non-participants in utility energy conservation programmes

Non-participants in utility energy conservation programmes

Robert M. Wirtshafter

Utility conservation programmes are designed to benefit both participants and non-participants. This article out- lines the Issues involved In designing conservation programmes for utilities and determining the appropriate amount of Incentives that can be provided to participants without harming non-participants. More importantly, the article discusses the Issue of access to the progremmes by utility customers. It concludes that It Is the existing restrictions to partlcipstion, and not the level of compensation, that are of greatest concern to non-partlcipents. A number of utility progremmes designed to eliminate the problem of non-participation are reviewed.

Keywords: Energy conservation programmes; Electric utilities; Utility customers

The author is Research Assistant Profes- sor, Energy Management and Policy, Uni- versity of Pennsylvania, 3814 Walnut Street, Philadelphia, PA 19104, USA.

The recent focus on conservation programmes by utility companies raises important questions regarding the distribution of the benefits from these programmes. Utilities and public utility commissions have most often concerned themselves with the justification for utility company involvement in these non-traditional decentralized energy programmes. The rationale for utility involvement in conservation rests with the idea that conservation is ultimately less expensive than building new generation facilities. Most of these new programmes are designed so that incentives, such as subsidized loans or rebates given for installation of energy saving devices, are less than the total benefits expected to be gained by the utility from the reduction in load requirements. In this manner, all utility customers will benefit from the utility's involvement in conservation. However, as a result of the poor record of the existing utility programmes in including lower-income customers, there has recently been more attention paid to the distribution of benefits of these programmes.

One particular area that is beginning to attract attention is the impact of these programmes on individuals who do not or cannot take advantage of the utility conservation programmes. These non- participants include several classes of customers:

• those who have already installed the conservation measures offered; • those who are unaware of the programme or fail to see the potential

benefits; and • those who are excluded from participating.

An in-depth review of successful conservation programmes, reported below, indicates that the vast majority of participants are middle- and upper-income homeowners. Consequently, it might be argued that these conservation programmes may be an indirect form of subsidization of special classes of utility customers, albeit unintentional. This issue remains one of the most important questions concerning the appropriate role of utilities in the development of conservation and renewable energy resources. The controversy has caused some utilities to reconsider involvement in conservation efforts, while others have sought to redesign their programmes to eliminate the problem.

0301-4215/85/020143-13503.00 1~) 1985 Butterworth & Co (Publishers) Ltd 1 43


This article discusses the issue of non-participants from a number of different perspectives. Initially, the rationale for utility involvement in conservation will be examined with a particular focus on the impacts to non-participants. It will be determined whether utility involvement in conservation can be justified and whether it will have a harmful impact on non-participants. Through a detailed review of existing programmes, the actual impacts of each one will be examined. The results of this study will show that the specific designs of some programmes are discriminatory. Finally, alternative utility conservation programmes will be discussed that may be more successful in including those individuals underrepresented in existing programmes.

An assessment will be made of existing utility conservation programmes, with particular emphasis on numbers and characteristics of programme non-participants. The main point that needs to be stressed is that current programmes are discriminatory, not so much in the previously conceived notion that incentives to participants would harm non-participants, but in a more structural manner that limits access to the programmes to large segments of utility customers. To date, most utilities concerned with the effect of conservation programmes on non-participants have examined the problem within the context of the 'no loser' rule. While it is commendable that utilities are concerned with equity issues, the 'no losers' rule is a necessary but insufficient guarantee of equity. Present utility efforts, either intentionally or unintentionally, fail to provide service to the very customers who are in most need of conservation assistance. 1 This deficiency in existing utility conservation efforts limits the application of these programmes, and suggests that both greater effort and imagination is needed to fashion utility conservation efforts into a broad-based, equitable public policy tool.

1The greater need for conservation assistance is based on the fact that the poor spend a greater proportion of their household budget on energy. See D.K. Newman and D. Day, The American Energy Con- sumer, Ballinger, Cambridge, MA, 1975.

Overview of utility conservation programmes

Most utilities participate in conservation programmes because encouraging their customers to use energy more efficiently is more cost-effective than building additional generation facilities or utilizing existing inefficient oil units. Of course other utilities have instituted conservation programmes for other reasons, including:

• to comply with federal or state requirements; • to further research efforts; • to provide community service; or • to enhance their image to their customers.

Utility conservation and renewable energy projects can be classified into four catagories:

(1) E d u c a t i o n a l - speakers fora, classroom aids and lectures, pamplets, audio-visual materials, bill stuffers, or mobile demonstration units.

(2) R e s e a r c h a n d d e m o n s t r a t i o n - small-scale experiments conducted by or for the utility that will help familiarize the utility with impact of technology or effectiveness of a delivery mechanism, and/or provide visability of new technology.

