Plan for Addressing the Increased Need for Energy Assistance

Transcription

1 Department of Human Resources 311 West Saratoga Street, Baltimore, MD Prepared in coordination with the Department of Budget and Management Report dated July 25, 2007: Plan for Addressing the Increased Need for Energy Assistance Prepared for: The Senate Budget and Taxation Committee, and the House Appropriations Committee As required by: 2007 Joint Chairmen s Report, page 131

2 State of Maryland Department of Human Resources July 25, 2007 Maryland s Human Services Agency Martin O Malley Governor Anthony Brown Lt. Governor Brenda Donald Secretary The Honorable Ulysses Currie Chairman, Senate Budget and Taxation Committee 3 West, Miller Senate Office Building Annapolis, Maryland The Honorable Norman H. Conway Chairman, House Appropriations Committee 121 House office Building Annapolis, Maryland Dear Chairman Currie and Chairman Conway: Page 131 for the 2007 Joint Chairman s Report requires the Department of Human Resources, in coordination with the Department of Budget and Management, to submit a report detailing how DHR plans to address the increased need for energy assistance and to provide specific information regarding any potential additional funds to supplement the FY 2008 budget for energy assistance. The attached report in response to the JCR request is being submitted jointly by the Department of Human Resources and the Department of Budget and Management. Sincerely, /s/ Brenda Donald Secretary Department of Human Resources /s/ T. Eloise Foster Secretary Department of Budget and Management

3 PLAN FOR ADDRESSING THE INCREASED NEED FOR ENERGY ASSISTANCE JOINT CHAIRMAN REPORT MARYLAND DEPARTMENT OF HUMAN RESOURCES COMMUNITY SERVICES ADMINISTRATION OFFICE OF HOME ENERGY PROGRAMS JULY 1, 2007

4 EXECUTIVE SUMMARY The 2007 Joint Chairman s Report (JCR) requires the Department of Human Resources, Office of Home Energy Programs (DHR/OHEP) and Department of Budget Management (DBM) to submit a report on how DHR/OHEP plans to address the increased need for energy assistance and what amount of funds are needed to adequately assist the low-income population. The JCR requirement states: Fiscal 2008 Funding for Energy Assistance: The committees are concerned with the level of funding for energy assistance in fiscal With some energy rates increasing by 47% in fiscal 2008, the need for energy assistance will be greater in fiscal 2008 than in fiscal However, the funding for energy assistance is decreasing by 20% from fiscal 2007 to The Department of Human Resources (DHR) should submit a report by July 1, 2007, detailing how DHR plans to address the increased need for energy assistance. Also, the report should provide specific information regarding any potential additional funds to supplement the fiscal 2008 budget for energy assistance. 1 FY 2007 brought interesting challenges to EUSP program implementation and administration. Through June 25, 2007, OHEP local offices have received 101,793 applications for EUSP. Through this period, 93,319 households were issued EUSP benefits. The original FY 2007 Plan for the delivery of the Electric Universal Service Program (EUSP) predicted a modest, but consistent growth rate in applications of about 2 to 3 percent. Although FY2007 figures are not complete, the total EUSP FY 2007 applications displayed show an estimated growth rate of 9 percent. The Maryland Energy Assistance Program (MEAP) has experienced similar growth. Increased applications for MEAP consequently produced an increase in EUSP. The total number of applications received for both programs is 112,281. FY 2008 is going to be a milestone year. The majority of Maryland electric customers will now feel the full impact of electric bills moving to market rates as rate caps expire for Maryland s largest utility, BGE. Rates are now established by the market throughout Maryland with the exception of the western part of the state where rate caps are not set to expire until December 31, The resultant significant rate increases have produced what can be termed rate shock for customers. The reality of the increase in electric prices to the market rate will impact lowincome customers drastically, resulting in a significant loss of economic power. The DHR/OHEP was appropriated additional state general funds that will help mitigate the effects of those rate increases in FY2008. Legislatively mandated funding for EUSP increased to $37 million as a result of the passage of SB 1 during the Special Legislative Session in June, DHR/OHEP is working to maximize the use of the additional 1 The JCR Report, 2007 Session, Recommendations, Reductions, and Summary of Action Pertaining to: House Bill 50, page 50, March 15,

5 funding appropriated to address increasing electric rates as well as serving all those that apply for assistance. OHEP plans to continue use of its consumption and income-based formula for determining benefit amounts. This methodology results in a benefit customized for the household primarily based on income, household electric usage, and electric price. Since the formula relies on an average price for electricity and there are differences regionally, it is planned to adjust the benefit with an indexed factor to better reflect prices in each utility service territory. The determination of the EUSP benefit is also integrated directly with the benefit for the Maryland Energy Assistance Program (MEAP). This methodology results in a targeted benefit that makes bills affordable and makes effective use of the total dollars available for benefits. DHR/OHEP s EUSP benefit reflects the increased cost of electricity in each utility territory through the benefit formula detailed in the Benefit Section of this report. The benefit formula tailors the benefit to individual household need. Annual KWh usage x Avg Cost/kWh x Utility Index x poverty level percentage = Benefit To help with arrearages, there is $1.5 million in EUSP funds designated by legislation for this purpose. In light of the significant increase in the cost of electricity, OHEP expects that more people enrolling in the EUSP will have past due bills. DHR/OHEP believes that the $1.5 million cap is insufficient and should be eliminated. With the current volatility of the electric market, more flexibility could be built into statute by providing language that allows the Public Service Commission (PSC) discretion to determine appropriate funding for the arrearage component of the EUSP each program year. For the first time since the inception of EUSP, State funding was appropriated to energy assistance in FY2006. The rising cost of gas and oil and Hurricane Katrina, triggered an increase in enrollment in both MEAP and EUSP. Ratepayer and federal funds were insufficient to meet the need and to provide benefits to all applicants through the close of the FY2006 program. In addition, FY2007 began the move to market pricing in BGE s territory. Although held to a 15% initial increase during FY2007, DHR/OHEP anticipated that the increase, rate stabilization plan and media attention would increase enrollment significantly. Therefore, the General Assembly made available State funds in two initiatives; (1) $10.9 million deficiency appropriation, and (2) $25.1 million supplemental budget for a total of $36 million. DHR/OHEP expenditure of these funds through FY2008 is detailed in this report including the essential funding necessary to address the increased electric rates and the basis for formulating program and funding recommendations for FY2009. The DHR/OHEP projects a continuing increase in the number of low-income households requiring financial assistance in meeting their electric bill obligations. DHR/OHEP projects approximately 95,000 households will be applying for EUSP 3

