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Angela Short

Budget and Policy Post
February 9, 2023

The 2023-24 Budget

Department of Community Services
and Development

A department under the California Health and Human Services Agency, the Department of Community Services and Development (CSD) oversees the state’s federal funding allocations for the Low-Income Home Energy Assistance Program (LIHEAP), Community Services Block Grant, and Low-Income Household Water Assistance Program. In addition, CSD oversees the state’s Low-Income Weatherization Program. In overseeing these programs, CSD provides funding to private nonprofit and local government organizations that help low-income families achieve and maintain economic security, meet their home energy needs, and reduce their utility costs through energy efficiency upgrades and access to renewable energy.​ In 2021-22, CSD also began to administer the state’s new California Arrearage Payment Program (CAPP), providing payments directly to energy utility providers to offset customer debts accrued during the COVID-19 pandemic.

This post provides an update on CAPP implementation, describes the proposed $400 million reversion of unspent 2022-23 CAPP dollars included as a budget solution in the 2023-24 Governor’s Budget, and provides our analysis of the proposal.

CAPP Overview and Implementation Updates

CAPP Funding and Program Overview. CAPP is a limited-term program providing debt relief for energy customers—both residential and commercial—who accrued energy utility arrearages during the pandemic period between March 4, 2020 and December 31, 2021. The 2021-22 spending plan included initial program funding of $1 billion in federal American Rescue Plan Act fiscal relief funds (through the state’s Coronavirus Fiscal Recovery Fund of 2021). In the spring of 2022, after all 2021-22 CAPP funds had been disbursed, CSD surveyed energy utility providers and determined around $1.2 billion in eligible residential customer debt remained outstanding. Accordingly, the 2022-23 spending plan included a $1.2 billion augmentation through the California Emergency Relief Fund (funded with General Fund resources) for CAPP as a component of the state’s broader energy package. Budget-related legislation adopted in 2021-22 and 2022-23 established the limited-term program and laid out the implementation model. Specifically, the language:

  • Required CSD to survey the state’s energy utility providers to determine total arrearages and to allocate funds to providers to pay down the identified debts on behalf of energy customers (customers do not need to apply or take any active steps to receive assistance).

  • Specifies the funding proportions for local publicly owned utilities (POUs) and cooperatives, versus for investor-owned utilities (IOUs).

  • Prioritizes funds for active residential customers with past due balances accrued during the pandemic period who, absent assistance, might be subject to service disconnection. 2021-22 assistance dollars also could be used for inactive residential customers and commercial customers, whereas 2022-23 assistance was dedicated solely to active residential customers.

  • Requires CSD to provide reports to the Legislature following allocation of the 2021-22 and of the 2022-23 assistance dollars specifying outcomes of CAPP, such as total number of residential customers assisted and total funds distributed by utility.

  • 2022-23 language added a section to the Revenue and Taxation Code specifying that energy utility bill assistance received through CAPP will not be counted as income for taxation purposes.

Update on CAPP Implementation in 2021-22 and 2022-23. CSD successfully disbursed all 2021-22 CAPP assistance dollars in early 2022. As a result of these funds, nearly 1.7 million energy utility customers (around 400,000 POU customers and 1.3 million IOU customers) across 44 energy utilities (36 POUs and 8 IOUs) received assistance paying down arrearages. The average assistance payment was $786 for POU customers and $532 for IOU customers—including both residential and commercial recipients. CSD submitted the required report to the Legislature in December 2022 detailing program outcomes of the 2021-22 funds.

CSD received utility companies’ applications for 2022-23 CAPP dollars in the fall of 2022. Based on applications, CSD expects that more than 1.4 million residential energy utility customers (around 200,000 POU customers and 1.2 million IOU customers) across 33 energy utilities (24 POUs and 9 IOUs) will receive $647 million to pay off all identified remaining eligible arrears (around $550 million less than was expected to go out at the time the 2022-23 budget was adopted). The application period for these funds was closed as of October 27, 2022, and funds were disbursed to participating utilities on November 22, 2022. The utilities then had 60 days to apply benefits to their customers’ accounts. As per statute, CSD will provide a final report to the Legislature on 2022-23 CAPP results; the report will be due in summer/fall 2023.

