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Fact Sheet by Abigail Austin, Vivek Shastry, Emma Shumway + 2 more • August 19, 2024
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About one in four American households experience some form of energy insecurity. Within this group, Black, Indigenous, Latine, low- and moderate-income (LMI), and other disadvantaged communities face a disproportionately higher burden.[i] Past efforts to mitigate energy insecurity have focused on downstream strategies such as bill assistance and weatherization. But upstream innovations in the utility ratemaking process have the potential to address the structural drivers of energy affordability themselves.[ii]
Over 70 percent of household energy services in the United States are delivered by investor-owned utilities (IOUs). IOUs are privately owned entities regulated by state public utility commissions (PUCs). In exchange for monopoly power within their service territory, IOUs are subject to government-set prices with guaranteed rates of return, which are determined through a formal ratemaking process. IOU retail rate increases are routinely reviewed by PUCs through “rate cases” in which a judge considers relevant evidence, negotiates with the parties involved, and issues decisions that determine the IOU’s revenue requirement and how the associated costs will be allocated among customer classes. PUC regulators must balance the interests of utility shareholders and ratepayers, with social and environmental policy goals such as energy conservation and affordability an important consideration.
There are three categories of common utility affordability ratemaking approaches, all of which are explained in greater detail (including their advantages and challenges) in Table 1:
Through greater adoption of common ratemaking approaches, utilities and regulators can potentially go a long way toward addressing energy insecurity. However, maximizing the impact of these approaches will ultimately require addressing their drawbacks (see Table 1). For instance, income-based fixed charges, percent-of-income payment plans, and budget billing offer targeted aid to low-income customers, but may require the passage of legislation or complex administrative procedures for implementation. Future research can explore whether and how coupling complimentary approaches would help overcome the specific challenges involved, with the effect of further reducing energy insecurity for disadvantaged households and communities.
[i] Diana Hernández, Qëndresa Krasniqi, and Alexandra Peek, “Energy Insecurity in the United States,” Center on Global Energy Policy (factsheet), October 2023, https://www.energypolicy.columbia.edu/publications/energy-insecurity-in-the-united-states/.
[ii] Andrea Nishi, Diana Hernández, and Michael Gerrard, “Energy Insecurity Mitigation: The Low Income Home Energy Assistance Program and Other Low-Income Relief Programs in the US,” Center on Global Energy Policy (infoguide), November 2023, https://www.energypolicy.columbia.edu/publications/energy-insecurity-mitigation-the-low-income-home-energy-assistance-program-and-other-low-income-relief-programs-in-the-us/; Bruce Tonn, Michaela Marincic, and Erin Rose, “A Dollar Well Spent: Monetizing the Societal Benefits of Low-Income Weatherization Programs in the United States,” Energy Research & Social Science, vol 107 (2024), https://doi.org/10.1016/j.erss.2023.103341 (https://www.sciencedirect.com/science/article/pii/S2214629623004012); Qëndresa Krasniqi, Vivek Shastry, Alexandra Peek, and Diana Hernández, “Utility Policies and Practices to Alleviate US Energy Insecurity,” Center on Global Energy Policy, June 2024, https://www.energypolicy.columbia.edu/wp-content/uploads/2024/06/UtilitiesSecurityPolicies-Commentary_CGEP_062524-2.pdf.
[iii] Lee V. White and Nicole D. Sintov, “Varied Health and Financial Impacts of Time-of-Use Energy Rates across Sociodemographic Groups Raise Equity Concerns,” Nature Energy 5, 16–17 (2020), https://doi.org/10.1038/s41560-019-0515-y.
[iv] Kirsten Verclas and Eric Hsieh, “From Utility Disconnection to Universal Access,” The Electricity Journal vol. 31, 6 (2018): 1–8, https://doi.org/10.1016/j.tej.2018.06.006.
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Even as the U.S. pursues an energy agenda centered on achieving affordability through abundance, utilities and local governments have tools to help families navigate energy insecurities.
The Just Energy Transition Partnership (JETP) framework[1] was designed to help accelerate the energy transition in emerging market and developing economies (EMDEs) while embedding socioeconomic[2] considerations into its planning and implementation.
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Fact Sheet by Abigail Austin, Vivek Shastry, Emma Shumway + 2 more • August 19, 2024