State PBF/USF History, Legislation, Implementation
Last Updated: February 2013
Despite the turmoil caused by electric deregulation in California, low-income programs have remained mostly intact, although they have been significantly expanded in response to the skyrocketing electric and natural gas rates the state has experienced periodically since 2000.
Another significant expansion occurred in 2008, providing the low-income programs new direction, broadening their scope, and increasing their funding, especially for low-income energy efficiency. (See below).
Beyond that, the low-income programs continue much as they did prior to deregulation. California's utilities continue to operate and administer the mandated low-income electric and gas rate discount (CARE or California Alternate Rates for Energy), and the Energy Savings Assistance Program (ESAP), the low-income conservation program formerly known both as the Direct Assistance Program and Low-Income Energy Efficiency. The two programs had been legislatively mandated for at least a decade prior to deregulation.
The California Public Utilities Commission (CPUC) and the 1996 deregulation legislation stipulated that low-income program funding continue at not less than 1996 authorized levels, but the commission added that this "does not preclude consideration of higher levels, as appropriate, in the future."
At the beginning of 2001, CARE spending by the four largest utilities totaled about $126 million; by the end of 2012, it amounted to nearly $1.2 billion, with approximately 4.85 million customers receiving gas and electric bill discounts. The four major utilities participating in the program are San Diego Gas and Electric (SDG&E), Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and Southern California Gas Company (SCG). This total is for discount expenditures only; it does not include utility administration, outreach and other expenses.
The CPUC attributes the growth to both increased need because of the economic recession and to successful outreach that led to 90 percent of eligible households being enrolled in the programs by the end of 2012. CARE spending levels are uncapped, so the program can expand as necessary to serve all eligible customers. As a result, PG&E's 2012 CARE expenditures came in at 106 percent of its authorized budget, and SCE's were 104 percent of its authorized budget.
Likewise, ESAP spending levels have increased since 2001. The four largest utilities spent about $250.6 million during 2012, compared to $56 million in 1996. This total is for efficiency measures only and does not include administrative and indirect costs, or costs of inspections and oversight. Services provided include attic insulation, energy efficient refrigerators, energy efficient furnaces, weather stripping, caulking, low-flow showerheads, water heater blankets and door and building envelope repairs which reduce air infiltration. Nearly 290,000 low-income households received one or more of these measures during 2012.
Other utilities, whether investor-owned or publicly-owned, must spend at least 2.85 percent of their 1994 revenues on public goods programs which must include: "services provided for low-income electricity customers, including but not limited to, targeted energy efficiency service and rate discounts." Low-income energy expenditures for the other utilities total at least $40 million yearly.
In June 2004, a new commission-approved program went into effect that allows an electric bill discount to low- to middle-income households of three or more people. Under the program, called Family Electric Rate Assistance (FERA), an eligible household of four may earn $57,625 per year in 2012-13. (CARE participants may earn up to 200 percent of federal poverty guidelines, which is $46,101 for a family of four.) The program was approved by the PUC in a November 2003 order.
Program participants save on their electric bills by being billed at a lower rate. FERA participants' Tier 3 usage (131 percent to 200 percent of baseline) is billed at Tier 2 rates. Usage in Tier 4 (201-300 percent of baseline) and Tier 5 (above 300 percent of baseline) continues to be billed at the original rates for those tiers. Utilities and the CPUC have noted that more than one third of residential customers do not exceed usage above 130 percent of baseline. (Baseline is a quantity of electricity or gas that is billed at the lowest rate. By law, the commission must set baseline quantities for gas and electricity at a "significant portion of the reasonable energy needs of the average residential customer.")
In approving FERA, the commission heeded recommendations from the advocacy groups The Utility Reform Network (TURN) and Latino Issues Forum. The groups testified that the existing baseline determination method was unfair because the household size of residential customers wasn't taken into account. As a result, a large family was expected to use the same amount of energy as a single person living alone, and often large families exceeded the baseline allowance and paid more expensive rates, the advocates testified.
The program applies only to the three larger utilities: PGE, SCE and SDG&E. The commission said it did not extend FERA to the smaller electric utilities because their upper tier rates weren't as high as those of the major utilities, therefore they didn't appear to have a comparable need for rate relief. At the end of 2012, FERA served over 57,000 households, and the three utilities spent about $11 million for benefits.
