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PO Box 1070, Frankfort, KY 40602  Phone 502.875.2428, Fax 502.875.2845

Public Service Commission Approves Intervention of Metropolitan Housing Coalition in E.On Acquisition Case  Posted: August 17, 2010

COMMONWEALTH OF KENTUCKY
BEFORE THE PUBLIC SERVICE COMMISSION

In the matter of :

JOINT APPLICATION OF PPL CORPORATION, E.ON AG,E.ON INVESTMENTS CORP., E.ON U.S. LLC,LOUISVILLE GAS AND ELECTRIC COMPANY AND KENTUCKY UTILITIES COMPANY FOR APPROVAL OF AN ACQUISITION OF OWNERSHIP AND CONTROL OF UTILITIES

CASE NO 2010-00204

PREPARED TENDERED DIRECT TESTIMONY OF CATHY HINKO ON BEHALF OF THE METROPOLITAN HOUSING COALITION

July 26, 2010

Q. Please state your name, business address, and affiliation.

A. Cathy Hinko, P.O. Box 4533, Louisville, KY 40204. I am the Executive Director of the Metropolitan Housing Coalition (MHC).

Q. On whose behalf are you testifying today?

A. My testimony is filed on behalf of MHC.

Q. What is the Metropolitan Housing Coalition?

A. MHC is a nonprofit, nonpartisan membership organization incorporated under the laws of the Commonwealth of Kentucky in 1989 and comprised of over 190 individual members and 200 member organizations. MHC members include representatives of low-income households, private and non-profit housing developers, service providers, financial institutions, labor unions, faith-based and neighborhood groups, as well as other advocacy groups, advocating in a united voice for fair, safe, and affordable housing in the Metro Louisville area. For over two decades, the MHC has utilized the public and private resources of the Metro Louisville community to provide equitable, accessible housing choices for all persons through advocacy, public education, and through support for affordable housing providers.

Q. Please briefly describe your qualifications.

A. Since obtaining my law degree in 1979, my career has focused on affordable and fair housing. I left the practice of law to manage the Section 8 Housing Certificate and then Voucher Programs for the city of Louisville and Jefferson County, subsequently becoming Executive Director of the Housing Authority of Jefferson County. During that tenure, I became involved with issues of affordable utilities for low-income people and was on the board of the Affordable Energy Corporation (AEC) as they secured grants to test a modified Percentage of Income Plan. I remain on AEC’s board through the present day and AEC’s operation of the All Seasons Assurance Program funded through a meter charge approved by the Public Service Commission.

In 2005, I became director of MHC, an education and advocacy organization on issues of fair and affordable housing which also operates a lending pool for use by non-profit developers creating or rehabilitating affordable housing. In 2008, MHC published a paper that focused on utility costs as part of affordable housing. I have been the lead MHC staff member in advocating for the recommendations of that report. My work included convening meetings with the state and local agencies charged with weatherization work and serving on committees convened by LG&E on both community input and on energy efficiency.

MHC operates a lending pool of about $1.2 million that is for use by non-profit developers in creating and rehabilitating units that are affordable to low-income households, with an emphasis on those below 60% of median income. Demand-side management programs are of paramount importance to MHC, as well as payment assistance programs to make shelter affordable.

Q. What is the purpose of your testimony today?

A. I am testifying on behalf of MHC concerning the sale of LG&E/E.ON to PPL. MHC has an interest not only in affordable cost of utilities and payment assistance programs, but equally in the energy efficient rehabilitation of current units, and demand-side management as a method of making shelter affordable to low-income households.

Q. How important are energy costs for low-income households?

A. A 1998 national study showed that the average household spends only about 2 percent of their income on electricity whereas low-income households spend about 8 percent of their total income on electricity and very low-income households (those living at less that half of the federal poverty level) spend 23 percent. See Oppenheim, J.(1998). Access to Utility Service, National Consumer Law Center, 1998 Supplement, pp.30-31.

However, between 2000 and 2007, adjusted for inflation, the median family income in Metro Louisville actually decreased 2 percent- and this is before the current financial and unemployment crisis. See State of Metropolitan Housing Report 2008 (A copy of the text of that report is attached to this testimony).

In Louisville in 1998, the utility gas cost per 70 Ccf was $38.56 compared to the $134.78 cost for the same 70 Ccf in 2008. The customer charge went from $4.48 to $8.50. The distribution cost per Ccf went from $7.77 to $10.83. The Gas Supply Cost went from $24.92 to $11.61. The DSM cost reduced from $1.39 to $.75 and the Home Energy Assistance cost went from $0 to $.10. During the same time period, the cost per 1,000 kWh went from $68.25 5 to $74.92. The costs have varied since that time, but this gives a pretty sound picture of the straits that not only low and very low-income people are in, but the problems that middle-income people now face in paying their bills.

