“Features of Good Utility-Initiated Energy Assistance,” Energy Policy, April 2020.

In 2018 nearly six million low-income households received grants from the federal Low-Income Home Energy Assistance Program (LIHEAP), which pays part of the utility bill for struggling households with children, disabled members, or impoverished senior citizens … [P]rior to receiving a LIHEAP grant nearly a third of recipients had their heat shut off, could not pay for fuel delivery, or could not afford to fix a broken heating system. As a result, they had no main source of heat in the year preceding the grant. Almost half of these households had a member over 60; half had a disabled resident, and over a third had children under 18. To cope, about a third of these households closed off part of their home and used the kitchen stove for heat; 7 percent left their homes altogether for relatives’ or friends’ couches; some 6 percent wound up in public shelters. As many as half the households went without food for at least a day or declined necessary medical or dental care to keep the heat on.²

Taxpayer-funded programs helping low-income households are more tenable from an economics perspective. But the reality, at least in the U.S., is that legislatures and executive branches of government require utilities to assume some responsibility in making their service more affordable to low-income households.³ While economic efficiency pays little attention to income distribution (namely, the allocation of economic surplus between firms and their customers and within customer groups), public policy gives it top priority.

Utility programs are common in the U.S.⁴ Public utility regulators are on the front lines in evaluating these initiatives and approving them, conditioned on legal, economic and other constraints, that best serve the public interest. This paper can also benefit the legislative and executive branches of government to the extent they influence the structure of energy-assistance initiatives.

Smart policymaking demands that EA initiatives have favorable benefit-cost ratios. In the U.S., it is usually state utility regulators who would try to assure that each dollar expended returns the highest possible dividend. This would require that EA initiatives interfere minimally with other regulatory objectives, particularly economic efficiency.

This paper emphasizes that in requiring utilities to provide monetary assistance to low-income households, several questions arise: (1) How much assistance should a utility provide in view of governmental and non-utility private assistance (e.g., the number of dollars offered to eligible households)? (2) Who should pay for this assistance (e.g., residential customers, all customers, utility shareholders)?⁵ (3) How should the utility collect the money in rates? (4) What constitutes an appropriate financial effect on subsidizing customers? and (5) How should the utility distribute the assistance to eligible households (e.g., discounted electricity rate, lump-sum payment)?

This paper identifies criteria for assessing the effectiveness of EA initiatives. It discusses features of EA that are likely to make them successful from a societal perspective. Overall, the paper recommends that utilities and policymakers review existing EA initiatives to determine whether they are achieving the goal of utility-service affordability: (1) most effectively and (2) with minimal adverse effects on other stated goals, such as fairness⁶ and utility financial viability.