PUBLIC UTILITY COMMISSION OF OREGON STAFF REPORT PUBLIC MEETING DATE: April 1, REGULAR X CONSENT EFFECTIVE DATE April 2, 2002

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1 PUBLIC UTILITY COMMISSION OF OREGON STAFF REPORT PUBLIC MEETING DATE: April 1, 2002 ITEM NO. 3 REGULAR X CONSENT EFFECTIVE DATE April 2, 2002 DATE: TO: FROM: John Savage through Lee Sparling and Bonnie Tatom Reed Harris SUBJECT: AVISTA UTILITIES: (Advice No G) Introduces a Low-income Rate Assistance Program (LIRAP) intended to reduce the energy burden among those customers least able to pay energy bills. STAFF RECOMMENDATION: I recommend the Commission approve Avista's application to Waive Statutory Notice and allow Substitute Original Sheet No. 493 to be effective with service rendered on and after April 2, 2002, with the following conditions: 1. Avista will keep staff advised monthly of the progress of negotiations with Oregon Housing and Community Services and the respective Community Action Agencies for service delivery and administrative costs until such time as determination of the service delivery vehicle is complete. 2. Avista will advise the Commission in a public meeting as soon as the company has reached an agreement for delivery of services. No later than August 1, 2002, whether or not an agreement for delivery of services is reached by that date, the company will report the status of service delivery to the Commission. 3. Should Avista elect to provide internal administration of the funds using the "Project Share" model, it will tariff and file all processes, accounting and auditing practices and procedures for this program prior to implementation. DISCUSSION: ORS (3) provides that the Commission, "... may authorize a natural gas public utility, upon application by the utility, to include in rates for residential customers of the utility amounts for the purpose of generating funds to be used for bill payment assistance to low-income residential customers of the utility."

2 Page 2 On March 8, 2002, Avista Utilities (Avista, company) filed an application under ORS to implement a Residential Low-income Rate Assistance Program (LIRAP) within its Oregon service territory. Subsequently, on March 12, 2002, Avista filed Advice Number 02-2-G-Supplemental, together with an Application to Waive Statutory Notice, to incorporate revisions to the original filing as suggested by Staff. Avista's application identifies a need for additional low-income bill payment assistance in the company's Oregon service territory, citing Oregon Housing and Community Services data, showing that Community Action Agencies (CAAs) currently providing low-income bill payment assistance in Avista's Oregon service territory are presently limited by funding to serving less than 14% of the households in need of low-income bill payment assistance. Avista's own internal data also identifies an increased need for low-income bill payment assistance within its Oregon service area. Notable among the company's statistics are a 65% increase in payment arrangements, a 26% increase in field collection orders and an increase of 21% in the number of customer's accounts written off, resulting in a 93% increase in the amount written off. Avista estimates that the proposed LIRAP program would provide low-income bill payment assistance benefits to between 500 and 1,000 additional households. This would increase the percentage of households in need receiving low-income bill payment assistance benefits to between 17% and 21%. The company estimates that the proposed LIRAP funding source will produce approximately $200,000 of new funds annually for low-income bill payment assistance to residential natural gas customers within its service territory. These funds would be generated through a charge of $ per therm for all residential natural gas usage. Avista proposes to collect these funds through its normal billing and collection processes. This $ charge is approximately one half of one percent (0.5%) of a residential customer's natural gas billing rate, depending upon the level of consumption. (The volume of consumption is the variable relative to the fixed customer charge in determining the actual percentage of the total bill for each respective customer.) The monthly cost to residential customers would be approximately 25 cents at an average usage of 56 therms. This compares to the 35 cent per customer assessment currently being charged to residential electric customers of Portland General Electric and PacifiCorp under the SB 1149-directed low-income funding for electric customers. While the low-income assistance assessment for residential electric customers is consistent across consumption levels at a flat 35 cents, larger nonresidential electric customers pay the low-income assistance assessment incrementally based upon

