One condition that many states are placing on restructuring the natural gas and/or electric industry today involves the imposition of a system benefits charge. These charges are often called by different names. They might be referred to as distribution fees or universal service fund charges. They might be referred to as public benefits charges, public purpose charges, or system benefits charges. At their core, each of these fees are the same.

A system benefits charge may be distinguished by the manner in which it is collected. Three fundamentally different ways exist to impose a system benefits charge:

• Some states impose what is referred to as a volumetric charge. A volumetric charge may be a charge per kilowatt-hour (kWh) or therm. Imposing a charge of one mil (one tenth of one cent) per kWh, for example, is a volumetric charge. New Hampshire's decision to impose a fee of 1.25 mils per kWh in support of its low-income fuel assistance program is a volumetric charge.

• Some states impose what is referred to as a revenue-based charge. This approach imposes a charge as a percentage of total revenues. Pennsylvania's decision to generate funding for its Low-Income Usage Reduction Program (LIURP) through a charge of 0.2% (two-tenths of one percent) of total gross revenue is a revenue-based approach.

• Some states impose what is referred to as a meters charge. A meters charge involves a flat fee per account per month in support of system benefits programs. The fees will differ based on customer class. Under such an approach, residential customers might pay $0.80 per month while industrial customers might pay $300 per month. A meters charge caps the financial exposure of large users. The large residential user will pay no more and no less for system benefits charge programs than the small residential user. The same is true for large and small industrial users.

Irrespective of their name, and irrespective of their form, to the extent that ratepayer charges generate dollars for low-income affordability assistance --this might include rate discounts, energy efficiency, crisis assistance, arrearage forgiveness, aggregation assistance, and the like-- for purposes of this workbook, the programs funded through such dollars will fall within the rubric of ratepayer-funded system benefits charge programs.

While many states implement a system benefits charge program at the same time the state decides to introduce retail competition into its natural gas and/or electric industries, this move to retail competition is not a necessary prerequisite to the creation of a system benefits charge for low-income rate affordability and/or energy efficiency programs.

As used in this sentence, the term "retail competition" means requiring residential customers to choose their electricity and/or natural gas supplier, much as they choose their long-distance telephone carrier today, or face assignment to a default supplier.

Historically, more than a dozen states ordered their utilities to fund large-scale weatherization and/or price reduction programs and include it in their rates even before and without the move to retail choice. For years, states such as Arizona, California, Connecticut, Maine, Massachusetts, Montana, New York, Ohio, Pennsylvania and Wisconsin provided various types of affordability assistance. Other states (for example, Maryland, New Jersey and Oregon) are now also choosing to implement a system benefits charge to support rate affordability assistance programs.

Wisconsin

Wisconsin is perhaps the best example of a state that has implemented a public benefits charge without also adopting retail choice for natural gas and/or electric customers. Based on 1999 legislation --the legislation was popularly known as Reliability 2000-- Wisconsin's major natural gas and electric utilities collect funds for public benefits programs. These programs include both bill assistance and weatherization.

In addition to participation by the state's investor-owned utilities, the Wisconsin statute requires the state's rural electric cooperatives (RECs) and municipal electric utilities to collect a public benefits charge as well. Half of that money is earmarked for low-income programs. The RECs and municipal utilities are given the option of either creating their own programs or paying the money into the state public benefits fund.

Low-income funding through the Wisconsin public benefits charge is determined under regulations adopted by the state administrator. The determination involves a number of calculations. The formula is designed to ensure that the total level of funding for low-income assistance programs, from all sources, is the same proportion of a given year's low-income need as is provided in the base funding of the program; the fees are set to raise the portion of this funding that is not provided from other sources.

The "low-income need" is the amount by which the annual energy bills of all low-income households in the state exceed 2.2% of the annual incomes of those households. This is a measure of the amount of those energy bills that are unaffordable to those households and so is a measure of the need for program funding. (Wisconsin Statutes §16.957(1)(n)).

Under the Wisconsin statute, the public benefits fund is generated through three sources. First, the current year's federal appropriation for LIHEAP and Weatherization Assistance Program (WAP) is devoted to the fund. Second, those dollars, which the Wisconsin utilities spent on low-income assistance prior to enactment of the fund, are devoted to the fund. The value of that contribution was determined by the state Public Service Commission. Third, the difference between the low-income "need" and the dollars generated through the first two sources is collected through what is called a "non-taxable customer charge" placed on natural gas and electric bills.

An Information Memorandum describing the provisions in 1999 Wisconsin Act 9 (the 1999-2001 Biennial Budget Act), relating to public utility holding companies, electric power transmission, public benefits and other aspects of electric utility regulation can be obtained at the following Web site of the Joint Legislative Council of the Wisconsin legislature.

