Summary Report & Recommendations

Transcription

1 Manitoba Hydro Bill Affordability Collaborative Process Summary Report & Recommendations January 2017

2 Note to reader: The following is the final report for the Bill Affordability Collaborative Process. The report, which sets out the findings and recommendations of the Bill Affordability Working Group, was prepared with the support of First Person Strategies and PRA. This report is written in plain language. Effort has been made to present the findings and recommendations of the Bill Affordability Working Group in a way that most readers would find clear and understandable. Readers may wish to consult the research report that supports the Working Group s findings and recommendations. This report, prepared by PRA, is included as an Appendix. Working Group members agreed that the information and recommendations set out in this report would be richer with the insight of their broader organizations, and as such, agreed to provide any additional comments or considerations as formal written submissions to be appended to this report. Working Group members who wish to submit written comments will provide those comments directly to the Public Utilities Board by January 31,

3 Table of Contents 1.0 Introduction Achievements and outcomes Working Group participants and process Working Group composition Role of Working Group members Subcommittees Measures to facilitate participation and attendance Process guidelines Purpose and objectives Research activities Key insights and findings A Manitoba definition of energy poverty Understanding energy poverty and arrears in Manitoba Existing programs for lower-income customers Manitoba Hydro Affordable Energy Program: Key successes and new opportunities What we learned: Other jurisdictions Potential impacts of rate increases Evaluating rate assistance options Cost-effectiveness metrics and evaluation Limitations Evaluative principles Measures to address energy poverty considered by the Working Group Recommendations Low-income energy-efficiency and weatherization initiatives Electric heating Emergency assistance Landlord and tenant incentives Home heating bill impacts due to extreme cold weather Equal payment plans Bill collection Arrears management and bill forgiveness Funding

4 9.0 Implementation List of Appendices Appendix A: Bill Affordability Research Services Final Report Appendix B: Working Group participation record Appendix C: Working Group process guidelines Appendix D: Terms of Reference for a Collaborative Process to Further Develop a Manitoba Hydro Bill Affordability Program Appendix E: Terms of Reference overview Appendix F: Measures to address energy poverty considered by the Working Group 4

5 1.0 Introduction Manitoba Hydro has proposed gradual and predictable rate increases to meet Manitoba s growing energy needs and to fund the cost of new Manitoba Hydro infrastructure. However, even with regular increases spread over time, higher energy bills may be difficult for some lower-income customers to afford. In response to this concern, the Manitoba Public Utilities Board (PUB) directed Manitoba Hydro to work with interested parties to study the issue and propose recommendations. The PUB directed Manitoba Hydro to lead a collaborative process to find ways to help ensure that energy costs are manageable for lower-income customers. The Bill Affordability Working Group (the Working Group) was established as part of this process. This report sets out the Working Group s process and findings, which include a made-in-manitoba definition of energy poverty and a series of recommendations to help address energy affordability in the province. In conjunction with the research report included as Appendix A, this document is intended to serve as a detailed evaluation of energy affordability issues and considerations in Manitoba. This report: Provides an overview of the Working Group s achievements and outcomes, its collaborative process and its participants. Defines the objectives of the collaborative process. Describes the findings and considerations that came out of the research as well as the input of Working Group members. Discusses how decisions were made, including the general principles used as part of Working Group decision making. Sets out the Working Group s recommendations to address bill affordability. Identifies next steps to support further consideration or implementation. Unless otherwise noted, this report reflects the consensus decisions made by Working Group members who participated in the collaborative process. 5

6 2.0 Achievements and outcomes The Working Group carried out the first collaborative in-depth examination of energy affordability undertaken in Manitoba. Apart from addressing the Terms of Reference mandated by the Public Utilities Board, this report, along with the accompanying research report, details the full scope of what was learned over the course of the Working Group s mandate. In the near term, the enhanced body of knowledge that now exists on energy affordability will help strengthen programs aimed at households affected by energy poverty. The Working Group s findings also establish a foundation that will inform future study and research on energy affordability in Manitoba. The work of the Bill Affordability Working Group is notable not only for the group s findings and recommendations, but for the diversity of organizations that participated, as well as the collaborative process by which decisions were made. The resulting findings and recommendations, including a made-in- Manitoba definition of energy poverty, reflect the consensus view of a broad range of interests, including from the business, social services, housing and environmental sectors. The Working Group s efforts have yielded a much deeper and much more accurate understanding of energy poverty in Manitoba. The group began its work with broad Terms of Reference that were based on prevailing assumptions, such as the assumption that households affected by energy poverty were not paying their bills, and the assumption that those who are energy-poor consume a disproportionately large volume of energy (owing to older, less energy efficient housing). Research undertaken as part of the Working Group s mandate refuted these assumptions. Instead, the research determined that the correlation between energy-poor households and unpaid bills is, in fact, low. The research showed the same low correlation between energy-poor households and energy consumption. These findings led to important policy considerations, most The Working Group s recommendations affirm that no single policy mechanism can address energy poverty in Manitoba. significantly that the cost of rate reductions or other programs to make energy more affordable would not necessarily be offset by proportionate savings in arrears, disconnections and/or write-offs. 6

7 The Working Group s findings and recommendations reflect the understanding, made clear by the research, that identifying appropriate policy measures to address energy poverty is challenging and complex. The Working Group s recommendations affirm that no single policy mechanism can address energy poverty in Manitoba, and that a suite of tools is required to effectively respond to the diverse circumstances of households who face difficulty in paying their Manitoba Hydro bills. The recommendations largely validate Manitoba Hydro s current approach through its bill affordability programs, and set out a series of proposed improvements and enhancements to increase participation rates and the impact of existing programs. The Working Group s research and findings also illuminate where more work and future study is most needed. Research gathered over the course of the Working Group s mandate makes clear that households in First Nations, remote and rural communities are most likely to be affected by energy poverty and also most likely to have unpaid Manitoba Hydro bills. The geographically disparate nature of these communities poses a considerable challenge for effective data collection, however, and additional research may further identify specific program enhancements that could prove most useful for these groups. 7

