Vermont REACH Project: Development of a Consumer Energy Cooperative

Submitted by the Vermont Energy Investment Corporation
March 22, 1999

The goals of the VT/REACh Program are as follows:

• create and demonstrate viability of consumer-owned competitor to provide least-cost energy services to low-income consumers by establishing a viable consumer energy cooperative (Consumerco);
  
  
• minimize the total energy bills of members by offering comprehensive supply (electricity and fuels) at competitive prices, combined with weatherization, fuel assistance, energy efficiency and consolidated bill payment plan;
  
  
• maximize Vermont's LIHEAP recipients in Consumerco (recruit a significant portion of LIHEAP clients into the Consumerco by year three), and offer enhanced, customized services to 1,000 low-income LIHEAP-eligible households;
  
  
• increase energy affordability and self-reliance for low-income consumers, thereby reducing the amount of need for energy assistance payments to LIHEAP-eligible households; and
  
  
• document and evaluate VT REACH initiative to support replicability and feedback for program refinement.

ASSUMPTIONS

Most of the primary assumptions that were made at the project's inception remain intact, but some significant changes regarding these assumptions have occurred as the project has developed. These are noted below.

• Needs of Low-Income Population:
  Original - Assumptions that low-income households need to obtain fuel at the lowest possible price, need to obtain the most cost-effective fuel, need to minimize their household energy use, are in need of fuel payment assistance, and that existing services do not meet the needs remain unchanged.
  
  
• Electric Restructuring:
  Original - Vermont will restructure the electric industry in 1999, and this restructuring will lead to access in the market to members for the Consumerco.
  
  Revised - It is not likely that Vermont will restructure before 2001, and it could be later. Therefore, access to members through channel will decrease. However, this gives the Consumerco time to learn the many other aspects of its energy offerings and customer services.
  
  
• LIHEAP Enrollment in Consumerco:
  Original - It was originally assumed that the State would play a more active role in the solicitation of LIHEAP recipients into the Consumerco- That assumption led us to develop the estimate that the Consumerco could enroll 75% of the state's LIHEAP clients into the Consumerco by the end of the third year.
  
  Revised - While the partnership with the Fuel Assistance Office at the Vermont Dept. of Social Welfare remains strong, the state's role in the promotion of the Consumerco is more limited than had been originally anticipated. That could lead to a smaller percentage of LIHEAP clients becoming Consumerco members than the optimistic 75% cited in the proposal.

PROJECT DESIGN

The design of the VT/REACh project is based on the following concepts;

• aggregate the market power of low-income customers into larger groups for the purpose of negotiating better prices - Through a variety of public assistance programs, low-income consumers have already been "aggregated" into larger groups. Consumerco will provide an opportunity for agencies delivering fuel assistance (i.e. LIHEAP); child care (e.g. Head Start), and others to offer membership in the Consumerco as a benefit to their clients.
  
  
• deliver energy efficiency to reduce energy usage - The tendency of low-income people to live in older, less energy-efficient homes is well documented. Consumerco will allow these homes to be treated with energy efficiency measures and will thus improve shelter affordability buy reducing energy bills.
  
  
• pursue consumer bill minimization - The combination of a) lower fuel prices, b) reduced energy use from efficiency measures and practices, c) economic matching of energy sources to end uses, and d) a customized managed bill payment plan will lower over all bills. Low-income customers will benefit more than other customers by the Consumerco's bill minimization, rather than price minimization, philosophy.
  
  
• create a trustworthy entity - The structure of the Consumerco will reflect the features that a select group of consumers will want to be a part of, including being a) member-owned and -controlled, b) not-for-profit, c) Vermont-based with the ability to serve a statewide clientele, d) a provider superior customer service, and e) a provider of honest information and a consumer advocate.

COLLABORATIONS

The success of the VT/REACh project depends heavily on its ability to develop strong partnerships and collaborations relationships with a wide variety of organizations and institutions throughout the state. Following is a summary of our activity to date and our plans for the future.

• Steering Committee - established a VT/REACh Project Steering Committee, comprised of the Program Chief of the VT Dept. of Social Welfare's Fuel Assistance Office, the Director of the State Office of Economic Opportunity, a staff member from the VT Dept. of Public Service, a representative of the community action agencies, a representative of the weatherization providers, a representative of the petroleum marketers, and the REACh project manager.
  
  
• Vermont Energy Future, Inc. - VEF is the development corporation formed to explore market alternatives for consumers in a restructured electricity market. The VT/REACh project manager holds a seat on the VEF Board of Directors.
  