Oregon

The State of Oregon legislatively established a Public Purpose Charge to fund both low-income weatherization and low-income fuel assistance. The 1999 legislation, while authorizing retail choice (known as direct access) for industrial and commercial customers, does not provide retail choice for residential customers.

The Oregon Public Purpose Charge consists of a meters charge on customers of the state's two investor-owned utilities. Beginning October 2001, the meters charge is designed to generate $7.8 million for low-income weatherization programs. In addition, the public purpose charge is designed to restore the state's low-income fuel assistance funding to the same level it reached at the peak of LIHEAP funding in 1985 (about $20 million). To reach that level, the Oregon charge will generate $10 million a year in additional fuel assistance funding.

Under the Oregon statute, the public purpose funds are to be devoted exclusively to low-income electric bills. All funds are to be used in the electric service territory of the company providing the funds. By statute, the program targets customers who are in danger of having their service disconnected for nonpayment. The statute further provides that the fuel assistance is to be provided through programs "that effectively reduce service disconnections and related costs to retail electricity consumers and electric utilities."

Eligibility guidelines for the electric program is set at 60% of median income (the same as for LIHEAP).

A copy of the legislation can be obtained at the following Web site: www.leg.state.or.us/99reg/measures/sb1100.dir/sb1149.en.html

Colorado

While Colorado has not established a statewide system benefits charge, it has created a meaningful stream of revenue for low-income fuel assistance and energy efficiency through three different approaches.

1. Placing conditions on obtaining favorable regulatory treatment: The Colorado Energy Assistance Foundation (CEAF) was an active intervenor in the proceedings before the Colorado Public Utility Commission (PUC) to consider the proposed merger of Public Service Company of Colorado (PSCO) with Southwest Natural Gas Company in 1998 as well as the proposed merger of PSCO with Northern States Power Company in 2000. In each proceeding, CEAF reached settlements with the Company to provide long-term rate affordability and energy efficiency assistance to low-income households.
   
   
2. Being compensated for service failures: An additional part of the settlement with PSCO in the merger proceeding was an agreement that substantial funding would be provided to low-income fuel assistance should PSCO fail to comply with the quality of service conditions imposed on the company. In 2000, CEAF and PSCO agreed on, and the state PUC approved, a mechanism that would earmark eight percent of any financial penalty paid by PSCO attributable to a failure to meet quality of service criteria for low-income fuel assistance. According to Karen Brown, Executive Director of CEAF, the policy behind the agreement was that deterioration in quality of service tends to adversely affect low-income customers more than it does other residential customers. In June 2001, CEAF received an initial payment of $844,000 as a result of quality of service penalties paid by PSCO.
   
   
3. Identifying and capturing existing pots of funding: A third source of ongoing revenue captured by CEAF flows from the Colorado state statute which provides that unpaid utility refunds should be paid to CEAF rather than allowing those refunds to escheat to the state. In most states, when customers who are entitled to utility rate refunds cannot be found, the dollars that would otherwise have been paid out are required to be flowed back into the state's general fund.

Information on the merger settlements, as well as the settlements regarding the capture of rate refunds, can be obtained by contacting Karen Brown, Executive Director, Colorado Energy Assistance Foundation (CEAF) in Denver at the following e-mail address: kbrown@ceaf.org.

The division of funds between bill assistance (such as discounts or cash assistance) and low-income energy efficiency programs poses one of the most difficult issues for program administrators to address. The basic question presents itself as this: assuming that you generate (for example) $10 million through a public benefits charge, how much should go to energy efficiency and how much should go for bill assistance? Should there be $8 million for bill assistance and $2 million for efficiency? Or should it be $5 million for bill assistance and $5 million for efficiency?

The policy argument presented by the choice on whether to use system benefits charge funds for energy efficiency or fuel assistance involves making difficult decisions on two issues:

1. Do you want to use your funding for permanent long-term reductions in energy burden or for resolution of the immediate needs created by unaffordable home energy burdens? and
   
2. Do you want to serve fewer households with greater funding provided through energy efficiency investments or do you want to serve a larger number of low-income households?

These issues must be directly confronted. On the one hand, given the large numbers of low-income consumers with energy burdens exceeding 20%, the need for bill assistance to bring energy burdens down to affordable levels will often overwhelm the budget, leaving nothing left for longer-term energy efficiency. On the other hand, the necessary expenditures for energy efficiency improvements would allow treatment of only one household for each eight or ten (or more) households that could be served with bill assistance. The issue on how to appropriately divide the fund arises when there are insufficient resources to provide both types of service.