(3) T e c h n i c a l a s s i s t a n c e - most utility audit programmes, including the Residential Conservation Service (RCS) and other programmes that provide information and low-cost materials that promote energy efficiency.

144 ENERGY POLICY April 1985

2US Department of Energy, 'Residential Conservation Service Program final rule' (revised), Federal Register, US Govern- ment Printing Office, Washington, DC, 25 June 1982, Vol 47, p 27752. 3For an overview of electric utility program- rues see, Electric Power Research Insti- tute, 1981 Survey of Utility Load Manage- ment, Conservation, and Solar End Use Projects, Vol I, Survey Results; Vol 2, Selected Technologies and Case Studies, EPRI, Palo Alto, CA, EPRI-EM-2649, November 1982 and June 1983. 4Bonneville Power Authority, Conservation Sourcebook, Office of Conservation and Direct Application Renewable Resources, Bonneville Power Authority, US Depart- ment of Energy, February 1983; also personal communications with Steve Lash and Ken Keating, Bonneville Power Au- thority. 5For a detailed discussion see, S.L. Feld- man and R.M. Wirtshafter, On the Econo- mics of Solar Energy: The Public Utility Interface, Lexington Books, Lexington, MA, 1980. eSee Wirtshafter, et al, 'Extending the TVA power credit to other utilities', Proceedings of the Annual Meeting of the American Section of the International Solar Energy Society, Phoenix, AZ, 1981, and Macphee, et al, 'TVA methodology for determining cost effectiveness' of conservation load management, and renewable energy programs'; in E. Hirst, ed, Workshop Proceed- ings: Measuring the Effects of Utility Con- servation Programs, Electric Power Re- search Institute, Palo Alto, CA, 1982. 7Testimony of W.R.Z. Willey, 'Altemative energy systems for Pacific Gas & Electric.: An economic analysis', Environmental De- fense Fund, before the California Public Utilities Commission, Application No 57284, 1978.

Non-participants in utility energy conservation programrnes

(4) C o m m e r c i a l i z a t i o n - broad-based programmes to introduce a new technology or customer response across utility customers. Includes incentives in the form of loans, rebates or rate relief to encourage adoption.

Virtually every utility has some programmes that fit into the educational category, while the majority of utilities are at least participating in some demonstrations. There are considerably fewer utilities that offer projects that would be classified as commercialization projects, although it could be argued that all large utilities are implementing the federally mandated Residential Conservation Service (RCS) programme. 2 RCS is modelled after the more successful utility efforts to promote conservation, and requires utilities to offer low-cost audits to their customers. RCS is not a true commercialization effort for utilities that do not have the large commitment of utility time and money, the additional non-mandatory incentives to customers, nor the belief that conservation can benefit the utility, required of commercialization efforts. 3

Commercialization projects utilize incentives to induce customer participation. Incentives have been given to customers willing to insulate their homes, purchase more efficient appliances, install alternative energy technologies, and shift the usage pattern of their electrical consumption.

The actual incentives offered by utilities vary significantly. The most common form of incentive is the low-interest or no-interest loan. This incentive allows the customer to have no downpayment with long repayment schedules. Other utilities offer incentives such as a cash rebate, as is the case of the Bonneville Power Authority which offers a one-time payment of $0.29 for each kilowatt hour saved annually. 4

Determining the proper level of utility incentives

A key clement of early planning of utility conservation programmes was the development of a methodology for determining the proper level of incentives to be given programme participants. The incentive needed to be large enough to influence consumers, but restricted in size so that it did not make other customers worse off, ic the incentive could not exceed the expected benefits to the utility that introduction of this change would bring.

Utilities which have successfully begun programmes have most often utilized a procedure for justifying the utility's involvement, commonly referred to as the 'no losers' rule. 5 This procedure was first utilized by the Tennessee Valley Authority (TVA) 6 and West Coast utilities 7 in setting the level of incentives provided to participants. The 'no losers' rule stipulates that if incentives are less than the difference between the utility's marginal cost of production and the utility's average price for sales, then non-participants will in fact benefit from the conservation incentive programme.

Conceptually there arc two parts to the 'no losers' rule. First, if a utility no longer requires building of new generation or purchase of expensive power then conservation has avoided this expense. Second, while the utilities may avoid the cost of the new construction, they will also receive less revenue because they will now be selling less power to those consumers who conserve. Therefore, the maximum amount of incentive which should be offered to participants is the difference

E N E R G Y P O U C Y April 1985 145


between the avoided cost of production and the lost revenue. A greater incentive means subsidization of the conservation investment by other ratepayers, while less of an incentive distributes a greater portion of the benefit to the other utility customers and/or shareholders.

