The Business Case for Utility Energy Assistance Programs

Energy utilities are businesses. Their core mission is to maintain grid infrastructure to supply safe, reliable power services to their customers. Implementing energy assistance programs can be viewed as straying from their core technical competencies and mission.

However, many utilities run energy assistance programs for a variety of reasons. Some utilities have regulatory mandates to run energy assistance programs. Others provide additional funds to community organizations that implement federal or state programs. Still others voluntarily run in-house programs because they see the value.

Mandates or otherwise, what is the business case for utilities to launch or redesign an energy assistance programs?

This blog post is part of a comprehensive guide to quantifying energy equity.

Energy assistance programs are aimed at making energy bills more affordable for customers who experience a high energy burden with the ultimate goal of reducing late payments and disconnections.

Utility disconnections can be damaging to a utility’s public image especially if they occur during periods of crisis or severe weather or if they affect a large number of disadvantaged customers. Disconnections also come with direct and indirect costs related to lost revenues, collections and administrative burden. Energy assistance programs help mitigate these issues with two concrete value propositions: improved payment rates and enhanced customer satisfaction.

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Value Proposition #1: Improved Payment Rates

Well-run energy assistance programs are not simply social justice projects that distribute financial benefits to low-income customers; they are a utility investment that allows low-income customers to make consistent payments for utility service, by reducing their energy burden.

The most direct financial benefit of energy assistance programs to the utility is to minimize arrearage write-offs and collection costs. Of course, the costs and resources associated with administering these programs should be in line with the magnitude of its benefits to the utility.

Reducing Late Energy Bill Payments through Prevention

Generally, prevention is better than the cure. Providing support to high-burden customers before they are late on payments is often more cost-effective in the long run than disconnections and debt collection.

Preemptive bill payment support need not be expensive. Light touch approaches like targeted marketing could help inform customers of available assistance programs and provide a needed buffer in their cash flow. Enrolling customers in conservation programs can also reduce their energy burden and reduce the size of large seasonal bills. Even simple, no-cost approaches like equal payment plans or adjustable bill due dates can go a long way to avoid late payments.

Mitigating Late Energy Bill Payments through Customer Interventions

For customers who are late on their bills, it is important to understand their unique situation and help them with the right kind of assistance.

For many customers, the inability to pay utility bills on time stems from temporary hardship (job loss, unexpected expenses etc.). This is a cash flow problem that can be addressed with bill deferrals or arrearage management plans.

Other customers experience a more sustained energy burden due to low incomes or inability to work. These can be assisted with direct cash discounts or rate adjustments. Programs that are not targeted to specific customers can serve “free-riders”—customers who may be low income, but whose energy costs are not a significant portion of their expenses (that is, they do not have a high energy burden). Free-riders can meet their bill obligations without assistance and the resources devoted to them can be better utilized for the customers who are most in need.

Both prevention and intervention assistance measures can be more successful and cost-effective than moving down a path of late fees, service disconnections and collections, with a positive financial return for utilities.

Value Proposition #2: Enhanced Customer Satisfaction

Customer satisfaction has become a key focal point for most utilities, driven by competition from customer energy solutions like solar and storage, as well as the presence of a competitive retail energy landscape in some jurisdictions. Happy customers trust their utility and are loyal to it over the long term.

Looking ahead, many challenges in the grid of the future require cooperation between utilities and their customers. Large industrial and commercial customers are more likely to positively engage with utilities that demonstrate high levels of corporate responsibility and customer care.

As a model for utilities, high customer satisfaction has been linked to trust in leadership, higher stock prices and higher credit quality for companies in many industries. This would translate to higher shareholder value for investor-owned utilities and long-term confidence in leadership for publicly-owned utilities and coops.

Energy Assistance Programs Serve Utility Customer Satisfaction Goals

First, low-income customers who experience these programs first hand show strong appreciation for the assistance from their utility. Customers have long memories when it comes to customer service, good and bad. A customer who remembers a seamless experience through their utility’s energy assistance program has a very different experience than one going through the collections process or a service disconnection. These customers also tend to spread the word and enhance the reputation of the utility, while serving as free marketing for the assistance programs.

Secondly, utility customers in general look upon their utility more favorably when it leads energy assistance initiatives that have a societal benefit, as long as they are run efficiently and do not waste ratepayer funds. Even better, customers are happy to support these initiatives when given the chance, as evidenced by the success of assistance programs based on customer donations in many utilities across the country.

Learn everything there is to know about quantifying the benefits of energy assistance.

So, what’s the business case for a utility considering launching or revamping its energy assistance programs in a nutshell?

When the programs have clear objectives and when they are targeted at the right customers, they result in clear societal benefits. This makes customers across the board happier and more loyal to their utility, while reducing costs to the utility associated with bill delinquencies.

If your existing programs are struggling to achieve these goals in a concrete way or you cannot measure their effectiveness and reach, then your programs would benefit from an evaluation and redesign to meet your goals cost-effectively.

How does your utility perceive the value of energy assistance programs?

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