Energy is an essential part of daily life. We need it to power our homes, businesses and the devices we rely on. But a growing number of Americans are being forced to decide between paying their utility bills and buying other necessities, like food and medicine. Households experiencing a high energy burden spend 6% or more of their income on energy costs. A recent analysis shows that 25% of U.S. households have a high energy burden and that 13% face a severe energy burden by spending more than 10% of their income on energy. More than half of those living at or below 200% of the federal poverty level face a high or severe energy burden. This analysis also shows that people of color and people with low incomes experience disproportionately high energy burdens.
While high energy burdens are experienced by households in states across the U.S., they are particularly severe in the Southeast. In 2018, the U.S. Department of Energy (DOE) reported that low-income residents in Alabama, Arkansas, Georgia, Mississippi and South Carolina “use 36% more electricity than the low-income national average.”
To help identify energy burdens in specific areas within states, DOE created the Low-Income Energy Affordability Data (LEAD) Tool, which offers legislators and other policymakers user-friendly access to energy burden data at the state, county and city levels. Using the LEAD tool shows that energy burdens vary greatly among localities—even among those in the same state. For example, LEAD shows that while Mississippi has a statewide average energy burden of 4%, some counties have an average energy burden of 11%—nearly three times the state’s average.
The federal Low-Income Home Energy Assistance Program (LIHEAP) and Weatherization Assistance Program (WAP) have been in place for decades to help low-income customers pay energy bills and reduce energy costs. However, not all those who qualify for these programs are able to access assistance. Specifically, the need for energy assistance services under LIHEAP has outpaced federal funding levels. Historically, the program has reached less than 20% of those households qualifying for LIHEAP funds. Congress recently recognized the value of federal energy assistance programs by appropriating nearly $900 million in supplemental LIHEAP funding as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
To help meet the growing need for energy assistance, states have enacted supplemental programs to support LIHEAP and WAP services, including utility-administered energy efficiency programs that target low-income customers. Recent state legislative efforts also reflect a growing interest in addressing the low-income energy burden and providing support beyond LIHEAP and WAP. State energy assistance programs generally focus on bill payment assistance for income-qualified individuals, while low-income energy efficiency programs are designed to deliver energy savings and reduce energy costs. Although not discussed in this paper in detail, states have also adopted policies focused on financing for energy efficiency projects. For example, Connecticut enacted a law establishing a “green bank” offering low-interest financing for energy efficiency and other clean energy upgrades.
As states navigate the economic fallout from COVID-19, energy assistance and energy conservation programs will play a vital role in both the near and long term. With unemployment rates reaching a high of 14.7% in April 2020, the number of income-stressed individuals will grow along with the need for policies that provide bill payment support and reduce energy costs.
This document provides an overview of federal energy assistance programs and discusses state statutory mechanisms for creating supplemental energy assistance and energy efficiency programs for low-income residents. It also highlights state legislative efforts to ensure low-income people have access to energy efficiency programs and renewable energy technologies.
Federal energy assistance and conservation programs formed in response to the energy crisis in the late 1970s and early 1980s serve as the backbone for state energy assistance programs administered today.
Low-Income Home Energy Assistance Program
LIHEAP, which was established by Congress in the early 1980s and is administered by the U.S. Department of Health and Human Services (HHS), assists low-income households with energy bill payment. Under the program, HHS released $3.03 billion and $3.65 billion in federal block grant funding in fiscal years 2018 and 2019, respectively. HHS had released $3.32 billion in funding for fiscal year 2020 prior to a $900 million supplemental appropriation through the CARES Act enacted in response to COVID-19.
Weatherization Assistance Program
WAP was created in 1976 as part of the Energy Conservation and Production Act and is administered by the U.S. Department of Energy. WAP provides weatherization funding to the nation’s states, territories and Native American tribes—supporting 8,500 jobs and delivering weatherization services to 35,000 homes per year. A DOE analysis of the program found that it saves households an average of at least $283 per year on energy costs, with significant nonenergy benefits. For every $1 invested in the program, there is a return of $2.78 in nonenergy benefits, such as fewer sick days and reduced health care costs.
State Management of Federal LIHEAP and WAP Funds
In managing federal funding for energy assistance and weatherization, states are authorized to use 15% (up to 25% with a waiver from HHS) of LIHEAP funds to support their WAP programs. At least two states (Ohio and Pennsylvania) recently enacted legislation requiring that a certain percentage of LIHEAP funds be directed towarfd weatherization services, which can provide income-stressed individuals with long-term relief from high energy bills. States are also able to direct LIHEAP and WAP funds toward programs that support increasing low-income household access to solar energy. California set aside a portion of its annual LIHEAP allocation in 2010 to support a pilot program that covered the costs of installing low-income solar energy systems, and Colorado received DOE approval to integrate rooftop solar into its WAP program.
