 National Center for Appropriate Technology 3040 Continental Drive Butte, MT 59702 406.494.8662 Fax 406.494.2905 |
Systems Benefits Charge Can Save Public BenefitsNote: The following article is taken from the September 4, 1997, issue of the LOW-INCOME LINE LEVERAGING UPDATE SERIES. It was written by Chuck Guinn, John Smith and Mark Wolfe. This update has been prepared by the National Energy Assistance Directors' Association (NEADA) under contract to the National Center for Appropriate Technology (NCAT) for the LIHEAP Clearinghouse as part of a project designed to assist states in developing strategies to effectively leverage LIHEAP funds in a rapidly changing utility environment. For more information, call Mark Wolfe, NEADA Executive Director at 202-237-5199. One way to fund the preservation of the public benefits programs (including low-income energy programs) is a systems benefit charge on the distribution of all electricity (i.e. no by-pass transactions) collected by the regulated distribution company and included in the distribution bills 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 distribution company and transferred to the appropriate funds of an administrative agency or agencies. The specific fee level and use categories for the collected funds are likely to be determined when the legislative process results in the final law. The actual charge in many states will be determined by the state public utility commission (PUC) at an amount needed to continue existing programs. Systems benefit charges are generally expressed in terms of mils per kilowatt hour. One mil is equal to 1/10 ($0.001) of one cent. In other words, for every one million kilowatt hours generated, a one mil charge would raise $1,000 (1,000,000 kilowatt hours times $0.001). See Table 1, "Estimated Funds Raised for Stranded Social Benefits Per Mil Charged." Nationally, as the table shows, a one mil charge would raise about $3 billion if applied across all consumer end-uses of electricity -- residential, commercial, and industrial. SYSTEMS BENEFIT CHARGES: WHERE DO THEY STAND? California has the most extensive systems benefit charges and the highest level of charge. The systems benefit charges for stranded benefits (energy conservation and affordability programs), enacted or proposed, range from about one mil per kilowatt hour ($.001) to over five mils per kilowatt hour ($.005). There is no "standard" approach to systems benefit charges among the states. Each state is developing and applying the charge to meet its perceived public benefits needs. Any state considering such a mechanism should review the Vermont proposal, which passed that state's Senate. Vermont's proposal is both comprehensive and compatible with the national system's benefit charge program proposed by Senator Jeffords, and is likely to be an element in an Administration proposal to restructure the electricity industry. Vermont's proposal calls for two system benefit charges: one at 3 mils ($.003 ) per kilowatt hour to fund energy efficiency programs and research, development and demonstration of renewable sources; and the other at 1.5 mills (initially) per kilowatt hour to fund a statewide electric energy affordability program of low-income energy assistance. The funds from both charges would be administered by an Electric Systems Benefits Administrator to ensure the funds are used efficiently and effectively. The proposal calls for the creation of a Efficiency Utility Corporation to carry out statewide energy efficiency programs with some of the energy efficiency funds. The proposal also calls for a two-tier renewable recourse portfolio standard (RPS) for all retail electricity sales. The intent of the first tier portfolio standard is to ensure that future sales of electricity contain at least the current level of renewable resources. The intent of the second tier standard is to ensure a four percent increase in the renewable source share of total electricity sales by 2007. The RPS would feature tradeable credits for renewable sources. The Vermont proposal offers a continuation of energy
efficiency programs, a strong commitment to renewable resources
-- both commercial and emerging -- and a significant low-income
assistance program. The proposal also recognizes the need for a
new structure and delivery of public benefits programs once the
electric industry is restructured and retail competition is a reality.
MAKING THE CASE FOR SYSTEMS BENEFIT CHARGES The New Hampshire legislation illustrates the steps and background information that is necessary to "make the case" that a systems benefit charge is necessary to provide a long-term solution to the energy needs of low-income households. The final plan approved a systems benefit charge to fund energy assistance; it relied heavily on information presented during public hearings that described the need for energy assistance for low-income households on the basis of the energy burden, size of the eligible population, and the importance of providing affordable electricity services. Excerpts from the report testify to the effectiveness of providing an analytical base for decision making: Rationale for providing low-income subsidy "Restructuring of the electric utility industry should be implemented in a manner that benefits all consumers equally, that is one customer class does not benefit to the detriment of another. Costs should not be shifted unfairly among customers. A non-bypassable and competitively neutral system benefits charge applied to the distribution system may be used to fund public benefits related to the provision of electricity. Such benefits, as approved by regulators, may include, but not necessarily be limited to, programs for low-income customers." Population to be served The Community Action Program (CAP) testified that there are 50,000 households in New Hampshire at or below 150 percent of the federal poverty level, a widely recognized standard for determining low-income eligibility. CAP quantified the magnitude of the problem in New Hampshire, "The average non-heating customer pays approximately 2.5 percent of income towards the electric bill and the average heating customer pays approximately five percent of income towards the electric bill." For low-income customers, the percentages are drastically different, however. CAP broke down the percentage of income going towards electricity into three categories: · customers whose incomes are between 0 and 49 percent of the federal poverty level; · customers whose incomes are between 50 and 100 percent of the federal poverty level; · customers whose incomes were between 100 and 150 percent of the federal poverty level. Non-heating, low-income customers paid 23.4 percent, 7.8 percent and 4.7 of their incomes for electricity, respectively. Heating low-income customers paid 47.4 percent, 15.8 percent, and 9.5 percent of their incomes for electricity respectively. CAP argued that, through 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 many societal benefits which accrue from the establishment of a low-income energy assistance program. It reduces the utilities' uncollectible accounts, which is a cost of service item recovered from all customers. Additionally, it is possible that there will be a beneficial impact on poverty taxes as low-income bills are made affordable and fewer municipal funds are needed for crisis assistance. Funding approach "Funding for the low-income assistance program will be collected through a systems benefit charge. As commercial and industrial customers receive as much benefit from the positive tax impacts of a low income assistance program as other rate classes, we find it in the public good to require funding of the program across all franchises and all rate classes. The systems benefit charge shall be established, after notice and hearing, as a flat amount per kilowatt hour used and applied equally to all customers."
Page Last Updated: September 24, 2009 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