An example of the application of the 'no losers' rule is shown in Table 1. For the sake of simplicity this example assumes that all customers are charged the same rate based on the average cost of production, where production is expressed as an annualized value of capital, energy, and shareholders profit. In Table 1, the utility presently has an average cost of production of $0.05/kWh. Due to the growth in electricity demand, the utility has plans to build a new generation facility with total annualized production costs of $0.10/kWh. The construction of the new facility will raise the average cost of production to $0.06/kWh. The alternative energy efficiency scenario would provide incentives to customers for saving energy. The total cost of this incentive is $0.03/kWh (this includes the administration costs of the programmes and a small percentage of profit for the shareholders). By doing this the utility avoids the larger cost of the new production facility, so that the average cost of production is only $0.0575/kWh. Under this simplified example the utility could afford to pay up to four cents for every kWh of electricity saved and thus lower the average price charged to all customers. Even though large incentives are provided to only some of the customers, all customers do benefit in the form of lower rates.

In reality, the determination of the incentive amount is more complicated. The quantification of these benefits is normally an area of great controversy, often resolved by extensive hearings before state

SSee testimony of Robert M. Wirtshafter, Stephen L. Feldman, and James T. Gal- utility regulatory bodies, 8 or through negotiated agreement on the lagher, 'Investigation into the propriety of structure of a production cost model. The controversy has surfaced in continued construction of Limerick genera- nearly every utility regulatory body due to the requirements of the tion station', before the Pennsylvania Pub- lic Utility Commission, Docket No Public Utility Regulatory Policies Act (PURPA) which forces each large 80100341, February 1981; and Environ- utility to calculate 'buyback' rates for small-power producers that sell to mental Defense Fund, A New Alternative the utility. The 'buyback' rate is based on the cost that the utility will to Completing Nine Mile Point Unit 2 Nuclear Station: Economic and Technical avoid by virtue of not having to produce this power itself, and is Analysis, EDF, Berkeley, CA, 1981. therefore similar in principle to the calculation of conservation benefits.

Table 1. Demonstration of 'no-losers' rule for sample util i ty.

Present utility conditions: Total annual cost of electricity production - $2 00O 000 000 Number of kWh produced per year - 40 000 000 000 Average cost per kWh - $0.05/kWh

Conventional expansion scenario: Incremental annual cost of new production - $1 000 000 000 Existing annual cost of production - $2 000 000 000 New total annual cost of production - $3 000 000 000 Incremental number of kWh - 10 000 000 000 Existing number of kWh - 40 000 000 000 New total number of kWh - 50 000 000 000 Cost per kWh for new increment - $0.10/kWh New average cost per kWh - $0.06/kWh

Alternative energy efficiency scenario: Incentive given to customers to invest in energy efficiency - $0.03/kWh Number of kWh saved through energy efficiency - 10 000 000 000 Total annual cost of incentive - $300 000 000 Existing annual cost of production - $2 000 000 000 New total cost of production - $2 300 000 000 New total number of kWh - 40 000 000 000 New average cost per kWh - $0.0575/kWh


~rennessee Valley Authority, Office of Power, Division of Energy Conservation and Rates, Program Summary, April 1982. ~°Before the California Public Utilities Commission, Decision No 92653, 28 Janu- ary 1981, pp 24-29. ~ Richard M. Esteves, Don't Lay for Insula-

tion... Buy Conservation. General Public Utilities, Parsippany, NJ. ~aArea Development Rate, Consolidated Edison Company of New York, NY.


In many instances, the provision of incentives above the 'no losers' level may be appropriate for research and development purposes. As an example, consider TVA's solar water heating programme. TVA's 'no losers' assessment does not include the benefits of short lead times which conservation or renewable energy initiatives can provide. Because of an extensive nuclear construction programme already well underway at TVA, there are presently few immediate benefits to the power system from the reduction caused by solar water heating. On the other hand, if and when TVA should need to add new capacity, other alternatives may not be readily available. Due to lack of experience with these technologies, the TVA board has agreed that TVA can afford to grant incentives to a small number of individuals for research and development purposes. In this case, non-participants benefit because the utility is able to cost share, with the participants, the risks of experimenting with new products. Other reasons for participation in conservation programmes have been recognized by TVA including: environmental and balance of trade benefits, federal mandates such as the Residential Conservation Service, public service and goodwill, and promoting the regional economy. These benefits cannot be easily quantified. 9

The California Public Utility Commission has decided that cases may exist where an incentive above the no losers level may be appropriate, because the marginal cost to the utility does not include other costs incurred by society, m General Public Utilities (GPU) and others find that the 'no losers' rule is not applied in any other aspect of utility operation and is, therefore, an inappropriate restriction placed on this aspect of utility service. ~1 Transmission facilities are an excellent example of how utilities generally do not apply a 'no losers' rule. If a new transmission facility is built, utilities do not determine to what extent the cost of this new facility will affect those individuals who will not use it. The utility generally only differentiates between major rate classes. Only recently has there been any spatial differentiation among transmission facilities. For example, Consolidated Edison has offered rate reductions to customers willing to utilize the excess transmission facilities available in parts of the South Bronx and Brooklyn. The idea here is similar to the rationale for conservation, that is, by inducing customers to locate where underutilized facilities exist, the utility avoids greater costs and therefore passes some of those savings on to the firms willing to relocate. 12

