crisis assistace.
Funding Approach: Fundig for the low-income assistace program will be collected though a
systems benefit charge. As commercial and industral customers receive as much benefit from the
positive ta impacts of a low income assistace program as other rate classes, we fid it in the public
good to requie fuding of the program across all franchises and all rate classes. The systems benefit
chage shall be established, afer notice and hearg, as a flat amount per kilowatt hour used and applied
equaly to all customers.
Table 1 -- Estiated Funds Raised Per MB Char2ed
Mions of Mions of Dollars Raised Per MB Charge
*
State Kilowatt Hours
One Mi TwoMBs ThreeMll
Alabama 70,394 $70.4 $140.8 $211.2
Alaska 4,621 4.6 9.2 13.9
Arzona 48,295 48.3 96.6 144.9
Arka 33,974 34.0 67.9 101.9
Caiforna 213,693 213.7 427.4 641.1
Colorado 34,869 34.9 69.7 104.6
Connecticut 27,850 27.9 55.7 83.6
Delawae 9,518 9.5 19.0 28.6
Distct of 10,316 10.3 20.6 30.9Columbia
Florida 166,820 166.8 333.6 500.5
Georgia 95.227 95.2 190.5 285.7
Hawaii 9.160 9.2 18.3 27.5
Idao 19,389 19.4 38.8 58.2
Illinois 126,387 126.4 252.8 379.2
Indiana 87,928 87.9 175.9 263.8
Iowa 37,970 38.0 75.9 113.9
Kasas 30,356 30.4 60.7 91.1
Kentucky 67.501 67.5 135.0 202.5
Louisiana 72,385 72.4 144.8 217.2
Mae 11,386 11.4 22.8 34.2
Marland 56,539 56.5 113.1 169.6
Massachusett 46,750 46.8 93.5 140.3
MichilZan 94,863 94.9 189.7 284.6
Minnesota 53.980 54.0 108.0 161.9
Mississippi 37,925 37.9 75.9 113.8
Missour 61,901 61.9 123.8 185.7
Montaa 13.567 13.6 27.1 40.7
Nebraska 20,894 20.9 41.8 62.7
Nevada 20,582 20.6 41.2 61.7
New Hampshie 8,914 8.9 17.8 26.7
New Jersev 66,693 66.7 133.4 200.1
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New Mexico 16,230 16.2 32.5 48.7
New York 129,995 130.0 260.0 390.0
Nort Carolina 105,191 105.2 315.6 210.4
Nort Dakota 7,908 7.9 15.8 23.7
Ohio 157,807 157.8 315.6 473.4
Oklahoma 41288 41.3 82.6 123.9
Oregon 45,526 45.5 91.1 136.6
Pennsylvana 125.605 125.6 251.2 376.8
Rhode Island 6,547 6.5 13.1 19.6
South Carolina 64,291 64.3 128.6 192.9
South Dakota 7,425 7.4 14.9 22.3
Tennessee 85,315 85.3 170.6 255.9
Texas 262,272 262.3 524.5 786.8
Vermont 5,109 5.1 10.2 15.3
Virgia 84,953 85.0 169.9 254.9
Washington 89,322 89.3 178.6 268.0
West Virgina 25,985 26.0 52.0 78.0
Wisconsin 57,621 57.6 115.2 172.9
Wyomig 11,196 11.2 22.4 33.6
U.S. Tota 3,008,591 $3,008.6 $6,017.2 $9,025.8
Cooperatives: An Old Idea Reborn
Energy cooperatives are not new to the energy indust by any means. Since the emergence of energy
utilities in the early 1900's, cooperatives have supplied energy to rual areas and sparsely populated
communties tht utilities could not serve economically. Because the costs to utilities of buildig and
operatig lies and pipes to isolated area would exceed retus, consumers formed coops to aggregate
their purchaing power. By poolig resources and buying fuel in large quatities that brig lower prices,
coops supplied their customers with competitively priced ful that reflected the combined economic
benefits of lower fuel costs and low operatig or overhead costs.