As a general rule, the need for efficiency services cannot be the exclusive basis for decisionmaking. Given the number of low-income households and the nature and age of the housing units occupied by those low-income households, the need for efficiency services can be expected to outstrip any reasonable level of energy efficiency funding. This is true even if the treatment of low-income housing units is spread over an extended period of time (such as 10 or 15 years).

Several approaches exist, none of which directly measure the relative benefits of providing energy efficiency against providing cash assistance. In no order of priority:

• The first (and most common) approach commits to generating a certain level of energy efficiency revenue on a per unit of energy basis. Pennsylvania, for example, funds its Low-Income Usage Reduction Program (LIURP) through a system benefits charge of 0.2% of revenue (two-tenths of one percent). No historical record exists of the rationale behind the particular level (rather than 0.25% or 0.3%). Indeed, it has often been argued by low-income advocates that the 0.2% provides insufficient funding to treat all eligible low-income households. In contrast, many Pennsylvania utilities have argued that they can't find sufficient numbers of households to spend the efficiency budget generated by the 0.2% of revenue requirement.

• The second approach commits to delivering energy efficiency measures to a certain percentage of the recipients of bill affordability assistance. This approach posits that energy efficiency services will be delivered to the 20% of participants with the highest energy consumption (or 25% or 15%). The policy behind this decision is that reducing consumption for these households with the highest usage will accomplish two results. First, it will improve the affordability of home energy to the recipient household. Second, it will reduce the number of dollars that the household needs to receive through the bill assistance program component, thus either reducing the cost of the program or allowing program dollars to be devoted to other eligible households.

• The approach somewhat begs the question, however, because it does not provide a direct answer to the question of what percentage of participants should be served. Consumption levels, however, may well fall into natural groupings, which should become evident upon examination.

• The third approach commits to delivering energy efficiency to all households with consumption at or above a certain percentage of median consumption. Under this scenario, the energy efficiency program would deliver efficiency measures to, for example, all households whose consumption is at or above 130% of the median consumption (or 120% or 140%). The difference between this approach and the first approach is that there is no commitment to serve any particular proportion of the low-income population with energy efficiency. If only 10% of all low-income households have consumption at or above 130% of the median use, only those 10% of households receive efficiency services.

• Again, this funding rule somewhat begs the question of how to split total public benefits funding. It merely converts the question of how to split the funding into the question of where to draw the line on what percentage of median consumption to serve. Examining a sample of low-income accounts from a local utility, however, may well reveal natural groupings of accounts by consumption. Here, too, in other words, there may be a natural break-point at 130% of median consumption that will be revealed by such an examination.

• The fourth approach focuses on the capacity of the energy efficiency community to deliver efficiency services. This approach does not consider the households to be served so much as it considers the capacity of the weatherization network to treat eligible households, assuming those households have been identified and enrolled in a program. In deciding upon the capacity to deliver, the state must take into account the existing capacity given current funding levels, and the projected capacity given a ramp-up in expertise and ability at anticipated future funding levels. The process is, of course, somewhat unavoidably circular since the capacity to deliver efficiency services will grow in response to increasing resources. Conversely, a small existing capacity may simply reflect a paucity of resources. Because of this, the question of what capacity exists to deliver efficiency services must be revisited on a regular basis and resources adjusted accordingly.

Not all states seek to provide any particular justification for the allocation of resources. These states instead simply make a policy decision on the level of need for weatherization services to be met each year. In Wisconsin, for example, the public benefits statute requires the Low-Income Administrator to allocate 47% of all sources of low-income funding to weatherization and energy efficiency. That 47% figure was based on the assumption that roughly $50 million would need to be spent in the first full year of public benefits funding on weatherization and energy efficiency to meet 10% of the identified need for those services. Ultimately, the Wisconsin program administrator has said, funding allocations should be based primarily on a needs assessment, including a time frame within which certain effectiveness milestones are achieved.

Moreover, not all states place rate affordability assistance and energy efficiency assistance in competition with each other. In Massachusetts, funding for low-income rate assistance and low-income energy efficiency assistance come out of different pots of money. As a result, the structure and depth of low-income rate discounts does not depend on the structure and extent of the low-income efficiency programs and vice versa.

The network of local organizations delivering federal fuel assistance, low-income energy efficiency services, and related services, generally, but does not always, involve a local network of community action agencies (CAAs). This same network could, but need not, be used to deliver ratepayer-funded programs. Using the same network to deliver a program (or set of programs) funded by a state system benefits charge, as well, offers both benefits and limitations.

The Benefits of Using the Existing Network

As a general rule, the existing LIHEAP network is well-suited to deliver a new program funded through a natural gas and/or electric system benefits charge. Several factors support this conclusion.

