Transcript Using Energy Burden in a Sector Map Approach to Set Low

REAL ENERGY RATES
Using Energy Burden in a Sector Map Approach to Set LowIncome Gas Rates
H. Gil Peach, Ph.D. – H. Gil Peach & Associates LLC
Howard Reichmuth, PE
Mark Thompson, M.Sc. – Forefront Economics, Inc.
NCAF - 2007
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Sector Map Tool
•
•
•
•
•
Income Donuts
Job Structure
Income Trends
Energy Burden
Sector Maps
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INCOME DONUTS
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Income Donuts
• Income donut: The “income donut”
shows how household income in the
community is apportioned to the different
families. It is a static measure for one point
in time.
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Income Donuts
Community Income by Household: Eugene
Census 2000
(Each Slice represents 20% of Households)
• Definition:
The “Income
Donut” shows
what
proportion of
community
income goes
to each 20%
of families.
3% of Income to Bottom
20% of Eugene Area
Households
3%
10%
41%
10% of Income to Second
Quartile of Eugene Area
Households
16%
16% of Income to Middle
20% of Eugene Area
Households
30% of Income to Fourth
Quartile of Area Households
30%
41% of Income to Top 20%
of Eugene Area Households
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Income Donuts
• Eugene is typical of
Oregon and of the US:
the bottom 20% of
families receives 3% of
community income.
Community Income by Household: Eugene
Census 2000
(Each Slice represents 20% of Households)
3% of Income to Bottom
20% of Eugene Area
Households
3%
10%
• If this were a
mechanical system, an
engineer would never
put equal stress on
each sector.
41%
10% of Income to Second
Quartile of Eugene Area
Households
16%
16% of Income to Middle
20% of Eugene Area
Households
30% of Income to Fourth
Quartile of Area Households
30%
41% of Income to Top 20%
of Eugene Area Households
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Income Donuts
• If this were a real donut
shared by five children,
we would expect more
equality.
Community Income by Household
Census 2000
(Each Slice represents 20% of Households)
3%
10%
• The top 5% receives 18%
of community income.
• The top 1.5% receives 8%
of community income.
41%
16%
30%
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JOB STRUCTURE
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Job Structure
• The “income donut” that we just
reviewed reflects the underlying
“job structure” of a community.
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Job Structure
• Poverty is produced by economic
arrangements, reflected in the “job structure.”
• Poverty may be influenced by individual action,
but only if a structure of opportunity opens up.
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Job Structure
• At any one time, a community, city, state,
or service territory has a “job structure.”
• You can picture it as like an organization
chart for a corporation…
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Globalization & Centralization Effects on Local &
Regional
Job Structures
MOVED
MOVED
DELETED
MOVED
DELETED
RETAINED
RETAINED
MOVED
MOVED
RETAINED
DELETED
DELETED
RETAINED
RETAINED
OUTSOURCED
RETAINED
OTHER LEVELS
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Job Structure
• So long as the job structure of a Service
Territory does not provide enough jobs
that supply a family wage, a significant
portion of the families in the community
will be payment troubled and in poverty.
- H. Gil Peach
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Job Structure - Market Income in
Globalized Markets
• On the positive side, prices of goods
decrease, reflecting lower cost of labor.
• On the negative side, locally produced
goods are replaced by goods produced
overseas. As jobs disappear, so do many
local businesses as, for example, big box
stores replace local entrepreneurs.
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Job Structure - Market Income in
Globalized Markets
• The long term trend is to continually drop “job slots”
from the job structure. In particular, high-level and
mid-level jobs disappear. The job mix tilts towards
low-level service jobs.
• This both eliminates jobs and restrains wages and
benefits for those who remain employed
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Job Structure - Market Income in
Globalized Markets
• It is now commonplace for young persons to
feel that they cannot achieve the level of
living of their parents.
• Structurally, that perception is correct.
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Market Determination of (Market) Income
with and without Globalization.
S1’
(+)
P
R
I
C
E
S2’
D1
S3’
P
D2
(-)
D1’
G
S1
S2
(-)
•
S3
D2’
QUANTITY (+)
With globalization, the local market may clear at point G,
the intersection of line D2-D2’ (reduced local demand for labor)
and line S3-S3’ (labor supply augmented by global labor supply).