8 3.0 Working Group participants and process 3.1 Working group composition The Public Utilities Board (PUB) required that the Working Group include a range of viewpoints from those who represent, work with or provide services to lower-income Manitoba Hydro customers. The following organizations were identified by the PUB or the Working Group and participated in the collaborative process, either as members or presenters: Consumers Association of Canada (MB) Employment & Income Assistance (Manitoba Department of Families) Green Action Centre Indigenous & Northern Affairs Canada Manitoba Housing Manitoba Hydro Manitoba Industrial Power Users Group Manitoba Keewatinowi Okimakanak Manitoba Metis Federation Southern Chiefs Organization Social Planning Council of Winnipeg Winnipeg Harvest Participation in the Working Group process varied among Working Group members. A detailed breakdown of Working Group and subcommittee meeting dates, and attendance by each participating organization, is attached as Appendix B. Indigenous & Northern Affairs Canada withdrew from the process on April 5, 2016, noting the federal government does not have jurisdiction over Manitoba Hydro rates. Manitoba Industrial Power Users Group notified the Working Group that due to budget considerations, a representative would not attend every Working Group meeting; Manitoba Industrial Power Users Group remained included on the Working Group mailing list and was kept informed of Working Group activities throughout the process. The following organizations were invited but did not participate or present as part of the collaborative process: Assembly of Manitoba Chiefs Manitoba Chamber of Commerce Public Interest Law Centre Salvation Army Winnipeg Chamber of Commerce 8

9 The PUB staff representative and engineering technical advisor attended throughout the collaborative process as an observer. First Person Strategies facilitated all Working Group meetings and managed the project schedule. PRA carried out research activities to support the Working Group in fulfilling its mandate and prepared the detailed research report that serves as a companion to this document, attached as Appendix A. 3.2 Role of Working Group members Working Group members diversity and experience on affordability issues in Manitoba provided important context that informed the objectives, guidelines and key findings of the collaborative process. During the intensive 12-month collaborative process, Working Group members dedicated considerable time, effort and resources to study, share insight, and ultimately reach consensus on important bill affordability considerations. Working Group meetings and presentations alone represented a contribution of more than 1,000 hours of shared insight and collaboration amongst those closest to issues of energy poverty, conservation and utility program and rate design in the Province of Manitoba. Information and insight provided by Working Group members included: The mandates of their organizations and interests of their members. The experiences of Manitobans affected by energy poverty. Details of existing programs that deal with energy affordability. Data on residential energy use. Data on payment compliance and arrears (unpaid bills). Policy and rate considerations that informed the Working Group s decisions and recommendations. 3.3 Subcommittees Early in the collaborative process, the Working Group struck two subcommittees, focused on research and engagement respectively, to ensure the findings of the broader Working Group were informed by deeper insights into these two key aspects of the process. The two subcommittees thoroughly considered, and made recommendations on, items identified by the broader Working Group as essential to the success of the collaborative process. 9

10 Subcommittees met regularly throughout the process and included representatives from Manitoba Hydro and other organizations represented on the Working Group, notably the Consumers Association of Canada (MB), Employment & Income Assistance, Green Action Centre, the Manitoba Metis Federation and the Social Planning Council. Attendance at all meetings was open to all Working Group members. For a detailed breakdown of subcommittee participation by organization, see Appendix B. Both the research and engagement subcommittees regularly and proactively provided the Working Group with the benefit of their review, analysis and insight through the recommendations they made throughout the collaborative process. Key accomplishments of the research subcommittee included: Reviewing the Terms of Reference and helping to develop an initial list of topics and potential sources of information for the process (including an invitation to Working Group members to make presentations to the Working Group about their perspectives on affordability issues). Developing the research framework for the collaborative process, including review and assessment of research scope and key questions. Identifying individuals and organizations for key interviews. Reviewing and vetting consumer survey questions and sampling. Regular monitoring and review of research results with a view to identifying gaps, follow-up questions or required next steps. Conducting an in-depth review of guiding principles and proposed rate design options and providing informed recommendations for consideration by the Working Group. Developing and adapting wording of recommendations on the Working Group s behalf. Key accomplishments of the engagement subcommittee included: Leading and conducting stakeholder outreach, including identifying and contacting individuals or organizations with key information or important insights on bill affordability in Manitoba and inviting them to attend or present to the Working Group. Developing a public website early in the process to provide key information on Working Group objectives, the process and its participants to the public, and ensuring that individuals interested in the process could learn more, get in touch or ask to participate. Developing a strategy for Working Group members to communicate and engage with their membership on the key findings and recommendations coming out of the process. The Bill Affordability Collaborative Process website: billaffordabilitymb.ca 10

11 3.4 Measures to facilitate participation and attendance The Working Group and its subcommittees met regularly over a 12-month period, beginning in January Numerous steps were taken to make it as easy as possible for all members to attend and participate in meetings: Meetings were scheduled well in advance to ensure Working Group members could plan ahead. All Working Group members, including members that did not regularly participate in meetings, were kept informed of the process through frequent communication, which included meeting invitations, agendas, meeting minutes, action items and any additional discussion items raised by group members. In addition to regular s, all Working Group members were given access to a secure, shared electronic document library that included all meeting materials, presentations and research. Working Group members were encouraged to name an alternate representative to attend meetings on their behalf if they were unable to participate. 3.5 Process guidelines As one of its first steps, the Working Group collaborated to establish guidelines and a work plan to best allow the Working Group to meet its goals. As part of this initial step, Working Group members reached consensus on: The purpose and role of the Working Group, including the roles and responsibilities of all parties involved in the collaborative process. The ways Working Group members would participate, including ways to ensure that all members could participate fully. The establishment of research and engagement subcommittees to make recommendations for the consideration of the full group. A schedule and expectations to ensure that timelines and milestones were met. Methods to ensure timely, effective communication. The Working Group aimed to reach consensus wherever possible in the process. The commitment and efforts of Working Group members resulted in thorough, constructive dialogue and the consensus-driven outcomes contained in this report. The complete process guidelines, as adopted by the Working Group, are attached as Appendix C. 11

