The National Consumer Law Center (NCLC) is a nonprofit organization
specializing in consumer issues on behalf of low-income people. Founded in 1969,
NCLC provides specialized legal support and consulting services to low-income
consumers, their advocates, government agencies and private attorneys in all
aspects of consumer and utility law. NCLC has helped utilities, regulatory commissions
and advocates design low-income affordability programs and has published leading
manuals and reports on related law including Access to Utility Service; Cap
the Gap: Assuring Residential Customers Share Benefits of Electric Industry
Restructuring; the Regulation of Rural Electric Cooperatives; A Guide to Low-Income
Energy Efficiency and Energy, and the Poor: The Crisis Continues. Chairman
Jeffords and Members of the Committee, on behalf of our low-income clients,
the National Consumer Law Center thanks the committee for inviting us to testify
today regarding the effect of high fuel costs on low-income families.
Introduction - The New Energy Crisis
NCLC commends this Committee for recognizing the particularly
disproportionate impact today's high fuel costs have on low-income families
and thanks the Committee for the opportunity to appear here today. High energy
prices set off repercussions that become evident throughout the economy. Yet
nowhere do high prices bring consequences as swiftly and harshly as in low-income
households. For the tens of millions of low-income households throughout the
country, the dramatically higher prices will intensify the impossibility of
meeting the costs of basic human needs, while increasing the energy burdens
that are already far beyond a tolerable level. At the same time, the New
Energy Crisis threatens low-income access to vital energy and utility service,
thereby endangering health and safety while creating additional barriers to
meaningful low-income participation in the economy.
In addition to increased difficulty in paying home energy costs,
sustained high energy prices could have an impact on the employment rate of
low-wage workers. High energy prices cause businesses to cut costs by laying
off workers. As we all know, those workers on the margin are usually the first
to go, and if current prices persist, we will likely see a sharp increase in
unemployment among low-wage workers.
Fortunately, Congress has the power and the capacity to assist
low-income households to keep pace with rising energy and utility prices. The
Low Income Home Energy Assistance Program (LIHEAP) is the best means Congress
has to address the disaster looming in the low-income community this year. The
purpose of this testimony is to demonstrate the gravity of the New Energy Crisis
by illustrating the alarmingly high current energy prices and the excessive
burdens on low-income households created by those prices. In addition, this
testimony will document the positive role that LIHEAP plays in assisting the
most vulnerable citizens meet their energy needs.
We have short discussions on the following:
1. Energy Prices
2. Energy Burden
3. The Role of LIHEAP
4. Recommendations
1. Increase Adequate Funding for the Block Grant
2. Provided FY 2002 Advance Funding
I. Energy Prices
Skyrocketing household energy prices are driven by a multiplicity of interrelated
factors. These include high wholesale crude oil and natural gas prices, low
storage inventories, limited new production, high demand throughout the economy
and high profits among some entities along the supply chain.
Recently, natural gas, heating oil and crude oil price increases have been
staggering. New York Mercantile Exchange crude oil and natural gas futures prices
have more than tripled over the past 18 months. Home heating oil futures prices
are currently 50% higher than at this time last year. (See Appendix 1 for NYMEX
futures price charts.) These futures price increases will have a dramatic upward
impact on prices that will ultimately be paid by residential energy users this
winter. Total home energy prices are likely to be 25% to 50% higher in many
regions of the country than they were last winter.
One respected energy research service, Simmons & Company International,
reports that natural gas storage inventories are at an historically low level
for this time of year. High natural gas futures prices, Simmons reports, are
directly tied to these low inventory levels. Market prices are at an all-time
high for early October. Simmons suggests that harsh weather this winter will
test the limits of the system to meet peak demand. Low inventories continuing
into next winter will keep customers' bills high into the future. Similarly,
Simmons has revised its 2001 crude oil price forecast upward based on lagging
OPEC and non-OPEC production growth, and projected growth of global demand.