Many states developed their own low-income energy assistance and energy efficiency programs to assist more residents than would be possible through federally funded programs alone. At least 16 states—Arizona, California, Colorado, Connecticut, Illinois, Iowa, Michigan, Minnesota, Montana, New Jersey, Ohio, Oregon, Vermont, Virginia, Washington and Wisconsin—have enacted laws to increase funds for state LIHEAP and WAP programs beyond what is provided at the federal level. States have deployed a variety of approaches, with some implementing mandatory utility contributions to support existing programs and others opting for voluntary mechanisms that allow utilities and individuals to contribute at their discretion.
Mandatory Utility Funding For Energy Assistance
Several states—including California, Illinois, Michigan, Minnesota, New Jersey, Oregon, Washington, Wisconsin and Virginia—have mandatory utility contribution requirements to ensure continued funding for energy assistance programs independent of federal allocations. Minnesota law requires public utilities to fund and administer affordability programs for low-income customers who qualify for LIHEAP. The law further requires utilities to fund the programs at a base annual level of $8 million, which increases upon the public utilities commission’s approval of rate increases. Wisconsin funds its low-income assistance programs through state appropriations and mandatory low-income assistance fees collected by utilities through customer bills. The state’s programs are designed to assist customers with payments, energy conservation and energy weatherization. New Jersey also administers a fund to assist low-income customers. The state’s Universal Service Fund is primarily funded through a surcharge on natural gas and electricity bills, with funding levels determined by the Board of Public Utilities. Oregon law requires that electric companies collect a set amount, determined annually, to assist low-income residents in paying electric bills. The law also limits the amount a customer may be required to pay for low-income assistance programs to no more than $500 per month per site. These funds are directed to the Oregon Housing and Community Services Department’s Low-Income Electric Bill Payment Assistance Fund.
Supporting Energy Assistance With Voluntary Contributions
Other states—including Arizona, Colorado, Connecticut and Iowa—generate supplemental funding through voluntary contributions. Arizona’s Neighbors Helping Neighbors fund is supported by contributions residents make when they file their state income taxes, and Iowa requires that every utility establish a fund supported by voluntary contributions to assist low-income customers with bill payment and weatherization services. Under Iowa’s program, utilities must periodically notify customers of the opportunity to contribute to the fund and establish a committee to determine appropriate fund distribution. In Connecticut, each electric distribution company, gas company and municipal utility is required to include in its monthly bills a request to add a donation to assist low-income customers in paying their energy bills. The funds are managed and administered through Operation Fuel Inc., a statewide nonprofit. Colorado also provides supplemental funding for energy assistance programs through optional contributions made by utility customers.
Supporting Energy Assistance and Weatherization With Multiple Funding Sources
Some states deploy a combination of policy approaches to increase funding for energy assistance programs. For example, the California Alternate Rates for Energy (CARE) program, which is funded through non-bypassable rates, requires the state’s utilities to offer discounts of 30% to 35% to low-income customers. Additionally, California law requires that utilities provide customers the option of making voluntary contributions through their bill payment process. Michigan law creates a non-lapsing low-income energy assistance fund to support low-income energy customers. State law also authorizes the public service commission to annually approve a non-bypassable surcharge—which must be the same across all customer classes. Participating utilities must list the charge as a separate line item on customer bills. Utilities can opt-out of the program, but in doing so, they forfeit their right to shut off power to customers for nonpayment or delinquent payment from Nov. 1 through April 15. Michigan also has an energy assistance program funded by state appropriations. Energy assistance must include services that enable participants to become self-sufficient, including bill payment and budgeting assistance and optimizing energy efficiency.
