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Balancing Demand with Energy Affordability

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Nevelyn Black is an independent writer with a background in broadcast and a keen interest in renewable energy.  In the last few years, she transitioned from celebrity interviews and film shoots...

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With temperatures dropping and energy costs rising, energy affordability is quickly becoming a hot topic. Energy affordability determines whether households are able to pay for their utility services without jeopardizing their ability to purchase other essential goods and services, such as food, medicine and housing.  According to the US Energy Information Administration (EIA), nearly one-third of US households in 2015 struggled to pay their energy bills and one-fifth reported forgoing necessities such as food and medicine to pay an energy bill.  The affordability percentage is based on the assumption that an affordable housing burden is less than 30 percent of income spent on energy, and 20 percent of housing costs should be allocated to energy bills. This leads researchers to define households with a 6% energy burden or higher to experience a high burden.  A household’s energy burden provides an indication of energy affordability. It includes access and the economic ability of customers to buy essential utility services.  According to EIA, 11 percent of households reported keeping their home at an unhealthy or unsafe temperature to lower energy bills in 2015.  No doubt, the pandemic has only increased those numbers and electricity rates are expected to rise rapidly offer the next several years. 

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Regulators, utilities, and consumer groups are already taking a closer look to meet the growing energy burden facing customers.  Energy affordability continues to be an issue for policymakers and low-income consumers aren’t the only ones seeing an impact.  Policymakers are facing several unpopular or inconceivable options; reduce the customer’s use, lower the percentage that customers are responsible for or increase the incomes of vulnerable households.  Creating affordability requires subsidies of some sort.  “Spreading the burden” across customers reduces the strain on individual utility customers but questions about funding these subsidies creates roadblocks. Could a well-intentioned attempt to reduce low-income households’ energy burden lead to an excessive increase in general rates that violates equity and other regulatory goals?

In Europe, the fear is that previous problems with importing sufficient gas and a lack of wind could lead to another energy shortage especially while most are making the transition to renewable energy sources.  Xcel and Alliant have both pledged to reach net-zero carbon emissions through clean energy initiatives by 2050.  To help reach those goals state regulators have signed off on settlements for both utilities to raise rates.  The increase will recover costs tied to the clean energy transition.  For Xcel's customers in Wisconsin, electric rates will increase 8.4 percent next year and Alliant customers in Wisconsin will see a 10.9 percent increase.  However, Commissioner Ellen Nowak said the shortage of fuel supply due to the COVID-19 pandemic, state and federal policies, and the approval of new renewable energy projects is putting pressure on ratepayers.  "We should be going towards renewables, but the race to get there — it's going to have consequences that can be done in a more economical way, I believe, that has fewer impacts on the ratepayers.”  In response to concerns, Xcel spokesperson Chris Ouellette said, "We know that any type of an increase is hard for any of our customers and all of our customers, but we also know that having reliable energy is important to our customers.”   

Balancing the demand with affordability presents a challenge and an opportunity.  Tom Content, executive director of the Citizens Utility Board said, ”We’ll need to zero in on both the coal plant retirement costs, utility profits, as well as just finding the most opportunities to help customers save money and keep costs affordable as part of this clean energy transition.”

Currently, The Department of Energy manages a Clean Energy for Low-Income Communities Accelerator, that has developed energy affordability toolkits.  These toolkits provide materials to help program administrators reduce energy burden for low-income communities by enhancing and expanding upon work funded through utility, state, or federal programs.

Clearly, energy has become a burden for many households. How is your utility balancing demand with affordability and how can utilities reduce the perceived pressure on ratepayers?

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