12 4.0 Purpose and objectives The purpose of the Working Group was to provide insights and recommendations that could help enhance bill affordability programming for lower-income Manitoba Hydro customers. The Working Group was tasked with identifying and assessing potential ways to help make Manitoba Hydro bills more affordable for lower-income households. The Working Group s overall direction was set by the Manitoba Public Utilities Board (PUB). The scope of work mandated by the PUB (formally, the Terms of Reference for a Collaborative Process to Further Develop a Manitoba Hydro Bill Affordability Program) reflect and incorporate stakeholder 1 feedback on draft terms initially submitted by Manitoba Hydro on behalf of the Working Group as part of establishing the collaborative process. The Terms of Reference are attached to this report as Appendix D. As research conducted as part of the Working Group process became available for analysis and consideration, the Working Group, with representation from the PUB staff and advisor, continued to refine its approach and areas of focus over the course of its mandate. As a guiding principle, the Working Group focused its attention on areas most likely to result in a better understanding of, and ways to address, energy affordability in Manitoba. Attention was also given to areas where the Working Group determined it could have the greatest impact within the time available to complete its work. The Working Group s key objectives were to: Create a made-in-manitoba definition of energy poverty and consider the nature, extent and impacts of energy poverty in Manitoba. Better understand and document where and for whom energy affordability is an issue. Document and assess existing programs intended to help make energy more affordable for low-income citizens, including the costs, participation, benefits and shortcomings of existing programs. Understand and document the current state of Manitoba Hydro arrears (unpaid bills), including a detailed breakdown of arrears by geographic location, energy source (gas vs. electric), in First Nations communities and in the context of energy poverty as defined by the Working Group. Understand and document how Manitoba Hydro currently assesses arrears and the costs (collections, write-offs or disconnections) incurred in addressing them. Consider the likely impacts of projected rate increases on lower-income Manitoba Hydro customers. Define the principles that should guide decision making on any new bill affordability programs or initiatives. 1 Consumers Association of Canada (Manitoba) Inc. (CAC), Green Action Centre (GAC) and Manitoba Industrial Power Users Group (MIPUG). 12

13 Develop recommendations for improved or new programming to address energy poverty, including the rationale, who such programs may help, and possible sources of funding. Establish measurements and accountability tools to evaluate the value and cost-effectiveness of each recommendation. Identify next steps for the implementation of the recommendations, which may be further considered by the PUB, the Manitoba Hydro-Electric Board or the Government of Manitoba. A document outlining how the Working Group addressed the Terms of Reference, as applicable, is attached as Appendix E. 4.1 Research activities PRA, an independent research firm, carried out a series of research activities to support the Working Group s deliberations, and to inform the development of the recommendations set out in Section 8. PRA s work included: Reviewing and summarizing existing research on energy affordability. Documenting and assessing bill affordability approaches used in other jurisdictions. Interviewing key individuals, including representatives of energy utilities and regulatory bodies in other jurisdictions as well as individuals with unique insight into the circumstances and bill affordability issues facing First Nations customers and communities. Reviewing and summarizing relevant aspects of Manitoba Hydro s 2014 examination of household energy use (the Residential Energy Use Survey). Conducting a survey of Manitoba Hydro customers to gather greater insight into those customers who were likely to be in arrears (have unpaid bills), as well as to gather more detailed information about participation in bill affordability programs, and to support modelling of various bill affordability options. To support income-based analysis, the PRA survey invited customers to consent to having their survey responses linked with their Manitoba Hydro account information. Ninety-eight percent of survey respondents agreed to have their survey responses linked with data from their Manitoba Hydro accounts. Undertaking a quantitative modelling exercise to simulate the potential impact of rate increases and bill affordability programming on Manitoba Hydro s customer base. Bill Affordability Research Services January 2017 Prepared for: Final Report Bill Affordability Working Group PRA s research report is attached as Appendix A. WINNIPEG OTTAWA admin@pra.ca 13

14 5.0 Key insights and findings The Working Group s primary findings are discussed in this section and include: A made-in-manitoba definition of energy poverty, to help establish a benchmark of what energy poverty is in Manitoba and to guide future work in the area of energy affordability. Greater understanding and insights into energy poverty in Manitoba, including an improved understanding of which Manitobans are affected or likely to be affected by energy poverty, and why. Assessment of existing affordability programs for lower-income customers, including evaluation of program delivery, uptake and success in meeting stated objectives. Research and evaluation of bill affordability programs in other jurisdictions, to better determine if successful initiatives from elsewhere in Canada and the United States could be implemented here. Potential impacts of proposed Manitoba Hydro rate increases, determined by a rate-modelling exercise to evaluate how increases would likely affect lower-income customers. Rate assistance mechanisms and options that could improve affordability for lower-income customers, as well as analysis of estimated revenue losses associated with each option. Key findings are explored in further detail in the PRA research report, included as Appendix A. The Working Group s analysis and recommendations for improved bill affordability programs in Manitoba can be found in Sections 7 and A Manitoba definition of energy poverty The Public Utilities Board (PUB) directed the Working Group to establish a made-in-manitoba definition of energy poverty. The Working Group examined the existing literature on energy poverty, which underscores the importance of understanding energy poverty in terms of the trade-offs that low-income households must make to meet their basic needs. Existing research describes energy poverty as a state of affairs in which a household struggles to afford enough energy to meet its needs without having to forgo other necessities. Because of the range of circumstances experienced by Manitoba households and the wide variety of activities for which energy is considered essential (heating, lighting, cooking food, etc.), the Working Group deemed it important to avoid being overly prescriptive about how much energy consumption is appropriate or necessary. With this in mind, the Working Group reached consensus on the following recommended definition: 14