Another benefit of coops is tht they are owned and ru by their members. Though a cooperative
arangement, consumers have the abilty to own and control how they purchase, control, and use energy
supplies. At a time when energy consumers ar looking for new and different ways to purchase energy
outside the tradtiona utility strctue, coops offer an attactive option to many areas.
Vermont's Consumerco Lowers Bils, Not Just Rates
Vermont's Consumerco provides an excellent example of a cooperative. An idea and emergin program
of the Vermont Energy Investment Corporation (VEIC), Consumerco's goal is to lower consumers'
energy bils, not just rates. Residential, low-income, and small business energy consumers who join
the program not only benefit from the discounted pnces of fuel they purchae, but they also lear about
and tae steps to use energy more effciently.
Consumerco Director Beth Sachs emphasizes the energy effciency principles of the program as the key
to its hoped-for success, "When customers join Consumerco, we want them to assess their homes and/or
businesses for energy savigs opportties from the begin. Those changes could involve the
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lighting or heating and coolig system in the building or major appliances. The program will cover the
cost of equipment purchases or other chages needed to improve energy effciency in tht home or small
business, including fuel switches." Sachs adds, "Those initial costs will be recovered in the customers'
regular bils."
Sachs believes tht Consumerco's goal -- reducing energy bils -- is not only consistent with customers'
wish to pay the lowest bil possible, but the goal also encourages an important and positive public
policy, that is to encourage efficient energy use. Sachs explai, "If you are purchasing energy at a
reduced rate with no other incentive to reduce the amount of energy you use, your bils will either not
change or may increase because you are still using a lot of energy. On the other hand, if your energy
rates stay the same, but you ar encouraged to reduce the amount of energy you use, your bils will go
down."
Lowering energy bils also fits well with LIHEAP goals. For tht reason, Consumerco will be tagetig
low-income households to join the coop. The more households that parcipate, the more effective the
coop will be in negotiating the best possible fuel deals for its members. Sachs explai, "The coop
aggregates the market power of consumers. It's a type of "retalco" (retal fuel company) in tht
Consumerco purchaes power and fuel in bul on behaf of its members." Consumerco plans to
negotiate purchases of most forms of energy, including oil, propane gas, natal gas, electrcity, and
renewables (Le., solar energy).
The futue of Consumerco looks bright, but at the moment, the plan for the coop are still forming
because Consumerco does not yet have the state's approval to operate. The coop's enabling languge is
par of a larger Vermont energy utility restrctug bil (S.B. 62) tht was considered, but suspended
until next year's session of the legislatue. Beth Sachs is determed that Consumerco wil be ready to go
the day the bil is signed. "Unless the coop is ready for business when consumers are ready to mae their
choices, the program won't succeed."
To get thgs staed, Sachs is aranging to team Consumerco with the Washington Electrc Cooperative
(WEC) and other members of the Vermont Fuel Buyers Group to negotiate discount prices for fueL.
"Although we can't operate until the state gives us the go-ahead, we can begi aggregating our fuel
purchases so that we can offer consumers services as soon as we open for business," she explaied.
Vermont's Fuel Buyers Group: A Model For Other States
The relationship between Consumerco and the Fuel Buyers Group is best described as mutuly
beneficial. Consumerco benefits from the lower fuel prices that the Group negotiates for its members,
and the Fuel Buyers Group benefits from the additional maket power of Consumerco's members, which
will enhce its negotiating strengt for reduced fuel prices.
The idea for the Group sprag from an idea ofWEC Manager Avran Patt who believed that the
purchasing power oflow-income households could be haessed to negotiate better fuel prices. When
Patt was Director of the Vermont Offce of Economic Opportty, he recogned the benefits of such an
arangement, but faced difficulties gettng it staed. "You need a critical mass of people to realy make a
fuel coop work and that's had to accomplish in a rual state like Vermont," said Patt. "When oil prices
are low, people don't join. Even then, coop programs don't work well everyhere, especially in states
with large cities and communities that are served by electrc utilities."
Neverteless, Patt believed in the idea and continued to work with Vermont groups to make it a reality.
Others credited with helping to organze and operate the Fuel Buyers Group are the Vermont Energy
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Investment Corporation, the Vermont Deparents of Public Service and Social Welfare, the
Washington Electric Cooperative, and the Vermont Public Interest Research Group. Ths to the hard
work and persistence of these groups, the Fuel Buyers Group is beginng to tae root in rual Vermont.