In 2007, the state began a comprehensive, long-term, statewide energy efficiency planning process to achieve maximum energy savings across all major consumer groups and sectors in California. The CPUC directed the utilities to develop a single, statewide strategic plan for energy efficiency through 2020 and beyond, and it also sought participation from a range of stakeholders.
In September 2008, the CPUC adopted California's first Long Term Energy Efficiency Strategic Plan, which encompassed ESAP and other energy efficiency programs.
In a decision issued in 2007, the commission set a new direction for ESAP, stating that, in addition to promoting the quality of life of eligible customers, it should serve as a "resource program," that is, it should save energy, help limit the need for new power plants, and help curb greenhouse gas emissions.
Under the commission's long-term vision for ESAP, as stated in D.07-12-051, utilities must provide all eligible ESAP customers the opportunity to participate in ESAP programs. All eligible households that wanted to participate were to receive cost-effective energy efficiency measures in their residences by 2020.
The decision directed the utilities to emphasize the following in their future programs: (1) treat ESAP as a resource program by focusing on energy savings, in addition to customers' quality of life, (2) propose substantial budget increases in order to provide ESAP measures for 25 percent of eligible and willing customers in the 2009-11 period, (3) emphasize long term and enduring savings, rather than quick fixes, and (4) focus ESAP programs on customers with high energy use, while continuing to serve all eligible low-income populations.
Current Three-Year Cycle
In August 2012, the CPUC adopted the budgets for the ESAP and CARE programs for the three-year cycle of 2012-2014. Funding for ESAP during the cycle came to about $1.1 billion, an increase of 27 percent from the previous term. The 2013 ESAP budget reflected an increase of about $10 million over 2012 — utilities were authorized to spend $331.6 million in 2013 versus $322.4 million in 2012. Another increase is scheduled for 2014. While utilities initially planned to serve about 366,500 households in 2012, they ended up only serving approximately 287,000. The CPUC believes that, as the program continues, it becomes more difficult to identify and target homes that need to be treated. ESAP has already serviced more than a million homes since 2009.
The total budget approved for the 2012-2014 cycle for CARE totaled almost $3.8 billion, a 43 percent increase from the previous three-year cycle. The CPUC approved 2012 CARE discount spending of $1.18 billion, compared to $901.6 million for 2011. The utilities went over the approved amounts in 2012, spending nearly $1.21 billion.
In approving the new cycle's budget, the CPUC re-affirmed that it monitors the two programs to make sure they deliver the benefits envisioned in the California Long-Term Energy Efficiency Strategic Plan. It also stated that ESAP, at its core, is an energy efficiency program dedicated to maximum energy savings, while also improving the quality of life for low-income households. The CPUC also recognized that CARE is "more critical now than ever" because of the economic recession. It stated it was dedicated to making sure that the maximum number of eligible households are enrolled in CARE.
For CARE, the commission retained its 90 percent penetration/enrollment goal of all eligible households for 2012-2014. It directed the utilities to aggressively engage in outreach activities while also taking measures to make sure that only eligible households are taking part in the program. The 90 percent goal came from the low-income energy programs needs assessment, released in 2007, which found that about 10 percent of eligible households were either unwilling or unlikely to participate in CARE. Reasons for this, according to the report, include the difficulty, as well as excessive costs, in identifying and reaching certain customers; in addition, some customers have a very low energy burden and would not benefit greatly by participating in the program.
For ESAP, the CPUC encouraged the utilities to take advantage of the program's current momentum and use integration and leveraging to surpass the targeted goal of reaching 1/3 of the remaining eligible household during the 2012-2014 cycle. The Strategic Plan calls for 100 percent of eligible and willing households to have been served by 2020.
Other Low-Income Program Issues
In the years since restructuring was authorized in 1996 legislation, the low-income programs have been the subject of statewide debate and decision-making focusing on several key issues:
- A low-income needs assessment in order to meet the legislative mandate that the programs "be funded at not less than 1996 authorized levels based on an assessment of customer need,"
- Program outreach and participation levels.
These issues have been addressed several times through various CPUC orders and state legislation, and some are still ongoing. The following summarizes major actions by the CPUC and the legislature on the above issues.