  
• Community Action Agencies - Project staff have had initial meetings with each of the Community action agencies in the state to discuss ways the Consumerco can be of value to the CAA clients, and how the agencies can help inform their clients about the Consumerco.
  
  
• Weatherization Program Providers - Project staff have met and will continue to work closely with the state weatherization program staff, as well as with the local weatherization programs, to design and develop implementation plans for the 1,000-household enhanced weatherization pilot.
  
  
• Statewide Policy Organizations - staff participates in meetings of the Home Energy Assistance Task Force and Fuel Policy Advisory Council to keep them informed of project activities on a regular basis.
  
  
• Community-Based Organizations - Project staff have made presentations about the Consumerco to several community-based and membership organizations, such as the Vermont Low-income Advocacy Council, the Vermont Credit Union League, and several food coops. The project will continue to solicit the assistance of as many community organizations as possible to implement its "affinity marketing" strategy.
  
  
• Regional Affiliations - Project staff maintain a relationship with the regional coop effort - Coop Pioneers, which plans to provide state and local cooperatives with many types of selected services at a lower cost to a larger group - as well as with other state and local coop development organizations in the Northeast.
  
  
• Financing Entities - Staff have met with the Wisconsin Energy Conservation Corporation (as agent of the Fannie Mae Energy Loan Program) and the Vermont Development Credit Union to explore the potential role of these entities in providing financing for energy efficiency and investments for Consumerco members.

POTENTIAL IMPACTS ON PARTICIPANTS

In summary, successful impact of this project on its participants would result in:

• improved bill payment, practices for individual clients
• reduced total household energy bills for clients
• competitively priced products and services derived from aggregated market power
• reduced inefficient energy consumption
• economic match of end uses to fuel choices.

PROGRAM LESSON'S

In summary, the most important lessons learned to date regarding this project are:

• Consumerco Start-up Timing is Critical - It is the access to customers that is the key opportunity created by electric restructuring. However, in Vermont, restructuring is likely to be implemented several years later than the date assumed when the REACh proposal was submitted. We now feel that we can use this time to gain experience with procurement and distribution of the other fuels, delivering and financing efficiency and renewables, development and implementation of bill payment plans, and customer service in general, to be better prepared to add electricity in when this becomes an option.
  
  
• Full Product Offering Ready at Consumerco Launch - We have learned from launching other energy programs that it is essential to the smooth initial delivery of the program to have all of the necessary implementation mechanisms in place at the very start.
  
  
• Electricity Only Part of Consumerco Offering - analysis that we have done both in Vermont and elsewhere in the U.S. unequivocally confirms our original assumption that we must provide a full package of energy supply and efficiency services to meet our goals. Sale of electricity alone is neither a viable economic option, nor is it likely to create the opportunity to significantly provide lower bills to members.
  
  
• Residential Load is Not Attractive to Most Electricity Sellers - We have observed from early experience in other states that residential load is not particularly attractive to most electricity marketers due to the relatively high transaction cost of attaining the individual customers with small loads. It is our belief that the Consumerco's affinity marketing approach, along with its comprehensive service offering and coop structure, will contribute significantly to overcoming this barrier
  
  
• State Electrical Restructuring Plan is Key to Aggregation Success - The ground rules that define electric restructuring are critical to the Consumerco. For example, the setting of a rate reduction, and how it is implemented, can deter any new market entrants. The treatment of consumer protections, provider of last resort, renewable portfolio, etc, all could have a positive or negative effect on the ability of new providers to enter the market.

LOGIC MODEL

The logic model developed in the original submission is presented below.

1. Small Consumer Bargaining Power

Need: Restructuring of the electric industry threatens to undermine efforts to promote energy affordability for low-income households.
Intervention: The project promotes energy affordability by aggregating low-income and other residential households, and soliciting offers from electric and fuel retail suppliers to serve this aggregated load. The specific interventions include: (1) solicitation of LIHEAP recipients as Consumerco members, and (2) procurement of energy on behalf of Consumerco members.

Immediate Outcome: aggregation of LIHEAP recipients through Consumerco, will provide these consumers with a lower price for electricity, fuel, and other energy services than if they had participated in the market as individuals.

Intermediate Outcome: Low-income Consumerco members will receive best prices available.
Project Goal: Low-income consumers will exercise some degree of market power through Consumerco to obtain competitively priced services offered on reasonable terms with reasonable supporting services.

2. Least Cost Fuel Mix

Need: The existing delivery of energy to low-income consumers discourages energy suppliers from rationalizing consumer fuel procurement decisions.