The existing network of local organizations is generally able to sustain a year-round intake and outreach effort. The network of local community-based organizations generally provides a range of services beyond fuel assistance. These local agencies, for example, also frequently provide services such as Community Service Block Grant (CSBG) services, bulk food distribution, job training, and similar programs. While the organizations would need additional administrative money to fund additional staff should year round fuel assistance be provided, the basic infrastructure for such staff is generally in place.

Similarly the network of local organizations delivering fuel assistance and/or weatherization services is often the only network capable of delivering benefits statewide. Agencies such as local fuel funds, for example, tend to serve only particular regions of a state. Similarly, even large utilities rarely serve an entire state.

The LIHEAP network frequently delivers multiple service to the low-income community throughout the state. Through this process, the agencies comprising the network can be expected not only to become aware of families that are facing financial troubles, but will be aware of those families that are facing such troubles while at the same time likely being eligible for a low-income program funded through a system benefits charge. In contrast, while utility customer service representatives may work with payment-troubled customers, those customer service representatives generally do not have information about household income that would allow an easy determination to be made about whether the customer is likely to be eligible for system benefits charge programs.

The Limitations of Using the Existing Network

Using the local network of organizations to deliver a program (or set of programs) funded through a system benefits charge presents its limitations as well. Without long-term commitments of funding, local agencies often have difficulty in ramping up staff levels to effectively deliver new services. Moreover, the ability to develop the institutional infrastructure to deliver new programs is not uniform amongst agencies. Some agencies have a greater administrative, fiscal and physical capacity to generate new staff and deliver new services. Even when staff levels are ramped up, agencies are frequently too small to be able to absorb the working capital associated with slow expense reimbursements.

The fact that these same agencies deliver federal programs is not necessarily helpful in these regards. Federal dollars, of course, may not be spent on non-federal programs. Indeed, if federal and non-federal program dollars are not segregated, all recipients must meet the most stringent of federal requirements. As a result, local agencies must have the capacity to meet federal program assurances and to withstand financial scrutiny through a federal audit.

While it would appear to be most reasonable to build on the existing delivery network rather than to create a new one, doing so is not without its limitations.

Combining funds occurs when the LIHEAP dollars are added to funds generated through an electric or natural gas system benefits charge to form a single fund that does not distinguish between the benefits delivered based on the source of those benefit dollars. No legal impediment exists to prevent the combination of LIHEAP dollars into a single fund with system benefits charge dollars.

Nonetheless, state LIHEAP programs must be capable of demonstrating compliance with the assurances that form part of the state agreement with the federal government to receive and distribute LIHEAP funds. For example:

• Assurance 1 incorporates the state agreement to use LIHEAP funds only for purposes specified in the LIHEAP statute. In addition to basic planning and administration functions, the purposes consist of providing assistance to help households meet their home energy costs ("home energy costs" is a defined term in the statute); intervening in energy crisis situations; and providing low-cost weatherization and other cost-effective energy-related home energy repair.

• Assurance 2 creates both minimum and maximum income eligibility standards. A system benefits charge program limited exclusively to households below 100% of the federal poverty level, for example, would not be a permissible use of federal LIHEAP funds, since the minimum LIHEAP eligibility is 110% of poverty.

• Assurance 5 provides that the highest level of assistance "will be furnished to those households with have the lowest incomes and the highest energy costs or needs in relation to income, taking into account family size . . ." Limiting benefits only to customers with payment troubles, thus excluding income-eligible households without payment troubles, may well be in noncompliance with this assurance.

• Assurance 6 provides that states shall give "special consideration" to the use of any local public or private nonprofit agency receiving federal fuel assistance or weatherization funds under federal law prior to the enactment of LIHEAP. An exclusive reliance on utilities to deliver LIHEAP in combination with a system benefits charge may be in noncompliance with this special consideration.

• Assurance 10 requires states to ensure that the state retain fiscal control and fund accounting procedures sufficient to demonstrate the "proper disbursal and accounting for federal funds paid to the state . . ." The expenditure of LIHEAP funds thus needs to be separately tracked and separately subject to audit, both fiscal and programmatic. A state must be able to demonstrate compliance with the LIHEAP statute.

• Assurance 12 requires states to allow "timely and meaningful" public participation in developing an annual LIHEAP state plan. The state plan is to designate the use to which LIHEAP funds are to be put, including the allocation between basic benefits and crisis benefits. Combining funds may not prevent a state from being able to designate funds for particular purposes and trace their actual expenditures for those purposes.

In sum, LIHEAP can be combined with state system benefits charge funds (and vice versa). This does not, however, relieve state administrators of their fiscal and program responsibilities.