3 Page 3 consumption. Consequently, Staff concludes that Avista's proposal for an incremental assessment is not inconsistent with the model approved for the two electric utilities. Avista proposes to use the following five existing CAAs within its respective service areas to qualify and allocate funding to low-income customers under this program. Community Action Agency Umpqua Community Action Network (UCAN) Josephine County Community Services (JOCO) ACCESS Inc. Klamath Basin Senior Citizen's Council (KBSCC) Community Connection of Northeast Oregon (CCNO) General Service Area Douglas County Josephine County Jackson County Klamath County Union County In compliance with the statute, distribution of these funds will be limited to Avista's residential customers using natural gas. All energy costs directly related to natural gas use including deposits for restoration of service, charges for energy consumed, customer charges, taxes and arrearages would be eligible for funding under the program. Avista will not assess any administrative charges against the funds collected for this program. However, administrative and delivery costs are a source of concern for the company, Staff, Oregon Housing and Community Services (OHCS) and the respective CAAs. Avista's goal within this program is to cap total administrative and delivery costs at a combined total of 15%, based upon justifiable allowed administrative and program support costs. In effect, no less than 85% of the funds collected should go into direct services to low-income customers. This maximum 15% allocation for administrative and delivery costs for the LIRAP program is based upon Avista's experience with its voluntary "Project Share" program that uses the same five CAAs. Administrative and delivery costs for the LIRAP program may or may not be the same as those for the voluntary "Project Share" program. Contracts are yet to be negotiated with either OHCS or with any of the Community Action Agencies for delivery of the LIRAP services and funds. Consequently Avista's proposal in Advice No G includes three options or contingencies for actual delivery of low-income bill payment assistance funds to low-income customers, dependent upon the negotiated costs of the respective options. Avista's goal is to pursue the "least cost" administrative option, as determined by negotiations with OHCS and the respective CAAs. Under the first of the three options, all funds collected under Rate Schedule 493 will be provided to OHCS, an agency of the State of Oregon. Using the Oregon Energy

4 Page 4 Assistance model, OHCS will then contract directly with the above-identified CAAs to establish criteria for eligibility and allocation of funding to individual customers in Avista's service territory. Eligibility of customers for assistance will be determined by the respective CAAs, according to existing OHCS-established guidelines used for Oregon Energy Assistance programs. OHCS administrative and delivery charges would be limited to 5%, and administrative and delivery charges for the respective CAAs would be limited to 10% of the net available to the local agencies. The combined OHCS and CAA administrative and delivery costs would not exceed 15% of the original LIRAP funds. The 5% "State Agency Fee" to OHCS is earmarked to support OHCS in delivering the LIRAP funds to local CAAs and in the provision of services to Avista including: 1. Assisting Avista in the evaluation of reasonable costs and obtaining contracts pertaining to the delivery of funds through local CAAs. 2. Providing a monthly accounting of program participants and funds disbursed. 3. Ongoing evaluation of local CAA performance on behalf of Avista customers and compliance with appropriate guidelines. 4. Use of the OHCS OPUS computer system that links local CAAs with OHCS for turnkey fiscal and demographic reporting by the CAAs. 5. Annual financial audits of each CAA for the previous fiscal year. OHCS will provide monthly financial reports to Avista by way of access to their web site. An annual financial audit will be provided to Avista by OHCS for each CAA for the previous fiscal year. The estimated budget under the first (OHCS/CAA) service delivery option is as follows. 15% Cap Funding Option-example Access CCNO JOCO KBSCC UCAN Customer Funds $ 200,000 State Agency Fee 5% Cap Net available to Local Agencies $ 190,000 $53,710 $22,063 $19,460 $65,102 $29,665 funds allocated 10% 10% 10% 10% 10% Local Agency 10% for Admin and Program Support $ 19,000 Cap $ 5,371 $ 2,206 $ 1,946 $ 6,510 $ 2,967 Admin/Prg Support Net available to Customers $ 171, % $48,339 $19,857 $17,514 $58,592 $26,698 Net Total Admin & Program $ 29, % Support Costs Should the goal of containing administrative and delivery cost to 15% or less not be negotiable or achievable under the first OHCS/CAA option, Avista proposes a second

