FY 2004 Appropriations for the Low Income Home Energy Assistance Program (LIHEAP)

Testimony of the National Consumer Law Center on Behalf of Its Low-Income Clients
Submitted to the United States House of Representatives Committee on Appropriations
Subcommittee On Labor, Health And Human Services and Education

May 23, 2003

Mr. Chairman and Members of the Subcommittee, the National Consumer Law Center (NCLC)1 appreciates the opportunity to submit written testimony regarding the critical appropriation of funds for the Low Income Home Energy Assistance Program for FY 2004. This testimony is submitted on behalf of our low-income and elderly clients who are coping with high and volatile energy prices, severe weather and large arrearages, and face sacrificing other necessities such as food or medicine to avoid loss of essential home energy.

NCLC is a strong supporter of the Low-Income Home Energy Assistance Program (LIHEAP),2 the primary safety net between low-income consumers and the disconnection of vital utility service. We thank you for shielding LIHEAP from the Administration’s proposed $300 million cut to the FY 2003 appropriation and urge you to protect struggling low-income households this coming heating and cooling season. The pressures on low-income households, many of them working poor and fixed-income seniors, from unaffordable energy bills show no sign of abating. Indeed the forecasted tightness in natural gas this summer and winter makes the need for increased spending on LIHEAP more urgent. We urge an appropriation of, at a minimum, $3.4 billion for the regular LIHEAP program in FY 2004 as well as advance appropriations for FY 2005 of at least $3.4 billion for the regular program.

Upcoming Winter Fuel Prices Expected to Remain High

Low-income households are facing a bleak winter due to the record low levels of natural gas in storage.3 The exceptional tightness in natural gas supply is placing very strong upward pressure on price that will keep prices high and volatile into the winter heating season.4 Making matters worse for low-income consumers is the connection between natural gas and electricity. Many of the newer power plants run on natural gas, and this competing demand from electric power plants will keep the amount of natural gas in storage below normal levels this winter, especially if there are heat waves this summer.5 The tightness in natural gas supply will also cause a corresponding increase in the cost of electricity for many consumers due to the reliance on natural gas to fuel newer power plants.6 Recently in Massachusetts, the utility commission approved a 43 percent rate increases for Massachusetts Electric Company’s residential electricity default service customers7 due, in significant part, to the increase in natural gas prices.8 Recent analysis of home heating data shows that around 51 percent of LIHEAP recipients heat with natural gas and almost 30 percent use electricity for heat.9

The winter outlook for LIHEAP households using home heating oil is also grim. Around 8 percent of LIHEAP recipients heat with home heating oil.10 The price of home heating oil is driven in significant part by the price of crude oil11 and recent estimates from the U.S. Energy Information Administration (EIA) are that residential retail fuel oil prices will also remain high in 2003.12 EIA estimates that retail residential fuel oil will be around 15 percent higher in the 4th quarter of 2003 compared to the 4th quarter 2002.13

Initial indications are that low-income families have been battered by their energy bills this winter and that arrearages and terminations are a serious problem for families as they move out of the protections from winter shut-off moratoria. This winter low-income families endured substantially higher fuel costs and more severe weather than last year,14 similar to the difficult winter of 2000-2001. Analysis of residential disconnection and arrearage data from Iowa show that arrearages accumulated during the 2000-2001 winter heating season lead to unprecedented numbers of terminations which continued to remain high even during the warm weather months.15 Basically, families were carrying such high arrears that they were unable to dig themselves out before losing service. A similar trend is appearing this year.

Utilities in Pennsylvania that are regulated by the Pennsylvania Public Utility Commission (PUC) have established universal service programs that assist utility customers in paying bills and reducing energy usage. Even with these programs, electric and natural gas utility customers find it difficult to keep pace with their energy burdens. Harsh winters and increased energy costs have a dramatic impact on a low income customer’s ability to pay their energy bills. According to Mitch Miller of the Pennsylvania Utility Commission, “Due to the colder than normal winter, and increased natural gas costs, 1,250,000 Pennsylvania consumers are now overdue and owe approximately $400 million in utility arrearages, an increase of 17% from last year. When customers’ arrearages increase dramatically, it may take several years for these arrearages to be paid. In 2003, service terminations continue to be high: Utilities have terminated service to 22,760 households in April 2003 alone. Through April 2003, the Pennsylvania Utility Commission has received 23,418 requests from consumers for help in making payment arrangements with their utilities – an increase of 22% from last year.”