On July 25, 2010, the Courier Journal published an article, Louisville Paychecks Falling Behind Rising Utility Rates, which stated that LG&E’s “…gas bills for a typical home have risen 54% since July 2000, while the utility’s electric bills have gone up 34%.” The article goes on to say that Louisville’s “…overall incomes haven’t kept up…The utility increases have also outstripped another yardstick, the U.S. inflation rate.” MHC has demonstrated that programs that keep utilities affordable for both low-income households are more needed than ever before.

Most of the homes in Louisville, approximately 240,000, were built before the 1980s when insulation became a requirement in the local building code. About 75,000 of these were built before 1950 and may still have original single pane windows, lighting, and older appliances. Another 165,000 were built before 1979 and the requirement of insulation.

As can be seen in the map below, the location of older homes coincides with the location of poverty in Louisville.

Most homes in Louisville (74% or 212,265 units) use gas for heat (U.S. Census, 2000). Only 23.4%, or 67,210 units heat their homes with electricity. This may be counter-intuitive in a state that mines for coal. But energy efficient rehabilitation of homes is imperative as well as a depth of understanding of the community and its bias toward natural gas heating.

Q. Are there specific concerns that MHC has regarding the PPL acquisition as it relates to the provision of gas and electric utility service?

A. Yes. MHC is concerned with the depth of experience of PPL in providing gas utility services, particularly to a city that primarily uses gas for heating homes. A review of the PPL website shows a total focus on the generation and distribution of electricity. The PPL web site does not offer any innovative ideas for gas heating customers and MHC is concerned that the expertise in this area may be limited.

An additional concern of MHC is that PPL’s web site shows that PPL is located in northern states. PPL lacks the corporate experience of working in areas where cooling months are as critical and programs that assist people with cooling bills are important.

Q. The Commission’s review of the proposed acquisition focuses on whether and on what terms approval of the proposal will be “consistent with the public interest.” Are there specific areas that could be addressed in the acquisition that would advance the public interest?

A. Yes. The first would be to revamp the governance of the Demand Side Management (DSM) programs. The current program is funded by an approved charge on ratepayers, yet the sole decision-maker on the program is LG&E/E.ON. This has led to ineffective and incomplete programs and a perplexing set of choices for the consumer. The DSM program should be coordinated with local programs and be under the control of a board which has representation from the utility company but which is not controlled by the utility company. DSM can be used to enhance already-existing programs that are supported by local government and local non-profits. One specific example is the WeCare Residential Low Income Weatherization Program.

Another area of concern is the problematic proposal by LG&E/E.ON called the Energy Education Center, which just seems designed to keep DSM funds inside the utility company without providing real, helpful services to ratepayers in the community. The proposal, in this economic climate, ignores the needs of people. In the school year of 2008-2009, there were 8,600 students in the Jefferson County Public School system that were homeless at some point in the school year; in the 2009-2010 school year that number had increased to 10,550. The proposed Center siphons much needed assistance in energy efficient housing rehabilitation that would help keep families stable.

A third area is that of energy audits. The weatherization stimulus funding is producing a number of people and agencies with the capacity to do energy audits, making the LG&E/E.ON service called Residential Conservation /Home Energy Performance Program less useful than before. MHC believes new and more innovative services should be offered by PPL.

A fourth concern of MHC is that the Residential Rebate Program (RRP) proposed by LG&E/E.ON will not provide benefits to low and moderate-income homeowners and ratepayers. As proposed, the RRP will only provide cash incentives to those homeowners and landlords that can document the purchase of new energy efficient equipment, HVAC systems, or window films. LG&E/E.ON will not provide financing to allow low- and moderate-income ratepayers to make such purchases, nor (as currently proposed), will LG&E/E.ON reimburse nonprofits/agencies that purchase such equipment for low-income homeowners. In effect, the high up-front costs of such purchases prevent low- and moderate-income homeowners from reaping the benefit of this DSM program, despite the fact that they pay for this program through the DSM surcharge.

Q. How could this concern be addressed?

A. MHC believes that the company should alter this proposal to finance customer purchases of such equipment or subsidize the purchase of such equipment by agencies that provide energy efficiency services and equipment to low-income residents.