If these projections are correct, residential consumers, and particularly low-income
households, will continue in the next year to be hard-hit by high retail energy
prices.
Utility distribution companies around the country, in an attempt to recover
high fuel costs, are filing for massive rate increases. In California, where
that state's electric industry restructuring program called for rates to be
kept below the wholesale level during a period of transition to competition,
one utility, Pacific Gas and Electric, incurred $2.2 billion in excess wholesale
power costs. Similarly, Southern California Edison incurred about $2 billion
in costs that it has yet to recover. Both companies are currently exploring
strategies to escape the rate caps and pass along high power costs to ratepayers.
Meanwhile, San Diego Gas and Electric, the first California utility not subject
to rate cap restrictions, passed this summer's costs along to consumers and
bills skyrocketed. SDG&E customers paid over 20 cents per kWh for power
supply costs this summer, in addition to the customer charges that were incorporated
into bills.
High electricity prices in California are due in large part to high fuel prices.
However, while some ratepayers saw their rates double during this past summer,
power generators were reaping record profits in that region. One generator,
Calpine Corp., reported earnings of $51.6 million for the second quarter of
2000, up 176% over the same period in 1999. While all generators' summer, 2000
earnings information are not yet available, it is likely that others reaped
benefits similar in proportion to Calpine's.
Even if wholesale power prices recede in the short term, there will be continued
price pressure on California electric ratepayers for many months into the future.
In addition, there are many examples outside of California that clearly reflect
the new, higher priced energy and utility environment:
In New Mexico, electricity
prices are expected to increase by 18% this year, and by another 8 percent
when retail competition begins in that state in 2002.
In New England, with
heating oil inventories down to between six and seven million barrels from
17 million barrels at this time one year ago, prices are predicted to reach
between $2 and $3 per gallon. In addition to fuel oil increases, Massachusetts's
electric utilities have filed for 4% to 12% rate hikes. Further, natural
gas utilities in Massachusetts are expecting cost of gas adjustments that
will raise bills by as much as 40% this winter.
Reliant Energy-Minnegasco
in Minneapolis projects this winter's natural gas bills to exceed last year's
by 30% to 35% unless the weather is unusually harsh, in which case prices
will go higher.
Washington Gas Company
expects winter bills to be 27% higher this year than last.
Dominion East Ohio has
filed for a 17% rate increase to take effect this winter.
Florida Power has filed
for an 8% increase.
Public Service Company
of Colorado is expecting a 40% natural gas price increase this winter.
Central Illinois Light
Company in September revised its initial estimate of a 35% natural gas price
hike to an estimate of 50%.
The Kentucky Public
Service Commission is warning of a 20% to 30% natural gas price increase
to take effect this winter.
Philadelphia-based PECO
Energy Company has filed for an initial 6.5% natural gas rate increase that
took effect September 1, 2000, but expects an additional hike in December
that will raise prices by 15% to 25% over last year's heating prices.
Puget Sound Energy customers
in Washington State saw a 27.5% natural gas price increases beginning last
month.
Dozens of other examples from around the nation could be cited here. In short,
high wholesale market prices will translate into significantly higher home energy
prices this winter. Depending on weather conditions, combined electricity, natural
gas and heating oil price increases could easily lead to residential energy
expenditure levels that exceed last winter's by 25% to 50%. As discussed below,
these price increases will have a dramatic effect on the energy burdens borne
by low-income households.
II. Energy Burden
Energy burden is a measure of the proportion of a household's income that is
devoted to energy and utility service. The table and chart in Chart 1 illustrate
the changes in household energy burden that result from price increases of the
magnitude discussed above. The chart shows that, given national average 1997
household expenditure levels, 2000 poverty guidelines and a 30% increase in
household energy prices between 1997 and 2001 --
A two-person households
at the poverty level spent 9.7% of annual income on residential energy in
1997 and will spend 12.6 percent of total income in 2001.