15 Energy poverty refers to circumstances in which a household is, or would be, required to make sacrifices or trade-offs that would be considered unacceptable by most Manitobans in order to procure sufficient energy from Manitoba Hydro. The Working Group and PRA examined various ways that energy poverty can be measured. The most straightforward measurement of energy poverty in a Manitoba context is the simple ratio of income approach (SRIA). Under this approach, a Manitoba household is considered energy-poor if the total amount spent on energy (both electricity and natural gas costs) in a given year exceeds a certain proportion of the household s pre-tax income. The most commonly used threshold is 10%, although 6% is also used. The benefits of using the SRIA to measure energy poverty include ease of calculation and the ability to capture the impact of increases in the price of electricity and natural gas. The SRIA is also commonly used by researchers who study energy poverty, and has been used as the basis for several recent Canadian and international studies in this area. However, because the SRIA is unable to identify customers who manage household energy costs through under-consumption (using less energy than they actually need to save money), the Working Group determined that the SRIA s use as a measure of energy poverty should ideally be supplemented by other measures. Some Manitoba households cut back on food and other essentials in order to pay their energy bills. This can increase reliance on social services like food banks. Source: Winnipeg Harvest. Team members Grace Weigelt, Chris Hoover, Kevin Hogan, and Carlo Saurez pose with four pallets of spaghetti donated by Catelli. 15

16 For the purposes of this report, a household is considered to be energy-poor if it spends more than the above thresholds on energy (e.g., 6% or 10%), and also has a level of income lower than the current Low-Income Cut-Off 125 (LICO-125). The Low-Income Cut-Off, or LICO, is a measurement of poverty used by Statistics Canada. The cut-off refers to an income threshold: Households with an income lower than the threshold spend a larger portion of their income on basic necessities such as food, shelter, clothing and energy than an average family. LICO-125 is the current income threshold used by Manitoba Hydro to income qualify customers for affordable energy programming. It uses Statistics Canada s baseline LICO classification but increases the income thresholds by 25% to broaden program eligibility to more low-income Manitobans Low-Income Cut-Offs before tax (1992 base) Number of household members Income threshold (communities with 500,000 or more inhabitants) LICO LICO-125 One $24,328 $30,410 Two $30,286 $37,858 Three $37,234 $46,543 Four $45,206 $56,508 Five $51,272 $64,090 Six $57,826 $72,283 Seven $64,381 $80,476 Source: Income Statistics Division (2015, p. 21) 5.2 Understanding energy poverty and arrears in Manitoba Energy-poor households Manitoba Hydro s 2014 Residential Energy Use Survey (REUS) indicates that approximately 14% of Manitoba households spend 6% or more of their total income on energy bills, while about 4.2% of households spend more than 10% of their income. High energy burdens are much more prevalent among LICO-125 households; for example, whereas only 0.2% of non-lico-125 households allocated 10% or more of their income to energy in 2014, this was true of 13.5% of their energy-poor counterparts. The REUS also suggests that energy poverty is greater among customers who identify as Indigenous (i.e. of First Nations, Metis or Inuit ancestry), customers with older homes and/or homes that are electrically heated, and households with either a single member or five or more members. 16

17 Households in arrears Manitoba Hydro data indicates that approximately 12% of residential accounts were in arrears (had unpaid bills) in Of these, 6% were 60 days or more in arrears and 3% were 90 days or more in arrears. Arrears tend to peak in late winter/early spring each year. Payment issues are substantially more widespread among rural and northern customers, as well as for electrically heated households. Payment issues in First Nations communities are especially pronounced. Households in those communities (defined in this case to include on-reserve accounts with treaty numbers) make up just 3% of all Manitoba Hydro customers, yet account for over half of all payments that are outstanding at any given time. Interviews with First Nations community representatives and a review of the available documentation suggest these issues stem from a range of administrative factors, such as a lack of understanding about who is responsible for paying energy bills and poor synchronization or management of transfer payments, as well as structural factors, such as climatic conditions, a lack of access to natural gas, poor quality and/or deteriorating housing stock, federal policies regarding coverage of electricity costs associated with non-residential accounts in these communities, and insufficient incentives to conserve energy. Collection costs related to arrears In 2015 the total cost of collections to Manitoba Hydro was approximately $14.2 million, consisting of $9.5 million in collection expenses and $4.6 million in bad debt write-offs. Over three-quarters of total costs were from credit and collection activity associated with electricity provided by Hydro (as opposed to natural gas). Analysis of year-over-year growth in credit and collection costs indicate these increased significantly in 2015 after having generally declined for several years. The increase in overall expenses appears to be because of the growth in bad debt expenses on the electricity side, which increased nearly 85% between 2014 and Disconnections Similar to arrears, the number of service disconnections by Manitoba Hydro due to non-payment exhibits substantial seasonality, which is likely attributable in part to the utility s moratorium on winter disconnections for most residential customers. In 2014, urban, rural, and northern customers accounted for 47%, 36%, and 18% of all disconnects; such service terminations fall disproportionately on First Nations customers who experienced 22% of all disconnects in the same year. Data from 2012 to 2014 suggests sizable increases in disconnections among all customer segments over that interval. Relationship between energy poverty and arrears The Working Group and PRA examined the relationship between income, arrears and energy poverty. To date, little research has been conducted on these relationships, and a key aim of the Working Group was to gather better data on how strongly low household income, unpaid bills and energy poverty were linked. 17

18 PRA conducted a survey of Manitoba Hydro customers and examined two sets of survey data: a general survey sample, which included data from all Manitoba Hydro customers, as well as an arrears subsample, which included data only from Hydro customers who have experienced payment problems. Within the general survey sample of Hydro customers, 10% of respondents were energy-poor at the 6% level or more, while 3% were energy-poor at the 10% level or more. Using either threshold (6% or 10%), PRA s research showed a relatively weak relationship between energy poverty and arrears. Customers experiencing energy poverty Customers with unpaid bills Within the arrears subsample, the proportion of customers who are energy-poor was only slightly higher: 14% were energy-poor at the 6% level or more, while 5% were energy-poor at the 10% level or more. Overall, these results suggest that the relationship between arrears and energy poverty is in fact relatively weak. However, among customers who are in arrears, there is a stronger link between low income and higher energy burden levels compared to the general sample. Information gathered from the customer survey suggest that the experience of energy poverty may be more widespread. Households that spent more than 6% of total income on energy were more likely than the overall Manitoba Hydro customer base to: Have missed a bill payment because they could not afford to pay; Reduce spending on necessities to pay their Manitoba Hydro bill; Reduce the temperature in their home to an uncomfortable level in order to lower their Manitoba Hydro bill. Though only a small number of customers surveyed were both in arrears and energy-poor, they were the most likely to have undertaken these measures. Unlike in other studies, PRA s research did not find income to be a significant factor affecting electricity or gas energy consumption. Although the research found that energy-poor households and households with unpaid bills consume more electricity and gas than the general Manitoba Hydro customer base, research did not find that income alone was a significant factor affecting energy consumption. Factors that did prove to be significant included household characteristics (i.e., square footage of the home), the type of heating fuel and technology used, and, for electricity consumption only, the region in which the household is located. Regional variables were not significant for gas consumption, mainly because few customers in the north are connected to the natural gas system. 18