Under normal circumstances, if excessive benefits are given to a few customers, the actual impact on each non-participant is insignificant. The real issue is that while these customers may not be hurt by the utility programmes, neither are they being helped. This problem is exacer- bated by the fact that non-participants tend to be those classes of customers least able to help themsleves. The record of e,,isting conservation programmes in distribution of benefits among customers points out other potential problems of far greater importance than continued preoccupation over the exact methodology used to determine the appropriate level of incentives.

The actual distribution of conservation benefits in utilities

The disturbing reality of early conservation efforts is that conservation incentives are only utilized by specific sectors of utility customers.

E N E R G Y P O L I C Y April 1985 147

Non-participants in utility energy conservation

13Linda Berry, Jon Soderstrom and Eric Hirst, Review of Evaluations of Utility Home Energy Audit Programs, Oak Ridge National Laboratory, Oak Ridge, TN, ORNIJCON-58, March 1981. 14For a complete discussion of diffusion of innovation with respect to energy conservation see, Avraham Shama, 'Energy conservation in US buildings: Solving the high potential/low adoption paradox from a behavioural perspective', Energy Policy, Vol 11, NO 2, June 1983, pp 148-167. lSE. Hirst, R. Marley, D. Greene and R. Barnes, 'Recent changes in US energy consumption: What happened and why', Annual Review of Energy, Vol 8, 1983, p 214. lSGMA Research Corporation, Energy Conservation Study, Weighted Computer Tabulations Pacific Power and Light Cus- tomers, Pacific Power and Light, April 1981. ~TConversation with Sally Labriere, Pacific Power and Light, 10 April 1984. ~SArthur T. Hagood, Trends in Low-Income Participants Home Insulation Program, Single Family Homes, Tennessee Valley Authority, Division of Energy Conservation and Rates, Planning and Communications Staff, July 1983.

programmes

Recent studies in the literature indicate that most early programme participants are young, college-educated, well-to-do energy consumers. This problem has been reported in 1981 by Berry, et al who summarized the characteristics of home energy audit participants:

People who participate in home energy audit programs were clearly not a cross section of the general public. Utility surveys of the characteristics of program participants always showed that they had higher educational and income levels than was average for respective locations. Another typical characteristic of participants was a greater interest/awareness/concern with energy conservation than was found among the general population. Participants also were more likely to own single-family homes than non-participants and were more likely to own larger than average homes. 13

It is not surprising that the earliest participants in home energy audit programmes possess these characteristics as they have the demographic characteristics of most early adopters of new goods and services.14 In addition, Hirst, et al note that the poor have been far less active in adopting conservation. For example, between 1978 and 1979, only 13% of the poor surveyed had caulked their windows, while 29% of the wealthy had taken the same action. 15 The critical issue with respect to participation is whether the most successful programmes with larger adoption rates are still reaching only limited portions of their customers. In order to answer this question, an investigation of long running, successful utility audit/loan conservation programmes was undertaken.

The author contacted utilities that provide zero- or low-interest loans to customers that install energy conservation materials. Though the list is not inclusive, these utilities generally began their programmes prior to the implementation of the Residential Conservation Service and include: Pacific Power and Light (PP&L), Pacific Gas and Electric (PG&E), Philadelphia Gas Works (PGW), Portland General Electric (Port GE), Seattle City Light (SCL), Southern California Edison (SoCal Ed), and Tennessee Valley Authority (TVA). The author also contacted other utilities that do not have specific loan programmes, but which have attempted innovative programmes.

Most of the utilities contacted could not cite any studies regarding the characteristics of their participants. Only Pacific Power and Light, Pacific Gas and Electric, and Tennessee Valley Authority, the three longest running programmes, had information on the income levels of their programme participants. These results further illustrate the tendency for low participation among low-income households. A 1981 survey conducted by Pacific Power and Light (PP&L) of electrically heated homes shows that only 8% of the low-income homes had a home energy analysis and only 4% received a PP&L interest free loan. These figures compare with 31% and 19%, respectively, for homes with incomes above $20000.16 Pacific Power and Light has recently determined that slightly less than 10% of PP&L's participants in the Bonneville Power Authority rebate programme were low-income. ]7 From 1978 until 1981, approximately 9% of the audit participants in the Tennessee Valley Authority Home Insulation Programme (HIP) had family incomes of under $10000. Recently at TVA, low-income customers have constituted almost 36% of all new audit participants.18 This is due in part to an extensive effort to involve low-income individuals in TVA programmes. Pacific Gas and Electric has also intensified its efforts to attract those customers that typically do not participate. PG&E reports that of the 100 000 RCS audits conducted in

148 E N E R G Y P O L I C Y April 1985

19Pacific Gas & Electric, Energy Manage- ment and Conservation Activities Report on 1982, PGE, San Francisco, CA, March 1983, p 9.


