Finding Value in the Energy Future: How Utilities Can Collaborate with Low- and Moderate-Income Customers to Do More
Low- and moderate-income (LMI) customers have historically had troubled relationships with the utility companies that provide them with power. LMI customers and communities pay much higher proportions of their household income toward electricity than average customers and communities. Low-income communities are more likely to be located near polluting power plants. Utilities face higher costs to serve these customers, and many have subsidized LMI customers’ bills with surcharges on other customers. However, models are now emerging that combine clean energy technology, business model innovation, and new approaches to collaboration between utilities and customers. These models offer the promise that utility collaboration with LMI communities can go beyond subsidized bills to deliver greater value, both to suit local community needs and to support a more affordable, sustainable, resilient power system. RMI’s new report, Finding Value in the Energy Future: How Utilities Can Collaborate with Low- and Moderate-Income Customers to Do More. explores how new programs and collaboration can unlock this value.
Roughly a quarter of US households qualify for federal energy assistance. This is not a small segment. Low-income customers, on average, spend over 7 percent of their household income on energy, compared with only 2 percent for households with median income. This contributes to pressure at utilities and the public commissions that regulate them to make electric bills affordable. And beyond efforts to keep costs down across the board, utilities’ main tool to lower bills has been to offer discount programs to LMI customers funded through surcharges on other customers’ bills. The federal government provides its own bill assistance through the Low Income Home Energy Assistance Program (LIHEAP). Much smaller funding streams have been directed toward energy efficiency targeted to LMI customers.
These bill assistance programs provide a valuable service and are not going away anytime soon. Nonetheless, the new models noted above offer a fresh opportunity for programs that go beyond bill assistance and generate more value. Depending on local needs, this value can provide a range of community benefits or support the operation of an increasingly renewable electric system.
New Clean Energy Technology
The revolution in distributed energy technologies has expanded the range of value customers and utilities can receive or provide. With distributed generation such as rooftop solar (or shared community solar), customers can take part in producing energy locally. With demand flexibility, targeted energy efficiency, and battery storage, customers can help utilities manage energy demand and keep the electric system in balance, lowering both capital and operational costs and helping integrate more wind and solar power. With local microgrids, communities can establish oases of energy access in times of major power outages and provide valuable grid services to the utility. With beneficial electrification, customers can aid in the decarbonization of transport and buildings, eliminating more sources of localized emissions and adding flexible loads to the electric system.
These technologies combine with the emergence of new social priorities for the larger energy system. This system was historically designed for universal access, improved reliability, and low cost; society’s new priorities include climate change mitigation, improved health outcomes, resilience in times of natural disaster, energy democracy, and customer choice. Tremendous new opportunities are thus available for customers, who can participate in creating this value and in sharing its benefits. Even so, lower-income households lag others in adopting solar, buying electric vehicles, and using other new technologies, especially those with high capital cost. Capturing this value in practice requires business model innovation and new approaches to collaboration.
Business Model Innovation
New models are already emerging to create and exchange value between LMI customers and utilities. The best of these are “win-win-win” models that meet the needs of LMI communities, utilities, and a low-carbon energy system. RMI’s full report describes eight examples of models that take into account five design questions:
- Ownership: Who will own solar, storage, efficiency, or demand flexibility assets?
- Financing: Who will finance these projects?
- Control: How will storage and demand flexibility be optimized and dispatched, and who will manage this dispatch?
- Service Delivery: Who will acquire land; subscribe and bill customers; and install, operate, and maintain systems?
- Pricing and Compensation: What services will new resources provide? How will customers be compensated for these services?
Several established models have already begun to expand the value available from LMI programs. For instance, on-bill financing for energy efficiency, such as Pay As You Save (PAYS), offers energy efficiency with guaranteed savings and no up-front capital cost. Several utilities have also begun offering low-cost solar energy subscriptions targeted to LMI customers, sometimes locating these solar facilities in low-income communities or even on customer rooftops.
Other emerging models will test new approaches. Utilities in California, New York, and elsewhere are seeking solutions to switch customers in disadvantaged communities from expensive propane or oil heating to efficient electric heat pumps, financing upgrades to homes and appliances. A few utilities have begun deploying networks of customer-sited battery storage as virtual power plants, including a project in Australia that targets public housing rental units at no cost to tenants. Ambitious community concepts like ComEd’s Bronzeville project in Chicago seek to bring resilient microgrids, shared electric mobility, energy storage, and other new technology to communities.
New Approaches to Collaboration
Finally, and perhaps most importantly, new approaches designed to improve collaboration between utilities and the communities they serve can enhance the value of these programs well beyond what either the utility or the community would design in isolation. Although utility system planning has not historically involved much community participation, the emergence of new technologies and business models creates an opening for greater collaboration. The mode of engagement will vary from project to project, but includes both the decision-making role that communities and customers play and the project execution role that customers play in delivering value.
The range of community decision-making roles runs along a participation spectrum we have adapted from the International Association for Public Participation:
- Empowering: Enabling community members to have sole decision-making authority over portions of the project.
- Collaborating: Enabling community members to participate in every aspect of planning and decision-making alongside the utility.
- Involving: Working with community members to ensure that their aspirations and concerns are considered at every stage of planning.
- Consulting: Inviting feedback on program design from community members.
- Informing: Providing communities with objective information about new programs and reasons for choosing them.
The “right” level of community decision-making will depend on local context, but generally utilities can seek to move beyond simply “informing” communities and customers about new programs to engaging their participation more deeply and customizing program benefits to local needs.
With greater engagement and collaboration between utilities and communities, with business model innovation, and with adoption of new technologies, LMI energy programs can expand well beyond bill assistance and bring new value to customers, communities, utilities, and the environment. Although LMI customers have so far lagged behind others in adopting solar and other clean energy technologies, utilities and communities have begun to create targeted programs that expand access to clean energy and share its values more equitably. These isolated programs are just the beginning of what is possible, and continued innovation and collaboration in this space can unleash a wave of new programming and partnerships to engage LMI communities more fully in the value of the new clean energy system.