Governor’s Budget Proposal

2023-24 Governor’s Budget Proposes to Revert Unspent CAPP Funds to General Fund to Help Address State’s Budget Problem. As described above, CAPP received a 2022-23 augmentation of $1.2 billion, based on CSD’s initial survey of energy utilities in spring 2022, to determine remaining eligible arrears. However, based on applications submitted by utility providers in fall 2022 for the 2022-23 funds, $647 million will fully pay down all remaining eligible arrears. (In other words, estimated total arrears decreased by around $550 million from the time of the spring survey to the fall application period.) As such, the administration proposes to revert $400 million of unspent CAPP 2022-23 dollars to the General Fund. The administration considers this reversion as one of its proposed spending solutions to help address the 2023-24 budget problem.

LAO Analysis and Comments

Governor’s Proposal Is Reasonable and Can Help Address Budget Problem. Based on applications for 2022-23 CAPP funds, $647 million will eliminate all residential customer energy utility debt accrued during the specified pandemic period of March 4, 2020 through December 31, 2021 that was applied for by utility companies. Because the program will achieve this with funding to spare, we find the Governor’s proposal to revert $400 million in unspent funds to the General Fund is reasonable. Returning the funds to the General Fund gives the Legislature flexibility to allocate the funds toward addressing a different legislative priority and/or helping to solve the budget problem.

Additional Unspent Funds Could be Proposed for Reversion at May Revision. After the proposed reversion of $400 million in unspent CAPP funds, the Governor’s budget proposal leaves $150 million remaining. The proposed $400 million reversion was estimated prior to the close of the 2022-23 CAPP application and disbursement period, and the administration retained a cushion for its January estimate in case of need. We anticipate the administration will update the proposed reversion amount as part of its May Revision proposal, also accounting for program administration and close out costs. (Based on recent estimates of 2021-22 CAPP administrative and close out costs as of December 2022, we anticipate those final costs for 2022-23 CAPP funds will be less than $10 million.)

Unspent CAPP Funds Likely Results From Combination of Factors, Some Outstanding Debt Likely. While CSD does not have specific data indicating why the amount utilities applied for to address customer arrearages in fall 2022 ($647 million) is significantly lower than the total arrears identified via the spring 2022 survey ($1.2 billion), the decrease from spring to fall likely results from a combination of factors. For example, customers may have continued to make contributions toward their debts, and/or have benefitted from other utilities assistance programs (such as LIHEAP). In addition, a number of utility providers did not apply for 2022-23 CAPP assistance. This could be because their customers had no, or minimal, remaining arrearages. Stakeholders also have noted that some utilities, particularly smaller providers, may have opted not to apply for 2022-23 funds due to the administrative burden of meeting program requirements. As a result, some households likely have outstanding debt. The amount of remaining arrearages, and any information about who continues to accrue energy utility debts after CAPP implementation, is not quantifiable at this time.

Certain Level of Arrearages Is to Be Expected. Setting aside the economic impacts of the pandemic, there typically is some level of statewide energy utility debt at any time, due to the circumstances of individual customers. In addition, recent spikes in natural gas prices (which many Californians rely on as a home energy fuel), likely create energy affordability challenges for some households. To the extent the Legislature is interested in assessing how current levels of energy utility debt and affordability challenges compare to those of the extraordinary pandemic eligibility period, the Legislature could direct CSD to examine this issue in consultation with stakeholders and report back to the Legislature on findings.

Existing Programs Can Help Target Assistance for Some Remaining Arrearages and Affordability Challenges. For lower-income households, LIHEAP remains an ongoing source of potential assistance. The LIHEAP eligibility pool is more restricted relative to CAPP, and the LIHEAP program model requires households to apply individually for assistance (as opposed to the more sweeping CAPP model of providing funds to utility providers to apply directly to customer accounts). However, for those households that qualify, LIHEAP can help alleviate debts and reduce payments on an ongoing basis. In addition, we note that LIHEAP recently received federal supplemental and emergency funding from the Continuing Appropriations Act and the Infrastructure Investment and Jobs Act. Specifically, California received an additional $74 million, bringing total federal funding for LIHEAP in 2022-23 to more than $250 million. Beyond LIHEAP, the California Public Utilities Commission also offers various programs to help customers lower their energy costs and bills. For example, the California Alternate Rates for Energy program offers eligible lower-income households 20 percent to 35 percent discounts on electric and natural gas bills.