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CHCI White Paper
                          DEVELOPING THE NEXT GENERATION OF LATINO LEADERS ®

May 2017

Lifting the Burden: Leveraging Existing Programs to Reduce
Energy Costs in Low-Income Communities
By Patricio Portillo, CHCI Shell Energy Graduate Fellow

Abstract                                   clined,2 the cost of renewable technol-        of the roughly 50,000 Latino house-
                                           ogies plummeted as performance im-             holds in the U.S. as of 2015, 20.4%
                                                   3
Nationwide rising retail electricity rates proved, and electricity markets be-            lived below the federal poverty line
                                                                     4
have disproportionately affected Latino came more competitive. However,                   (FPL).9 In comparison, median income
communities. From 2000-2015, Latino over the past 15 years, the electricity               for white households was $77,166 in
household income declined slightly,        burden –defined as the proportion of           2015 and 11.6% of total U.S. house-
while average residential electricity      total income spent on electricity– af-         holds were below the FPL.10 Coinciding
prices rose significantly. Consequently, flicting the Latino community grew.              with this period of stagnant income
a larger proportion of household in-       The first section of the paper explores        growth has been a 54% rise in average
come is being allocated to electricity     the electricity burden trend and dis-          residential electricity prices nation-
consumption. Investment in new elec- cusses its implications. The second sec-             wide.11
tricity infrastructure, greater adoption tion focuses on the role of government
of renewable energy, and costs associ- in ensuring affordable energy and pro- There are two components reflected in
ation with environmental compliance        vides recommendations to improve   an electric bill: the cost of generation
are driving the rising electricity prices. and expand existing programs.      and the cost of transmission and distri-
Meanwhile, the Latino population has                                          bution.12 Influencing these two compo-
yet to fully recover from the 2007-2009 The Latino Community’s                nents are factors such as the price of
recession and median Latino house-                                            fuel, electric infrastructure develop-
                                           Electricity Burden
hold income is significantly below the                                        ment and operation, weather condi-
national average. By examining exist-      Since 1990 the number of Latino    tions, and environmental regulations.13
ing national programs that reduce en- households in the U.S. has nearly tri-  Over the past decade greater invest-
ergy costs in low-income communities, pled, growing at a 4% average annual    ment in transmission and distribution
this paper identifies opportunities for    rate thru 2015. Although modest in-lines to improve electric reliability and
improvement and provides pragmatic come gains occurred in the 1990s, by       capacity,14 the construction of renewa-
policy solutions.                          the 2000s Latino household income  ble energy resources, and the imple-
                                        growth had begun to stagnate, con-    mentation of critical environmental
Introduction                            tracting slightly by -1% between 2000 regulations have 15 caused electricity
                                                   5
                                        and 2015. Further analysis shows 2000 rates  to increase.
Electricity is fundamental to modern    to be the apex coming off strong
life and responsible for many of the    growth beginning in 1992, before lev- The trends affecting electricity price
amenities we have come to rely upon     eling off and then deteriorating into are causing Latino families to direct a
such as powering appliances, providing the 2007-2009 recession,6 from which greater share of their income towards
light, heating and cooling our homes, recovery has been tepid.7 By 2015, me- paying electricity bills. The share of
and storing food.1 The past decade      dian Latino household income in the   income expended on electricity is re-
presided over historic changes to the   U.S. was $45,148, well below the na-  ferred to as the electricity burden. The
United States’ electricity system. Car-                            8
                                        tional average of $56,516. Moreover,  point at which household expenditures
bon emissions in the power sector de-                                         on electricity transcends “a nuisance”

           The opinions expressed in this paper are solely those of the author and do not represent or reflect those of the
                                           Congressional Hispanic Caucus Institute (CHCI).
Figure 1: Latino Household Income & National Electricity Rates

