HomeMy WebLinkAboutMemo - Read Before Packet - 1/30/2018 - Memorandum From Lance Smith Re: January 30, 2018 Council Work Session Agenda Item #2 Income Qualified Rate (Iqr)/ Low-Income Efficiency ProgamsUtilities
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M E M O R A N D U M
DATE: January 30, 2018
TO: Mayor Troxell and Councilmembers
FROM: Lance Smith, Utilities Strategic Finance Director
THROUGH: Darin Atteberry, City Manager
Jeff Mihelich, Deputy City Manager
Kevin R. Gertig, Utilities Executive Director
RE: January 30, 2018 City Council Work Session Agenda Item # 2 - Income
Qualified Rate (IQR)/Low-Income Efficiency Programs
Purpose: The purpose of this memo is to provide a staff recommendation regarding the funding
source for a utilities income qualified rate (IQR), consisting of several options, including utility
reserve funds, utility late fees, or general funds.
Bottom Line: Staff recommends a three-year phased approach introduction of an IQR funded
by utility reserves. Staff further recommends finalizing the long-term funding source for the
Income Qualified Rate in Year 3.
Staff believes a successfully-designed IQR program can benefit the utilities and ratepayers (at
the rate class and socialized utility-wide levels) in two ways:
- creating incentives for customers on the rate to adjust consumption behaviors; and
- freeing up household resources that can be leveraged with other Utilities Affordability
Portfolio (UAP) strategies to increase community investment in efficiency improvements.
Reducing household consumption by making education and incentives available to income
qualified customers, while improving the efficiency of low income community housing stock,
serve a utility purpose and benefits all ratepayers by minimizing the need for additional capital
improvements and energy resources that serve an otherwise increasing demand. This is
especially critical to the low-income customer segment towards providing affordable electric and
other utilities on a sustainable long-term basis as the energy resources and market evolve.
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The City Council has determined with other approved programs and services, that reducing
energy use through rebates and increased awareness, as demonstrated with comparative reports,
serve a “utility purpose” even though they are not directly tied to providing reliable, affordable
electricity to the community. Examples include:
distributed solar energy through rebates,
increasing energy efficiency of housing through audits; and
On-Bill Financing
Staff further believes that the data gathered between launch and Year 3 will provide Council
additional data to support and identify the full benefit to the affected utility enterprises. Key data
to be analyzed during the phased approach includes, but is not limited to:
energy and water conservation savings both in usage and costs with the participants,
ability to proactively work with low-income customers on payment options to mitigate
late payments with late fees, and
targeted communications and outreach to the demographic based on location in order to
improve dwelling for long-term community benefits.
Summary:
The income qualified rate (IQR) is designed to increase the adoption of efficiency and resource
conservation practices within the low-income customer segment while providing affordable
utilities to income-qualifying customers as Utilities implements energy efficiency, conservation,
and renewable energy efforts community wide. The benefit of the IQR phased approach is Year
3 will provide staff the needed data to determine the criteria for customers to be maintained on
the IQR and determine the long-term funding source that supports a Utilities Purpose. The intent
of IQR is to reduce overall cost of utility services to the same relative level experienced by a
household with income at the Area Median Income. As it is necessary to increase rates to
provide additional funding for O&M or energy services, the IQR will allow the impact to all
households to be similar in terms of the percentage of household income. By leveling this
impact across the residential rate-class the utility is both encouraging all customers to respond to
a similar price signal and not having those customers who qualify for IQR burdened more than
other residential customers by such a rate adjustment. The discount would be applied to both the
fixed and variable charges for each utility, ensuring the same price signals are communicated to
this segment of residential customers as are to the entire residential rate class.
Based on staff research the options for funding the short-term IQR are:
1. Utilities Reserves - Use of Reserves would provide near term funding. Another
mechanism would be necessary for ongoing funding.
2. Utilities operating revenues – Use of late fee revenues could support the initial 25% of
eligible customers without adjusting fixed or variable rate charges.
3. Utilities rates - Rate increase appropriation for residential and commercial customers.
Rate increase applied to both fixed and variable rate charges.
4. General Fund - Funding through annual Budget-For-Outcomes appropriation.
5. Combination – Determine appropriate funding split and system of distribution.
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As discussed, the use of utility funds must serve a utility purposes beneficial to the ratepayers as
required by Article XII, §6 of the City Charter, which provides:
...all net operating revenues of the city's utilities shall be held within the
respective utility's fund and may be expended only for renewals, replacements,
extraordinary repairs, extensions, improvements, enlargements and betterments
to such utility, or other specific utility purpose determined by the Council to be
beneficial to the ratepayers of said utilities.
Under the Charter, City Council determines a “utility purpose” to be beneficial to the ratepayers,
however that purpose must be quantifiable in keeping rates just, reasonable, and not unduly
discriminatory. For instance, those who would be eligible for the IQR typically pay up to five
times as much of their household income as the average household pays for utilities. The
average residential electric bill is about $65 per month. If the average household is paying three
times that, or $195 per month for electricity alone there wouldn’t be quite the support there is
today for these efforts around distributed generation, appliance rebates, etc. Therefore, the
“utility purpose” of the IQR is to further these efforts without burdening the low-income
customer segment more than the other rate classes, ensuring funding these efforts are affordable
to all ratepayers.
Staff recommends option number 1 for the short-term phased approach with a final
recommendation in Year 3.
CC: Lisa Rosintoski, Utilities Customer Connections Manager
Randy Reuscher, Utilities Rate Analyst
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