1982, 24 000 were either low-income, renters, over 65, or non-English speaking. 19

The consistency with which these socio-economic characteristics are repeated across utilities cannot be attributed solely to chance. More likely, structural designs and policies exist which have attracted this class of consumers to the near exclusion of all other users. The next section of the article examines what characteristics of conservation programmes tend to discourage or hinder participation.

The structure of conservation programmes

There are at least three distinctive requirements that impede the participation of consumers in existing conservation programmes. The vast majority of incentives only appeal to individuals who own their homes. In addition, these customers must also have a reasonable past history of timely bill payment and their homes must be heated or cooled by the utility. Table 2 illustrates the eligibility requirements for the utility loan programmes. However, these characteristics alone do not necessarily restrict the programme to the well educated young; combined with a conventional promotional campaign they have limited appeal to other socio-economic groups. Most of the major loan programmes contacted by this author are restricted to homeowners (Southern California Edison, Seattle City Light, and Pacific Power and Light). In other programmes, such as that at Tennessee Valley Authority and Pacific Gas and Electric, any tenant that wishes to invest in insulation, storm doors, etc is eligible to receive a loan. Generally, few tenants could be expected to improve the value of their landlords' property unless some compensation could be arranged. This becomes one area in which utilities must direct additional effort in order to provide conservation for the tenant population.

Those individuals that have previously installed the conservation measures and are therefore unable to take advantage of previously unavailable utility incentives may also be classified as non-participants. Their plight is of less concern than other classes of non-participants outlined below. The 'previously installed' group has already taken advantage of favourable investment conditions for conservation. While these customers cannot take advantage of additional incentives offered by the utility, they nevertheless are receiving the direct benefits of insulation and the indirect benefits of an improved utility situation.

Table 2. Conservation loan eligibility requirements.

Pacific Power and Light

Tennessee Valley Authority Owner or tenant

Pacific Gas & Electric Owner or tenant

To whom loans are granted Owner only

Seattle City Light Owner only

Philadelphia Gas Works Owner only

Southern California Owner only Edison

Type of Type of credit usage verification Electric heat Utility bills only

Electic heat Utility bills or ac Electricity or Utility bills gas heat or ac Electric heat No credit check only lien on property gas heat Utility bills only Electric heat Utility bills or a c

ENERGY POLICY April 1985 149


2°The National Interim Energy Consump- tion Survey (Phase Two) data show nega- tive correlations between age of home and the existence of a central air conditioning system and age of home and electric heating. See Energy Information Adminis- tration The National Interim Energy Con- sumption Survey (Phase Two: Household Screener Survey Data Tape, US DOE, Washington, DC. 21Conversation with Bugenia Morita, Seat- tle City Light, 11 April 1984. 22American Gas Association, Edison Elec- tric Institute Customer Activities and Cus- tomer Services Committee, The Collection Picture 1980-81, pp 51-52. 2aSee J.T. Gallagher, R. Wirtshaffer and S. Feldman, An Assessment of Energy Con° servation Cost-effective for Philadelphia Gas Works, The Energy Center, University of Pennsylvania, Philadelphia, PA, 1981. 24RMH Research Inc, A Study of Target Audience Attitudes Towards Solar Energy, Fair Lawn, N J, 1980. 2SLinda G. Berry, The Role of Financial Incentives in Utility-sponsored Residential Conservation Programs: A Review of Cus- tomer Surveys, Oak Ridge National Laboratory, Oak Ridge, TN, ORNL/CON- 102, December 1982: Mitchell Rosenberg, Making RCS Works: Analysis of the Re- sidential Conservation Market and Its Im- plications for the Operation of RCS, Tech- nical Development Corporation, Boston, MA, July 1981.

Conversely, there are many poor and/or elderly homeowners and renters that have not taken advantage of existing programmes. Principally, many customers do not participate because of ineligibility, mistrust of the utility, or misdirected incentives.