19 The number of people employed in the home was the only independent variable found to be significant in affecting energy-poor households (i.e. increased household income reduced the likelihood that a household was spending a disproportionate amount of total income on energy costs). On the other hand, the reason(s) that households are likely to be in arrears was not explained by the available survey or administrative data, including low income, region, nature of energy use, residence, or employment/unemployment history. An important conclusion of this research, therefore, is that the factors causing or leading to arrears are highly specific to individual households. Arrears are the outcome of a range of factors specific for each household, which likely includes income and the proportion of total income spent on energy. However, these factors are intertwined in complex ways that will require considerable further study to understand more fully. 5.3 Existing programs for lower-income customers Manitoba Hydro At the present time, Manitoba Hydro s approach to bill affordability includes: The Power Smart Affordable Energy Program (AEP), which subsidizes the cost of energy efficient upgrades and retrofits for low-income households, and in turn reduces energy bills. Neighbours Helping Neighbours, a program jointly administered with the Salvation Army that provides emergency assistance to low-income customers who are unable to pay their energy bills because of crisis or hardship. The Equal Payment Plan (EPP), which helps customers manage their energy expenses by dividing their total estimated annual bill into equal monthly payments. Deferred payment plans, which enable customers who have fallen behind on their bills to repay outstanding amounts over time. Arrears management, which consists largely of standard bill collection processes, including deferred payment plans, although Manitoba Hydro has also adopted special measures to support customers who are vulnerable and/or in crisis. Community outreach, which involves working with community and non-profit organizations such as the Manitoba Metis Federation, Supporting Employment and Economic Development Winnipeg, Winnipeg Harvest, the Manitoba Non-Profit Housing Association, Building Urban Industries for Local Development and Brandon Energy-efficiency Program to deliver programming and increase awareness. 19

20 Manitoba Hydro s efforts to increase awareness of affordable energy programs include pilot programs and community outreach partnerships. Source: Manitoba Hydro. Manitoba Hydro also maintains a voluntary moratorium on winter disconnections, meaning that Manitoba Hydro does not generally disconnect homes during the winter months, even when bills remain unpaid Other assistance and options Other assistance and options to help address bill affordability in the province include: Employment and Income Assistance (EIA) is a provincially administered program that provides financial assistance to help low-income households meet the cost of basic needs. EIA recipients are also eligible for benefits to assist with their shelter-related costs, such as rent and utilities, from the Rent Assist program. Maximum EIA Rent Assist benefits are 75 per cent of median market rent. Rent Assist is also available to other low-income households not receiving EIA in the private market. Benefits are calculated based on the difference between 25% of household income and 75% of median market rent. Manitoba Housing operates the Homeowner Renovation Assistance Program and the Manitoba Emergency Repair Program for Homeowners, which promote bill affordability by offering assistance with repairs or upgrades to heating, electrical, or utility systems for low-income homeowners up to the following amounts: 20 A deduction in income assistance provided by EIA would only occur if cash or cheque is received by an EIA client, not if a benefit is delivered as a discount on a bill.

21 $20,000 (or $23,000 in northern or remote communities) for eligible repairs under the Homeowner Renovation Assistance Program. $5,000 (or $9,000 in northern or remote communities) for eligible repairs under the Manitoba Emergency Repair Program for Homeownership. Manitoba Housing also provides the Social Housing Rental Program that ensures the rents of different rental housing programs stay within the affordable housing standard of 30%. The EIA and Manitoba Housing programming described is not available for individuals living in First Nations communities. A more detailed description of Manitoba Housing and EIA programs is set out in the PRA research report, attached as Appendix A. Non-EIA tenants pay a rent-geared-to-income (RGI) rental rate at 27% inclusive of the cost of essential utilities (heat, water and sewer). Tenants are responsible for their domestic consumption (non-heating electrical usage including lights and appliances, or plug load ). EIA tenants pay an EIA shelter rate. Responsibility for directly paying heating costs varies, usually depending on how the utility is metered: In units where Manitoba Housing pays the utility bill (usually bulk metered), RGI tenants pay a warm rent plus domestic consumption fees at a subsidized rate, but no heating costs. EIA tenants pay a warm EIA shelter rate and no heating or domestic consumption costs. For individually metered units (tenants pay their own utilities directly), Manitoba Housing deducts heat credits from the tenant s RGI rent so that they are not paying heating costs. They are still responsible for domestic consumption costs. EIA tenants pay a cold EIA shelter rate and can apply to EIA for reimbursement of their heating bill. Indigenous & Northern Affairs Canada (INAC) currently contributes towards the cost of Manitoba Hydro bills for customers who reside in Manitoba s 63 First Nations communities and who receive social assistance. The contribution is calculated using a pro-rated formula that accounts for the number of social assistance clients in the household. For non-residential accounts (i.e. schools, band office, etc.) in First Nations communities, INAC contributions a proportion of estimated costs. However, it has been argued, that actual electricity costs can be 40% more, or higher than estimates. The PUB has an existing process providing a right of appeal for gas utility disconnections. The PUB s jurisdiction is limited by the Public Utilities Board Act to disconnections of natural gas (and propane) services in Manitoba. Unless changes to legislation are made, the PUB process does not apply to Manitoba Hydro s electricity customers. 21

