PURPOSE

To provide the Board with a comparative look at BWP�s rate assistance programs including:

• how the City�s policy compares with others;

• the impact of possibly expanding rate assistance to more low-income customers; and

• the impact of adding an income test for customers who receive rate assistance because of the use of certain essential medical equipment.

BACKGROUND

In a July 13, 2004 Council presentation, staff provided an overview of BWP�s two rate assistance programs.  These programs, Lifeline and Life Support, provide financial relief for eligible residents on their Municipal Services bill.  To qualify for the Lifeline program, customers must either be 62 years and older or have a permanently disabled person living in the residence.  In addition to meeting one of these criteria, they must have limited household income.  Threshold income levels vary with the number of people in the household.  To qualify for Life Support, customers must have a household member who uses specified essential medical equipment requiring electricity to operate.  Household income is currently not a requirement.

Burbank�s rate assistance programs are the most generous in the region, providing the highest rate assistance on a per customer basis of any regional utility.  Even in total dollars among the municipal utilities, only Los Angeles spends more in total rate assistance.  Currently, BWP provides approximately $700,000 for residential rate assistance annually.  Los Angeles, which serves 40 times more residents than Burbank, provides just 10 times as much funding, $7 million, for residential rate assistance annually.

In Burbank, households qualifying for rate assistance receive about a 50% discount on their energy charges, reduced Public Works fees, waiver of the monthly customer charge, and waiver of the Utility Users Tax.   In addition, the Lifeline rate has two tiers.  The first tier covers all usage up to 400 kilo-Watt hours (kWh).  The second tier covers all usage over 400 kWh.  The rate discount is applied to the entire first tier.  This is in contrast to Burbank�s non-discounted residential rates

which have three tiers.  The first tier covers all usage up to 250 kWh, a level where the majority of families could enjoy essential services.  The second tier covers usage from 251 � 750 kWh and the third tier for all usage above 750 kWh.  

The following chart provides a comparison of local utilities� rate assistance programs including qualifications, discounts, and the percent of revenue supporting the program.

RATE ASSISTANCE COMPARISONS

Council asked staff to explore the possible impact of extending the Lifeline rate to more low-income customers.  Council also asked staff to examine the impact of adding an income requirement for current Life Support households. 

ANALYSIS

There are three key factors to weigh when considering a change to rate assistance programs: 

• impact on other customers or impacts on those already in the programs;

• loss of UUT revenue to the General Fund; and

• additional administrative costs of an expanded program. 

Since these impacts are different for the Lifeline and Life Support programs, staff considered the two rate assistance programs separately.

LIFELINE RATE ASSISTANCE 

Existing policy provides on-going rate assistance to customers whose personal and financial circumstances are not likely to improve over time, namely our senior and disabled customers with limited income.  These are the community�s most vulnerable customers.  Currently, 2,100 households qualify for the Lifeline program.  The existing policy excludes those who have transitory financial problems such as students or the temporarily unemployed.  For those customers who do not meet the program�s requirements, financial assistance is available through the State LIHEAP, BWP�s Project Share, and community organizations including Burbank Temporary Aid Center and the Salvation Army.   

How many households would qualify?

Because the number of households that might qualify and apply for Lifeline can only be estimated, determining the impact of extending rate assistance to more low-income households is a bit tricky.   To get some sense of possible participation levels, staff considered data from the Gas Company and the United States Census Bureau and found that program participation might increase from 100% to 300%. 

Specifically, the Gas Company offers their low income rate to about 4,500 Burbank households, twice as many households as currently qualify for Burbank�s program.   Qualification for their program may be done in two ways.  Either a customer is a pre-qualified BWP Lifeline customer or a customer meets the Gas Company�s low-income threshold.

At the other end of the spectrum is the United States Census Bureau data.  The most recent census data indicates that approximately 10,000 households in Burbank have an income below $24,999.   It�s difficult to nail down whether that income level would qualify those households for the discounted rate.  With the program�s current income standard, a one-person household cannot earn

more than $22,950 a year to qualify and households with two people cannot earn in excess of $26,200 a year. 

Although there is no way of knowing how many people live in those 10,000 households and thus whether they�d meet the income test, it does seem unlikely that the entire census figure would qualify.  However, for the sake of analysis, it�s prudent to assume that more than half might qualify, about 6,000, and thus the potential upper limit of program growth might be to 8,100 households or a 300% increase in participation. 

Alternative rate options

Staff offers five rate design options:

1. Make no change to the existing program.

2. Expand the rate discount to more low-income households within the current program design. 

3. Reduce the discount from the current 50% to 30%, which is more typical of the discount level provided by other local utilities.