Further, a single minimum
wage earner in a two-person household devoted 10.6% of income to meet home
energy costs in 1997, and will need 13.7% of income in 2001.
A two-person household
with SSI benefits will need to devote over 15% of total income to meet energy
costs in 2001.
It should be noted that Chart 1 is provided for illustrative purposes only
and is based on 1997 average national energy expenditure levels and a highly
conservative estimate of 30% energy price inflation between 1997 and 2001. Actual
energy prices, energy expenditures and median income levels vary widely state-to-state.
The data in Chart 1 show that low-income households, in order to make ends
meet, spend less on home energy than their higher-income counterparts. For the
low-income elderly who are particularly susceptible to weather-related illness
such as potentially-fatal hypothermia, high energy burden can represent a life-threatening
challenge. Given their susceptibility to temperature-related illnesses, elderly
households tend to require more energy to keep their homes at a reasonable comfort
level. Despite this requirement, low-income elderly households tend to spend
16% less on residential energy than all households. We may therefore infer that
many elderly households are placing themselves at serious risk by heating and
cooling their homes at levels that are less than adequate for maintenance of
health.
It has been widely documented that, in addition to health risk, excessive energy
burdens cause a variety of difficulties for low-income households. Low-income
households with high energy burdens are more likely than higher-income households
to incur utility service disruptions because of an inability pay their bills.
In turn, service disruptions represent major crises for affected customers,
often threatening the customer's home.
Studies have demonstrated the clear link between homelessness and utility terminations.
Payment assistance programs such as LIHEAP help to ameliorate late payment and
utility termination problems. According to surveys conducted by the Energy Coordinating
Agency of Philadelphia and Institute for Public Policy Studies of Temple University,
there was an average of over 60,000 gas electric and water service terminations
each year in the city during the years of 1984 through 1989. The study further
found that, of homes where utility service was terminated, 32 percent of electric
and 24 percent of gas cases led to abandonment within one year of the utility
termination. Through a name match between Philadelphia Electric Company's list
of termination notices and lists of homeless adults served by the City of Philadelphia,
the study found a discernable relationship between utility termination and homelessness.
Similarly, a study of homelessness in Northern Kentucky indicates that utility
shutoffs were among the primary causes of homelessness in that region.
III. Role of LIHEAP
The Fixed-Income and Working Poor Need LIHEAP
NCLC is a strong supporter of the Low Income Home Energy Assistance Program
(LIHEAP) because it is the primary safety net between low-income consumers and
loss of vital utility service. A recent Urban Institute National Survey of America's
Families found that 38.7 percent former welfare recipients, at some point in
the last year, were unable to pay housing or utility bills. Similarly, a 1999
report by the U.S. Census Bureau found that in 1995 20% of households in the
lowest income quintile were unable to pay utility bills in full, and four percent
of the lowest quintile households experienced loss of fuel oil or utility service.
The National Conference of State Legislatures compiled in 1999 a collection
of state surveys tracking the status of families moving off the welfare rolls.
These low income, working families experienced many problems with energy bills:
In Florida, 59 percent
of these families fell behind in utilities payments.
In Wisconsin, 47 percent
of families fell behind in utilities payments after leaving welfare, 49
percent fell behind while still on welfare.
In Kansas, 14 percent
had their utilities shut off since having their welfare case closed.
In Washington, 11 percent
had their utilities cut off at least once.
Those that cannot afford
to pay their winter heating bill or summer cooling bill often face desperate
choices. Analysis of recent survey data from the U.S. Department of Energy,
Energy Information Administration shows that in 1997, about 2.1 million households
suffered from loss of heat. The average period without heat was over three days.
This three-day heat loss finding actually represents an improvement over the
previous survey's results, which showed the average heat loss period in 1993
to be 11 days.
A 1999 survey commissioned
by the Iowa Department of Human Rights of LIHEAP recipients revealed the unaffordability
of heating bills was manifested in a variety of painful ways:
21% of LIHEAP recipients went without medical care.