5 Page 5 option. Under this second alternative, Avista would administer the program internally, following the model currently used for its voluntary "Project Share" program, and would contract directly with the individual CAAs for determination of individual customer eligibility, and allocation of funding to customers. The goal of holding administrative and delivery costs to a maximum of 15% would remain. Because the "Project Share" program is a voluntary program, the processes and procedures are not tariffed or filed with the Commission. Expansion of this program to include the administration of LIRAP funds would necessitate that the processes, accounting and auditing procedures for the program be tariffed in detail and filed with the Commission. Finally, the third option that Avista proposes is that if other OPUC jurisdictional gas utilities implement a low-income assistance program in the year 2002, the utilities could enter into combined negotiations with OHCS and the CAAs to reach a combined process that would provide uniformity and realize any economies of scale to help reduce administrative and delivery costs of the respective LIRAP programs. This alternative becomes viable if and when another natural gas utility submits a LIRAP proposal. Regardless of the negotiated Admin and Program Support costs, any costs that do not meet justified allowable costs (determined by an audit performed by OHCS) will be paid back into the program fund for direct services. Staff and the company have discussed several methods of returning those unjustified costs, e.g., the company could reduce the amount of future administrative fees provided to the CAAs. During negotiations with OHCS and/or the CAAs, any funds collected will accrue interest at the authorized rate of return for Avista (9.21%) and will then be included with funds for direct services. The proposed LIRAP funds would be used by the CAAs in conjunction with and in addition to existing Low-income Energy Assistance Program (LIEAP) and Oregon Energy Assistance (OEA) funds to expand the reach of existing energy assistance. Avista's expectations are that the LIRAP funds would provide both for assistance to increased households as well as the potential for assistance in non-winter months. Customers receiving benefits from the LIRAP funding may also receive low-income bill payment assistance under Avista's voluntary "Project Share" program. Implementation of this program does not affect the existing programs designed to promote energy conservation and assist Avista's customers in reducing their energy bills. Avista will continue mandated energy audits under its Residential Energy Conservation Program.

6 Page 6 Customer participation in the residential conservation program, which had been stagnant throughout 1999 and 2000, was re-energized by higher rates and higher cost-effective levels in Avista Conservation Activities New Energy Audits Requested Energy Audits Performed Total Jobs Completed Low Income Jobs Completed Avista will continue to offer its customers the required equal payment plans and a Level Payment Plan designed to average the monthly payments for gas service of any residential customer. The company s CARES program offers help to customers with special payment arrangements, minor budgeting advice on other bills, weatherization programs, and referrals to other agencies that can help with special problems. Avista will also provide the required 12-month payment arrangements on arrearages to its customers. The company will continue its "Project Share" voluntary bill payment assistance program. In 2001, recognizing the impact of rapidly escalating rates on its customers, the company initially increased its contribution to Project Share from the 2000 level of $ 6,400 to $12,250.

7 Page 7 Later, upon observing the combined effects of higher rates and a dramatic economic downturn within its service area, the company made an additional "emergency" contribution of $15,000 to Project Share, bringing its total 2001 contribution to $27,250. Avista's company contribution for 2002 has been requested in the amount of $15,000. The company also anticipates that voluntary contributions from customers to the Project Share program will continue at current levels. "Project Share" Voluntary Bill Payment Assistance Contributions $70,000 Customer Contributions $60,000 $50,000 $40,000 $30,000 $20,000 $26,455 $33,386 $33,140 $15,000 $33,000 estimated Emergency 2001 Additional Company Contribution Company Contributions $10,000 $0 $12,250 $15,000 $6,400 $6, Timing is essential to assure sufficient and viable funding levels to sustain the program through next heating season. While the details of the actual service delivery vehicle remain to be negotiated, the inclusion of multiple options for delivery of the funds assures that one or another of the delivery options will be functional before the demand for assistance picks up with the next heating season. Minimally, funds received in the interim between the company's proposed April starting date and next fall will be accumulating and accruing interest at Avista's allowable rate of return. Should an acceptable working agreement not be achieved with the delivery agencies, those funds can be returned to Avista's residential customers, together with the accrued interest.

8 Page 8 One alternative to allowing the program to go into effect on April 2, 2002, would be to suspend the application pending completion of agreements and contracts with OHCS and/or the serving CAAs. While suspension would allow Staff and the Commission to evaluate the specific agreements and costs, the delay would also result in reduced funding available for the program in the next heating season. Another alternative would be for the Commission to not permit the proposed LIRAP program to go into effect. The result for Avista's Oregon residential customers would be an average savings of $0.25 per month. The result for numerous low-income customers would be reliance upon the same bill-payment assistance programs that were in effect this past heating season, many of which were out of funds by March of PROPOSED COMMISSION MOTION: Avista's application to Waive Statutory Notice be approved and Substitute Original Sheet No. 493 be allowed into effect with service rendered on and after April 2, 2002, with Staff's recommended conditions. AVISTA UTILITIES advice No G