6 assistance in FY2008 requiring approximately $61.7 million in funding. OHEP plans to enroll and serve as many families as possible with existing funding, but expects a shortfall of about $6 million over the current EUSP projected budget of $55 million should this level of enrollment occur. Looking to the future in FY2009, DHR/OHEP cannot accurately predict enrollment or electric costs because the future cost of electricity and the impact on enrollment of the FY 2008 rate increase are unknown at this time. However, based on estimates projected for FY2008, DHR/OHEP believes that a minimum of $62 million is required to meet the growing EUSP enrollment in FY2009 as supported by PSC staff comments during the EUSP hearing on June 13, Extensive outreach is planned to assure that as many families as possible are enrolled in the EUSP as well as MEAP. Benefits are planned to be on par with the cost/benefit ratio as in FY2007 that accounts for the increased electric costs and provides a benefit tailored to individual household needs. This report is hereby submitted to address the requirement of the JCR with as much detail as possible. In order to address the questions, it is critical that there is an understanding of the programs available to provide energy assistance to low-income families. Therefore, this report shall follow the following outline: Background Program Description Benefit Calculation Needs Assessment Projections Conclusions Attachments BACKGROUND As part of the Electric Customer Choice and Competition Act of 1999, since codified at Public Utility Companies ( PUC ) Article, et seq., Annotated Code of Maryland, the General Assembly created a universal service program for low income electric customers. See PUC Article The electric universal service program ( EUSP ) has three components: bill assistance, arrearage assistance, and weatherization. The Commission exercises oversight of the EUSP, and the Office of Home Energy Programs of the Department of Human Resources ( OHEP ) administers the bill assistance and arrearage assistance components of the EUSP. The weatherization component of the EUSP is administered by the Department of Housing and Community Development ( DHCD ) in combination with DHCD s other weatherization programs. The EUSP is required to be funded by all ratepayers. Currently, commercial and 4

7 industrial classes pay $27.4 million and the residential classes provide $9.6 million of the $37 million EUSP Fund. As a statutory matter, the EUSP must provide assistance to electric customers with annual incomes at or below 175 percent of the federal poverty level. Bill assistance is to include at a minimum 50 percent of the determined need. Low income weatherization is limited to $1,000,000. The retirement of arrearages is limited to $1,500,000 per year and is available to each EUSP participant only once. The EUSP Legislation specifically provides that the General Assembly may appropriate funds that are supplemental to the ratepayer funds. PUC Article (f) (2). As part of its oversight responsibility, the Public Service Commission (PSC) requests that OHEP file a plan detailing its proposed expenditures and summarizing its proposed recommendations for the coming year. The EUSP Plan was filed with the Commission on May 1, 2007 and a PSC hearing regarding the Plan was convened on June 13, 2007 to hear testimony from OHEP and other energy partners. A PSC order accepting, denying or modifying the Plan has not yet been issued as of June 26, PROGRAM DESCRIPTION Energy Assistance to low-income families in Maryland is available through two primary government programs administered by DHR/OHEP. They are the Maryland Energy Assistance Program (MEAP) and the Electric Universal Service Program (EUSP). MEAP is a federally funded program through the Low-Income Home Energy Assistance Program (LIHEAP) that is designed to provide assistance with home heating bills. Benefits are provided for all fuel types including electricity, natural gas, propane, oil, kerosene, coal and wood. Maryland s allocation of funds varies from year to year based upon a formula applied to the federal appropriation. For the most recent Federal Fiscal Year of 2007 the base allocation received was $34 million inclusive of additional funds received through the competitive leveraging component of LIHEAP and through the release of emergency funds. The emergency funds are released by the President for specific reasons and are targeted to need. This means that not all states may receive an allocation upon the release of emergency funds. The poverty level is established in conjunction with EUSP to provide ease of administration between the programs. A history of funding is detailed in Attachment 1. EUSP is a state program established by the Electric Deregulation Act of 1999, The purpose of the program is to make electric bills affordable for households whose incomes fall at or below 175% 2 of the federal poverty level. Eligible electric customers may receive help in three ways: 1. Help to pay current electric bills; 2 The income threshold for eligibility was raised from 150% of the federal poverty level in the original statute to 175% by Senate Bill 1 passed during the General Assembly Special Session of

8 2. Help to pay past due electric bills; and, 3. Help with energy efficiency measures to reduce future electric bills. The program is funded by the ratepayers, both the commercial and industrial and residential. Section (e)(1)-(2) identifies the required collection of funds and states that the commercial and industrial ratepayers contribute $27.4 million (74%) of the total $37 million and residential ratepayers contribute $9.6 million (26%). A universal service fee of $.37 added to the electric bill for residential ratepayer collection and the commercial and industrial class component is collected through a tiered contribution structure based on the amount of electricity used by the particular commercial entity. By statute 3, $1.5 million of the $37 million is designated for use to pay past due electric bills. One million dollars goes towards energy efficiency measures or weatherization and the remaining $34.5 million goes towards payment of future bills and administration. The Weatherization Assistance Program (WAP) of the Department of Housing and Community Development (DHCD) receives a $1 million Weatherization allocation directly and administers this component in accordance with Department of Energy weatherization guidelines. Maryland is one of a number of states that have implemented a public benefits program of this nature. DHR/OHEP is participating in a study that seeks to identify the characteristics and successes of these programs. The final report will offer a compendium of ideas from across the country that may be adapted as seen fit. BENEFIT CALCULATION DHR/OHEP seeks to address the level of electric bills in the way it calculates its benefits. Electric benefits are tailored to the actual usage of the customer and the current rates. With this methodology, it is sought to provide a reasonable level of benefit that will result in affordable bills. Benefits are not designed to pay an entire electric bill, but a percentage of the bill. The percentage paid is presented in the table found on page 9. Bill Payment Assistance is the program component designed to make monthly electric bills more affordable. As an integral part of its planning, OHEP follows the tenet that all applicants to its programs shall receive a benefit. Therefore, projections of the numbers and amounts of benefits issued are developed and benefit amounts are determined with those projections in mind. The benefit calculation methodology proposed continues the benefit methodology of the previous program year. This method results in a customized and reasonable benefit grant based on several key factors: (a)(2)(iii). 6

