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F I S C A L I M P A C T R E P O R T

SPONSOR McSorely

ORIGINAL DATE

LAST UPDATED

2/20/07

HB

SHORT TITLE Low-Income Energy Assistance Act

SB 480

ANALYST Earnest

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Human Services Department (HSD)

Public Regulation Commission (PRC)

SUMMARY

Synopsis of Bill

Senate Bill 480 (SB 480) creates the “Low-Income Energy Assistance Act", which requires the

Public Regulation Commission (PRC) to promulgate rules by January 1, 2009, to

•

Permit a public utility regulated by the PRC to charge a reduced electric and gas utility

rate for low-income customers in households where at least one person is eligible for a

needs-based program administered by the Human Services Department (HSD); and

•

Permit a public utility regulated by the PRC to provide energy efficiency and

weatherization programs and services at reduced rates for low-income customers.

FISCAL IMPLICATIONS

None identified, but there may be some administrative impact on the Human Services

Department if their data is required to implement the bill.

Senate Bill 480 – Page

2

SIGNIFICANT ISSUES

HSD and PRC find that the definition of “low-income customer" is vague. The “needs-based"

component may place constraints PRC to promulgate the rulemaking contemplated by this bill.

Under the commission’s energy efficiency rule, adopted on December 26, 2006, low-income

customer means a customer that lives with an annual household income at or below 200% of the

federal poverty level as published each year by the U.S. Department of Health and Human

Services.

HSD indicates that it is unclear how individuals would qualify and apply for this new program.

“Eligible

" for needs-based program administered by HSD may be different from receiving

or

eligible and receiving

a needs-based program administered by HSD. It is unclear whether utility

companies would be making the determination of eligibility under SB 480 so that they may

apply the discount or whether there would be some HSD involvement. Any eligibility

determinations will be extremely complicated, time-consuming and problematic since there are

over 40 needs-based programs administered by HSD ranging in eligibility from 85% of Poverty

in the Temporary Assistance to Needy Families (TANF) Program to the Breast and Cervical

Cancer Medicaid Program at 250% of poverty. HSD caseloads are quite extensive. Any

automatic data match through an information technology system would be limited to current

recipients rather than those that could be “eligible". There would be IT costs associated with a

data match.

PRC considered low-income programs as a part of its energy efficiency rule, 17.7.2 NMAC. The

adopted language adopted reflects a compromise between mandated, low-income only programs

and a rule with guidelines or requirements for low-income residential programs. Instead, this

Rule reflects the importance of making energy efficiency programs widely available to all

members of the residential rate class, regardless of income. It does not preclude the utility from

designing and proposing low-income programs.

In addition, PRC states:

Utilities have reported to the Commission that it will be burdensome for them to identify

and verify on an ongoing basis which customers are eligible for reduced rates. The

Commission would have to evaluate the cost-effectiveness of any such low income

program proposed by a public utility.

The objective of traditional utility rate design is to promote just and reasonable rates

under which each class of customers (e.g., residential, small commercial, etc.) is

responsible for its fair share of the costs incurred by the utility to provide services. Great

effort is taken to prevent, or to minimize in situations to reduce rate shock, cross

subsidies within and across utility customer classes. Existing statutes reflect traditional

rate design principles, under which discrimination in utility rates charged to consumers

within customer classes is not allowed without an express exception.

One concern of offering reduced rates to low income customers is it may be necessary for

the utility to charge all other customers higher rates to recover all its costs. A "hidden

tax" on utility ratepayers may not be the most effective or fairest way of supporting

access to utility services among vulnerable populations.

Senate Bill 480 – Page

3

Proponents of low income affordability programs have reported that such programs can

be cost-effective and provide system benefits by reducing the costs associated with

arrearages and bad debts.

If low income rates are reduced significantly, it is feared that the financial incentives on

these customers to engage in energy efficiency or conservation measures will be reduced

if affordability programs are not accompanied by an education component.

HSD is concerned that because SB 480 uses the term “permit" public utilities would not opt to

charge a reduced rate to low-income customers.

TECHNICAL ISSUES

PRC notes that Section 62-8-6 prohibits any unreasonable preference or advantage to any

corporation or person as to rates or service. The statute expressly allows the commission’s

approval of “economic development rates and rates designed to retain load." For consistency the

inclusion of low-income energy programs into NMSA §62-8-6 might be considered.

BE/mt