4. Apply the rate discount to the current residential three-tier rate structure, discounting the first tier, up to 250 kWh rather than up to 400 kWh. 

5. Combine options 3 and 4 and reduce the discount amount and apply it only to the first residential tier, 250 kWh.

What�s the financial impact?

The chart below summarizes the financial impact for each of the design options above at the current level of participation (2,100), the Gas Co. figure, which would add 2,000 households (4,100), and the modified census figure, which would add 6,000 households (8,100).   The charges and savings for each scenario provided are based on the average monthly energy usage of a typical Lifeline household, 350 (kWh) per month.

As the number of potential Lifeline participants changes, so does the level of BWP and City funding required to support the program.    Options #3, #4, and #5 offer designs that allow existing dollars to be stretched over a wider group of customers.

FINANCIAL IMPACT OF LIFELINE RATE OPTIONS

Depending on the design option selected, the discount offered to current participants might be decreased.  In addition, if program participation increases the financial support required by BWP and the City might increase, impacting the funding available for other BWP and City programs.

Should the Council chose to expand program participation, funding may be accomplished by reprioritizing existing programs or through a rate increase. 

Since low-income assistance is an eligible Public Benefits expense, the programs requiring examination are the Public Benefits Programs.   The current Public Benefits budget contains $700,000 for Lifeline rate support, representing 17% of the Public Benefits $4 million budget. 

Public Benefits programs have been developed over the past several years offering a wide array of popular programs and services to help customers conserve, use energy more efficiently and learn about alternative approaches to energy generation.  There continues to be a growing demand for existing programs such as residential shade trees, Home Rewards rebates, and small commercial audits.  In addition, the Public Benefits budget supports renewable energy.  BWP has committed to increasing participation in the renewable energy market with the goal of 20% of BWP�s power coming from renewable sources by 2017.  This goal is consistent with the City�s commitment to the environment and the general legislative trend of the nation.

Changing the level of Lifeline support, without a rate increase, could hamper BWP�s ability to maintain and grow these informational, environmental, energy-efficiency, and renewable energy programs.  New programs planned for next year, including expansion of BWP�s renewable energy purchases, a low-income refrigerator exchange program, and a solar photovoltaic project might be jeopardized. 

In addition to the impact on BWP, the City�s General Fund priorities would need to be reexamined should revenue from UUT be reduced.  And, more program participants will increase the workload for program administration.  Currently, 20% of a full-time staff person is devoted to administering the rate assistance programs, qualifying customers, and ensuring program integrity.  The support required would grow proportionally as participation increases.

A different option

One obstacle to expanding the existing program is not knowing how many households would actually qualify for the discount and thus how much support would be required from BWP and the General Fund.  An option which contains the upper spending limit of the program while providing additional assistance to customers enduring difficult financial situations, but who do not meet the Lifeline program requirements, is to increase the amount of support available through Project Share.  Project Share offers one-time assistance, up to $100 per household.  Project Share is administered by BTAC and funded primarily with customer donations.  Typically about four households are helped each month.

The Project Share fund could be modified to provide annual, rather than one-time, assistance.  For comparison, Lifeline customers receive approximately $350 in energy discounts each year.  This option would allow other low-income customers, not meeting the Lifeline criteria, to receive up to $100 each year in assistance, which is consistent with the discount other utilities provide.  This option has the additional advantage of keeping the impact on staff time, BWP, and the General Fund neutral.

LIFE SUPPORT RATE ASSISTANCE

The overall objective of the Life Support program is to provide rate assistance to customers who use certain medical equipment to sustain life.  The medical equipment must use electricity to operate and this program helps to mitigate the financial impact of the equipment for the customer.  Examples of life support equipment include kidney dialysis machines, oxygen concentrators, and apnea monitors.  With an appropriate physician certification, these customers receive the same rate discount as the Lifeline customers regardless of income or economic need.  Currently, there are 89 households enrolled in the Life Support program.  

During the July 2004 Council presentation, staff was asked to consider how an income means test might impact current participants and also discussed the idea of reducing qualifying out-of-pocket expenses against the reported income.  This would reduce the applicant�s income accordingly and may, in some cases, allow for income qualifications to be met where they might not otherwise.

Survey of participants

To better understand the impact of a means test and medical expenses for Life Support households, staff hired Datascension, a market research firm, to conduct a telephone survey of all Life Support 89 participants.  Datascension told customers they were calling on BWP�s behalf to ask some questions about the Life Support program and to gather information on how customers might be impacted if the program were modified to include an income qualification.  More than half of the interviews were successfully completed and results are listed below:

• 75% of the Life Support households have 1 or 2 people.