Q. Are there other issues of concern regarding the acquisition?

A. Yes. One is that the regulated environment for gas and electric utilities in Kentucky differs from Pennsylvania concerning retail competition for supply. PPL released a news report on July 22, 2010 in which PPL announced that it is “…securing power for 2011 at prices lower than its current cost to supply power to “default” customers- those who do not shop for generation service from competitive suppliers.” This covers residential customers. While it is clear that some of these practices are due to the retail supply competition environment in Pennsylvania, MHC is interested in pursuing what this practice may yield for Louisville customers.

However, MHC is also aware that PPL may have internal pressures to switch customers to electric heating rather than natural gas heating and use special or temporary pricing to do so. Louisville customers do not have the competitive choices implied in the PPL release and this bears careful consideration.

Q. Do you have any recommendations concerning energy efficiency and low-income assistance programs that should be considered in determining whether this acquisition is in the public interest?

A. Yes. MHC believes that the acquisition request provides an appropriate venue in which to assure that there is no erosion of the scope and commitment to such programs, but also to identify areas of needed improvement in existing energy efficiency and low-income assistance programs, and to extend to the ratepayers served by E.ON and to be served by PPL, the best programs that PPL extends to other ratepayers.

There are three programs offered by PPL to assist low-income ratepayers that seem to be good models for partnership with non-profits in the administration of the programs. Additionally, they offer a consumer online energy analyzer. The program descriptions below are summarized from the web sites of PPL and their partner non-profit agencies. They are the PPL OnTrack Program, the Winter Relief Assistance Program (WRAP) and the PPL WRAP Solar Water Heating Program.

These programs should be explored as program offerings for E.ON ratepayers. Certainly, the most intriguing aspect that MHC would emphasize is that all these programs are administered by local non-profit service providers. MHC has already stated that total control of DSM funds by LG&E has produced uneven results. Certainly the work of Project Warm is to be heartily commended, but the We Care program has arbitrary rules that do not fit in with local initiatives, and thus does not enhance local initiatives.

MHC asks that a review of all the programs offered by LG&E and those of PPL take place and that MHC be a participant in that review. MHC also requests that PPL commit to a level of service in these programs not just equivalent to current service, but with additional programs developed and implemented in partnership with non-profits in the service area.

Q. Does that conclude your testimony?

A. Yes.

PROGRAMS OFFERED BY PPL AFFILIATES

PPL OnTrack Program- Administered by local non-profit agencies for PPL. This is one example of a non-profit’s program description for PPL.

General Information

OnTrack is a special payment program for PPL customers with limited incomes who are struggling to pay the full cost of their electric service. The program offers a special reduced monthly payment based on family size, income and electric use, and a chance to erase any debt you owe PPL. For customers enrolled in OnTrack, PPL will:

Provide a reduced monthly payment as coverage for your electric service.

Cancel a portion of any debt you owe PPL every month you make your OnTrack payment.

Provide energy education and weatherization services.

CACLV administers OnTrack for PPL customers who reside in the Lehigh Valley area, including Lehigh, Nothampton, Bucks, and Montgomery counties as well as Monroe County.

Eligibility

If your verified household income is not more than 150% of the Federal Poverty Level you may be eligible.

Program Rules

How do I stay in the OnTrack Program?

Pay the OnTrack payment amount in full each month by the due date.

Verify type of installed heat source with the OnTrack caseworker.

Notify the agency contact person if your situation changes.

Keep electric use at or below the usage amount before OnTrack enrollment.

Apply for and cooperate with WRAP (Winter Relief Assistance Program).

Apply for energy assistance LIHEAP/Crisis (if eligible).

What Happens If I Miss an OnTrack Payment?

At the first missed payment, the account enters the PPL collection process, which may result in loss of electric service.

PPL will send a letter to remind you that you missed an OnTrack payment(s).

To avoid loss of electric service and removal from the OnTrack Program, you must pay the missed OnTrack payment(s).

What If My Income Changes?

If you lose your job, or face a financial crisis, call your agency caseworker.

How Much Electricity Can I Use?

OnTrack customers need to conserve electricity.

As part of OnTrack, someone will explain how your household can conserve energy and your home could be weatherized.

PPL pays the difference between your monthly OnTrack payment and the amount you actually owe each month (Program Benefits). There are limits on the amount that PPL can pay annually.

PPL will review your account and send a letter to let you know if you are getting close to your benefits limit.

If your electric has increased beyond your benefit limits, we may either increase your payment amount or remove you from OnTrack.

If you have changes in your household that may increase electric use, call your agency contact person to report the changes.

How Long Can I Stay in OnTrack?

If you reach these maximum benefits, PPL may remove you from OnTrack and you may re-apply 12-months from the date of your original OnTrack enrollment.