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Income Trends
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Trends in Real Income: Pennsylvania
160%
Highest Fifth
150%
Second Highest Fifth
143.31%
140%
Second Lowest Fifth
Lowest Fifth
130%
117.66%
120%
115.41%
106.29%
110%
108.42%
101.69%
100%
97.28%
100.00%
95.60%
90%
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
80%
1978
Percent of 1978-1980 Average
Middle Fifth
Year
CBPP Data, adjusted – John Mitchell
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Trends in Real Income: Pennsylvania With Children
140%
Highest Fifth with
Children
Middle Fifth with
Children
120%
Second Lowest Fifth
with Children
105.26%
Lowest Fifth with
Children
110%
104.04%
100.19%
100%
100.00%
98.99%
95.68%
90%
83.73%
90.05%
80%
80.85%
70%
68.89%
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
60%
1978
Percent of 1978-1980 Average
128.36%
Second Highest Fifth
with Children
130%
Year
CBPP data, adjusted. – John Mitchell
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Income Trends
A good physical model of what is happening
is to think back to chem lab in college or
high school. -- You add something to a
clear solution in a glass beaker, and after
you reach a certain point of saturation, the
solution stratifies and precipitates out at
the bottom.
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Income Trends
• Use IRS numbers for what is happening to
very high income – gains of several
hundreds of percent in real income.
• Use Census and city controller numbers
for what is happening to low income
households – losses of a few percent to
25% or slightly over 50% in real income.
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Income Trends
Where is the top of poverty?
• About 150% of federal poverty level in 1992.
• In 2007 -- From about 200% to 350% of official poverty.
• To be conservative – it is 250%. Above that many
families have sufficient income. But, depending on
family structure and size WOW studies show that there
are many families who are income insufficient at 350% of
poverty.
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Income Trends
Older US Cities are not Doing Well (Example: Philadelphia)
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ENERGY BURDEN
For current energy burdens, see Roger Colton’s latest study
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Roger Colton, The Home Energy Affordability Gap in
Pennsylvania, April 2003
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Putting it All Together
• As real income declines funding of quality
of life must take place outside market
mechanics.
• Markets have their place but when the
system breaks the market can’t fix it.
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SECTOR MAP TOOL
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Sector Map Tool
The basic idea is just a graph:
• Usage or a proxy for usage on the side.
• Income or a proxy for income on the
bottom.
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Sector Map Tool
• Reichmuth Sector Maps – For energy burden.
1.8
1.8
1.2
1.2
0.9
0.9
0.7
0.7
50%-60%
40%-50%
30%-40%
20%-30%
10%-20%
0%-10%
50
0.4
25
0
0.4
Usage, Fraction of Mean Usage
Electric Energy Burden - CAP
Inc om e , %FP L
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Energy Burden
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Sector Map Tool
• Reichmuth Sector Map – for Affordability.
Electric Affordability
Conformance Map - CAP
1.8
1.2
1.2
0.9
0.9
0.7
0.7
0.4
50
25
0
0.4
Usage, Fraction of Mean Usage
1.8
Income, %FPL
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New Program Designs that Work –
Example (Nevada)
• Qualify: Household at or below 150% of Poverty, and a customer of
at least one utility where the household pays the monthly Universal
Service Charge as an adder on their bill.
• Program: Each year, the total cost of gas plus electricity is set at the
median energy burden for the state (about 3%).
• Process: Fill out a simple form, provide income verification, and the
state will send a check for the household’s last 12 months energy
use (gas and electric) minus 3% of household yearly income,
directly to your utilities. The household pays the rest. State Welfare
offices are connected by computer to CIS at the major utilities.
Processing takes about 30 days, the utility is notified immediately,
so any impending termination is suspended.
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Implications for Collections
• Coverage – A Legal Program Logic
• There are Limits to Cost-of-Service based rate
designs, given what is happening to household
incomes and commodity prices faced by utilities.
For more and more customers, they simply do
not work.
• There is Need for Percentage of Income or other
Alternative Design Approaches
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Implication for Collections
• The “Sector Map” is a useful analytic tool we have used
for several utilities. Use the Sector Map tool to look at
what households can pay.
• Optimize: Get households to pay what they can of the
cost-based bill – without trading off food, medicine,
school costs for children, doctor visits.
• Structure rates to recover the rest up front – ask low and
moderate income customers only for what is reasonable
and possible – but optimize that amount.
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