The Fuel Buyers Group operates like a tradtional coop. The Group negotiates discounted prices for fuel
oil and propane gas which hold for a period of tie, usualy the duration of the winter heatig season.
"We don't buy the fuel nor do we own and operate large taer trcks tht car fuel and propane to our
clients' houses," said Patt. "Rather, we negotiate better fuel prices because we represent large,
aggegated groups of customers." In effect, the coop is tag advantage of economy-of-scale pricing on
fuel purchases.
Patt is quick to point out that membership in the Fuel Buyers Group is not limted to low-income
households. "If coop membership was limited only to low-income famlies, we would not have the
numbers we need to strengten our negotiating position," he said. "The involvement of the Social
Welfare and Public Service Deparents ensures their clients benefit from the service."
Patt hopes tht an evolving Consumerco will launch the coop across the norteastern states. He
envisions branch Consumercos in New Hampshie, Massachusett, and New York City. Once in place,
Consumerco could then operate as a federation and negotiate lower prices and bulk purchases offuel for
members across the region. "At that level, our dealings would occur though commodities exchanges."
Patt is a strong proponent of coops as a way for small energy users to pool their resources with others to
obta better, lower prices for their energy. "I believe coops offer low-income customers an opportty
to take control of their energy options," sad Patt. "Here in Vermont, we're offering residential and small
business owners, including low-income famlies, the chance to purchase their fuel at discounted prices
AND mae more effcient use of those fuels. Ths is a great model for other states."
VI. GLOSSARY OF SELECTED TERMS
The followig provides a list of selected terms that are used thoughout this paper. The definitions are
based on those provided in varous Energy Information Administrtion publications includig Electrc
Power Anua 1995, Monthy Energy Review, Januar 1997, and Residential Energy Consumption
Surey, 1995.
Aggregator: A term used to describe any of a number of entities or organzations who wil buy or
broker electrcity for a group of reta customers in a restrctued electric industr. Usually refers to a
situation of retal competition, where a cooperative, private firm or other such organzation would
aggregate the demand of dispersed individual customers and buy or broker supplies on their behalf. By
analogy, one could call AT&T, MCI or Sprit long-distce telephone service "aggrgators".
City Gate: A point or measurg station at which a distrbution gas utilty receives gas from a natual
gas pipeline company or transmission system.
End-Use: The ultiate benefit tht utilty service provides, or the use to which the utilty servce is put.
For example, in the residential sector, end-uses include space heat, lights, cooking, refrigeration, motor
power (~. fan), air conditionig, localized heatig such as waterbed waring or electrc blanets, hot-
air blowers, entertnment/communcations (TV, radio, etc.) and water heating.
Energy Effciency: Reducing energy or demand requiements without reducing the end-use benefits.
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EXAPLES OF LIHEAP ENERGY VENDORLEVERAGING PROGRAS Page 23 of28
Federal Energy Regulatory Commission (FERC): A quai-independent regulatory agency with the
U.S. Deparent of Energy having jursdiction over interstate electric sales, wholesale electrc rates,
hydroelectrc licensing, natual gas pricing, oil pipeline rates, and gas pipeline certfication.
Franchise: A license or simar legal authority to provide servce at retail in a given geographic area. An
exclusive franchise is a monopoly to provide servce in tht area.
Incentive Rate: Usualy refers to a discount given to a commercial or industral customer to give them
an incentive for staying in an area, staying open, or expanding their business activities in the area.
Load: The amount of power tht is drwn from a utility system at a given point in time. The peak load is
the highest amount of power drawn down at anyone tie, or the utilties maxum capacity or demand.
Market Aggregation: A form of retal competition in which individua suppliers arange to sell power
( or gas) to retail customers, directly, or though aggregators buying on behaf of groups of customers.
Non-Utilty Generator: A power plant (or its owners) not owned by the utility to whose retal
customers the output is sold (also called Independent Power Producer).
Number 2 Fuel Oil: Number 2 fuel oil is the most common form of heatig oiL. .