The most troubling of restrictions to existing programmes is that the people that are in most need of loans are often ineligible to receive them. The homeownership requirement is probably the most important restriction, yet several other limitations exist. In most of the utilities, loans are only given to electrically heated or air-conditioned homes for electric utilities and to gas heated homes for gas utilities. Utilities cannot generally justify giving incentives to other customers when the resulting conservation does not reduce the utility's load or costs. However, the restriction for electric utilities may tend to bias participation to newer homes where electric heating and central air-conditioning are more prevalent, a°

All the utilities contacted, except Seattle City Light, use the past utility bill payment record as a measure of credit worthiness. (Seattle City Light has recently discontinued the practice of checking payment history because they believe that the lien on the home is sufficient protection.) el Over the last few years the combination of rising prices and the depressed economy increased the severity of indebtedness so that nationwide, almost 19% of all gas and electricity customers are in arrears in their bill payment. = In some utilities the situation is so severe as to limit the effectiveness of present conservation efforts. In 1982, the Philadelphia Gas Works (PGW) reported that over 40% of their customers were in arrears, and thus ineligible for PGW's conservation loan programme. What is ironic about the PGW situation is that the benefits of conservation to PGW far exceed the costs of the entire conservation package that is installed. 23 The costs to the utility of carrying the debts are greater than the original purchase cost of the insulation. From an economic perspective, it could be argued that PGW is better off giving away the insulation, and, as a result, having a customer in arrears with a smaller load. The stumbling block to the execution of such a plan is that no approach has been conceived which does not create a perverse incentive towards being in arrears with payment.

A second issue regarding non-participation is whether the utility can be an effective deliverer of a conservation service to those groups prone to non-participation. Given the general mistrust of utilities by the poor, it is not altogether surprising that low-income customers have not participated. A survey of low-income customers at TVA revealed that 41% would not even want a free TVA inspection of their home. a4 This kind of opinion develops over a long period of time and is not easily erased by the introduction of some new utility programme. Low-income groups may be more suspicious of the general rationale for the utility involvement in a conservation programme and normally conclude that the utility's effort is less than philanthropic.

Several studies have investigated the question as to whether zero- or low-interest loans are effective in stimulating conservation retrofits. 25 One of the problems with existing programmes is that incentives are not particularly well targeted to these income and age groups. The condition of the homes is such that energy conservation is not necessarily the first logical investment that needs to be made. Many programmes are restricted by the fact that the installation of insulation in an attic in


2BL.G. Berry, op cit, Ref 25, p 16. 2ZConversation with John NolI, Southern California Edison, 11 April 1984.


which the roof needs repair will not be effective, yet the required roof repairs are not included in the loan package. This situation exists even though these kinds of repairs would result in a significant reduction in energy usage, not to mention an improvement in the residential comfort level.

The present configuration of loan subsidies may not be directed towards the particular needs of present non-participants. For instance, elderly individuals are far less attracted to long-term investment. Low-income customers are often hesitant to borrow money. 26 Under these circumstances, a rebate programme may be more of an induce- ment to participate. In at least one case, rebates are more attractive than loans across all income levels. Southern California Edison has found that its customers select rebates over loan subsidies of equivalent value by a ratio of nine times to one. 27 Unfortunately, rebates will be ineffective if low-income persons do not have the available capital or access to financing necessary to purchase the equipment.

In most cases the reluctance of low-income and elderly customers to accept the loan conditions is unsupportable even under the severest of financial assumptions. All of the programmes contracted, with the exception of Southern California Edison, offer loans at zero interest to at least their low-income customers and, when combined with the lack of downpayment requirements, result in immediate positive cashflows for participants. Clearly this fact has not been overlooked by the majority of middle-class participants who have realized how beneficial these loans can be. The marketing of these loans to other groups must, therefore stress the immediate benefits of the arrangemet. Guarantees of positive cashflow would probably strengthen the marketing effort without increasing significantly the overall liability to the utility. (One exception to this is if customers, realizing that their bills are not going to increase, began to raise their energy usage to compensate for reductions in comfort made previously).

Some utilities, particularly Pacific Power and Light, altered the loan incentive such that no payment is required for ten years or until the residence is sold. This approach eliminates the concerns of many towards meeting monthly payments. The administrative costs of processing loans are also removed. Ultimately, this approach may have its disadvantages. Because none of the loan is paid back over the course of the loan, the eventual loan subsidy is higher, particularly if individuals sell their homes less frequently than the planners had assumed. Finally, when the home is transferred to another owner, the original homeowner must recover the investment cost from the resale or draw from his/her equity. A bigger problem may arise for those individuals that remain in their homes for 10 years and are faced with a lump sum payment. Arguably, the homeowner that can anticipate this event is better off under this arrangement then under arrangements of monthly payback. The Pacific Power and Light repayment programme may have one additional advantage. It may be easier for tenants to get their landlords to insulate, if no immediate out-of-pocket expenses are incurred by the landlord. Whether this is the case has not yet been documented by PP&L.