Not all traditional goals of the LIHEAP program will necessarily be consistent with the goals of a program. The following goals, in particular, have posed conflicts that states have been required to reconcile:

• Year-round vs. seasonal program delivery: While LIHEAP has traditionally been a seasonal program, a system benefits charge program generally involves a year-round effort that addresses monthly baseload electric bills as well as heating and/or cooling bills. Accordingly, while outreach and intake for system benefits charge programs might be integrated with the outreach and intake for LIHEAP, it should not be limited to outreach and intake that does not involve a year-round presence.

• Unaffordability vs. payment troubles: While LIHEAP has traditionally been a program through which cash assistance has been distributed based on need, many system benefits charge programs are explicitly directed toward payment troubled customers. The goal of LIHEAP is to reduce the highest energy burdens and to mitigate the harms that arise from unaffordable home energy bills, whether those harms involve households failing to make full and timely bill payment or households experiencing other hardship in order to make their utility bill payments. In contrast, system benefits charge programs frequently have as their focus the purpose of reducing the utility costs associated with nonpayment.

• Fuel neutral benefits: While LIHEAP has traditionally been a fuel neutral program, delivering benefits to both utility customers and to customers of bulk fuels, a system benefits charge program will largely be directed toward customers of regulated utilities. LIHEAP dollars should not be directly or indirectly siphoned away from bulk fuel customers in order to help reduce system benefits charge program costs to be passed on to utility ratepayers.

• Statewide benefit distribution: While the distribution of LIHEAP benefits occurs on a statewide basis, with no preference being given to any particular section or region of a state, system benefits charge programs are sometimes structured so that the dollars of system benefits charge benefits are returned to customers in the geographic area from which the dollars came. This is accomplished, for example, by imposing requirements that the dollars collected in one utility service territory be paid out in benefits only to customers in that service territory. This targeting principle is based on the notion that universal service is a mechanism to help reduce the utility costs of nonpayment, rather than a program to address home energy unaffordability. A benefit dollar distributed outside a utility's service territory cannot serve to reduce the costs of nonpayment to that utility.

• Targeted households: LIHEAP is intended to be targeted to two types of households. On the one hand, LIHEAP is targeted to households with high energy burdens taking into account household size. On the other hand, LIHEAP is also targeted to vulnerable households irrespective of energy burden. These vulnerable households include households with senior citizens, the disabled, and children under six years of age. System benefits charge programs may have different targeting principles.

• Crisis benefits, arrearages and shutoffs: While LIHEAP crisis benefits are generally directed toward preventing the loss of utility service due to shutoffs for nonpayment, participants in low-income programs are often protected from such shutoffs due to arrearage forgiveness provisions. Whether households that might be $1,000 in arrearages are still in crisis even though their arrearages are subject to forgiveness over the long-term is a conflict that requires reconciliation.

Integrating the existing state LIHEAP program with a new program funded through a system benefits charge is not an all-or-nothing proposition. Instead, specific activities can be identified that can be performed by the existing LIHEAP network which, if agreed to, will help integrate the programs.

A 1999 symposium hosted by the federal LIHEAP office identified five areas in which state LIHEAP offices might make specific suggestions on linking new system benefits charge programs with the existing LIHEAP program. These include in no particular order of priority:

• funding

• program oversight

• program administration

• program outreach

• program delivery

In particular, readers should review the report titled Integration of LIHEAP with Energy Assistance Programs Created through Electric and/or Natural Gas Restructuring (October 1999). That report is attached as an Appendix to this workbook.

A 1999 symposium hosted by the federal LIHEAP office identified the following action steps that LIHEAP programs might take to assess whether LIHEAP should be integrated with ratepayer-funded programs:

1. Identify existing program linkages and assess whether these current linkages provide opportunities for program integration with a new fuel assistance program created by electric and/or natural gas restructuring legislation. 2. Identify and articulate the natural synergies that are inherent in LIHEAP, low-income fuel assistance programs created through electric/natural gas restructuring statutes, and U.S. Department of Energy weatherization assistance.

3. Identify potential program conflicts that are possible in the absence of program linkages and specify the conflict resolution mechanisms that arise from program linkages. 4. Identify the potential increase in the delivery of direct dollars of benefits resulting from program linkages. The LIHEAP office should articulate the specific sources of dollars, access to which would open up as a result of program linkages.

5. Identify the program components where linkage might occur. Program linkages can occur in any of the following program areas: funding; oversight; administration; outreach; or program delivery. LIHEAP offices should further identify what aspects of program operation might benefit from linkage even in the absence of complete integration.