9 INCOME. Income is used to determine the level of the benefit. Percentage of income in comparison to the federally established poverty level is used to provide the highest benefit amount to those with the lowest incomes. For FY 2008, proposed benefit grants will vary according to income levels designated in poverty level groupings consisting of: o 0-75% o Over 75% -110% o Over 110% -150% o Over 150% -175% Benefits issued will vary at each income level by a percent to be determined by DHR/OHEP. The chart on page 9 shows the percentages used during FY It is planned that these percentages will be maintained for FY See further explanation below. ELECTRIC USAGE. Annual electric usage is obtained from each electric company and is a critical component in the benefit calculation. ELECTRICITY COST. DHR/OHEP proposes to use an average bundled electric cost in the calculation of benefits. The average cost is determined by obtaining summer and winter residential rates per kwh, transmission costs, etc. The summer and winter rates are combined into a weighted average. With Allegheny Power implementing its Rate Stabilization Plan prior to coming off rate caps, DHR/OHEP will incorporate the related increases into its calculations. For BGE customers, the full rate increase will be incorporated along with the deferral payback, as this is what customers will incur over the course of FY2008. The rates used in calculations are the rates in effect as of July 1, DHR/OHEP plans to address the issue of service territory differences in pricing by incorporating an indexed factor to adjust the benefit amount in relation to the average price statewide. All companies will be adjusted up or down by this factor. The index is calculated by dividing the electric bundled rate for each utility by the average bundled cost. The bundled rate consists of most charges that are found on an electric bill. SUBSIDIZED HOUSING. A portion of the subsidy for rent for those families in subsidized housing is designated for heat; therefore, the calculation of the EUSP benefit for those in subsidized housing takes this into account. The net result is that an applicant living in subsidized housing receives a lower benefit grant. In effect, the formula for calculating the EUSP benefit amount is: 7

10 Annual KWh usage x Average Cost per kwh x Utility Index x poverty level percentage = Benefit This methodology is used for both EUSP and MEAP electric benefits. If the household heats with electricity the benefits are integrated together whereby the EUSP covers a portion of the non-heating portion of the bill and MEAP pays a portion of the heating costs. Explanation of terms: Annual kwh Usage OHEP obtains from each electric utility the previous 12- month usage in KWh for each individual customer applicant. If the kwh exceeds 14,000 then 14,000 is used. This is viewed as a reasonable usage for customers that do not heat with electricity. Average Cost per kwh OHEP obtains electric costs for each utility in effect July 1 and calculates an average cost for the largest five companies. Utility Index Due to variations in costs between utility service territories, OHEP calculates an index for each utility that is incorporated in the formula to meet the customer s need in the specific service territory. The index is calculated by dividing Average Cost per kwh by the specific utility kwh cost. For example, if the average cost is $.119 per kwh and the utility cost is $.128 then the index is This means the cost in that service area is 7% higher than the state average. The benefit is adjusted to meet the higher cost in that particular territory. The above three components determine the estimated electric bill. Poverty Level Percentage OHEP determines each year what percentage of the estimated bill OHEP can pay as a benefit. The percentage varies by poverty level as described below. The percentage may change from year to year based on the level of funds available for benefits and the projected number of applicants. Benefit The result of the formula calculation is the applicant s benefit amount with an additional adjustment. The final amount is rounded to be divisible by 12 to make it easier to apply to budget billing or monthly crediting. The intent of EUSP Bill Payment Assistance is to make electric bills affordable to low-income families. There is no intent for the program to pay an applicant s full electric bill for the year. A part of the formula for determining benefits is the percentage of what will be covered of the estimated annual electric charge. The percentage varies by income level with the lowest income receiving the highest benefits. Applicants living in subsidized housing receive a lower benefit because their housing subsidy includes an allowance for utility costs. 8

11 Applicants who heat with electricity also receive a benefit from MEAP. In these situations, the MEAP and EUSP benefits are calculated with a method that works together assuring the applicant of an adequate benefit but not overpaying in relation to the total estimated annual cost of electric usage. DHR/OHEP s methodology has EUSP covering normal electric use in the benefit with MEAP making up the difference for the heating source. During FY 2007, the percentage of estimated electric cost paid by benefit was as follows: FY 2007 Percentage of Estimated Electric Bill Paid Income Level % of Electric Cost Paid Total With MEAP Added (15%) 0-75% 75% 90% >75% -110% 60% 75% >110% -150% 50% 65% >150% - 175% 30% 45% Subsidized Housing 25% 40% The benefit calculation method holds static the benefit amount once usage reaches a pre-determined upper limit for EUSP where heat is not included. Where heat is included as evidenced by a MEAP benefit, the grant amount increases until a MEAP predetermined upper limit is reached. At this point the benefit remains static. Any usage over these amounts is considered excessive and conservation measures should be put in place to reduce the usage. NEEDS ASSESSMENT Electric Prices and Income In Maryland, as deregulation of electricity has gradually become reality the trend in electric prices is evident. The expiration of rate caps established as a result of utility settlement agreements has clearly resulted in a significant increase in electric rates. Attachment 2 is the report prepared for the PSC showing the corresponding increases in electricity for each of the investor owned utilities. Going forward, there is some better comprehension as to where electric prices will settle for the near future although it should still be considered a volatile area. All utilities under settlement agreements, except Allegheny Power, are now at the point of market pricing. Allegheny Power, in anticipation of its price caps coming off as of January 1, 2009, proposed a rate stabilization plan that is proactive in nature by taking steps to defer the impact of a sharp increase in rates before the higher rates go into effect. The Commission adopted Allegheny Power s plan on March 30, Although it means higher electric rates earlier than anticipated, it results in a lessening of the rate shock when the increased rates move to market pricing on January 1, All of Maryland s utilities, and consequently, customers, have now been or will be shortly impacted by higher electric rates. For the short-term future, the degree of increase is not expected to continue. However, it is reasonable for planning purposes for 9