In addition to the structure of loan incentives, discussion of the relative levels of incentives provided is important. Given the aforemen- tioned difficulties of reaching particular classes of utility customers, are higher incentives appropriate to these classes to insure their involve-



ment? Several utilities noted below have opted for this approach. There are a number of equity and political considerations which speak for a higher incentive under these circumstances. Particularly important is the fact that other incentives to middle-income homeowners are presently available from the federal and state governments in the form of tax credits. These credits are less likely to be used by low-income customers. 2s

2SSee Internal Revenue Service, Statistical Income Bulletin, Washington, DC, Sum- mer 1981 and Summer 1982. ~Conversations with W.C. Whisenant, Assistant Branch Chief, and Ron Lovins, Energy Conservation Branch, Tennessee Valley Authority.

Present efforts to provide energy conservation to low-income customers

Conscious of the political consequences of the skewed distribution of conservation benefits among income classes, most of the early pioneer utilities have initiated conservation programmes targeted towards low-income customers. These efforts have been successful in attracting larger percentages of low-income customers. The TVA experience has been particularly encouraging. During the years 1978-1981, the number of low-income participants in the Home Insulation Program is estimated to be 9.3% and as low as 5.2% for one quarter. Since the second quarter of 1981, the percentage of low-income participants has steadily climbed at a rate of 3.45 percentage points per quarter, so that for the Fiscal Year 1983 almost 40% of all homes surveyed are low-income. 29 TVA estimates that approximately one third of its 2.5 million households are below the TVA poverty level of $10 000 per household per year. Given that over 800 000 units have been audited in the TVA service area, it can be stated that success in reaching low-income residents is partly attributable to the fact that there are less and less upper-middle and upper-income homes that remain to be audited. Nevertheless, several of the more recent efforts to target conservation have largely been responsible for this rise.

TVA has, in general, increased its efforts to attract low-income participants, using a variety of innovative promotion and marketing techniques. It has made a concerted effort to coordinate its regular home insulation programme with federal weatherization and mod- ernization funding. The programme has also successfully included public housing in the auditing programme.

In retrospect, most utility planners involved in the earliest development of utility conservation efforts would admit that, initially, their efforts were not particularly targeted towards special groups. Given the monumental task of developing these pioneer programmes, the planners of early programmes cannot be completely faulted for concentrat- ing on increasing participation rates without concern for the characteristics of participants. Often utility conservation programmes were required to prove their ability to effectively deliver conservation in meaningful numbers. The earliest participants were by nature those individuals that were the easiest to reach and the quickest to respond. Their characteristics were not unlike most earlier adopters of new technologies: well educated with above average incomes.

As programme successes grew, the political pressure to attract other socio-economic groups became more intense. Unfortunately, the ability of the existing mechanisms for attracting middle- and upper-income homeowners were not proving necessarily to be effective in attracting currently non-participating classes of customers. In several instances the significant barrier to participation was a language barrier. For example,


a°Karl C. Bittenbender, 'Equity programs in the Massachusetts Residential Conserva- tion Service Program', paper presented at the 1982 Summer Study on Energy- Efficient Buildings, sponsored by the American Council for an Energy-Efficient Economy, Washington, DC; see also Mass-Save, Inc; Mass-save, Inc Annual Report for the Initial Operating Period, 4 September 1980-30 June 1981, Boston, MA, September 1981. 31PG&E, Energy Management and Con- servation Activities Report on 1982, PG&E, San Francisco,CA, 31 March 1983, p 23, and personal communications with Lee Shockey, PG&E. 32Conversation with Paul Schweizer, Min- nesota Public Utility Commission. aaRobert C. Kemper, 'Responding to the conservation needs of low income and multi-family residential customers', Nation- al Conference on Utility Conservation Programs, New Orleans, LA, 13-15 September 1983. 34AIlianco to Save Energy, Federal Low Income Energy Assistance: A Legislative History and State by State Perspective, Alliance to Save Energy, Washington, DC, August 1982.


Mass-Save, the consolidated energy conservation organization for all Massachusetts utilities, is able to attract Portuguese customers effectively by translating both the customer information and contracts, and also auditor training information, into Portuguese. Mass-Save recently translated the same materials into Spanish. 3°

Although TVA's data best illustrate the emerging commitment by utilities to reach low-income customers, they are not alone. The California Public Utility Commission has been instrumental in forcing the development of low-income efforts in the state. All the large Californian utilities must offer programmes targeted towards low- income customers. Pacific Gas and Electric (PGE) has determined that 10% of their installations will be in low-income households. PGE is providing their 'Big Six' - ceiling insulation, weatherstripping, water heater blankets, low-flow showerheads, duct insulation and caulking- at no charge to these low-income units. 3~ Recently the Minnesota legislature has directed the state public utility commission to formulate programmes for low-income and rental customers. 32

Other groups are also trying different approaches to promote their programmes. In order to generate some interest, TVA has begun providing free conservation retrofits to those individuals that participate in a number of workshops and agree to distribute information to neighbours. The Philadelphia Gas Works (PGW) has begun to employ local community groups to market their programme, offering a commission for every installation that is contracted. PGW also provides loans to low-income customers at zero interest, while other customers receive loans at an 8% interest rate.