6. Identify the existing administrative capacities of alternative program structures. The administrative capacity should consider the program processes involving intake, outreach, and delivery of program benefits. 7. Identify all risks to the LIHEAP program that would not exist in the absence of program linkages. 8. Identify all barriers that would impede program linkages. As a general rule, the more difficult the barrier, the higher the administrative cost to overcome the barrier. 9. Document the desired outcomes of existing and proposed programs. Outcomes measure program results (e.g., reduced service disconnections, reduced heat-or-eat decisions). They are to be distinguished from (1) activities, which measure the things that programs do (dollars delivered, households served); and (2) outputs, which measure the things that programs produce (reductions in home energy burden, reductions in energy consumption). 10. Assess the compatibility of program goals of programs for which program linkages are a possibility. Various programs present the issue of reconciling potentially conflicting program goals. If the desired outcomes of integrated programs are at variance, the LIHEAP office should specify a conflict resolution process. In addition, complete program integration is not necessary if program goals are not completely compatible. In those circumstances, programs can operate with some level of linkage to achieve mutually sought-after objectives.

Once the above steps are completed, a LIHEAP office has developed the framework for a plan showing whether, why, to what extent, and how existing LIHEAP and DOE weatherization programs can be linked with a new fuel assistance program created by electric and/or natural gas restructuring legislation.

What Barriers Might There be to Integration?

It is not a given that administration of a system benefits charge program will (or should) be placed with the state LIHEAP office. Questions for the LIHEAP office to address include:

1. Does the LIHEAP office have sufficient top-level administrative capacity to administer a new system benefits charge program?
   
   
2. Does the state LIHEAP office have sufficient administrative resources, including information system staff and clerical assistance, to administer a new system benefits charge program (or set of programs)?
   
   
3. Does the state LIHEAP office have sufficient information technology to administer a new system benefits charge program (or set of programs)?
   
   
4. Is the fuel assistance program a sufficiently high priority of the state agency in which fuel assistance is located that it would receive the administrative, financial and political support needed to create and administer a new program (or set of programs)?
   
   
5. Is the fuel assistance network sufficient statewide to provide the necessary year-round intake, enrollment and support services for a system benefits charge program?

Aside from these issues involving capacity, some policymakers may want to avoid creating what they perceive to be another state bureaucracy. Some policymakers may believe that it is better for each utility company to collect its own system benefits charge revenue and distribute that revenue back to its own customers.

The bottom line is that is not always the case that a new program (or set of programs) funded through a system benefits charge can or should be administered through the state LIHEAP office.

The integration of a system benefits charge program with the delivery of LIHEAP benefits should have no impact on the control that a state LIHEAP office exercises over the distribution of LIHEAP benefits. In short, the issue is not really a question of control, it is a question of compliance.

While LIHEAP is a block grant program, with considerable state discretion over the design and delivery of program benefits, that discretion is not unlimited. The federal-state relationship in the LIHEAP program is spelled out by the assurances which the LIHEAP statute requires the state's chief executive office to make each year. The integration of a system benefits charge program with the LIHEAP program does not exempt the state from compliance with federal LIHEAP program requirements.

Assurances that seem to be particularly applicable to the integration of a system benefits charge program with LIHEAP include:

• Assurance 2 that the state will provide benefits to households within prescribed income ranges and, at the state's option, may provide benefits to households participating in designated public assistance programs;

• Assurance 3 that the state will conduct outreach activities designed to make eligible households --especially households with elderly individuals or disabled individuals, or both, and households with high home energy burdens-- aware of the assistance available under LIHEAP;

• Assurance 5 that the state will provide, in a timely manner, that the highest level of assistance will be furnished to those households which have the lowest incomes and the highest energy costs or needs in relation to income, taking into account family size;

• Assurance 10 that the state will provide that fiscal control and fund accounting procedures will be established as may be necessary to assure the proper disbursal of and accounting for Federal funds paid to the State under LIHEAP, including procedures for monitoring the assistance provided under this title;

• Assurance 12 that the state will develop an annual State Plan for the use of LIHEAP funds and provide for timely and meaningful public participation in the development of that Plan

Aside from these contractual assurances, there are certain limited statutory restrictions placed on state LIHEAP programs. One important limitation is that set forth in Section 8624 of the LIHEAP statute. Section 8624 provides that

Notwithstanding any other provision of law unless enacted in express limitation of this paragraph, the amount of any home energy assistance payments or allowances provided directly to, or indirectly for the benefit of, an eligible household under this title [42 USCS § § 8621 et seq.] shall not be considered income or resources of such household (or any member thereof) for any purpose under any Federal or State law, including any law relating to taxation, food stamps, public assistance, or welfare programs.

It would, therefore, appear to be unlawful for a system benefits charge program to require a household to apply for LIHEAP as a prerequisite to participate in such a program, or to assume that such benefits are available, or to consider such benefits as income or resources of such household for purposes of determining the level of the system benefits charge benefit amount.