12 this program to assume that moderate rate increases will continue for the next couple of years. The Energy Information Administration (EIA) of the U.S. Department of Energy forecast includes the following projection: Although rate caps in certain States may expire this year, the relatively slow growth in generation fuel costs should keep the growth in U.S. residential electricity prices at a comparatively low rate of 2.4 percent during Residential customers in the West North Central region could see slight decreases in prices during 2007 as a result of moderation in the cost of coal for electric power generation during the latter months of U.S. prices are expected to rise by 3.7 percent during 2008 as increased fuel costs are passed through to residential customers. 4 While the prices impact all customers, there is no question that higher prices have a far greater impact on those with limited incomes. Low-income customers pay a far higher percentage of their income towards energy bills. It can be expected that with continued increases in costs that payment troubled customers will continue to have those troubles and that it is reasonable that those customers that were borderline troubled in the past will face a greater challenge to meet their electric bill obligations. Attachment 3 presents the range of benefits that have been available for FY 2006 and FY This is already evident in the enrollment trends with EUSP. Attachment 4 shows the trend in EUSP enrollment since FY 2003 and projections for FY2008. That trend has been steadily increasing to the point that the ratepayer funding established by legislation is no longer adequate to address the need. In response, State funding were incorporated into the funding beginning in FY Increasing enrollment coupled with increasing prices indicate that the current level of funding is not adequate to provide a benefit amount that will make the bills affordable. Rate mitigation plans have softened the impact of the rate increases to a certain degree, but now the time has arrived where the full increases are impacting most customers. On top of the rate increases is the impending repayment of the various deferral plans. Statistics reveal that approximately 60% of applicants from the previous year return for assistance the next year. This rate of return varies by jurisdiction where distinct differences exist between the rural areas and the urban areas. Rural areas tend to have return rates of about 70% to 75% whereas the urban areas have rates of 50% to 60%. DHR/OHEP sees the need to prepare for the possibility of increasing numbers in FY 2008 rather than assume that the numbers will remain stagnant. With full market rate 4 Short-Term Energy Outlook, March 6, 2007 Release, U.S. Dept of Energy, Energy Information Administration 10

13 electric pricing occurring in essentially all but one utility service territory the real impact of higher prices will be realized. Target Population Stemming from the change in the EUSP statute instituted during the June 2006 Special Session of the General Assembly, the target population of EUSP now incorporates those families with an income of up to 175% of the federal poverty guidelines. In terms of potential numbers, it is estimated that at least 336,000 5 families in Maryland meet the current income guidelines. Since inception and as of April 20, 2007, the number of different applicants applying for energy assistance has reached 270, This demonstrates widespread knowledge of the program although the numbers that apply each year is approximately 60 to 65 percent of the previous year recipients. While application trends since the inception of EUSP have clearly demonstrated growth, that growth demonstrated restraint during FY However, despite the implications of the preliminary data of FY 2007, it is prudent to forecast that some continued growth in EUSP applications would occur. As the full impacts of electric prices and payback of deferrals are realized, monthly bills will be higher. It is reasonable to suggest that lower income families will need to seek out assistance that they may have postponed in the past. Funding Current ratepayer funding for EUSP stands at a total of $37 million distributed by statute as follows: $34.5 million EUSP Bill Payment Assistance $ 1.5 million EUSP Arrearage Retirement Assistance $ 1.0 million Weatherization An additional $16.5 million in State funds has been appropriated to provide funding assistance during FY The funding is intended to address any shortfall in EUSP and LIHEAP funding in effect assuring that DHR/OHEP will be able to meet the needs of all eligible applicants. These funds shall be used for two primary purposes. One, to maintain adequate benefit levels for all income classes and, two, to assure availability of benefits for all applicants who are determined eligible for assistance. In summary, a total of $52 million is available to DHR/OHEP for purposes of EUSP in FY In addition, Governor O Malley committed another $5 million in 5 This estimate is based on data from the U.S. Bureau of the Census, March Current Population Survey(CPS) and the 2000 Decennial Census, Table 4F(N). 6 Source: OHEP Data System report generated on April 30,

14 EUSP and MEAP funds with $3 million distributed to EUSP and $2 million contributed through the MEAP budget. Looking ahead to FY 2009, the funding picture is questionable. As electric prices rise and the number of applicants increases, the capacity to address bills is compromised when program funding remains static. While EUSP ratepayer funds and Special Funds are in place for FY 2008, there remains the prospect of FY 2009 where funding will revert to the levels in the statute unless action is taken. It is with this in mind that DHR/OHEP recommends an increase in the amount appropriated for the EUSP from $37 million to an appropriate level necessary to provide adequate benefits to a larger population. DHR/OHEP cannot maintain adequate benefits to address the higher cost of electricity without a guaranteed corresponding funding level. EUSP is not an entitlement program where there is no limit to the funding. ENROLLMENT PROJECTIONS see Attachment 4 see Attachment 5 for sample of outreach activities ESTIMATED FUNDING REQUIREMENTS PSC staff, in its testimony filed in Case Number 8903 estimated that the required funding for EUSP should be approximately $61.6 million. Attachment 6 details the PSC staff comments and recommendations. DHR/OHEP concurs with this recommendation as the appropriate funding for the next year. Going forward the trends and impacts of rate increases need to be followed in order to analyze what the funding level should be in the coming years. RESOURCES To view the issue from a comprehensive point of view, energy assistance is needed for all types of energy. EUSP only addresses electricity. LIHEAP addresses all fuel types. Current indications suggest that any increase in LIHEAP funding is questionable. The LIHEAP statute authorizes up to $5.6 billion be spent on energy assistance. Proposals for federal fiscal 2008 show a possible appropriation of $1.98 billion. Costs for energy other than electricity have also rose significantly putting lowincome households in jeopardy for payment troubles for heating. Recommendation: Support for increases in the LIHEAP appropriation be forwarded to Congress. Current funding for EUSP comes in the form of ratepayer contributions from both the residential and commercial and industrial classes. Other states with a similar public 12