and becomes “a burden” is not gener-               availability of inexpensive electricity       ing on food, healthcare, savings, hous-
ally agreed upon. Thresholds vary, de-             are inextricably linked. Energy is a criti-   ing, and education.23 Moreover, elec-
rived by observing other costs such as             cal input for nearly all goods and ser-       tricity price shocks are typically beyond
food and shelter and then extrapolat-              vices and throughout the 20th century         the consumer’s control, including fac-
ing a proportion. One approach is to               the U.S. economy moved in tandem              tors such as inclement weather, geo-
identify the national median percent of                                           19
                                                   with electricity consumption. This            graphic location, government policy,
total income spent on electricity bills            trend gradually changed as the U.S.           and structural changes in the energy
and either set the electricity burden as           economy matured, becoming more                market.24 These shocks, which are par-
any percent beyond that or choose a                efficient and less energy intensive.
                                                                                        20       ticularly harmful to low-income fami-
standard deviation above that per-                                                               lies, can cause families to rapidly accu-
                                                   However, energy remains central to
cent.16 For the purposes of this paper,                                                          mulate unstainable amounts of debt
                                                   maintaining and improving living
a high energy burden will be greater                                                             attempting to meet monthly bill pay-
                                                   standards, helping to improve produc-
than the national median electricity                                                             ments.25 Further, numerous studies
                                                   tivity and health.21 Consequently, inex-
burden. Based on residential electricity                                                         have concluded that the inability to
                                                   pensive electricity has become a fun-
price data collected by the EIA, the                                                             pay utility bills is a major cause of
                                                   damental human need and as such it is
average annual cost of electricity is                                                            home evictions and homelessness.26
                                                   within the purview of government to
        17
$1,370. Since median household in-                                                               In addition to the societal benefit of
                                                   ensure equitable access to all citizens
come in 2015 was $56,516, the percent                                                            reducing overall energy consumption,
                                                   when market failures persist. Threat-
of income spent on electricity was                                                               low-income families in particular stand
                                                   ened by exclusion are low-income
2.4%. In 2015 the FPL was set at an                                                              to gain the most from weatherization
                                                   households who allot a greater pro-
annual income level of $24,250 per                                                               and efficiency improvements. Low-
                                                   portion of their total income to utility
four-person family.18 Consequently,                                                              income families tend to live in older
                                                   bills and are disproportionately affect-
20% of Latino families are spending                                                              housing stock dating back to the 1970s
                                                   ed by high electricity prices.
roughly 6% of their total income on                                                              and therefore lack adequate insulation,
electricity bills; almost three times                                                            contain antiquated heating and cool-
                                                   All funds in low-income households
more than the national average.                                                                  ing systems, and own less energy effi-
                                                   are generally accounted for to meet
                                                                                                 cient appliances; all factors leading to
                                                   basic needs, thus pressure from one
The Importance of Lifting the                                                                    higher energy bills.27 In comparison,
                                                   category can force them to decide be-
                                                                                                 higher income households generally
Electricity Burden                                 tween core needs.22 As a result, rate
                                                                                                 live in newer homes, devoid of these
                                                   increases can reallocate money to-
                                                                                                 shortcomings. Further compounding
National economic growth and the                   wards electricity bills, reducing spend-

                                                                       2
“Electricity is fundamental to modern life and responsible for many of the amen-
ities we have come to rely upon”