Intervention: Consumerco offers home energy services through a full energy service enterprise. Through this approach, the enterprise will assess the most cost-effective fuel type available to fulfill the consumers end-user needs. Assistance will be provided to install the fuel type that is most economical from the consumer's prospective. The enterprise provides all fuels, so there is no incentive to continue the provision of an uneconomic mix.

Immediate Outcome: Opportunities for changing household fuel choices to best match end-use needs will be identified.Intermediate Outcome: Low-income consumers will be able to convert to the most cost-effective choice of fuels to accomplish the end uses they desire in their homes.
Project Goal: Low-income consumer home energy bills will become more affordable to the maximum extent possible by reducing uneconomic fuel choice.

3. Household Energy Bill Competition

Need: Competition in the restructured electric industry will be primarily on th basis of price, advertising or superficial differentiation. Competition in the electric industry alone will fail to generate substantial financial savings to consumers. Low-Income consumers who face unaffordable home energy bills, therefore, will not experience significant relief from their inability-to-pay problem. Unaffordable home heating burdens, as well as, unaffordable home electric non-heating burdens will likely continue.

Intervention: The project provides a market competitor on the basis of bill minimization rather than price minimization. Through a combination of energy efficiency investments, fuel choice rationalization, and competitive fuel procurement, Consumerco commits to a reduction in the overall bill paid even if the price per unit of energy for a specific fuel may be marginally higher for Consumerco members.

Immediate Outcome: Low-income consumers will select Consumerco to provide competitive energy services.

Intermediate Outcome: Inefficient household energy consumption will be identified and eliminated through the installation of cost-effective energy efficiency measures.
Project Goal: Increase affordability and minimize LIHEAP dependence by reducing the total household energy bill.

4. Overcoming Barriers to Efficiency Investment

Need: Low-income consumers tend to live in old and energy inefficient homes. Yet low-income consumers do not have the ability to finance energy efficiency improvements, and service providers in a restructured electric industry are beginning to scale back energy efficiency programs and subsidized low-income programs.

Intervention: The project features the installation of comprehensive energy efficiency strategies. Through these strategies, energy waste will be minimized while at the same time improving overall affordability. Energy efficiency investments will be maximized through a combination of traditional WAP and utility DSM investments, along with enhanced weatherization measures installed through a similar program implemented by the project design team for Public Service Electric and Gas Company's "E-Team" partnership program in New Jersey.

Immediate Outcome: Low-income households will be targeted for priority installation of cost effective weatherization and efficiency measures.

Intermediate Outcome: Low-income Consumerco members will eliminate the wasteful consumption of energy in meeting their end-use energy needs as well as improve home comfort and residents' will being.
Project Goal: Increase affordability and minimize LIHEAP dependence by reducing inefficient energy consumption.

5. Better Management of Bill Payment

Need: Because energy consumes almost a third of their income, low-income consumers call upon energy service providers for special payment-troubled services. These services are being scaled back as the electric industry becomes more competitive.

Intervention: Implement a comprehensive energy efficiency, deferred payment plan, consumer education program similar to that developed by Project team members for PSE&G in New Jersey. Aside from the energy efficiency installations, the heart of this comprehensive program is an affordable budget payment plan. This plan begins with the consumers total energy bill, and reduces that bill by the estimated energy efficiency generated through the installation of the E-Team measures, reduces the bill further for the anticipated receipt of fuel assistance committed to utility bill payment (the federal Earned Income Tax Credit is one such source of assistance), and reduces the bill further by a discount (20%) that takes into account cost savings arising from the direct vendor payment of utility bills from AFDC.

Intermediate Outcome: Low-income households will be guided and supported to attain affordable and manageable energy budgets.

Intermediate Outcome: If the efficient use of competitively priced cost-effective fuel still results in payment problems, Consumerco will offer payment plan options that will address their inability to pay. These options will include deferred payment plans that operate in collaboration with fuel assistance and other forms of public benefits.

Project Goal: For those low-income consumers who still face payment problems after the three cost saving steps above (fuel choice rationalization, competitive price bargaining, reductions in waste), supportive payment plan options will be made available to promote bill affordability to maximum extent possible.

NEW TECHNOLOGY APPLICATIONS

This project is exploring the potential of the following new technologies in the broad Consumerco and/or in the "enhanced weatherization/Consumerco" pilot program.

• fossil fuel metering - storing fuel "inventory" at each member's home, while using a fuel meter to charge the member for only the amount used each month.
  
  
• remote metering - the ability to meter electricity and fuel use over existing telecommunications lines.
  
  
• on-site database management software - use of advanced database software to manage the enormous quantity of information that the Consumerco will track, and to use on-site to determine individual customer energy loads and identify measures.
  

Page Last Updated: December 7, 2005