15 benefits program have funded that program through residential ratepayers. To put an increase on ratepayers may be questionable with the other components of the rates increasing. There are other possible sources of funding that may be considered. They would include: State General Funds Unclaimed utility security deposits (escheats) Utilities through forgiveness options CONCLUSIONS To keep pace with the rising cost of electricity, DHR/OHEP must depend on stable funding for EUSP. DHR/OHEP sets benefits before the July 1 st start date of the EUSP application period that is expected to serve all eligible applicants throughout the program year. It is necessary to know the expected funding for that year to make these benefit decisions. It has been demonstrated over FY2006 and FY2007 that funding is inadequate to meet the full enrollment during the program year at a benefit level adequate to keep pace with rising electric costs. Enrollment and benefit projections for FY2008 show more funding will be needed in FY2008 and ongoing into FY2009. The current appropriation of $37 million ratepayer funds is inadequate to support the growing need for electric energy assistance under EUSP. Although, EUSP is not an entitlement program, consideration needs to be given to how funding for EUSP will be supported in the future to keep pace with increasing electric cost and to help make electric bills affordable for Maryland s low income population. 13

16 ATTACHMENTS Attachment 1 Funding History of EUSP and MEAP Attachment 2 Commission s Staff Report on the Standard Offer Service Bidding Process and Results for Attachment 3 Annual Benefit Comparison FY 2006-FY 2007 Attachment 4 EUSP Enrollment FY 2003-FY 2007 Attachment 5 Outreach Sample of Activities Report Attachment 6 PSC Staff Report on Funding Recommendations 14

17 MARYLAND DEPARTMENT OF HUMAN RESOURCES OFFICE OF HOME ENERGY PROGRAMS ATTACHMENT 1 LIHEAP GRANT AWARD SUMMARY BASE CONTINGENCY LEVERAGE ADDITIONAL YEAR GRANT GRANT GRANT GRANT TOTAL FY2003 $ 26,657,541 $ 5,405,225 $ 866,529 $ 32,929,295 FY2004 $ 28,271,055 2,514, ,551 $ 31,505,798 FY2005 $ 29,803,216 $ 4,430,835 $ 582,898 $ 34,816,949 FY2006 $ 31,331,801 $ 3,390,254 $ 546,102 $ 27,167,392 $ 62,435,549 FY2007 $ 31,331,801 $ 507,654 $ 31,839,455 FY2008 Unknown at this time $ - FY2009 Unknown at this time - K:Legislature/2007 JCR page Attachment 1 - Fund Summary.xls

18 MARYLAND DEPARTMENT OF HUMAN RESOURCES OFFICE OF HOME ENERGY PROGRAMS ATTACHMENT 1 ELECTRIC UNIVERSAL SERVICE PROGRAM YEAR FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 BASE DHCD STATE CORPORATE APPROPRIATION Weatherization SPECIAL FUNDS TAX TOTAL $ 34,000,000 $ 34,000,000 $ 34,000,000 $ 34,000,000 $ 34,000,000 $ 34,000,000 $ 34,000,000 $ (1,000,000) $ 3,000,000 $ 36,000,000 $ 37,000,000 $ (1,000,000) $ 14,500,000 $ 6,000,000 $ 56,500,000 $ 37,000,000 $ (1,000,000) $ 19,000,000 * $ 55,000,000 $ 37,000,000 $ (1,000,000) $ - $ 36,000,000 Notes: * Includes $1.6 million in FY 2006 Deficiency Appropriation and $1.4 million in FY 2007 in projected refunds from FY 2007 K:Legislature/2007 JCR page Attachment 1 - Fund Summary.xls

19 BEFORE THE PUBLIC SERVICE COMMISSION OF THE STATE OF MARYLAND IN THE MATTER OF THE * COMPETITIVE SELECTION OF * ELECTRICITY SUPPLIER/STANDARD * OFFER OR DEFAULT SERVICE * FOR INVESTOR-OWNED UTILITY * SMALL COMMERCIAL CUSTOMERS; * CASE NO AND FOR THE POTOMAC EDISON * COMPANY D/B/A ALLEGHENY * POWER'S, DELMARVA POWER * AND LIGHT COMPANY'S AND * POTOMAC ELECTRIC POWER * COMPANY'S RESIDENTIAL * CUSTOMERS. * THE COMMISSION STAFF S REPORT ON THE STANDARD OFFER SERVICE BIDDING PROCESS AND RESULTS FOR Phillip E. VanderHeyden Assistant Director Economics & Policy Analysis April 26, 2007

20 TABLE OF CONTENTS BILL IMPACTS OF NEW MARKET BASED SOS PRICES...1 SUMMARY...1 FINAL DATA...2 PERCENTAGE INCREASE/DECREASE FORMAT...2 I) RESIDENTIAL CUSTOMERS...2 II) POTOMAC ELECTRIC POWER COMPANY (PEPCO)...3 DELMARVA POWER & LIGHT (DPL)...4 BALTIMORE GAS AND ELECTRIC (BGE)...5 ENERGY PRICE COMPARISONS...6 III) TYPE 1 SOS (SMALL COMMERCIAL CUSTOMERS)...7 IV) TYPE 2 SOS (MEDIUM SIZED COMMERCIAL CUSTOMERS)...8 V) TYPE 3 SERVICE (LARGE SIZED COMMERCIAL AND INDUSTRIAL CUSTOMERS)...8

21 BILL IMPACTS OF NEW MARKET BASED SOS PRICES This report describes the annual changes to residential and small commercial electric bills for Delmarva Power ( DPL ), Baltimore Gas and Electric Company ( BGE ), Potomac Electric Power Company ( Pepco ) and Allegheny Power 1 ( APS ) beginning in June The bill changes are based on the actual results of the January, February, and April 2007 Standard Offer Service ( SOS ) bids. According to the SOS bidding schedules approved by the Commission in Case 9064, SOS bidding will use two bids per year for contracts of two years in length. 2 Contracts start in June and October under the Case 9064 schedule. The bid process in 2007 will transition to this schedule from the previous Case 8908 schedule by using contract lengths ranging from four months up to two years. Summary These results are final All of the 2007 bid cycle results are included. Electricity prices and energy prices generally have slowed their increase or declined. The results of the initial tranches indicate that SOS prices will remain stable for most residential customers and decline for small commercial customers. Individual Utility Residential Bill Impact Estimates Delmarva increase 5.1% BGE 50.4% increase (over the SB1 mandated 15% increase) due to loss of rate stabilization credits. Without stabilization, bills would reflect a 69% increase over price freeze rates in comparison with the 72% increase from last year s bids. Pepco increase 6.9%. 1 Type I small commercial rates only. APS residential rates are capped until January Case No In the Matter of the Competitive Selection of Electricity Supplier/Standard Offer or Default Service for Investor-Owned Utility Small Commercial Customers; and for The Potomac Edison Company D/B/A Allegheny Power s, Delmarva Power and Light Company s and Potomac Electric Power Company s Residential Customers, Order No