1) Needs assessment
The issue of how a needs assessment should be conducted occupied the CPUC, its advisory boards, and the utilities until 2000 when the commission assigned the task of conducting the needs assessment to its Energy Division. The commission stated that the study would "help to define the energy-related requirements of the low income population and whether or not the current utility programs are, or are not, meeting those needs."
The purpose of the first phase, finished in early 2002, was to identify the study objectives, current relevant data, and data gaps to be filled as part of Phase 2; to design Phase 2, and create an RFP for hiring the Phase 2 contractors. This study is available at: www.liob.org/docs/PhaseIReport.zip
After four years in the making, the Final Report on Phase 2 Low Income Needs Assessment was released to the public in September 2007. Its purpose was to determine the following: the number of households eligible for and being served by CARE and ESAP, whether the programs were reaching the appropriate populations and whether there were under- or over-served segments of the population, whether they were achieving their maximum potential in terms of participation and energy savings, and whether there was adequate coordination with other programs.
Performed by KEMA, the Phase 2 results suggest that, "over time, the programs have effectively targeted and provided services to low-income households that have the greatest need." According to the report's executive summary, "As of year-end 2006, however, there remains significant untapped potential in terms of the number of eligible households not enrolled in CARE and the number of households for which ESAP measures would be technically feasible, applicable and needed."
KEMA's calculations show that, as of the end of 2006, nearly 3.7 million households were served by CARE; however, nearly 1.5 million households were eligible for, but not receiving it, including 500,000 households in the territory of Southern California Gas, another 500,000 eligible households in PG&E's territory, plus 300,000 in Southern California Edison and 115,000 in San Diego Gas and Electric territories.
Regarding ESAP, the report shows that compact fluorescent light bulbs (CFLs), faucet aerators, water heater pipe wrap and blankets, and weather-stripping were among the most commonly applicable and needed measures, and that CFLs, replacement refrigerators, and ceiling insulation present the largest available electricity savings potential. Measures with the largest available natural gas savings potential included ceiling insulation and water heater tank wraps.
The KEMA report included several recommendations about targeting, enrollment and other strategies to improve ESAP, several of which were incorporated into the energy efficiency strategic plan and the new direction for ESAP outlined in Decision 08-11-031.
The CPUC has called for another needs assessment during the 2012-2014 cycle. The study is to gauge how well CARE and ESAP function. It will identify needs that exist that aren't currently met by the two programs. It is also charged with identifying gaps in service of the current programs and recommending methods to meet those needs. The study will also develop baseline estimates of how many eligible and willing households remain for the two programs. The commission stated, while the study is to evaluate both programs, its structure is primarily designed to "lay the foundation for numerous ESA Program issues." This needs assessment is scheduled to be completed by August 2013.
2) Program outreach and participation levels
As with the needs assessment and administration issues, the various stakeholders have made recommendations on program outreach. The impacts of energy price spikes, expanded eligibility and discount amounts for CARE, and other issues have all combined to create greater outreach efforts on the part of all the utilities from June 2001 to the present. Utilities report to the CPUC each year their success through various outreach initiatives such as utilizing more community groups, targeting ethnic and non-English speaking neighborhoods, and extending assistance hotline hours. Another outreach strategy is the use of "capitation fees" for community-based organizations. These organizations may receive up to $20 for each successfully enrolled new CARE customer. These and other expanded activities have been continued under the rapid deployment strategy that continues through the present.
Program penetration levels — the percent of eligible households enrolled in CARE — has long been of concern to advocates and the CPUC. In its decision for 2012-2014, the commission noted that, after 20 years of outreach and enrollment efforts, CARE penetration rate is reaching (and might exceed) 100 percent in many utility territories. As participation and allocated budgets have increased over the years, the CPUC noted, it has become more important to make sure only eligible households are participating. The commission called for the utilities to engage in more post-enrollment and re-certification measures to make sure eligibility requirements were being adhered to. Despite these concerns, the commission retained all of the current categorical enrollment programs and continued to call for aggressive outreach by the utilities to reach low-income customers.
As of December 2012, according to utility reports to the CPUC, the CARE enrollment penetration rate averaged right about 90 percent of eligible households for the four largest utilities, up from 85 percent for 2009. SCE had the highest percentage of eligible customers enrolled at 96 percent.
More information, including CPUC decisions and utility reports, can be found on the website of the Low Income Oversight Board, (LIOB) an advisory board to the commission.