the issue, 35% of U.S. households rent,  These national objectives are pursued       be served, and the administration of
with the majority of renters earning     through congressional appropriations,       funds. Income-based household eligi-
under $50,000 annually.28 Renters,       executed at the state and local level,      bility for assistance is decided by the
have little excess budget and lack the   and often complemented or augment-          states, and is typically between 150%
incentive to invest in energy upgrades   ed by states in order to provide greater    and 110% of the federal poverty line
as they are unlikely to live in the same relief for disadvantaged residents. At      (FPL), or 60% of the state median in-
unit long enough to realize a benefit    the national level, major federal pro-      come. Grantees can also elect to make
from such an investment. Landlords       grams include the Department of             LIHEAP assistance available for house-
also lack the motivation to make these   Health and Human Services’ (HHS) Low        holds in which at least one member is
upgrades, since utility bills are passed Income Home Energy Assistance Pro-          a recipient of other social welfare ben-
on to the tenets.29 Fortunately, inex-   gram (LIHEAP) and the Department of         efits such as Temporary Assistance for
pensive and innovative solutions have    Energy’s (DOE) Weatherization Assis-        Needy Families (TANF), Supplemental
existed for over 40 years with some      tance Program (WAP), which focus pre-       Security Income (SSI), or Supplemental
institutionalized across the nation.     dominantly on bill assistance and           Nutrition Assistance Program (SNAP).34
                                         home weatherization, respectively. Ad-
Current Policies & Programs              ditionally, some executive branch       The U.S. Department of Health and
                                         agencies support state and municipal    Human Services (HHS) estimates be-
Reducing energy bills is a well-         level programs, such as the Residential tween 31.1 million and 38.5 million
entrenched national policy objective,    Property-Assessed Clean Energy pro-     households qualified for LIHEAP assis-
with Congress first providing home       gram, by providing analysis, data, and  tance in FY 2014 across the lower
energy assistance during the Organiza- technical expertise.                      (110% FPL) and upper (150% FPL)
tion of Petroleum Exporting Countries                                            range of income eligibility. In compari-
(OPEC) Oil Embargo of 1973-1974.30                                               son, roughly 6.3 million households
The embargo constrained U.S. oil sup- Low Income Home Energy                     received LIHEAP assistance in FY 2014,
ply, driving up the cost of heating oil  Assistance Program                      implying only 16% to 20% of all eligi-
and compelling Congress to assist with                                           ble households received federal aid.35
lowering home energy bills. Leading      Established by Title XXVI of the Omni-  In order to overcome this discrepancy,
the way to cut energy costs, state offi- bus Reconciliation Act of 1981 (Public  states may turn to donations from
cials in Maine partnered with Commu- Law 97-35), the LIHEAP statute primari-     higher income utility customer to cold
nity Action Agencies (CAAs) to seal air ly provides grants to states, territories,
                                                                                 weather funds, charitable groups, and,
leaks in homes with techniques such as and tribes (collectively referred to as   occasionally, structured bill payment
covering windows with plastic sheet-     “grantees”) through two mechanisms:     plans.36 The risk of unpaid bills to utili-
ing, caulking, and weather stripping,    regular funds and emergency contin-     ty companies tends to be mitigated by
improving efficiency and reducing        gency funds.33 The statute employs a    distributing costs to paying customers;
home energy bills.31 Building off        formula to determine the amount of      a practice that cost all other ratepayers
Maine’s success and the legal prece-     regular funding states are apportioned, an estimated $6 billion in poverty costs
dent set by the Economic Opportunity while emergency contingency funds           and does not necessary aid those una-
Act of 1964, which established the War are retained by the President and the     ble to pay.37 The inability to provide
on Poverty, congress directed CAAs to Secretary of Health and Human Ser-         federal assistance to over 80% of eligi-
administer energy assistance programs vices, to be distributed at their discre-  ble households is a significant appro-
nationally. Initial measures provided    tion.                                   priations failure. Inadequate coverage
assistance through home weatheriza-                                              is further aggravated by the suscepti-
tion and household education pro-        Federal requirements for LIHEAP are     bility of the program to fraud and im-
grams, later expanding to include crisis minimal, with application decisions     proper payments. A Government Ac-
relief for households facing immediate broadly bestowed to the grantees. Ra- countability Office (GAO) report from
shutoff, and eventually providing direct ther, the statute demands for 16 assur- 2010 randomly sampled 7 states and
energy bill subsidies for low-income     ances regarding program operations to discovered that 9% of LIHEAP recipi-
households.32                            be certified in order for grants to be  ents had used invalid identity infor-
                                         awarded. The assurances include ac-     mation. The report notes that in some
                                         ceptable forms of assistance, who can instances this occurred due to typos,

                                                             3
“Rate increases can reallocate money towards electricity bills, reducing spending
on food, healthcare, savings, housing, and education”