22 Final Data The bill impacts in this report represent a projection of average annual electricity costs for the 12 months beginning June The price information is derived from the bid results from the June (conducted in January and February) and October (conducted in April) 2007 bid cycles. All bids for prices impacting bills from June 2007 through May 2008 are included. Percentage Increase/Decrease Format The annual cost data provided in the following sections compare average total customer bills using currently effective SOS rates to average total bills incorporating updated (2007 bid cycle) SOS generation rates resulting from the competitive bid process. I) RESIDENTIAL CUSTOMERS The bill impact information is displayed in a table for each utility individually. The affected residential customer classes are shown with their individual bill impact data. The number of customers in each class weights the average customer class data. The average increase figures are shown at the bottom row of each company s table. Where available, class data is separated into heating and non-heating customers. Annual bill increases are different from the change in SOS supply rates because distribution rates represent about a third of the total electricity cost. Although Pepco and DPL have both recently applied for distribution rate increases, that impact has not been included in this analysis because the cases are ongoing and the Commission has not set new distribution rates. SOS supply rates include a component that reflects the results of contracts from previous years. The proportion of load served by previous years contracts varies between the utilities. 2

23 Potomac Electric Power Company (Pepco) i) All Residential Customers - Including Time-of-Use ( TOU ) Rate Schedule RTM Customers ii) - total annual bill increase 6.9% - average annual dollar increase $116 - SOS power supply increase 9.2% Increases shown for heating/non-heating and TOU classes. PEPCO Standard Rate Customers with Electric Heat Standard Rate Customers who do not have electric heat Time-of-Use Customers with Electric Heat Time-of-Use Customers who do not have electric heat All Residential Customers Percent of all Pepco Residential Customers Average current annual bill % Increase in total annual bill Dollar amount increase in annual bill % increase in SOS power supply part of bill 24.7% $1, % $ % 62.9% $1, % $ % 3.1% $3, % $ % 9.3% $2, % $ % 100% $1, % $ % 3

24 Delmarva Power & Light (DPL) i) All Residential SOS Customers - total annual bill increase 5.1% - average annual dollar increase $89 - SOS power supply increase 6.6% ii) Increases shown for heating/non-heating and TOU classes. Delmarva Customers with Electric Heat Customers who do not have electric heat Time-of-Use Customers All Residential Customers Percent of all DPL Residential Customers Average current annual bill % Increase in total annual bill Dollar amount increase in annual bill % increase in SOS power supply part of bill 48.1% $2, % $ % 51.8% $1, % $ % 0.1% $2, % $ % 100% $1, % $ % 4

25 Baltimore Gas and Electric (BGE) i) All Residential Customers - Including Time-of-Use ( TOU ) Rate Schedule ii) iii) iv) - total annual bill increase 50% (over 15% from last year) - average annual dollar increase $586 - SOS power supply decrease 2.3% Increases shown for TOU and standard rates Percent and dollar amount increases do not include any reduction from rate stabilization. The current program for rate stabilization extends through billings for May BGE s electricity costs do not include adjustments for deferral charges, nuclear decommissioning credits, or credit of the SOS margin. Bill adjustments for these items would have a relatively small impact. v) BGE did not fill all of the blocks scheduled for the February auction. The Company conducted a reserve auction on February 27, 2007 to acquire the remaining load. The load acquired also included a portion of load that had been scheduled for procurement in April due to the use of 28-month contracts in place of 4-month contracts that had been unfilled during the first February 2007 tranche. BGE Standard Rate Customers TOU Rate Customers Total Residential Percent of all BGE Residential Customers Average current annual bill % Increase in total annual bill* Dollar Amount Increase in Annual Bill % Change in SOS Power Supply 92.2% $ % $ % 7.8% $ % $ % 100% $ % $ % Increase is the percent over the 15% increase experienced by BGE customers due to the 2006 rate stabilization credit. 5

26 II) ENERGY PRICE COMPARISONS Fuel Price Increases Month Period Ending March % 150.0% 120.0% 90.0% 65.0% 74.0% 69.0% 86.3% 104.2% 93.6% 60.0% 30.0% 0.0% -30.0% 5.1% 6.9% 8.4% -1.7% -6.2% DPL SOS Pepco SOS BGE SOS Natural Gas (100 therms) Regular Gasoline (450 gal.) 0.0% Heating Oil (500 gal.) Source: Fuel Price Increases The chart shows the estimated increases in SOS prices compared with price increases for other fuels. The lighter colored bars show the increases for , which encompasses the price freeze periods and the initial years of competitive SOS for DPL, Pepco, and BGE. The darker bars show the increases for one year, from April 2006 through March of The SOS prices for DPL and Pepco increase slightly for the period beginning June Generally energy prices slowed their rate of increase or declined over 2006 compared with the previous year. The increase for DPL and Pepco is 3 Non-electric fuel price increases from April 1999-March

27 impacted by the loss of less expensive contracts from the earliest SOS bidding in Reductions in electricity prices from the January 2007 tranche helped to minimize the increase. BGE s effective increase is largely reflective of the removal of rate stabilization credits in June The 1.7% decline in an average annual SOS bill for BGE shown in the bar, reflects the unmitigated annual costs for BGE residential customers. 5 Last year s 72% increase would have been reduced to an overall 69% (over frozen rates) by the introduction of less expensive power from the January/February 2007 tranche, had the full impact of the 2006 increase been put into rates. The 50.4% increase over last year s 15% mitigated increase, does not assume any rate stabilization credits after May 31, The non-electric fuel data is up to date with March 2007 information from the BLS website. 6 III) TYPE 1 SOS (Small Commercial Customers) A. PEPCO - - total bill decrease 7.1% SOS power supply decrease 9.2% B. DPL - - total bill decrease 4.0% SOS power supply decrease 4.5% C. BGE - - total bill decrease 4.4% SOS power supply decrease 6.49% D. Allegh eny - - total bill decrease 8.8% SOS power supply decrease 13% 4 Non-electric fuel price data is for the twelve months ending March 2007, which is the most recent available. SOS annual Bills reflect the 12 months following June 2007, reflecting the results of the 2007 bid cycle. 5 The interim 2007 Staff SOS reports showed the mitigated increase in this chart. This figure has been revised to the unmitigated annual costs in order to allow a consistent comparison of the generation bid results of other utilities and fuel sources. 6 U.S. Department of Labor Bureau of Labor Statistics 7