The low income households in New England are also reeling from the brutal winter. According to Charlie Harak, senior utility attorney for the National Consumer Law Center, “Arrearages in Massachusetts have gone through the roof for low-income households. At one major gas company there was a 150% increase in arrearages for low-income households in February 2003 from February 2002. More disturbing, the low-income households in arrears owed more than 3 times as much in 2003 than 2002. The cost of gas more than doubled over the course of this winter and it is now much more common for customers to owe $1,000, $2,000 or even more. Customers using home heating oil have also suffered this winter. Massachusetts is enduring home heating oil prices approximately 50 percent higher than ever before. Even by April of this year the price of home heating oil had not declined significantly.”

The expected high fuel costs this coming winter will cut into the reach of LIHEAP assistance to vulnerable low-income households and severe weather will only exacerbate matters by increasing household energy costs. Without an increase in LIHEAP appropriations, states will face the very difficult choice of serving fewer households or providing less energy assistance to eligible applicants as highlighted by this past heating season in Iowa. As of the end of March, Iowa has a record number of LIHEAP households (24,000) with past due accounts, that together total nearly $8 million in arrearages.16 The number of disconnections in April for residential customers is at its highest level in 5 years.17 Around 79,000 households, mostly households with elderly residents or residents with young children or disabilities, received LIHEAP assistance this year, but the benefits averaged just $330.18 Unless LIHEAP appropriations increases substantially for FY 2004, even maintaining the status quo will likely be very difficult.

Growing utility arrearages for low-income households will only place these fragile households on a downward spiral towards disconnections. Adequate LIHEAP assistance can help families facing terminations, but even more important, adequate LIHEAP appropriations can help struggling families stay current on their energy bills.

The Growing Need for LIHEAP

The need for heating and cooling assistance provided through LIHEAP grows more urgent in this sluggish economy. LIHEAP has always been a key stepping stone to help households move from welfare to work. Now with long-term unemployment at the highest level in two decades19 and the loss of about 2.7 million jobs since January 2002, with a substantial percentage of those jobs in the manufacturing sector,20 the number of families struggling to pay their energy bills will swell. Without increased LIHEAP appropriations, fewer families will be able to manage their energy bills.

Those who cannot pay their winter heating bill often face dire choices such as sacrificing food and medical care.21 The loss of essential utility services can be devastating, especially for poor families that can find themselves facing the prospects of hypothermia in the winter, hyperthermia in the summer,22 eviction, property damage from frozen pipes, the use of dangerous alternative sources of heat,23 and the potential threat of the intervention of child welfare agencies.24 Studies have also demonstrated the clear links between homelessness and utility disconnections, as well as the connections between unaffordable utility service and the disruption to families and children’s education. LIHEAP works to bring fuel costs within a manageable range for low-income households. There are other societal benefits to a strong LIHEAP program. A recent study documents an association between receipt of LIHEAP assistance and a reduced incidence of undernutrition in young children.25

The purchasing power of LIHEAP in 1981, adjusted to 2003 dollars, was $3.86 billion and in 1985, was $3.62 billion.26 The need for LIHEAP assistance during this current period of high fuel prices and a sluggish economy with record levels of long-term unemployment and severe budget crises in the states27 requires a similar level of commitment to the program. The elements for a difficult winter for low-income families are already lining up. An increased appropriation to the regular LIHEAP program of $3.4 billion would go a long way toward addressing the problem of energy affordability head-on.