however in other cases the information      resources needed to substantially re-     States in turn allocate funds to local
of deceased relatives information was       duce overall demand for bill assistance   governments and nonprofits who uti-
                                38
used to qualify for eligibility. In order   within the next ten years and report      lize a national network of over 900 ser-
to reconcile the coverage disconnect,       the finding back to Congress. The task-   vice providers to purchase and install
Congress should change how LIHEAP           force should also be instructed to pro-   of weatherization material.46 Program
is funded, moving from a fixed annual       vide estimates on the number of po-       guidelines outline suitable energy effi-
amount to a percentage of total eligi-      tential jobs such an undertaking would    ciency measures including the installa-
ble households per state based on an-       create and its economic impact.           tion of: insulation, efficient windows,
nual estimates submitted to HHS. Ac-                                                  water heaters, air conditioners, ventila-
companying eligibility estimates, states    Weatherization Assistance                 tion equipment, and storm doors.47
should also be required to submit           Program                                   Savings from these efficiency measures
“LIHEAP Program Integrity Plans” out-                                                 are permanent, providing long-term
lining key element of their fraud pre-    The U.S. Department of Energy’s (DOE)       benefits to low-income households.
vention systems in order to reduce        Weatherization Assistance Program           Moreover, for every $1 invested,
fraud and waste.39 At present only 16%    (WAP) was established in 1974 under         weatherization returns $2.72 in related
of households with incomes at or be-      Title IV of the Energy Conservation and     benefits and supports over 8,000 direct
low 150% of the FPL receive LIHEAP        Production Act (Public Law 94-385, as       jobs nationwide.48 However, appropria-
assistance. This percentage should be     amended) and is a formula block grant       tions for WAP have been erratic and
raised gradually over a ten year period   program to assist low-income families.      changes in program requirements have
to allow the requisite administrative     As set forth by statute, the law intends    historically caused major implementa-
support system to develop until 100%      to increase the energy efficiency of        tion delays opening the program up to
of eligible households are covered and    homes to reduce dependence on for-          criticism.49
adequately served.                        eign energy and prevent future energy
                                          shortages. The large marginal gains         A study conducted by the Oak Ridge
Although LIHEAP funds can be applied from efficiency upgrades to housing              National Laboratory (ORNL) evaluating
in various ways, such as crisis relief or stock occupied by low-income families       WAP concluded the average cost per
weatherization, they are mainly used      coupled with their inability to other-      unit weatherized in 2008 was $4,695
for direct bill assistance. Of the $3.5   wise afford home modifications were         (2013 dollars).50 In comparison, the
billion in LIHEAP funding for FY 2014,    the primary basis for the bill’s enact-     combined present value of energy and
55.8% went to heating and cooling,        ment.41 The act ascribes responsibility     non-energy benefits per unit was
21% went to energy crisis assistance,     for implementation to DOE and since         $22,156 (2013 dollars).51 Therefore the
and 9% went to weatherization             WAP’s inception in 1976, over 7 million     program achieved an impressive over-
measures.40 Direct bill assistance for    households have benefited, with priori-     all savings-to-investment ratio of 4.72.
heating, cooling, and energy crisis cap- ty given to homes with elderly or            Households that received weatheriza-
tures the majority of LIHEAP funds and handicapped members.42                         tion also participate in utility adminis-
appears as reduced rates or small                                                     tered Percent of Income Payment
credit amounts dispersed throughout       Funding for WAP is appropriated by          Plans, which are subsidized by other
the year as needed. The attraction of     Congress and dispensed by DOE to            ratepayers. Approximately 22% of the
bill assistance is twofold: implementa- states thru two methods: a fixed allo-        energy cost savings from weatheriza-
tion is easy and relief immediate. How- cation, which varies by state, and a          tion went to full ratepayers in the form
ever, it does little to address the un-   variable formula allocation.43 Total        of a reduced subsidy. Additionally, nu-
derlying reasons assistance is needed     state fixed allocations sum to              merous non-energy benefits, such as
in the first place. While LIHEAP pro-     $171,858,000.44 The variable formula        health impacts of refrigerator replace-
vides relief in the short-run the pro-    accounts for a state’s climate, the esti-   ment, greater home value from weath-
gram is unsustainable as a purely bill    mated number of low-income homes,           erization, reduced foreclosures, and
assistance program. As the institution and residential energy expenditures.           reduced carrying costs from arrearag-
responsible for authorizing and appro- Additionally, WAP can retain up to             es, were excluded from the ORNL eval-
priating federal funds, Congress should 20% of funding for training and tech-         uation, implying the total benefit cal-
pass legislation instructing HHS to       nical assistance at the national, state,    culated was a conservative estimate.52
convene a taskforce to determine the      and local level.45