28 Type I load was procured during the January and February 2007 tranches for contracts beginning in June No Type I load was procured during the April 2007 tranche. IV) TYPE 2 SOS (Medium Sized Commercial Customers) The usage and number of customers in the Type II class varies widely across the utilities in Maryland. Type 2 load is bid quarterly and is not on the same bid schedule as residential and small commercial load. V) TYPE 3 SERVICE (Large Sized Commercial and Industrial Customers) Because the usage characteristics of these customers vary widely and because Type 3 customers have an hourly spot-market based utility service option, a useful analysis of total bill impacts for these customers is not possible. 8

29 MARYLAND DEPARTMENT OF HUMAN RESOURCES OFFICE OF HOME ENERGY PROGRAMS Attachment 3 Annual Base Benefit Range FY 2007 For Electricity For EUSP and MEAP Combined (EUSP) Combined (MEAP) Total (MEAP+EUSP) Poverty Level Level I to to to 0% - 75% 1, , Of Poverty Level II to to to > 75% - 110% 1, , Of Poverty Level III to to to > 110% - 150% , Of Poverty Level IV to to to > 150% - 175% , Of Poverty Level V to to to > 175% - 200% Of Poverty to to to Subsidized Housing NOTE: All benefits are annual amounts JCR page Attachment Electric Benefits.xls

30 DEPARTMENT OF HUMAN RESOURCES OFFICE OF HOME ENERGY PROGRAMS Attachment 4 Total Application Intake FY FY 2008 (Projected) COUNTY FY'08 FY'03 FY'04 FY'05 FY'06 FY'07* Projected Allegany 4,389 4,753 4,533 4,880 5,180 Anne Arundel 2,768 3,003 3,024 3,328 4,305 Baltimore City 24,190 25,731 27,923 32,512 29,514 Baltimore 11,130 11,523 11,838 13,676 14,449 Calvert Caroline 1,660 1,716 1,750 1,840 1,948 Carroll 2,074 2,210 2,171 2,392 2,653 Cecil Co. 2,670 2,717 2,735 3,094 3,382 Charles 1,805 1,769 1,905 1,900 1,865 Dorchester 2,217 2,366 2,316 2,411 2,687 Frederick 2,880 2,955 2,923 2,961 3,221 Garrett 2,254 2,435 2,410 2,581 2,906 Harford 4,656 4,266 3,657 4,020 4,547 Howard 1,763 1,897 1,791 2,238 2,287 Kent 1,031 1, ,012 1,108 Montgomery 4,452 5,107 5,930 6,546 7,828 Prince George's 7,104 6,883 7,557 7,834 9,394 Queen Anne's St. Mary's 1,782 1,722 1,785 1,694 1,572 Somerset 1,215 1,204 1,301 1,355 1,462 Talbot 1,053 1,064 1,042 1,181 1,122 Washington 3,076 3,329 3,056 2,896 3,438 Wicomico 2,901 2,914 2,956 3,366 3,891 Worcester 1,290 1,377 1,492 1,582 1,702 TOTAL 90,064 93,619 96, , , ,644 Projected number of households served for EUSP = 95,000 NOTE: * includes 5,138 applicants that were between 175% and 200% of poverty 2007 JCR page Attachment 4 - OHEP Intake xls

31 OHEP INTAKE TRENDS Applications Received 120, ,000 80,000 60,000 40,000 20,000 0 FY'03 FY'04 FY'05 FY'06 FY'07* Years

32 ATTACHMENT 5 OHEP SAMPLE OF OUTREACH ACTIVITIES State OHEP Presentation at Catholic Charities Welfare Advocate meeting Presentation at Maryland Association of County Organization Conference (MACO) Outreach Coordinator s meeting held quarterly statewide Delmarva Energy Summit Baltimore County Energy Summit BGE Project Reconnect ETHS/HPP Conference Montgomery County Utility Assistance Fair in partnership with Pepco BGE Partnership Meeting and Baltimore City Energy expos at Union Baptist Church Welfare Advocate Conference Montgomery County/BGE energy Expo Public Service Commission Consumer Education Advisory Board Energy Assistance Week, Change a light to Change the World campaign partner w/mea Presentation at International Resources Group Educate Romanian Contingency on Energy Assistance Energy Symposium and Spring Conference Presentation at DHR Constituents Services Baltimore Sun Paper Advertisement Energy Week Screen Vision Movie Advertisement Statewide AMC Movies Allegany County Advertisements on Restaurant Placemats, Local Football team program, Coupon booklet, Magnetic Calendars with OHEP information Presentation with Family Preservation workers, Health Start nurses, Senior Centers mangers Table display and information booth at DSS conference, Federal Corrections employees, Remote radio Advertisements, Phone contacts, Home visits to elderly/disabled customers OHEP presentations to Human Service Workers, YMCA families/workers Mass mailing to previous year customers Anne Arundel County Distribution of flyers, brochures Presentation at Annapolis Housing Authority, Early Head Start Program Mass mailings of applications to previous year and new customers Individual face to face interview and application intake Displays posters and flyers throughout the County Presentation at local aging service agencies Baltimore City Distribution of flyers, brochures Presentation at Lorien Nursing Home, Mt. Lebanon, Waxter Senior ctr., faith-based organizations

33 Distribution of information at Douglas High School, general public, Intake at Head Start Programs Citywide and Community association agencies Mass Mailings of application to previous year customers and new customers Conducted four Expos in partnership with BGE and State OHEP office Giveaways for community activities Stone Soul Festival Baltimore County Table Display at Energy Summit Channel 2 News Application Fair at Landsdown, Catonsville, Woodlawn Informational session with Russian Community, caseworkers, Jewish family Service agency Presentation at local human service agencies Mass mailing to non-profit organizations, previous year customers and new customers Caroline County Advertisement with local radio WCEI-FM and interview Mass mailing of applications to previous year and new customers Distribution of brochures to local DSS workers Presentation with community agencies Carroll County Mass mailing of applications to previous year, new customers, and family and children service agencies Distribution of brochures to faith-based organizations, Granite House, Presentations at Uniontown Bible Church Table set-up at Taneytown Block party and local diner Face to Face interview w/assisted Living residents, Newspaper advertisements and informational sessions with county public Cecil County Mass mailing of applications and brochures to previous year and new customers Presentation with local DSS workers, Health Department workers, Booth at the Cecil County Fair Distribution of flyers and brochures Countywide Table display at Homeless Summit Dorchester County Energy week activities includes, outreach at faith-based organizations, Senior Centers, Presentation Chesapeake Utilities Salisbury, Women s Church Group, Joseph Hospital, Visual Cheek in Vienna, faith-based organization, Senior Ctrs. Application intake at Salvation Army, Wise Oil and Fuel Company, Chesapeake Mass mailing of application to previous year s customers Frederick County