• Customers were asked to identify how much their household spends annually in total costs related to the qualifying medical condition, not covered by health insurance: 

• 1 in 12 report paying no out-of-pocket expenses (8%)

• Nearly half report paying $1,000 - $5,000 (48%)

• 1 in 6 report paying between $5,000 and $10,000 (16%)

• 1 in 5 didn�t know or declined to answer (23%)

• Customers were asked to declare their annual household earnings:

• 52% earn $30,000/year or less

• 20% earn $30,000 - $60,000/year

• 10% earn over $60,000/year   

• 18% declined to answer or weren�t sure

• When asked if the household were to no longer receive the discount:

• 25% report that it would not present a problem for the household but many stated that they�d feel cheated

• 75% report that it would place a financial burden on the household

It appears that since most of the qualifying households are 1-2 person households and 52% earn up to $30,000, which is the income threshold for a 3-person household, it is highly likely that almost half of current program participants would still qualify for the rate discount if an income means test were applied. 

Who might qualify if medical expenses were deducted from income?

Unfortunately, there is no way of knowing if the survey respondents reporting the highest out-of-pocket expenses are those with the lower income levels.   As stated above, let�s assume those earning less than $30,000 would most likely qualify for the discount.  To see who might further qualify let�s focus on those in the middle income range, earning $30,000 - $50,000.  This is about 12% of survey respondents.   If, for example, a household earning $30,000 - $50,000 paid over $5,000 for out-of-pocket medical expenses and were allowed to deduct those expenses, some might then have their income reduced sufficiently to meet the income test and qualify for the Lifeline rate.  Just guesstimating, perhaps 20% of respondents in that income range or an additional 4% of total respondents might qualify if medical expenses associated with their specific life support equipment were deducted from their income before applying the means test, raising the total to 56% of current households qualifying after application of a means test and deducting allowable expenses.

Ignore income?

Some utilities avoid the income issue altogether and offer a discounted rate only on the energy consumed by the qualified life support equipment.   A formula of the equipment�s amps, volts, and time used can be easily calculated to determine kWh consumed each month.  The appropriate discounted rate is then applied and the customer receives a discount based on their specific usage requirements.  For example, a sleep apnea machine used eight hours every day uses approximately 40 kWh per month.  Therefore, the customer would receive the discounted rate on 40 kWh, paying $2.05 rather than $4.10 for the energy.  A customer using an oxygen concentrator 24 hours a day would use 356 kWh a month to support the machine.  The customer would receive the discounted rate on 356 kWh, paying $19.89 rather than $39.77 for energy.

Alternative rate options

Given the information provided from the survey, staff offers four options for handling Life Support qualification.

1. Make no change to the program.

2. Apply an income means test to Life Support households.

3. Apply an income means test but allow medical expenses associated with the medical condition for which the life support equipment is needed to be deducted before applying an income test.

4. Give a discount only on the energy consumed as a result of using life support equipment.

The chart below summaries the options and their possible impacts on participation and required funding levels from BWP and the City.

LIFE SUPPORT OPTIONS

*   based on 500 kWh/month, the average for non-Lifeline households

** based on 250 kWh/month for equipment

Any funds available as result of selecting options #2-#4 could be reprogrammed to support other BWP programs.  However, changing the program design may increase the staff time required to qualify households for the program.  

CONCLUSION

Existing Council policy to provide assistance to senior and disabled customers with limited income is sound.  These customers are often on fixed incomes and have limited ability to improve their financial situation. 

Burbank�s Lifeline rate is the most generous in the region and provides robust assistance to those customers who have a permanent need for support.  Staff recommends the current Lifeline policy and program design be continued without modification.  However, staff recognizes that need exists outside Lifeline�s requirements and a compassionate community extends itself.   And, therefore, also suggests modifying Project Share to provide annual assistance to help low-income households that do not qualify for Lifeline.   

However, extending rate assistance to Life Support customers who have no demonstrated economic need is inconsistent with the policy to provide assistance to the most vulnerable members of the community.  Thus staff recommends modifying the Life Support program to include an income requirement similar to the Lifeline program.   Over time, funds saved through the new policy could be diverted to support the other approved programs and services.  In addition, staff recognizes that some households may be caught on the cusp of the qualifying income threshold.  In those cases, customers may take advantage of the appeals process currently in place. 

RECOMMENDATIONS

In summary, staff recommends:

• the current Lifeline program continue without modification;

• Project Share be modified to provide annual assistance;  and

• an income means test be added to qualify for the Life Support rate discount.

RD:JF:jf

Rate assistance � Council 7-19-05.doc

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