A large number of utilities including TVA, Pacific Power & Light, Mass-Save, Seattle City Light, and San Diego Gas and Electric, 33 are coordinating their conservation efforts with DOE weatherization programmes and the Low-Income Energy Assistance Program (LIEAP) of the US Department of Health and Human Services. 34 At the very least, the community action agencies which administer the local weatherization programmes are used to locate qualifying low-income residents. Frequently, the utilities will employ the agencies to install the conservation measures or make the other necessary home improve- ments.

General Public Utilities (GPU) has taken a totally different approach to the delivery of conservation, choosing to contract the entire effort to private companies. These companies presently receive $0.02-$0.3 for every kilowatthour saved. All of the expense and initiative is in the control of these private companies. This approach clearly has a number of advantages over loan programmes. The consumer does not pay for the insulation so the programme is equally accessible to all income classes. In fact, these shared savings companies may be more inclined to seek out renters, because they will most often have the least expensive opportunities along with the greater possibilities of repetition among homes. GPU also feels tlaat shared savings reduce the administrative costs to the utility and provide the proper incentive, geared to actual energy savings instead of amount of insulation installed. This programme maintains competition among installation contractors, hopefully leading to the lowest possible cost for energy conservation.

The policing of the contractors remains a critical task of GPU, though, as they note, the concern is to avoid skimming of the easiest conservation opportunities rather than quality assurance. The latter is



the responsibility of the contractor whose pay is based solely on the reduction of load. A poor quality installation will mean that the home's energy savings will be less and that the contractor will receive less money. GPU is confident that this approach will successfully include all sectors of residential customers, though the programme is too new to have significant available results. 35 There is no reason why the programme could not be expanded to included other classes of GPU customers.

3SOne evaluation of the first pilot demonstration is available: The Mellon Institute of Reseamh, Project Evaluation, Residential Energy Efficiency Program Pilot Demon- stration in Lakewood, New Jersey, US DOE, Assistant Secretary for Conservation and Renewable Energy, June 1983.

Conclusions

The 'no-losers' rule for determining the impact of utility conservation programmes is an imprecise calculation which only addresses the question of whether non-participants will be made worse off by the utility effort. While this article supports the concept of the 'no-losers' rule it notes that the issue of programme availability must also be considered. Until access to conservation programmes is unrestricted to all utility customers, the attempts to quantify specific benefits to non-participants will be of secondary importance. The major challenge for utilities is how to develop programmes that are attractive to elderly, low-income and rental customers.

The key to programmes such as that of General Public Utilities is that it does not limit access to low-income customers and renters, the two segments of the residential population for which the most concern about non-participation has been raised. The programme may actually enhance their involvement because third-party financers may find greater marginal benefits to be reaped from these previously unex- ploited homes. The more traditional conservation programmes are not attractive to these groups, and only through concerted efforts are there any successes in providing energy conservation to these groups. While the traditional application of the 'no losers rule', the means by which conservation incentives are determined, ensures that non-participants are not harmed, they are certainly helped very little under present policies.

In the final analysis, the record of utilities in the delivery of conservation programmes to low-income and elderly customers is a case of a few preliminary successes. These programmes are characterized by increased efforts to attract low-income customers into either existing successful programmes, or innovative separate programmes designed to overcome the barriers to participation. Utilities have found that conservation programmes require greater commitment and more creativ- ity to attract low-income customers.

Still, the majority of utility conservation efforts cannot boast of similar successes. Without specific attention to the needs of low-income and elderly customers, and even small commercial customers, conservation programmes will continue to attract mostly middle- and upper- income homeowners. The longest standing utility conservation programmes are facing this problem by structuring new approaches for the traditional non-participants. Unfortunately, many other smaller utility programmes, such as most utility solar and heat pump promotion programmes, and federally mandated efforts such as the Residential Conservation Service (RCS), will almost certainly not attract these classes of customers. Yet, these customers have significant opportunities for saving power and deferring future expansion requirements.



Additionally they represent those classes of customers most in need of the utilities' assistance.

If utilities are to be used as a major vehicle for promoting energy efficiency, then greater research and experimentation must be undertaken to open programmes to all classes of customers. Our ability to design these programmes is severely hampered by the absence of quality evaluations of participation rates and participant and non-participant motivations. Furthermore, our understanding of utility conservation efforts comes almost exclusively from examination of those few utilities that have consciously pursued conservation as a corporate goal. Greater concern may be warranted where utility involvement is undertaken in compliance with federal mandates or for publicity purposes. Better understanding of the issue of access to programmes is required prior to the development of new or expanded federal requirements for utility involvement in conservation.

ENERGY POLICY April 1985 155

non-participants in utility energy conservation programmes

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