Pool: As used in the retal competition debate, refers to a system in which all suppliers of electrcity sell
to a central buying entity, the pool, which in tu is the single agent for selling power to retail customers
and their aggregators.
Retail competition: A maket strctue in which individua customers could buy from more than one
supplier. The supplies could be sold first to a pool, with individual customers or aggregators of
customers buying their supplies from the pool, or they could be bought though contracts with the
suppliers directly.
Retail Wheelig: The process of delivering electricity to a retal customer. Usually refers to the delivery
of such electrcity over the transmission and distrbution lines of a utility, which is not itself producing
the electricity, but rather is deliverig it on behaf of a different producer.
Stranded Benefits: Benefits of the curent system of regulation of the utilty industr that would not be
realized in a purely competitive market strctue. For example, the costs of support for energy
conservation activities that utilties would not be able to underte on their own in a competitive market.
Stranded Costs: The cost a utilty has incured under the curent system of vertcally integrated
reguated monopoly, that it would not be able to recover under a pure competitive market strctue. For
example, the costs sun into a nuclear power plant that could not be recovered if rates were lowered to
meet competition from less expensive plants.
WeUhead Price: The value of crude oil or natual gas at the mouth of the well.
APPENDIX
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EXALES OF LIHEAP ENERGY VENDORLEVERAGING PROGRAS Page 24 of28
SUMMARY OF STATE RESTRUCTURNG PROVISION
FOR SYSTEM BENEFIT CHAGES
tate
Caliornia
ecision
sembly Bil
890
(Enacted
9/96)
ligible System
enefit Charge
xpenditures
ost -effective
nergy
ffciency and
onservation
ctivities. In-
tate operation
d
evelopment of
xisti and
ewand
merging
enewable
esource
echnologies
rograms
rovided to low-
come
lectrcity
onsumers,
. cludig but
ot limted to,
geted energy
ffciency
ervces and the
aliforna Rates
or Energy
rogram Energy
nergy
ffciency: Not
ess than $228
llionper
ear, 1998-
000;
esearch&
evelopment. :
ot less than
$62.5 milion
eryear,1998-
001
enewable
esources: Not
ess than $219
llionper
ear: 1998-
000, $263
'Ilon per
ea, 2001
wincome
sistace: Not
ess than the
1996
uthorid
evels based on
assessment
fcustomer
eed
dditiona
dig not to
xceed $75
.
Ilon per
ear, in order
o provide a
ota level of
system benefit
harge fuding
f$540
llionper
ear
dministrato Other
e PUC shal CERCDC shal
rder the
lectric
orprations to
ollect and
spend fuds.
UCto
eterme how
o utilize fuds
or energy
ffciency and
and d for
ansmission
d
. strbution, as
ell as allocat
ds to meet
ow income
bjectives.
Californa
nergy
esources
onservation
d
evelopment
ommssion
CERCDC)todmster
enewable
esoure
rogram andr
d dprogram,
xcept
ansmission
d
. strbution
esearch.
eviewand
eportto
egislatue by
131/97 with
ecommendation
egarding
arket-based
echansms to
llocate
vailable fuds
or renewable
esources
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EXALES OF LIHEAP ENERGY VENDORLEVERAGING PROGRAS
aine . P. 1274--L.
.1804
(Enacted
5/97)
equires
anmission
d distribution
tilities to
'mplement
nergy
onservation
rogramsby
selection of
nergy servce
roviders
ough
ompetitive
idding.