Illinois established a Supplemental Low-Income Energy Assistance special fund supported by state funds, a mandatory energy assistance charge assessed on utility customer bills, a one-time payment by utility companies, and voluntary contributions made by individuals or foundations. State law also provides for up to 10% of annual funding to go toward weatherization services. Additionally, in 2019 the state enacted the Home Energy Affordability and Transparency Act, designed to increase information sharing with customers about costs associated with alternative (non-utility) electric and gas suppliers, including specific protections for those enrolled in low-income energy support services. The bill also authorizes such alternative energy and gas suppliers to offer energy assistance programs. Vermont administers a supplemental state Home Weatherization Assistance Fund supported by gross tax receipts on fuel retail sales, funds allocated from the state’s Oil Overcharge Fund, LIHEAP funds, grants supplied by the Vermont Low Income Trust for Electricity, and any other appropriated funds. Efficiency Vermont, the state’s efficiency utility, also invests in low-income energy assistance, weatherization and efficiency programs. Efficiency Vermont plans to spend more than $15.5 million on such initiatives in 2018 through 2020. Efficiency Vermont’s spending on these programs is partially funded by revenue generated from the state’s participation in the Regional Greenhouse Gas Initiative.
As states look to complement funding for LIHEAP and WAP, they are also turning to energy efficiency more broadly to support low-income customers in reducing energy consumption and lowering energy costs. This includes programs that ensure low-income customers have access to—and stand to benefit from—energy-efficient programs and technologies.
At least eight states—Maine, Massachusetts, Minnesota, New Hampshire, Nevada, New Mexico, Texas and Virginia—have enacted laws requiring utilities to spend a certain percentage of their energy efficiency funding on programs targeting low-income customers. For example, New Hampshire law requires that at least 20% of energy efficiency funds collected through a system-benefits charge be spent on low-income energy efficiency programs. Massachusetts law requires that at least 10% of program spending for electricity efficiency and 20% for natural gas efficiency be dedicated to low-income residential demand-side management and education programs. Under New Mexico’s utility energy efficiency program cost recovery requirements, at least 5% of the amount received by the utility for program costs must be spent on energy efficiency programs for low-income customers. In Maine, the state’s efficiency utility is required to spend 10% of its energy efficiency and conservation funding or $2.6 million (whichever is greater) on low-income residential programs.
In Texas, unbundled electric and transmission utilities are required to include “a targeted low-income energy efficiency program” in their plans to implement their energy efficiency targets. Spending on such programs is reviewed and approved by the state public utility commission but must be at least 10% of the utility’s energy efficiency budget for the year. Virginia recently amended its Energy Efficiency Resource Standards, increasing its utility energy conservation targets and the amount of energy efficiency program spending that must be dedicated to services that benefit low-income, elderly, disabled, or veteran customers from 5% to 15%. In Minnesota, utilities are required to provide energy efficiency programs for low-income customers, including low-income renters. In funding such programs, public utilities providing gas services are required to spend .4% of their average operating revenue from residential customers from the most recent three-year period and those providing electricity services are required to spend .2% of their operating revenue from residential customers. Additionally, Nevada requires that 5% of utility energy efficiency program spending be directed toward low-income energy efficiency programs.
Some states also enacted laws designed to encourage utilities to broadly consider low-income customers in designing energy efficiency programs. For example, in 2018 the New Jersey General Assembly enacted AB 3723, which in part required the Board of Public Utilities to adopt energy and gas efficiency programs requiring public utilities in order to implement energy efficiency measures to encourage investment in cost-effective energy efficiency, “ensure universal access to energy efficiency measures, and serve the needs of low-income communities.” The Board of Public Utilities issued an order in June 2020 directing utilities to implement energy efficiency programs in alignment with these objectives.
Other states encourage the implementation of low-income energy efficiency programs through planning requirements. Connecticut requires electric and gas utilities to submit joint conservation and load management plans that may include programs benefitting low-income customers. Iowa requires rate-regulated utilities to include in their five-year energy efficiency plans programs for low-income customers, including partnerships with community action agencies, in order to implement low-income programs at the community level. In Maryland, electric utilities are required to submit plans every three years detailing programs to achieve statutory energy savings targets, including programs that address low-income communities. The state public service commission is also statutorily required to submit an annual report to the General Assembly on the status of energy efficiency programs, including the impact of programs directed toward low-income customers. In Massachusetts, electric distribution companies are statutorily required to submit energy efficiency plans every three years that include an analysis of how energy efficiency acquisitions will stabilize rates and increase affordability for low-income customers. Illinois not only requires low-income programs in utility energy efficiency planning, but also requires utilities to contribute to energy assistance programs if they fail to meet efficiency targets more broadly. Electric utilities are required to submit as part of their energy conservation and demand response plans energy efficiency measures targeting low-income households. Additionally, electric utilities that fail to meet their energy efficiency targets within two years are required to make contributions to LIHEAP totaling $665,000 for large utilities and $335,000 for medium-sized utilities. The same LIHEAP contribution amounts are required for failing to meet energy efficiency requirements after three years.