Overview of Low-Income Restructuring
Legislation and Implementation

Massachusetts
Last updated: December 2008
Summary

More than a dozen gas, electric and combination investor-owned utilities in Massachusetts offer low-income utility rate discounts that totaled over $58 million in FY 2007 (compared to $42 million in FY 2005) and ranged from 12 to 21 percent of low-income households' utility bills. Over 268,000 households received the discounts during 2007.

The natural gas discount is mandated by state regulation, while the electric discount is codified through the state's 1997 restructuring legislation. Since restructuring, a number of policy changes have occurred that have impacted discount enrollment and funding levels. In most cases, the changes were instituted as a result of periodic investigations and subsequent rulings by the state’s regulatory commission, sometimes spearheaded by an active network of advocates. The changes, which relate to the discount program, automatic enrollment in the discount, arrearage management programs, and energy efficiency, are chronicled below, starting with the most recent ones.

Discount Rates

An order released September 15, 2008 by the state’s regulatory agency, the Department of Public Utilities, (DPU) required utilities to file new low-income discount rates that restored the percentage value of those discounts to their level as of 1998. 

The DPU and advocates had noted that since the advent of restructuring, the actual value of the discounts had been eroding considerably due to higher commodity prices. Specifically, Massachusetts’ residential natural gas prices had increased 64 percent between 2002 and 2007 and average electricity prices had jumped at least 52 percent. The escalating prices had prompted the DPU in February 2008 to open an investigation into expanding low-income consumer protections and assistance, including standards for arrearage management programs, the discount rates, service termination, and energy efficiency programs.

Comments filed by the utilities, the Massachusetts Energy Directors Association, the Low-Income Weatherization and Fuel Assistance Network, and others almost unanimously supported the need to expand the discounts. Utilities were to file their new bill tariffs by October 15, with the discounts to begin November 1. While the exact impact of the higher discounts won’t be known for several months, it’s estimated their aggregate value will increase by tens of millions of dollars, according to the National Consumer Law Center, one of the groups advocating expanded discounts.  

On November 6, 2008, the DPU ordered electric companies to increase the discount rate eligibility level to that of the state’s LIHEAP program, which had been raised to 60 percent of state median income (SMI) from 200 percent of federal poverty guidelines as of November 1. According to Massachusetts state law, eligibility for the discounts must follow LIHEAP eligibility. The state had raised the LIHEAP income maximum because its LIHEAP funding had nearly been doubled after Congress appropriated LIHEAP a record $5.1 billion nationally in September 2008. Increased eligibility for the gas discounts was a pending issue.

This wasn’t the first time the state had raised the discount income eligibility maximum. In response to higher energy prices during the winter of 2005-2006, the Massachusetts legislature raised the income eligibility ceiling for the discounts to 200 percent of the federal poverty guidelines from the previous level of 175 percent, again to correspond with the LIHEAP income maximum.

Automatic Enrollment Process

Also important to increasing enrollment in the utility discounts is an automatic enrollment process begun in 2005 by the DPU’s predecessor, the Department of Transportation and Energy (DTE). Comments filed during the 2008 DPU investigation credited automatic enrollment with enrolling 90,000 new households into the discount rates.

The process began in December 2001, when the DTE opened a proceeding (D.T.E. 01-106), to investigate increasing the penetration rate for the electric discount, as well as discounts for natural gas and telephone service.

In August 2003, after extensive meetings with stakeholders, the DTE issued an order   establishing a process for automatic enrollment for the gas and electric discounts. The order stipulated the following:

1. A Memorandum of Understanding between DTE and the state's Executive Office of Health and Human Services (EOHHS) outlined changes that were to be made to EOHHS application forms for such means-tested benefit programs as food stamps and TANF. (EOHHS administers a range of health and human service programs through over a dozen departments within it and has a database of program beneficiaries).

2. Applicants are asked to give their permission to release limited information to utility companies (name, address, a unique identifying number). This allows EOHHS to certify the EOHHS applicant/beneficiary as income eligible for utility discounts.

3. Utilities must share information electronically with EOHHS to identify those EOHHS-served households that are income-eligible for the discounts. EOHHS will use its database to match the names on customer lists provided by utilities.

4. The utilities must presumptively place these income-eligible households on the appropriate discount rate within 60 days of learning that they are income eligible. The utilities also must send notices to the households informing them that they have been placed on the discount rate and that they have the right to be removed from the discount upon request.

It took over a year for various issues related to implementation of the August order, including cost recovery by the utilities, to be resolved. On December 6, 2004, the DTE ordered all state electric and gas companies to share their customer lists within 30 days of the order date with the EOHHS so that automatic enrollment could begin. That agency is responsible for identifying eligible utility customers and then directing the utilities to automatically enroll them unless the customers opt out. An opt-out form may be placed on utility websites.

The DTE required utilities to submit quarterly reports tracking the number of customers enrolled in the discounts through the computer match as well as by traditional means such as the LIHEAP application process at community action agencies and through utilities.

Arrearage Management

Along with more unaffordable utility bills and less valuable bill discounts, Massachusetts has also seen increased numbers of low-income households with high arrearages in the years after restructuring. In 2006, as a result of a new state law (Chapter 140), the DPU directed each gas and electric company to establish an arrearage management program (AMP) targeted at their low-income customers with overdue utility bill balances. Enrollees must agree to an affordable payment plan and, in return, they receive some forgiveness of their debt.

Chapter 140 requires that each company offer all low-income consumers with an account in arrears a payment plan of no less than four months, with a down payment of no more than 25 percent of the total arrearage. The remaining arrears balance is divided into equal payments, and a company may seek approval from the DPU for a payment agreement of less than four months if good cause is shown.