22 5.4 Manitoba Hydro Affordable Energy Program: Key successes and new opportunities Manitoba Hydro s Affordable Energy Program (AEP) is designed to assist lower-income homeowners and renters in implementing energy-efficiency upgrades, such as improved insulation, high efficiency natural gas furnaces and various basic energy-efficiency measures. These upgrades can provide significant energy savings, decreasing the customer s monthly energy bills while increasing the comfort of their home. Customers with a total household income below 125% of the Low Income Cut-Off (LICO) thresholds set by Statistics Canada are included in the program. Throughout the collaborative process, the AEP was shown to be well managed and achieving solid results to date. Affordable Energy Program (AEP)* Measure 2007/ / /17* Total* Total participation 13,593 4,405 17,998 No. of insulation projects 8, ,585 No. of furnaces installed 4, ,886 No. of boilers installed Capacity savings (MW) Energy savings (GW.h) Natural gas savings (million m3) Utility investment (millions, $) Customer investment (millions, $) Total DSM investment (millions, $) $46.6 $4.7 $51.3 $5.4 $0.1 $5.5 $52 $4.8 $56.8 * To November 30,

23 A review of the AEP demonstrated key strengths in: Participation and savings, with energy-efficiency retrofits completed in 17,998 homes to date and continued increases in program participation expected over time. Accessibility, addressing the unique barriers lower-income customers face in completing energy-efficiency retrofits by minimizing the financial burdens associated with upgrades. Eligibility, targeting gas and electric savings measures to low-income customers in single and multi-family homes and rental properties, in urban, rural and First Nations communities. Savings, demonstrating estimated annual bill reductions per customer of anywhere between $37, as a result of basic water and energy-efficiency measures (LED bulbs, low-flow showerheads, etc.), and $556, for insulation in electric heated homes, with additional savings increases expected over time. Outreach, delivering and expanding awareness of the value and benefits of the program through targeted marketing, community-based campaigns, customized information sessions, working with existing community and non-profit organizations and continually identifying opportunities for new partnerships. Acknowledging these strengths as a key starting point for collaborative discussions, the Working Group provided insights and reviewed research to identify potential opportunities to enhance the existing success of Manitoba Hydro s programming and service offerings. Both prior research and the results of the customer survey suggest the burden of energy poverty could at least be partially addressed if more customers participated in current bill affordability programs. However, past research with AEP participants and non-participants, as well as the customer survey Approximately 115,000 homes in Manitoba fall below the LICO- 125 threshold. The primary targets within this group are homes with poor or fair insulation levels and standard-efficiency natural gas furnaces, which account for 23% (27,051) and 8% (8,635) of the market, respectively. The AEP provides: free insulation upgrades free basic energy efficiency measures subsidized heating system upgrades (furnace/boiler) The AEP was extended to include multi-unit residential (apartment-style) buildings in ,000 apartment suites in Manitoba fall below the LICO-125 threshold. As of the writing of this report, this stream had assisted 2,183 tenants, accounting for 12.1% of AEP participation. Savings at-a-glance: Estimated annual bill reduction per customer for basic AEP upgrades: Basic Measures (electric): $37 Basic Measures (natural gas): $25 Insulation (electric): $556 Insulation (natural gas): $230 Furnace (natural gas): $243 The Neighbourhood Power Smart Project works with community organizations to connect energy advisors with customers in their neighborhoods, and encourage AEP participation. Local residents and social enterprises are employed to implement the improvements. 23

24 undertaken by PRA as part of this process, suggest a variety of factors may be limiting the uptake of Manitoba Hydro s current programs. The survey results indicate that awareness of programs could be improved. Those that are aware often do not perceive an immediate need for the program. Other reasons customers offer for non-participation include a belief they would not be eligible for the program, or that the benefits of participation are not as advertised; difficulty Manitoba Hydro staff work with community organizations to encourage AEP participation. Source: Manitoba Hydro. understanding application materials; or program features they dislike (e.g., shower pressure would decline if they participated in the Water and Energy Saver Program). Recent evaluations and studies conducted by other researchers generally reflect positively on the design of the AEP and the results it has achieved to date, though Manitoba Hydro s approach to bill affordability and addressing payment issues has also faced some criticism, particularly during Manitoba Hydro s 2015/16 and 2016/17 General Rate Application. As documented in the research report attached as Appendix A, research in that proceeding suggested that Manitoba Hydro s affordability programs could be better coordinated, in the sense that customers are often not referred to initiatives that might help them manage their energy bills. Further, although the individual elements of Manitoba Hydro s approach are necessary to respond to energy poverty and payment issues its customers experience, they may not address chronic inability-to-pay issues among a sizable proportion of low-income households. Additional details around the Working Group s consideration of specific enhancements to Manitoba Hydro s programs and other options are described in Section 7 and outlined in Appendix F. 5.5 What we learned: Other jurisdictions An environmental scan, including a research review and interviews with utility representatives and regulators in Canada (BC Hydro, Ontario Energy Board and Hydro-Quebec) and the U.S. (Public Service Company of Colorado and PECO, formerly Philadelphia Electric Company), provided an overview of bill affordability options that exist in other jurisdictions. These options typically consisted of some combination of: 24