The Need for Advance Appropriations

The timing of the release of the LIHEAP block grant to the states is critical for the efficient operation of their programs. The normal appropriations cycle leaves very little time between enactment and the start of most states’ heating programs. In exceptional years, states have even had to open their programs before enactment of the appropriations legislation, relying on the funding in the Continuing Resolution process to sign contracts and begin accepting applications. Benefit levels often have to be adjusted once the final appropriations for the program are set. Advance appropriations allow states to determine income guidelines and benefit levels ahead of time and avoid the scramble caused by uncertainty in the funding amount.

Similarly, while emergency contingency LIHEAP assistance is important for responding to life-threatening brutal winters and summer heat waves, an increase in the regular LIHEAP block grant would allow states to design a solid LIHEAP program that includes proactive, timely and appropriately designed responses to crisis situations. Emergency contingency funds are often released after the emergence of a full-blown crisis, creating a lag time between the emergence of a crises and the actual receipt of the assistance. The scramble to release the assistance is compounded where a crisis arises after the state’s LIHEAP program has shut down for the season. A more adequate appropriation for the core program would provide the states with the funds to effectively plan ahead for crisis situations, thus better protecting low-income households and fixed-income seniors in potentially life-threatening crises.

LIHEAP Works

LIHEAP is a targeted block grant that assists vulnerable low-income households with the costs of home energy. Around a third of households receiving LIHEAP heating and cooling assistance had an elderly member.28 Over 30 percent of households receiving heating and cooling assistance had a member with a disability and almost a third of households receiving heating assistance and around a fifth of households receiving cooling assistance had young children.29 In FY 2001, LIHEAP recipient households had a mean individual energy burden almost five times the energy burden for non-low income households.30 While there are broad federal guidelines for LIHEAP, states have the flexibility to tailor their programs to best meet their needs. Administrative costs are minimal – capped at 10 percent. This ensures that the vast majority of LIHEAP dollars are directed to energy assistance for low-income families.

Conclusion

In light of LIHEAP’s continued demonstrated success in helping low-income families maintain access to vital energy service, we urge the Committee to appropriate, at a minimum, $3.4 billion for the regular LIHEAP program in FY 2004 as well as advance appropriations for FY 2005 of at least $3.4 billion for the regular program.