According to the most recent figures from the DPU, approximately 3,500 low-income consumers enrolled in the programs in 2006 and gas and electric utilities received over $1 million in bill payments from these participants while forgiving approximately $300,000 in arrearages.

Noting that nearly all AMPs were under enrolled, the DPU in its February 2008 investigation asked for suggestions on strengthening and improving participation in AMPs. It stated that higher enrollment and more successful participation in AMPs could increase low-income customers’ ability to pay their bills, and could reduce utility arrears and service terminations, thereby decreasing utilities’ costs in terminating and restoring service.

In the September 2008 order, the DPU required utilities to expand their pilot arrearage management programs to every low-income customer with a sufficiently large arrearage. Utilities were to file an AMP plan no later than February 28, 2009 , that includes a company-administered program, with either automatic enrollment of eligible consumers or, at a minimum, a procedure for notifying all consumers in arrears of the existence of the AMP. Eligibility for these programs was expanded to 60 percent of SMI in November of 2008.

The DPU and utilities were to continue working with a Best Practices group to develop standard AMP features that would increase program scope and benefit.

Energy Efficiency

Massachusetts’ restructuring law also established a low-income conservation fund through a 0.25 mills per kWh charge on every electric customer, which amounts to about $15 million per year for low-income electric efficiency programs. A conservation charge on natural gas customers funds about $7 million in gas low-income energy efficiency programs.

The programs are implemented through the existing weatherization and energy assistance network, primarily community action agencies. The utility funds are combined with federal weatherization funds to expand the number of jobs completed and the work performed in low-income dwellings. Typical measures include attic and/or wall insulation, blower door directed air sealing, heating system repairs and replacements and ventilation. Priority is given to high-use households, as well as to elderly households and those with young children. Because high usage is often the cause of high arrearages, the efficiency programs are well-coordinated with the arrearage management programs.

About 17,000 low-income households received efficiency services through the utility funds during FY 2007. Services are offered to customers with incomes below 60 percent of the state’s median income, which equates to about 225 percent of federal poverty guidelines.

According to the Network’s comments in D.P.U. 08-4, in the past ten years, Massachusetts’ low-income energy efficiency programs have won many national awards and proven cost-effective on a societal basis. The electric programs, achieved a benefit/cost ratio of 2.9 in the period of 2003-2005, according to a recent report. In 2006, the low-income electricity programs saved 17 MW of summer demand, 44 MW of winter demand, and 179,000 mWh of energy.

For participants, this has meant average savings of about 10 percent in baseload electricity consumption and about 20 percent in heating fuel. The high quality and cost-effectiveness of these programs could not have occurred without the skill and cooperation of the utilities and the program administrators, the Network wrote.

In the above-mentioned 2008 proceeding, the DPU sought comments on whether opportunities existed to increase enrollment in low-income energy efficiency programs and to better coordinate and integrate the programs with other low-income services provided by electric and gas companies.

The consensus among those submitting comments was that the programs are well-coordinated with other low-income services offered by utilities and that limited funding is the most significant barrier to increasing participation in the programs. As a result, the DPU had no major recommendations for the programs, other than for administrators to consider new approaches to the coordination and integration of low-income energy efficiency services as new ideas or opportunities arise.

The DPU noted that state’s low-income energy efficiency funding will be augmented through the Green Communities Act, a comprehensive energy reform bill passed in 2008. It requires, among other things, energy efficiency program administrators to identify and implement all cost-effective energy efficiency resources available.

The Act anticipates that some additional energy efficiency funding will come through the state’s participation in the Regional Greenhouse Gas Initiative (RGGI), through the auctioning of emissions allowances and the proceeds obtained from the auction.

Electric program administrators must dedicate 10 percent of new efficiency program funds to low-income customers, gas program administrators 20 percent. On October 1, the DPU approved $5.9 million in additional spending on energy efficiency by the utilities, to be paid for by the proceeds of the first two RGGI emissions allowance auctions (held in September and December), in order to help Massachusetts households make energy improvements in their homes. While the funding was for all income levels, utilities increased their low-income expenditures for the last quarter of 2008, and planned expanded programs for 2009.

Other issues

All electric customer classes in Massachusetts, including low-income, were affected when lower-priced standard offer service ended as of March 1, 2005, and all customers reverted to default service, now called basic service, which is based on open market prices.

The state’s Electric Restructuring Act had established standard offer service (SOS) and default service during the seven-year period that was intended to transition customers from electricity sold under a monopoly system to electricity sold in a competitive market.  SOS provided a discounted rate for electricity to those who were customers of their electric company as of March 1, 1998 , and who remained so during the transition period.

Customers who left SOS for a competitive energy supplier and then returned to regulated service or who were not customers as of March 1998 were required to take default service, which was typically higher than SOS. However, low-income customers who received the utility rate discounts were exempt from default service and received SOS until its cessation on March 1, 2005 .

For more information:

Documents filed on the DPU’s February 2008 investigation into the discount, arrearage and energy efficiency programs are available at the DPU website’s File Room.

Earlier documents filed on the low-income discount enrollment issue are available at the DPU website’s File Room.

Massachusetts Community Action Program Directors Association and the Massachusetts Energy Directors Association, Additional Comments in proceeding DTE 01-106, “Increasing the Penetration Rate for Discounted Electric, Gas and Telephone Service, November 14, 2002 .

Massachusetts Division of Energy Resources, "Electric Discount Rate Outreach and Eligibility Report: Findings and Recommendations," January 2002.

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