Contiue
xisting levelsfficial
sistce for
ow-income
ouseholds and
o meet fuer
increases in
eed caused by
conomic
xigencies
ontana SB 390
(Enacted 97)
uthorizes a
'versal
ystems benefit
rogram
stablished with
wies charge
o ensur
ontiued
ding of
nergy
conservation,
enewable
esources and
ow-income
nergysistce
ew
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ommence ae-mag
roceeding on
nergy
onservation
rograms by
/1/98
orkig group
Page 25 of28
equies a 30%
ortolio
equirement for
newable
esources for all
. strbution
tilities
10/1612008
EXAPLES OF LIHEAP ENERGY VENDORLEVERAGING PROGRAS
ampshire nacted
5196); and
UCDR96-
150 (2/97)
Commssion to
tablish a
onbypassable
d
ompetitively
eutral system
enefits charge
o fud public
enefits related
the provision
f electrcity
Such benefits
ay include
rogram for
ow-income
ustomers,
nergy
ffciency
rogram,
upport for
esearch and
evelopment
d investments
ve mills per 0 recommend
'lowatt hour. process to
UC Decision: lect an
o more th rganzation
13.2 millon xperienced in
or low income e provisionnergy f low income
sistce nergy
aps the levels sistace andf DSM en to work
pending for . th that
ach utilty at rganzation in
eir latest eveloping a
pproved rogram
evels and onsistent with
. ects utilities oals
'dentified
ennsylvania . L. 802
nacted
12/96)
nsurs tht
'versal service
denergy
onservation
olicies,
tivities and
ervces are
ppropriately
ded.
Shal be fuded
. eah
istrbution
errtory by a
onbypassable,
ompetitively
eutral cost-
ecovery
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Page 26 of28
10/16/2008
EXALES OF LIHEAP ENERGY VENDORLEVERAGING PROGRAS Page 27 of28
assachusetts Gov. Weld
estrctuing
egislation
roposal 97):
oint
egislative
ommtte
JLC)
egislation
roposal97)
echasm that
ly recovers
e costs.
ppears to
. clude
rogram for
ow-income
nergy
sistace
emad-side
agement,
newable
nergy resources
d low income
nergy
sistce
Weld would
uthorize the
PUto
romulgate rues
o estblish a
on-by passable
eneral access
hageto
rovide
. scounted rates
o low-income
ustomers, to
romote
rograms such
renewable
nergy resources
d energy
ffciency
rogram.
Cbil would
uthorize.
ouldalso
uthorie the
PU to require
mandatory
hage to
support the
romotionof
enewable
nergy al rates
or low income
ustomers in
ffect at date of
ct with costs
. cluded in
htt://ww.liheap.ncat.org/pubs/97mwgde.htm
.3 mills per
Whsystem
enefit chage
ivisionof
blic Utiities
C bil would
uthorize the
. ectors of the
TPCtomae
ants, loan,
quity
. vestments or
e any other
ctioiis to
ncourage the
ntiued
urival,
evelopment
dgrowtof
e
ommonwealth's
enewable
rovider
. dustr or to
support basic
esearch,
pplied
esearch,
echnology
anferand
emonstration
rojects.
10/16/2008
EXALES OF LIHEAP ENERGY VENDORLEVERAGING PROGRAS Page 28 of28
ermont S. 62 (97
roposal)
istbution
ates charged to
I customers.
he Public
Serice Board
shall certfy via
competitive
pplications
rocessa
orporation as
effciency
tility for the
urose of
. plementing
oard approved
nergy
ffciency
rograms,
. cluding the
of
ompetitive bids
htt://ww.liheap.ncat.org/pubs/97mwgde.htm
efer to
iscussion. of
ligible
xpenditues.
ote: Board
hall appoint
Electrc
enefitsdmstrtor
o admster
e systems
enefit chage
ds)
10116/2008
Leveraging Report Form
PY 07- October 1,2006 through September 30,2007
Agency: Western Idaho Communitv Action Parership/ CCOA
Contact Person: Mare Eilers/ Ron Corta
ost to
Households Agency
Assisted (Agency
Gross Value (Number of Households Expenditure
Category (Dollar Value of Leveraged Assisted with Leveraged to Leverage
(Leveraged Resource)Resource)Resource)Resource)
Cash Donations $18,764.00 75
Discount/ Waiver $548.50 2
3rd Party LIHEAP Payments $63,124.00 419
Donated Space $24,052.00 7,774
Volunteer Time $ 135,5 16.00 7,774
Utility Funding for
Donated Winter Clothing/$76,941.00 2,846
Other- Please describe below
Wood $8,220.00 60
Portable Heaters $345.00 13
Temporar Shelter $13,289.00 56
Electric Furnace $500.00 1
Chimney Sweep Services $882.00 10
Roof Repair
Total Leveraged Resources $342,181.50
Total Households Assisted 19,030
Total Cost to Agency $0.00