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1 The National Consumer Law Center (NCLC) is a nonprofit organization specializing in consumer issues on behalf of low-income people. We work with thousands of legal services, government and private attorneys, as well as community groups and organizations from all states, who represent low-income and elderly individuals on consumer issues. NCLC has daily contact with low-income advocates around the nation regarding an array of low-income energy and utility issues. NCLC has helped utilities, regulatory commissions and advocates design low-income affordability programs and has published leading manuals and reports on related law. This testimony has been prepared by Olivia Wein, a staff attorney in NCLC’s Washington Office.
2 42 U.S.C. §8621 et seq
3 Working gas in storage at the end of April 2003 was 41 percent below the previous 5-year average. Energy Information Administration, “Short-Term Energy Outlook – May 2003” (“At the end of April, working gas in storage stood about 52 percent below end-of April 2002 levels and 41 percent below the previous 5-year average.”); Testimony of Robert W. Best, Vice Chairman, American Gas Association and Chairman, Atmos Energy Corp., Before the U.S. Energy and Natural Resources Committee Hearing on Natural Gas Supply and Prices, February 25, 2003 (the nation is experiencing a period of tight natural gas supply resulting in high prices and higher price volatility); Peter Behr, “No Help for Natural Gas Users: Stagnant Production Keeps Prices High,” Washington Post, May 21, 2003.
4 Id.
5 Id.
6 Energy Information Administration, “Short-Term Energy Outlook – May 2003”; Peter Behr, “No Help for Natural Gas Users,” Washington Post, May 21, 2003.
7 Default service is a creation of the state’s restructuring act to cover new customers to a service territory and customers wishing to return to regulated service after entering into the competitive market for electricity.
8 Massachusetts Dept. of Telecommunications and Electricity, April 2, 2003 Order, Massachusetts Electric Co. and Nantucket Electric Co. Default Service, DTE 99-60.
9 U.S. Department of Health and Human Services, Administration for Children and Families, Office of Community Services, Division of Family Assistance, “LIHEAP Home Energy Notebook for Fiscal Year 2001” (February 2003) at 5.
10 Id.
11 EIA, “Residential Heating Oil Prices: What Consumers Should Know,” last modified March 13, 2003 (crude oil comprises 42% of the price of home heating oil, refining 12% and marketing and distribution 46%)
12 Energy Information Administration, “Short-Term Energy Outlook – May 2003” at page 4 , Figure 7 and Tables 4 and 4a.
13 Energy Information Administration, “Short-Term Energy Outlook – May 2003” at Table 4. U.S. Energy Prices: Base Case (nominal dollars).
14 Natural gas (Midwest) was 30% higher this winter than last, heating oil (Northeast) was 60% higher, propane (Midwest) was 25% higher and electricity was 11% higher than last year. Energy Information Administration, “Winter Fuels Outlook: 2002-2003, Selected Table and Figure Updates Based on the March 2003 Short-Term Energy Outlook” updated Feb. 2003.
15 Roger Colton, “Winter Payment Problems, Price Volatility and Capped Bill Programs,” FSC’s Law and Economics Insights, Jan/Feb 2003.
16 “Winter’s Gone; Heat Bills Aren’t,” Des Moines Register Editorial, May 12, 2003.
17 According to Jerry McKim, Chief of Iowa’s Bureau of Energy Assistance, over 6,000 residential customers of rate regulated utilities have been disconnected this April.
18 Id.
19 Kirstin Downey, “More Settle In for a Slow Job Hunt: Ranks of ‘Long-term Unemployed’ at 20-Yr High,” Washington Post, May 8, 2003.
20 Id.
21 “Iowa’s Cold Winters: LIHEAP Recipient Perspective,” by Mercier Associates. Commissioned by Iowa’s Department of Human Rights Bureau of Energy (2000); “Energy Gap Study,” Energy CENTS Coalition (Minnesota) (1999).
22 In 2000, approximately 68% of those with heat-related deaths were 60 years old or older. Office of Climate, Water and Weather Services, Heat Related Fatalities by Age and Gender for 2000.
23 In 1998 there were over 49,000 heating-equipment related home fires resulting in 388 deaths and 1,445 injuries and $515 million in property damage. National Fire Protection Association Fact Sheets on Home Heating from the report, “US Home Heating Fire Patterns and Trends,” John H. Hall, Jr., NFPA, June 2001
24 Robert B. Swift, “Rising Costs for Home Heating Fuel Could Spawn More Problems,” Sunbury (PA) Item, Jan.29, 2000.
25 Pediatric Academic Societies, Publication #921, Platform Presentation, Epidemiology Session, May 6, 2003, Seattle, WA: Children’s Sentinel Nutrition Assessment Program: Heat or Eat: Low Income Home Energy Assistance Program and Nutritional Risk Among Children < 3.
26 Using CPI-U Data to calculate the conversion to 2003 dollars.
27 Nicholas Johnson, Iris J. Lav and Rose Ribeiro, “States are Making Deep budget Cuts in Response to the Fiscal Crises,” Center on Budget and Policy Priorities, March 20, 2003.
28 Excludes data for winter and summer crisis and weatherization. US Department of Health and Human Services, Administration for Children and Families, Office of Community Services, Division of Energy Assistance, “Low Income Home Energy Assistance Program: Report to Congress for Fiscal Year 1999,” February 2002 at pp.19-20.
29 Excludes data for winter and summer crisis and weatherization. US Department of Health and Human Services, Administration for Children and Families, Office of Community Services, Division of Energy Assistance, “Low Income Home Energy Assistance Program: Report to Congress for Fiscal Year 1999,” February 2002 at pp.19-20.
30 U.S. Department of Health and Human Services, Administration for Children and Families, Office of Community Services, Division of Family Assistance, “LIHEAP Home Energy Notebook for Fiscal Year 2001” (February 2003) at Table A-2b, page 49.