25 Rate assistance (direct utility rate adjustments designed to reduce energy expenditures by low-income households). Emergency assistance (financial support rendered to help customers maintain utility services while contending with short-term challenges). Low-income energy-efficiency and weatherization programs (programs offering subsidized loans or grants to low-income households to make efficiency upgrades that will lower energy costs). Arrears management and forgiveness (mechanisms that include deferred payment plans but that may also extend to forgiveness of some or all of an amount in arrears, conditional on assuming or resuming desired payment behaviour). Equal payment plans (mechanisms that equalize monthly bills to facilitate budgeting by the household). Special rules and protections for low-income consumers also exist in some of the jurisdictions considered. Of the jurisdictions included: As in Manitoba, four out of five jurisdictions offered emergency assistance to customers. All five jurisdictions provided some form of low-income energy-efficiency and weatherization program and mechanism for bill equalization, so that bills are relatively equal each month and don t spike during the heating season. Four out of five have implemented one or more additional measures with the explicit aim of addressing payment issues and inability to pay (with the exception of BC Hydro, which is itself under pressure to adopt additional measures to improve bill affordability for its low-income customers). Rate assistance has been implemented in only one Canadian jurisdiction. The Ontario Energy Board has recently implemented a rate assistance program in the form of the Ontario Electricity Support Program. Well-developed rate assistance mechanisms have also been implemented by the Public Service Company of Colorado (PSCo) and PECO (formerly the Philadelphia Electric Company) in the State of Pennsylvania. Hydro-Québec in Canada and the PSCo and PECO in the United States have introduced some form of arrears forgiveness to supplement conventional programs to help households pay their utility bills. A detailed overview of bill affordability initiatives undertaken in each jurisdiction is presented in Appendix A. 25

26 5.6 Potential impacts of rate increases PRA conducted a quantitative modelling exercise to simulate the impacts of three rate increase scenarios between 2016 and As expected, impacts of higher energy costs are anticipated to be most pronounced for households that already spend a significant proportion of their total income on energy. The extent to which rate increases are expected to lead to increased energy poverty among Manitoba Hydro customers depends on the rate increase scenario used (e.g. rate increase over time) and the threshold used to define energy poverty. For example, if a rate increase scenario of approximately 8% for 4 years or 6% for 6 years and a 6% threshold is used, rates of energy poverty are projected to be approximately 24% higher in When the same rate scenario and a 10% energy poverty threshold is used, a 10% increase is observed. This underscores the degree to which potential rate increases could increase energy poverty in Manitoba. 5.7 Review of rate assistance options Researchers undertook a quantitative modelling exercise to evaluate how three distinct rate assistance mechanisms would affect Manitoba Hydro customers, as well as to calculate estimated revenue losses associated with each option. The options studied were a straight rate discount (which applies a specified discount rate to customers bills), a fixed charge waiver (which exempts customers from paying basic monthly charges), and a straight percentage of income payment plan (PIPP) (which ensures that a household s energy bills do not exceed a pre-defined share of its gross income). Other rate models identified in the literature review were not pursued on the basis of one or more of the following: They were not sufficiently targeted to low-income customers or those in energy poverty. There was not enough information available to properly assess the option. The option was similar to one of the other options chosen to be modelled. Additional details around the Working Group s consideration of possible rate design options is described in Section 7 and outlined in Appendix F. Simulation results suggest that each form of rate assistance could reduce energy poverty in Manitoba. When a 6% threshold is applied, the straight PIPP generates the largest reductions in energy poverty (100%), followed by the straight rate discount (reductions of 54%, 62% and 75% for discounts of 25%, 35%, and 45%, respectively) and the fixed charge waiver (19%). Similar results are obtained when a 10% threshold is instead used as the basis for the definition of energy poverty. The table below presents the total estimated revenue losses associated with the three rate design options. These estimates do not include the additional cost of administering these 26

27 programs or an estimate of the utility benefits that might result from them. Manitoba Hydro calculated a theoretical benefit range from $0 to $700,000 for a successful program. A breakdown of estimated revenue losses by energy source is provided in Appendix A. Estimated total annual revenue losses associated with energy affordability programs* Rate design option Threshold Source of lost revenue (millions) Straight rate discount (25%) Manitoba Hydro Government** Total 6% $23.8 $3.4 $ % $8.8 $1.3 $10.1 Fixed charge waiver 6% $10.1 $1.3 $11.4 Straight percentage of income payment plan (PIPP) 10% $3.1 $0.4 $3.5 6% $32.1 $4.6 $ % $12.0 $1.7 $13.8 *Does not include losses as a result of administrative costs. ** Includes the total value of all federal, provincial and municipal taxes lost (i.e. not collected) as a result of reduced revenues from the sale of electricity and natural gas from various bill discounts. As shown, the straight PIPP would result in the greatest volume of lost revenues ($36.7 million and $13.8 million, with 6% and 10% thresholds, respectively) followed by the straight rate discount ($27.1 million and $10.1 million) and finally by the fixed charge waiver ($11.4 million and $3.5 million). Manitoba Hydro could potentially recover these losses by increasing rates for other residential customers. For example, implementing a straight PIPP, 25% straight rate discount or fixed charge waiver for energy-poor households in the survey sample, would add the following costs to other customers monthly bill (assuming a 6%, then 10% threshold, respectively): Increases in average monthly electricity and natural gas bills required to recover revenues lost upon implementing affordable rate designs* Rate design option Electricity bills Natural gas Percentage of income payment plan (PIPP) Straight rate discount (25%) 6% 10% 6% 10% $4.59 $1.69 $1.08 $0.36 $3.31 $1.24 $0.88 $0.25 Fixed charge waiver $0.98 $0.31 $0.78 $0.21 * Given the prevalence of energy poverty in the survey sample appears to be slightly lower than indicated by the 2014 REUS, the figures presented above may understate the true cost of implementing affordable rate designs in Manitoba. 27