In sum, state LIHEAP offices have considerable leverage in maintaining control over the distribution of LIHEAP benefits. While a block grant program leaves ample room for state discretion in the design and administration of programs, that discretion is not unlimited. Even outside the rubric of a system benefits charge program, the state has contractually committed to use its LIHEAP funds in particular ways.

While it is possible for the state LIHEAP office to participate directly in negotiations about the nature and extent of the integration of LIHEAP with new ratepayer-funded energy affordability programs, such participation is not the exclusive way for a LIHEAP office to influence the decisionmaking process. State LIHEAP offices have:

• Funded community-based organizations to engage in direct advocacy regarding the nature of a system benefits charge program, including its integration with the state LIHEAP office. Consistent participation in discussions concerning natural gas or electric restructuring has repeatedly been cited as an important component of efforts to attain a system benefits charge that is adequately and appropriately integrated with LIHEAP. Maintaining an ongoing presence may overtax limited staff resources that exist at the agency level in a LIHEAP agency. Several states, however, have used LIHEAP leveraging (or WAP leveraging) dollars to fund organizations such as the state community action association to maintain the low-income presence in hearing rooms, legislative halls, and collaborations.

• Provided information to decisionmakers, both regulatory and legislative, even if the LIHEAP office has not been a direct participant in the discussions regarding the nature and extent of integration. Providing information to decisionmakers is an important role for a state LIHEAP office. The LIHEAP office could position itself as the authoritative source of low-income energy information. A common need, for example, is to address misperceptions about available fuel assistance resources. The LIHEAP office can provide information about issues such as the following:

• what fraction of the total eligible population, if eligibility were set at the maximum allowed by law, actually receives LIHEAP each year;
• to what extent, if at all, can LIHEAP be used to pay electric non-heating bills;
• of the total LIHEAP appropriation, what proportion went to bulk fuel vendors;
• what has been the total LIHEAP appropriation over time (compared to the total LIHEAP appropriation adjusted for inflation over time);
• of the total LIHEAP appropriation, what proportion went to purposes other than fuel assistance (e.g., administration, block grant transfers, weatherization);
• what is the average (or typical) LIHEAP recipient gross household income (as well as the range of LIHEAP recipient incomes);
• what is the typical churn (or turnover) in LIHEAP participation year-by-year.

• A state LIHEAP office is uniquely situated to request state officials to convene a Blue Ribbon Task Force on low-income energy needs (as well as to influence who might sit on such a Task Force). At least three such panels can serve as models for such a task force.

• In Maine, the 1990 Blue Ribbon Committee on Energy Policy for Maine's Low-Income Customers released its recommendations in the report Ready for Winter?

• In Vermont, the 1994 Fuel Assistance Program Reform Task Force released its report on the structure and funding of low-income energy assistance.

• In Colorado, the 1998 Energy Assistance Reform Task Force released the Romer Task Force Report making recommendations for the funding and structure of energy assistance.

• A state LIHEAP office is uniquely situated to prepare, or to fund the preparation, of a low-income energy needs assessment. While ideally, a needs assessment would be prepared on a county-by-county basis, such an assessment is often expensive to obtain. The nature and content of a needs assessment is explored further in response to Question No. 12 below.

The use of certain components of federal funding to work with legislative and regulatory decisionmakers, or with collaborative work groups, regarding the integration of LIHEAP with a new ratepayer-funded program is a permissible use of the following funds:

• LIHEAP statute Section 2607A(c) provides that a state may spend funds allocated for LIHEAP, not to exceed 0.8 percent (eight tenths of one percent) or $35,000 each fiscal year, whichever is greater, to identify, develop and demonstrate leveraging programs. Funds allocated under this section may only be used for increasing or maintaining benefits to households.

• LHEAP statute Section 2605(b)(16) allows states to use up to five percent of their LIHEAP funds "to provide services that encourage and enable households to reduce their home energy needs and thereby the need for energy assistance, including needs assessments, counseling, and assistance with energy vendors." Several states have used these Assurance 16 funds to conduct activities as part of their state's restructuring process that would help attain more low-income energy resources, so long as negotiations with energy vendors are involved.

• Weatherization Program Regulations Section 440.14(b)(9)(xiv) allows grantees to use a portion of their grant for leveraging activities. The regulations provide that a state must specify in its state plan "the amount of federal funds to be used, and an explanation of how they will be used, to increase the amount of weatherization assistance that the state obtains from non-federal sources, including private sources and the expected leveraging effect to be accomplished." There is no specified limit on the amount of funds a state may use for leveraging so long as the leveraging activity is one that promotes expansion of energy efficiency funding for eligible households.