If you do not reach your maximum benefits, you may remain in the program long enough to pay your PPL debt as long as you make your OnTrack payments by the due date. See table below for timeline.
Overdue Amount at Time of Enrollment Timeframe for Clearing Debt

Less than $1,000,12 months
$1,001 - $2,000, 18 months
$2,001 - $3,000, 24 months
More than $3,000,36 months

Follow the program rules and after 12-months, we will review your account. If you are still eligible for the program, your OnTrack payment amount may change.

For Further Information

Program Rules

The following rules apply once enrolled in OnTrack:

Pay the OnTrack amount in full each month.

Keep electric use at or below previous level—notify CEO contact person of any circumstance that may cause your usage to increase.

Permit access to your meter.

Notify your CEO contact person if your situation changes.

Apply for LIHEAP for assistance with your heating bill.

Electric heat customers are referred to the WRAP Program for weatherization services.

Winter Relief Assistance Program (WRAP)- administered by local agencies for PPL

PPL’s WRAP program helps households with high electric use levels conserve energy, increase comfort, and reduce monthly energy bills.

How can I qualify for WRAP?

You must have household income of 200% or less of the Federal poverty income guidelines (click here to view a table with the Federal poverty income guidelines) and be at least 18 years of age.

Your residence must have its own electric meter and be your primary home. Both homeowners and renters are eligible.

You must have lived in your residence for at least the past 9 months, and you may not have received WRAP services in the last 7 years.

You must have electric heat and use at least 6,000 kWh annually.

You can call 1-800-342-5775 to find out if you qualify.

You do not have to have any overdue payments with PPL to qualify.

What are the actual benefits of WRAP?

By participating in WRAP, you may reduce the amount of energy you use each month. This will most likely result in lower monthly bills.

By participating in WRAP, you will receive a free home energy usage review, education to help you learn how to reduce your energy use, and the installation of energy conservation measures (e.g., the replacement of old appliances with new energy efficient ones; attic, floor, wall insulation; door and window weather-stripping). Measures installed will depend on the amount of electricity you use and the type of heating system and water heater.

What are my responsibilities as a WRAP participant?

To receive services, you must agree to submit verification of your household income as part of the application process.

As a participant, you must agree to allow a utility employee (or subcontractor) to inspect your residence and perform an energy audit.

You must also agree to allow a utility employee (or subcontractor) to inspect your residence one year after the conservation measures are installed. This allows the utility to determine if the conservation measures have been cost effective and helped you to reduce your energy consumption.

Administered by local agencies, all WRAP services are performed by professional contractors at no charge to customers. In 2008, WRAP expenditures were $8.5 million.

PPL WRAP Solar Water Heating Program- in specific counties served by PPL not all.- Administered by local non-profits.

The WRAP Solar Water Heating Program is designed to help low income customers decrease the amount of their electric bill caused by significant hot water use. A limited number of WRAP participants who use a significant amount of hot water will be identified for possible participation.

CACLV WRAP contractors will evaluate residences to determine if they qualify for installation of solar hot water systems. Upon approval by the owner of the residence and PPL, a CACLV installer will install a solar hot water system. All services are free of charge to qualified customers.

The key to the success of the WRAP Solar Water Heating Program is that the selected residences use a significant amount of hot water that is heated in electric water heaters.

ELIGIBILITY

Customers whose electricity is delivered by PPL Electric Utilities with household incomes below 150% of the Federal Poverty Level are eligible for WRAP. Households will be selected for the Solar Water Heating Program based on hot water and electricity usage and characteristics of the residence such as southern exposure and condition of the roof and plumbing system.

Renters and homeowners may be eligible.

HOW TO GET STARTED

Would you like to become a partner in an effort to reduce your electric bill? If you would like to participate in the WRAP Solar Water Heating Program and you live in one of the counties listed above, please contact PPL at 1-800-342-5775.

Operation HELP

Operation HELP provides emergency financial aid to pay heating bills for families with financial hardships. PPL Electric Utilities was one of the first utilities to establish a fuel fund for customers in need. Operation HELP is funded by customers, employees and PPL, and is administered by a network of local agencies. In 2008, Operation HELP provided $1.4 million in customer assistance.

The Operation HELP program provides customers with cash assistance to help pay down their outstanding balances.

What are the benefits of applying for an Operation HELP grant?

By participating in Operation HELP, you may receive up to a $500 cash grant that will be paid directly to the utility or energy vendor on your behalf.

When can I request a grant from Operation HELP?

The program is open all year long.

If eligible, you may receive HELP assistance only once per year.

How do I qualify for an Operation HELP grant?

To qualify for Operation HELP, generally, you must have household income of 200% or less of the Federal poverty income guidelines. PPL does make exceptions to this rule in special circumstances.


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