28 Throughout the collaborative process, Manitoba Hydro noted its position that, without a sound and defensible business case to substantiate cost savings, it was not in a position to commit any funding for the purpose of subsidizing customer bills. Manitoba Hydro also cannot anticipate that non-subsidized customers in the residential class or other customer classes would agree to fund those amounts by recovering the cost of low-income customer subsidies in their future electricity rates. As noted in Section 8.9 below, the Working Group examined Recommendation #12 contained in the Final Report of the Review Panel on Manitoba Hydro s Preferred Development Plan, submitted by the Public Utilities Board and released by the Government of Manitoba in July In accordance with this funding recommendation, the Working Group (with the exception of Manitoba Hydro and the Manitoba Department of Families who abstained from recommendations to government) recommends that the government consider the recommendation that the Government of Manitoba direct a portion of the incremental capital taxes and water rental fees from the development of the Keeyask Project be used to mitigate the impact of rate increases on lower-income consumers, northern and Aboriginal communities. While it is recommended that the costs of rate assistance subsidies be funded from this source, further analysis would be required to ensure that such a proposal meets all appropriate legislative requirements governing Manitoba Hydro. Percentage of income payment plan (PIPP): Further considerations Noting that a PIPP could effectively eliminate energy poverty by design, the Working Group identified the PIPP as the rate option that best addresses both the accuracy and equity principles of energy affordability. However, in light of administrative costs related to implementation of an income-qualified program, and uncertainty about the sufficiency of potential offsets and overall costs of the PIPP at full subscription, the Working Group did not recommend this option, but instead agreed it may warrant further study by Manitoba Hydro. Further study may include consideration of the following measures to potentially reduce program costs: Target only the poorest of the energy-poor by using a higher income threshold (10%). Introduce a pilot program prior to full implementation, possibly in a remote northern Indigenous community, and utilize the pilot to enhance understanding of likely administration costs, rates of participation and program efficacy. Offer PIPP for electric customers only, as existing measures are in place for gas customers, and electric heat costs are greater than gas costs and are rising. Set aside a dedicated pool of program funding and administer it to individuals on an application basis, prioritizing those most in need. 28

29 5.8 Cost-effectiveness metrics and evaluation The Terms of Reference established by the PUB tasked the Working Group with reviewing and establishing ways to evaluate the costs and effectiveness of bill affordability programs. Although considered and acknowledged as a key part of the collaborative process and the evaluation of the recommendations coming out of it, the Working Group did not reach consensus on a defined set of metrics to measure cost-effectiveness. Manitoba Hydro has proposed that any measure of cost-effectiveness or evaluations of whether a recommendation should be implemented must account for the business case of the utility. The metrics to evaluate that business case were not agreed to in the collaborative process. Metrics to measure the effectiveness of a program that were discussed and/or suggested by Working Group members include: Percentage of eligible customers with bills reduced to energy burdens of 10%, 8% and 6% of household income. Improved continuity of service/maintaining service (as opposed to disconnections or customers moving to avoid bill payment). Improved bill payment performance from program participants (more complete, prompt, regular, unprompted, and continuing payments). Utility savings attributable to reduced or more efficient collection activities, fewer customers in arrears and fewer write-offs, with a potential for a positive netback. Meeting PUB expectations that effective low-income bill mitigation measures are implemented in the face of inclined rates and rising rates. Enabling higher demand-side management achievements and lower domestic load growth. Creating additional pool of firm energy for export contracts or domestic use. Deferring costs of new generation, which would have a further upward rate impact on all domestic customers. Lower domestic load growth (which should defer costs of new generation and increase the amount of energy available for export contracts or domestic use). Achieving the principles described in Section 6.0 below. Existing research on the costs of various bill affordability measures, including costs per person and total costs (without administration costs or accounting for reduced uptake or offsetting improved payments and collection savings), is detailed in the PRA research report, attached as Appendix A. 29

30 5.9 Limitations Energy poverty in Manitoba is complex, and through the collaborative process it became clear that it would take preliminary research in order to determine what kinds of research would be needed to fully address it. One of the clear benefits of this process has been establishing clear direction into where future inquiry could focus. It is important to note two limitations of the customer survey research undertaken as part of the collaborative process. First, although customers in arrears were over-sampled on the assumption that those in arrears would generally be lower-income and/or energy-poor compared to the overall Manitoba Hydro customer base, the survey results revealed that this was not the case. As a result, the energy-poor subgroups have small sample sizes, and all analyses based on these subgroups should be interpreted with caution. Second, the customer survey did not set regional quotas. As a result, relatively few customers in northern Manitoba were among the survey respondents, and those northern residents who completed the survey resided primarily in urban centres. The ability to undertake regional analysis and/or analysis of customers residing in northern, remote and Indigenous communities was therefore limited. 30

31 6.0 Evaluative principles Options to make Manitoba Hydro bills more affordable for low-income customers were considered against the following six principles, which were adopted by the consensus of the Working Group: a. Accuracy: Program beneficiaries should be clearly defined in order to minimize customers who aren t eligible and maximize the eligible customers receiving benefits (targeting benefits is central to program effectiveness). b. Financial sustainability: Manitoba Hydro is, by law, a financially self-sufficient enterprise whose revenues (primarily from domestic and export customers) must cover its costs over time. This means that any increase in costs that Manitoba Hydro incurs for its suite of affordability programs must be balanced by (1) other cost savings; and/or (2) additional revenue from other ratepayers; and/or (3) another revenue source. c. Transparency: The beneficiaries and contributors must be fully informed (some programs may entail a subsidy from higher-income customers to lower-income customers; this must be clear to all). Where costs of affordability programs are not fully recouped by generated savings (for example, through reduced arrears), this may cause upward pressure on rates paid by other customers, whose willingness to pay should be first assessed or government funding assigned. d. Equity: The programs must treat equals equally and unequals proportionately (in other words, program recipients with higher need should receive proportionately more benefit; defining equality usually rests on an income test). e. Evaluability: The outcomes and costs of the programs must be tracked and reported (all measures and assessment activities must have reasonable financial and time costs). f. Participatory: Regardless of income status, all Manitoba Hydro customers should contribute something to the cost of their energy consumption. These principles originated from Bonbright s (1988) Principles of Rate Design, a tool commonly referenced by utility representatives, but were updated to reflect Working Group feedback and adapted by the researchers to broaden their application from rate design alone to bill affordability measures more generally. 31

32 7.0 Measures to address energy poverty considered by the Working Group In developing its recommendations, the Working Group considered options for rate design as well as a range of non-rate programs/interventions offered by Manitoba Hydro or others (complementary measures). Options developed by the Working Group responded to areas identified by the jurisdictional review (described in Section 5.5) or, in some cases, were raised by Working Group members themselves. Not every option was recommended, but each benefitted from the discussion and collaboration of the Working Group members that participated in the process. The summary table attached as Appendix F includes a complete list of all the measures to address energy poverty proposed and considered by the Working Group, noting which were recommended or not, and the corresponding rationale for each. An overview of rate design options can also be found in Appendix A. 32