• Community Service Block Grant (CSBG) program regulations Section 675C(b)(1) provides that CSBG statewide funds can be used for the following allowable purposes (amongst others): providing training and technical assistance to those entities in need of such training and assistance; supporting statewide coordination and communication among eligible entities; supporting innovative programs and activities conducted by community action agencies or other neighborhood-based organizations to eliminate poverty, promote self-sufficiency, and promote community revitalization; supporting other activities, consistent with the purposes of this subtitle.

Preparation of a comprehensive needs assessment is important even if a state LIHEAP office is not in a position to actively participate in discussions about the creation of a system benefits charge. Such an assessment provides an available reference for allies --whether legislators (or legislative staff), poverty advocates, or other interested parties-- to use in presenting empirical information about the low-income population (e.g., how many households live with gross incomes of less than $5,000). It often also provides a reference to allow others to set the parameters of discussion. It finally establishes a benchmark against which to measure legislative or regulatory actions (do legislative/regulatory proposals meet 50% or 5% of the low-income energy need?).

Documentation of the impacts of unaffordable energy in the absence of a system benefits charge is one important aspect of a needs assessment. The Iowa LIHEAP office's survey of the impacts of home energy bills in the 1999/2000 winter heating season, for example, documented that the need for a system benefits charge to be combined with LIHEAP far transcended bill payment troubles. The Iowa survey documented that:

• Over 12 percent of the surveyed LIHEAP recipients went without food to pay their home heating bill. Projected to Iowa's total LIHEAP recipient population, that meant that about 7,600 low-income households (representing 20,000 Iowa citizens) went without food at times as a result of unaffordable home heating bills.

• More than one-in-five went without medical care to pay for heating bills. This included not seeking medical assistance when it was needed, not filling prescriptions for medicine when a doctor has prescribed it, and/or not taking prescription medicines in the dosage ordered by the doctor;

• Almost 30 percent reported that they did not pay other bills, but did not elaborate as to which bills were not paid. In addition to not paying other bills, many low-income households incurred debt in order to pay both their home heating bills and other basic necessities: borrowed from friends and/or neighbors; used credit cards to pay for food and other necessities, or did not pay the heating bill.

Components of a Comprehensive Statewide Needs Assessment

A comprehensive statewide low-income energy needs assessment should include at least the following components:

• The extent and depth of poverty in the state. This includes the number of low-income households in a state, as well as a definition of (and rationale for) the definition of low-income. In addition, information about households below given levels of poverty should be provided. In addition, information about the level of a livable wage and how wages paid within occupations representing the fastest job growth in the state compares to this livable wage helps document the needs of the working poor.

• The need for energy efficiency assistance. This should document the total number of low-income homes, the age of the housing units, and the number of units already served through energy efficiency programs. The time frame within which all low-income households can be treated with energy efficiency investments at current rates of investment should be presented.

• The need for home heating assistance. This should include the number of low-income households using various home heating fuels, along with the home heating burdens of those households at various income and/or poverty levels. Documenting the home heating burdens of recipients of various benefit programs (e.g., Temporary Assistance to Needy Families (TANF), Supplemental Security Income (SSI)) would be appropriate as well.

• The need for home cooling assistance. This should include average cooling consumption, the average cooling bills associated with that consumption, and the cooling burdens that are represented by those bills.

• The need for base load electric assistance. While base load electric use generally represents a smaller proportion of total household energy use than does home heating, base load electric bills represent a much larger portion of total home energy bills (since electricity is much more expensive on a per unit of energy basis). Home electric burdens at different levels of income and/or poverty levels should be documented.

• The extent of low-income bill payment problems. These problems may evidence themselves through utility shutoffs, arrearages, broken payment plans, and the like. Care must be taken, however, to avoid introducing a bias toward regulated utilities in documenting this need. Information regarding utility payment problems (as opposed to fuel oil or propane vendors) is often more readily available due to the regulated nature of the energy provider.

• The extent of home energy burdens left to be paid after LIHEAP is paid to consumers. These home energy burdens include not only home heating and cooling burdens, but the burden of total home energy expenditures as well.

• What low-income customers do when faced with unaffordable home energy bills? As with the Iowa survey, this information should document how many low-income households go without food or medical care in order to have enough money to pay their home energy bills.

• In each instance (energy efficiency, home heating, home cooling, home electric), a cost of providing assistance at a desired level (e.g., reducing home energy burdens to specified levels; serving a designated number of housing units with energy efficiency) should be included.

Ideally, a state-specific needs assessment would involve survey work of the same scope and nature as the U.S. Department of Energy's Residential Energy Consumption Survey (RECS) at the national level. This type of survey work, however, is generally expensive to undertake and may be infeasible.

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