How utilities can better serve low-to-moderate income households

In the context of the lingering pandemic, utilities are re-defining their relationship to community and energy. With new pressure from regulators and other key stakeholders, utilities are piloting new programs, testing new ways to deliver existing programs, and centering focus on their most vulnerable customers. This evolution will require a better understanding of customer needs and vulnerabilities, novel approaches and partnerships, and more inclusive processes.

During the pandemic, millions of Americans fell behind on utility bills, increasing utility debt from around $12 billion pre-pandemic to $32 billion by the end of 2020. Today, low-to-moderate-income (LMI) households face an energy burden (the percentage of gross household income spent on energy costs) up to three times higher than their counterparts.

Some utilities instituted proactive rate freezes and re-investment initiatives during the early days of the pandemic. But those temporary measures are only the first step in a more far-reaching movement. Going forward, serving these households will no longer be merely compliance activities but rather central considerations to the utility enterprise—akin to more traditional utility priorities such as safety, reliability, and cybersecurity.

A new regulatory emphasis

The regulatory position toward energy equity and energy justice is shifting at the state and federal level. Utilities may be familiar with long-running energy efficiency or bill payment assistance programs targeting low to moderate income customers. But new regulatory emphasis has expanded the ambition of these customer-centric initiatives. The Biden administration has instituted the Justice40 Initiative, bringing additional accountability to the goal of delivering 40% of all federal climate and clean energy investments to underserved communities.

This commitment is supported by the DOE’s Office of Economic Impact and Diversity, which in early 2022 announced a novel policy analysis team focused on permanently reducing household energy burden. This federal effort to build capacity and engage stakeholders is mirrored by efforts at the state level, where states such as Illinois passed new legislation foregrounding equity in 2021. Illinois passed the landmark Climate and Equitable Jobs Act in 2021, shaped with input from a rare coalition of environmental justice advocates, energy leaders, labor groups, and youth activists.

The legislation not only sets the traditional targets around renewable energy integration and transportation electrification, but also invests in clean energy job training hubs and contractor incubators that are strategically located near historically disinvested communities. The DOE also prioritized equity and justice considerations in the Infrastructure Investment and Jobs Act (IIJA) grants in 2022, where utilities that can credibly articulate and act on equity and justice initiatives may be better positioned to pursue once-in-a-generation funding opportunities.

Equity and justice integration pathways

Utilities must now define and strategize how to address their relevant equity and justice challenges, considering this increasing regulatory and public pressure to perform. The characteristics of vulnerability, unique geographic and socioeconomic risks to customers, and program delivery considerations may vary widely by utility—but the implications of a well-developed equity strategy touches every part of utility operations.

It may seem daunting figuring out where to begin—especially at a time when the industry is undergoing parallel transformations with distributed energy resources (DERs) and transportation electrification. But utilities are beginning to realize that new programs have the maximum flexibility to incorporate an equity emphasis earlier in implementation, and equitable strategies also contribute directly to new program success.

For example, Xcel Energy’s $110m transportation electrification plan, approved by Colorado regulators in early 2021, included several dedicated low-income components (such as enhanced rebates, targeted outreach, and community charging hubs) that comprised some 15% of the total funding. In shaping these new programs, utilities may need to incorporate equity at the onset while engaging partners and stakeholders in the process.

Beyond DERs and electric vehicles, utilities are also shaping equity with respect to local telecom infrastructure. During the pandemic, broadband availability in historically underserved areas became a key issue. This digital divide impacts both urban and rural communities. In the case of rural communities, with smaller and lower-density populations as compared with urban or suburban areas, infrastructure construction costs are hard to justify given the small pool of potential customers. In urban areas, the digital divide appears as a function of household spending power, where ISPs avoid serving communities where families cannot afford subscription prices.

In both cases, underserved communities were less capable of adaptation to the changing circumstances brought on by the pandemic—remote work and schooling are more difficult with limited access to internet connectivity. The need for grid modernization in these communities has been amplified by a stay-at-home environment, creating an opportunity for utilities to bridge the gap. A study analyzed that households in parts of America with broadband access receive an average annual benefit of $1,950. Applying this value to the 6.3 million electric cooperative households without broadband resulted in a total lost value of $68.2 billion nationwide.

Mitigating this connectivity gap helps existing utility programs reach their intended customers, especially when targeted customer segments lack access or support to enroll in programs. Low-to-moderate income customers often depend on online channels to learn and enroll in utility programs, but nearly 43% of low-income adults do not have essential broadband service and 41% do not have a computer. The gap in technology and internet access is directly correlated with income levels and form a significant barrier to program adoption. Utility reinvestment or reallocation of fiber capacity to help address broadband inequity can help utilities meet their intended reach of customers.

Beyond telecommunications capacity, however, program design and adoption are heavily dependent on the right community partners. Engaged representatives from the community can help a utility determine the appropriate solutions and ensure trust within a program. This engagement not only informs program design and outreach but also customer enrollment and implementation. Trusted representatives within the community can bridge the gap that many low to moderate-income customers experience due to lack of access or knowledge about utility programs and how to participate. By working with trusted community members, customers are more likely to enroll and able to get help with parts of enrollment processes that might otherwise have been a hindrance to enrolling in the first place.

Where to begin: Evaluate where you stand

With increasing interest to serve underserved communities—especially from state and federal levels of government—utilities will be pressed to address the growing needs of these communities and respond quickly to create thoughtful, lasting, and effective programs.

As a first step, utilities should evaluate their own customer dataset and past program outcomes to develop a baseline of performance. That baseline can help define goals and identify opportunities to better serve LMI customers. With the equity emphasis growing at the state and federal level, defining the needs of vulnerable customers is emerging as an enterprise-wide strategic objective. How is your organization evaluating equity and LMI customer needs?