12.3% went without food
The consequences of loss of heat in the winter include health and safety risks
associated with alternative heat and lighting sources such as kerosene and candles,
hunger and malnutrition, hypothermia (cold stress to the body), eviction and
increased homelessness and failure of children to thrive. In the summers, the
dangers from loss of cooling are particularly acute for the elderly. According
to the Texas Legal Services Center, in Texas by the end of July this past
summer, thirty two residents died due to heatstroke or other heat related conditions.
LIHEAP is Structured to Meet the Need
LIHEAP assistance is targeted to reach the most vulnerable low-income households,
paying particular attention to households with seniors, the disabled and household
with young children. Under the Low Income Energy Assistance Act of 1981 (title
XXVI of the Omnibus Reconciliation Act of 1981, Public Law 97-35) and the subsequent
amending statutes, states must target outreach and assistance to those households
which have the lowest incomes and the highest energy costs or needs in relation
to income, taking into account family size (i.e., those households with highest
energy burdens).
States receive regular LIHEAP funds as a block grant which allows them to tailor
their programs to meet the particular needs within a state. The LIHEAP authorizing
statute allows states to provide heating or cooling assistance, as well as crisis
assistance payments and weatherization assistance or services. The amount of
LIHEAP funds a household receives varies from year to year, state to state and
even within a state depending on the different types of assistance a state provides
in any given year. The vast majority of LIHEAP dollars are spent on energy assistance
to low-income families since the authorizing statute caps the amount that can
be spent on administration of the program at 10 percent. In most cases, the
LIHEAP assistance is paid directly to the vendor. As LIHEAP is not an entitlement
program, once the state spends all its allocated LIHEAP funds, the program shuts
down until the next year unless there is a release of LIHEAP emergency contingency
funds in response to a crisis. This generally leaves thousands of poor families
in every state without needed energy assistance.
LIHEAP is Chronically Underfunded
Unfortunately, due to the chronic underfunding of this program, recent estimates
are that only about 13 percent of the eligible low-income families actually
receive LIHEAP assistance. Yet the need for this assistance is great and the
alarming increase in natural gas, home heating oil and petroleum prices dramatically
and urgently increases the need for increased LIHEAP funds. Many states, particularly
those that rely on natural gas and home heating oil for residential heating
are facing a 25 to 50% increase in fuel prices in addition to increased numbers
of new applicants for the program. In short, the LIHEAP dollars will not go
as far this coming year.
The authorizing statute( 42 U.S.C. section 8624(b)(2)(B)) caps income eligibility
for the program at an amount equal to 150 percent of the poverty level for a
state or 60 percent of the State median income. Yet, according to a study of
LIHEAP state directors by the National Center for Appropriate Technology, about
half of the states have set their income eligibility at lower levels due to
the chronic shortage of funds. The reduction in funding levels to the regular
block grant, since 1995 has caused a 35 percent decrease in the number of households
receiving LIHEAP assistance to defray heating costs.
To measure the effect of program cuts within a two-year period, in 1997 the
National Energy Assistance Directors Association surveyed the LIHEAP directors
to find out how the states were coping with a 24 percent loss in funding since
1995. It found that 1.2 million low-income households had been cut from the
program and over 300,000 of this households had a least one elderly member and
over 150,000 of these households had at least one disabled member. An estimated
43 percent of LIHEAP eligible households have children.
In FY 1995, the regular block grant for LIHEAP was $1.289 billion. By 1997,
the amount for the regular block grant had shrunk to $877.5 million. This cut
to the core funding eroded the basic infrastructure of the program. Although
the release of emergency contingency funds brought the overall levels for the
LIHEAP program to $1.3 billion in FY 1995 and $1.2 billion in FY 1997, the infusion
of last minute crisis funds is rarely in time for a program to incorporate the
funds into its regular targeted outreach.