34 Presentation to new FCDSS employees, Frederick County Energy conservation Committee, Food Banks, Community Meeting, Application intake in Emmetsburg, Brunswick Senior Ctr. Home Visit, Head Start Programs, Human Service Coalition, CASS Application Fair with Food & Friends, Walkersville Salvation Army Newspaper Advertisement with Silver Messenger, Dept. of Aging newsletter Garrett County Energy Assistance Week activities Essay contest with school children Phone contacts and distribution of brochures to schools, Home visits Countywide Press Release, Newspaper/Radio advertisements, Presentations at Head Start Programs and After School Distribution of flyers at Health Department, Mt. Lake park, Senior Centers Mass mailing of applications to previous years and new customers Harford County Mass mailing to previous year s customers and new customers Intake at Catholic Charities Senior Ctr, Harford Senior Housing, Manna House, Fairbrook Senior Living, Martha s Meals Sharing Table, Woodsdale, and Parkview Senior Housing Presentation at United Way, CORE service agencies, Distributed brochures at faith-based organizations, Petro Energy applicants, Face to Face interview sessions Promotions Energy Assistance Week Newspaper Advertisements Howard County Presentation of new program year information to Care managers, Family Children Service agencies, The Seasons Apartment complex, Howard County Hospital workers Face to Face interview sessions Distribution of brochures at Howard Co. Fair, FCS, women and children services Intake with adults in Laurel, Lake High School employees, Table Display at 50 plus expo Mass mailing of application to previous year s customers Kent County Mass mailing to previous year and new customers Newspaper advertisements Energy Assistance Week, Tidewater Trader Ad. Distribution of flyers and program information to food pantry recipients, Washington college Presentations at faith-based organization, Family Fall festival, Mass mailing to seniors and the disabled customers Coloring contest for Energy Week Senior enrollment event at Amy Lynn Ferris Center Montgomery County Mass mailing of Energy Week packets to Montgomery Government agencies, non-profit organizations, libraries, faith-based organizations and public schools

35 Outreach conducted with Manna Food Bank and Health & Human Service agencies in Germantown and Silver Spring Advertisements in the local newspapers, Gazette, El Pregonero, El Tiempo Application fair at Gardens of Traville Senior Apartment Rockville Presentation to Mothers Offering maternal Supports (MOMS) in Silver Spring Cable show featured OHEP program was in Spanish and English versions Prince George s County Presentation at Woodside Village Seniors and apartment managers Countywide Outreach with Rev. Seawright Bethel Church in Brandywine, Latarsha Coleman Cooperative Extension Landover Presentation at Andrews Air Force Base Outreach at the Langley Park PTA meeting Outreach at the Laurel City Council meeting Conducted an Energy Expo at Seat Pleasant Queen Anne s County Brochure distribution in Upper, Lower and Middle County Distribution of brochures to County stores and post office Distributed Project Heat Up posters in Upper County area Participated in a TV commercial about Project Heat Up in Centreville Somerset, Wicomico & Worcester Counties Distributed flyers to Wicomico Co. Laundry, Grocery stores and Apartment buildings Outreach with MAC, Inc. an aging service agency Outreach in lower Shore Friends Wicomico Co. Outreach in Somerset and Worcester Counties Public Service Announcement promoting OHEP in Somerset, Worcester, and Wicomico Counties Calvert, Charles, & St. Mary s Counties Mass mailing of application to previous year and new customers Distributed application to St. Mary s senior complex Collaborated with Utility and stuffed OHEP insert in cut-off notices Outreach in St. Mary s County DSS and received proclamation from Calvert Co. Government in commemoration of Energy Week Outreach and Presentation at Calvert Co. Senior Summit Proclamation from Charles Co. Gov. and distribution of OHEP information in Hughesville and LaPlata Talbot County Many newspaper advertisements in the local paper Star Democrat about OHEP Booth at County s Summer Festival distributed flyers, posters, brochures, etc Outreach at the Multicultural festival in Idlewild Park TV commercial on OHEP Countywide Booth at Easton Hispanic health fair Distributed Project Heat Up flyers

36 Washington County Distributed applications and brochures to County Board of Education Presented program to County mental health programs Distributed application and brochures to Citicorp offices Application distribution at the First Data for Community Fair in Hagerstown Application distribution at DSS, Commission on Aging and Interfaith Housing in Hagerstown Source: OHEP Local Agency Monthly Outreach Logs

37 BEFORE THE PUBLIC SERVICE COMMISSION OF MARYLAND In the Matter of the Electric ) Case No Universal Service Program ) Staff Comments Regarding the Electric Universal Service Program Proposed Operations Plan for FY 2008 On May 4, 2007, the Office of Home Energy Programs of the Department of Human Resources ( OHEP ) filed the Electric Universal Service Program Proposed Operations Plan for FY By Letter Order dated May 10, 2007, the Commission invited parties and interested persons to file comments regarding OHEP s proposed plan for FY 2008 no later than June 1, The Staff of the Public Service Commission of Maryland ( Staff ) submits these comments pursuant to the Commission s Order. I. Summary of Governing Legislation As part of the Electric Customer Choice and Competition Act of 1999, since codified at Public Utility Companies ( PUC ) Article, et seq., Annotated Code of Maryland, the General Assembly created a universal service program for low income electric customers. See PUC Article The electric universal service program ( EUSP ) has three components: bill assistance, arrearage assistance, and weatherization. The Commission exercises oversight of the EUSP, and the Office of Home Energy Programs of the Department of Human Resources ( OHEP ) administers the bill assistance and arrearage assistance components of the EUSP. The weatherization