                                                              4
The budget process is highly politi-        untary PACE property assessments and er electricity prices.
cized in the present Congress; however      collection methods tailored to regional
the success of WAP and its high return      market needs.57                              Given the centrality of energy in the
on investment demand enhanced                                                            modern era, the federal government
funding levels. Similar to LIHEAP, WAP      Since the PACE program was first con- operates two national residential pro-
funding should be changed from a            ceived in 2010, with the DOE publica- grams to help low-income households
fixed allocation to a more fluid method     tion “Guidelines for Pilot PACE Financ- afford energy. HHS’ Low-Income Home
that better reflects the needs of low-      ing Programs,” 31 state governments          Energy Assistance Program directly
income families. As such, funding           have passed PACE enabling legislation helps low-income households by
should be based on WAP’s saving-to-         and 16 states have active programs.58        providing direct bill assistance, while
investment ratio. The President should      Over the past six years a few critical       DOE’s Weatherization Assistance Pro-
direct DOE to evaluate the proper           shortcomings of PACE programs have gram reduces overall utility bills by
amount of funding necessary for             emerged. Most notably, a perverse in- improving home energy efficiency. At
WAP’s saving-to-investment ratio to         centive exists for contractors selling       their core both programs are highly
equal 1 in order to support the Agen-       home upgrade products to maximize            successful, helping millions of families
cy’s budget request. If the new budget      sales irrespective of energy reduction       annually, however, both are under-
request is substantially greater than       gains.59 Consequently, unnecessary           funded and room for improvement
current WAP funding, DOE should also        projects are sold to consumers, with         exists. Government support in the form
be required to submit a plan to gradu-      little material benefit or oversight.        of technical expertise and resources is
al disburse the funds to avoid burden-      PACE has also been offered to low-           also provided to innovative approach-
ing state administrators and causing        income homeowners without them               es seeking to drive down the cost of
implementation delays.                      being informed of their eligibility for      energy, such as the residential PACE
                                            free energy improvements under WAP program.
Residential Property-Assessed               or another program.60 An additional
Clean Energy                                barrier to PACE is that almost 30% of        At present LIHEAP is unable to provide
                                            low-income households rent, provid-          coverage to all eligible households and
Low-income homeowners attempting            ing little incentive for property level      the program is susceptible to fraud.
to mitigate rising energy costs face the    invest.61 To address some of these is-       Moreover, the emphasis on supple-
difficult reality that home energy im-      sues, DOE published a “Best Practices        menting utility bills rather than shrink-
provements require significant upfront      Guideline” in 2016 with recommenda- ing them fails to address the underly-
capital. Residential Property-Assessed      tions for current and future programs        ing problem. In order to improve the
Clean Energy (PACE) programs aim to         based on public comments.62 State            effectiveness of LIHEAP two changes
overcome this barrier by allowing           legislatures should pass amendments          should be made: (1) Congress should
homeowners to obtain energy efficien-       institutionalizing DOE’s guidance and        fund LIHEAP based on the number of
cy, renewable energy, and water con-        require the laws be updated whenever eligible households rather than a fixed
servation home improvements through         new guidelines are published. In order appropriation. Funding should increase
a tax collected with their annual prop-     to encourage state lawmakers to pass gradually to provide ample time for
erty taxes.53 This innovative financing     amending legislation, DOE should offer the administrative capability of the
mechanism, currently available in 16        data and technical assistance to states program to develop. (2) Congress
states, provides access to capital by       who adopted the most up-to-date              should also instruct HHS to establish a
financing the high cost of home im-         guidelines.                                  taskforce to responsible for examining
provement projects over a long repay-                                                    how to reduce the need for bill assis-
ment horizon – up to 20 years.54 Pro-       Conclusion                                   tance within the next ten years and
ponents of PACE assert that annual                                                       report back to Congress.
energy savings from improvement pro-        The Great Recession continues to have
jects typically exceed the annual tax       a profound effect on Latino house-           WAP is a highly successful federal pro-
payment.55 Additionally, homeowners,        holds, contributing to plateauing in-        gram with a proven record of deliver-
who generally move every 5 to 7 years,      come and declining household                 ing significant economic returns.
are reluctant to pursue long lifespan       wealth.63 This has coincided with a pe- Greater success can be achieved if
investments; however PACE financing         riod of rising residential electricity pric- WAP’s appropriation is changed from a
is attached to the property not the         es, causing a greater proportion of          fixed amount to an amount that places
owners, allowing the assessment to          Latino household income to be allo-          the savings-to-investment ratio at 1.
transfer with the sale of the property.     cated to electricity bills rather than       Although the budget process in con-
States can implement residential PACE       other critical expenditures such as          gress is highly contentious, WAP has
programs by passing legislation per-        food, healthcare, and education. More- an incredibly successful financial rec-
mitting the use of assessments at the       over, with 20% of Latino households          ord and benefits all 50 states.
local level.56 In turn, local governments   living below the federal poverty level, a
have the flexibility to enact ordinances,   substantial portion of the population is State and local governments are in-
resolutions, or policies authorizing vol-   increasingly financial strained by high- creasingly turning to innovative financ-

                                                                5
ing mechanism, such as PACE, to over- 11. Energy Information Administration. Average           energyexplained/index.cfm?
                                            Retail Price of Electricity to Ultimate Cus-       page=electricity_factors_affecting_prices.
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                                            https://www.eia.gov/todayinenergy/             26. Vick, J., and C. Norton. 2008. State of Metro-
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