Recommendations
1. Increase Adequate Funding for the Block Grant
This past winter illustrates
the critical role that LIHEAP assistance plays in maintaining the heat in low-income
households as home heating oil prices skyrocketed. That experience highlights
the need for restored levels of regular appropriations for LIHEAP, because eligible
families were well into crisis situations before emergency contingency funding
was released. Restored LIHEAP funding levels at no less than $1.65 billion in
a regular appropriation for FY 2001, and advance appropriation of $1.65 billion
for FY 2002 would allow states to provide timely proactive energy assistance
to more eligible families.
While emergency contingency
LIHEAP funds are critical for responding to life-threatening, brutal winters
and scorching summer heat waves, increasing the regular appropriations for LIHEAP
will allow the states to design more solid programs for the upcoming year. Emergency
contingency funds are almost always released after the emergence of a full-blown
crisis, which may arise after a program has shut down for the season.
Maintaining woefully inadequate
core funding levels will continue to place vulnerable seniors, disabled and
low-income households with young children in potentially life-threatening situations
time and time again. A more rational approach would be to increase the current
level of regular funding for FY 2001 so that the state programs can effectively
plan ahead for the upcoming year. This includes proactive, timely and appropriately
designed responses to crises situations, as opposed to reactive and potentially
ill-times responses due to the lag time that comes with the dependence on the
release of emergency contingency funds. Delays in responding to heating and
cooling crises needlessly jeopardizes the health and safety of those low-income
families eligible for assistance.
The LIHEAP authorizing statute
allows for there to be appropriated such sums as may be necessary for fiscal
years 2000 and 2001, and $2 billion for each of the fiscal years 2002 through
2004 ( 42 U.S.C. 8621(b)). In light of the alarming increase in residential
energy prices for natural gas, home heating oil and petroleum, an appropriation
of less than $1.65 billion for the regular block grant for FY 2001 and FY 2002
advance appropriations of at least $1.65 billion will not be sufficient to address
the need.
2. Provide FY 2002
Advance Funding
LIHEAP is a program where the state grantees regularly rely on advance appropriations
in order to plan for the upcoming year. The normal appropriations process often
leaves little time between enactment of the Labor-Health and Human Services-Education
spending bill and the start of most states' winter heating programs. Funding
uncertainty also leads to problems for the states in setting income guidelines
and benefit levels for the upcoming year. In light of the existing energy affordability
crisis, we urge adequate FY 2002 advance appropriations of at least $1.65 billion.
Appendices:
Chart 1 - U.S. ENERGY BURDEN ESTIMATES
SELECTED 2-PERSON HOUSEHOLDS, 1997 AND 2001
Chart 2 - NYMEX NATURAL GAS FUTURES
9/98 - 9/00
Chart 3 - NYMEX CRUDE OIL FUTURES
9/98 - 9/00
Chart 4 - NYMEX HEATING OIL FUTURES 9/98 - 9/00
Chart 5 - Funding History for LIHEAP
2 Person Household Income
1997 Estimates
2001 Estimates
Category
Income
Expenditure per Household
Energy Burden
Expenditure per Household
Energy Burden
Median Income
$40,280
$1,338
3.3%
$1,739.40
4.3%
60 % of Median Income
$24,168
$1,338
5.5%
$1,739.40
7.2%
150% Federal Poverty Level
$16,875
$1,140
6.8%
$1,482.00
8.8%
125% Federal Poverty Level
$14,063
$1,140
8.1%
$1,482.00
10.5%
100% Federal Poverty Level
$11,250
$1,088
9.7%
$1,414.40
12.6%
Single Minimum Wage Earner
$10,300
$1,088
10.6%
$1,414.40
13.7%
Federal SSI
$9,228
$1,088
11.8%
$1,414.40
15.3%
Notes:
2001 Energy Burden Estimates Assume a 30% increase in household energy prices
from 1997 to 2001 SSI Income reflects 2000 Benefit Levels
Sources - U.S. Census Bureau, U.S. Energy Information Administration, Social
Security Administration
and NCLC