Leaders discuss pricing mechanisms, reimbursement rates, administrative burdens and more
By John MacKenna
New England Fuel Institute is working with the U.S. Department of Health and Human Services (HHS) to ensure that HHS accounts for the needs of fuel dealers and customers as it makes change to the Low Income Home Energy Assistance Program (LIHEAP).
LIHEAP is an important program for fuel dealers, because it helps customers with limited means buy heating oil and propane, but participating dealers are forced to accept low margins and slow reimbursement while taking on additional administrative chores.
In 2010, the U.S. Government Accounting Office (GAO) audited the program and found numerous instances of fraud. The GAO report has caused HHS to review LIHEAP, and the agency is now working on changes to the program, which is administered by state officials and local agencies.
In one important heating oil state, Massachusetts, officials moved ahead with program changes from HHS and tried to pile more administrative chores on fuel dealers. For the last two years, the Massachusetts Energy Marketers Association has had to intervene with regional HHS officials to prevent the proposed changes from taking effect.
Meeting with Federal Officials
With so much on the line for its members, NEFI formed a member workgroup to develop a strategy and concept to make LIHEAP more efficient and effective. In January 2014, NEFI brought its concerns to the HHS Regional Director Christie Hager. The Regional Director heard NEFI’s case for efficiency of the program. Mark Morgan, NEFI’s Regulatory Counsel continued the conversation with Hager and helped bring the discussion to HHS officials in Washington, D.C.
In late October, NEFI CEO and President Michael C. Trunzo and a NEFI delegation discussed LIHEAP with Jeannie Chaffin, HHS Director of the Office of Community Service and Families, and Lauren Christopher, HHS Counsel and Branch Chief of Energy Program Operations. Also attending for NEFI were former Chairman Howard Peterson; Ted Noonan of Noonan Energy; Patti Wright and Robert Duffy, of Star Gas Partners; and Jim Collura, NEFI’s Vice President of Government Affairs.
Trunzo said NEFI shared its concerns with HHS with the hope of making LIHEAP more effective from a dealer standpoint as well as for HHS, the agencies that administer the program, and the LIHEAP recipients. The meeting was very productive, and the HHS officials seemed to appreciate seeing the LIHEAP program from a vendor standpoint, Trunzo said.
I believe we brought valid points to the table,” he added, “They [HHS] don’t get the opportunity to hear from program vendors that often, so our proactive approach just might help bring about effective change to this program.”
He said dealers are trying to do right by their communities by participating in LIHEAP, but the program requirements force them to deliver fuel at the break-even point or even at a loss.
NEFI presented HHS with a briefing paper, prepared by Morgan that highlights several problem areas in LIHEAP. One topic that concerns dealers is excessive data collection requirements. NEFI members have reported that they spend twice as much time processing LIHEAP customer accounts as they do for their other accounts. In Massachusetts, one dealer reported that additional information on a newly expanded vendor data collection form consumes 5 to 10 minutes per account. With 1,100 fuel assistance accounts in Massachusetts, the dealer is spending 90 to 180 work hours on the task.
In addition, heating oil dealers are being asked to collect personal information from LIHEAP applicants that they would never collect from their cash customers, and then they must take extraordinary steps to ensure protection of the applicant’s privacy through records management and confidentiality procedures.
NEFI is concerned that the 2010 GAO report on the LIHEAP program will result in HHS requiring states to provide additional information on LIHEAP recipients to reduce the potential for fraud. “Given the overall reduction in LIHEAP appropriations, along with shrinking state resources, we are concerned that the data collection responsibilities will fall to heating oil dealers, who are already overburdened by LIHEAP administrative requirements,” said Morgan.
NEFI contends that that all the information required from LIHEAP applicants is already held by state social service agencies, which have the ability to verify the data. “Centralizing and sharing this data with state LIHEAP program administrators would reduce the administrative burden on heating oil dealers while also generating enhanced, reliable data on LIHEAP applicants,” Morgan said.
NEFI also wants to ensure that dealers are reimbursed promptly. Payment often occurs slowly, particularly in areas where Community Action Partners (CAPs) are administering LIHEAP, which can cause cash flow problems. “An efficient centralized reimbursement system is essential if many heating oil dealers are to continue as LIHEAP vendors,” said Morgan.
Maine and Vermont have made improvements with electronic deposit payments, but there is a problem with states sitting on LIHEAP funds to accrue the interest, according to Morgan. “If any party is allowed to keep the float in a centralized payment system, it should be heating oil dealers who can use the interest earned to make up for artificially low margins for LIHEAP reimbursements,” he said.
NEFI urged HHS to consider an electronic debit card system similar to the one used in the federal food stamp program. “Electronic debit cards would provide LIHEAP recipients with the same ability to comparison shop that all energy consumers enjoy while providing protection against fraud,” Trunzo said.
Another issue highlighted by NEFI is the inadequacy of pricing mechanisms that different states use for LIHEAP. “Whether it is margin over rack, discount off retail, lowest cash price of the day, or a hybrid of all three, heating oil vendors who participate in LIHEAP are required to discount fuel at their own expense,” Morgan said. “However, large utilities are not required to discount the natural gas or electricity they supply to LIHEAP recipients.”
NEFI believes that heating oil dealers should not be required to offer up steep discounts while assuming significantly greater overhead costs for LIHEAP customer account administration. “The combination of both provides a powerful disincentive for participation in the LIHEAP program,” Morgan said. NEFI told HHC that many heating oil dealers can no longer operate at the margins that state LIHEAP authorities impose.
NEFI also shared its concern that many local CAPs are not administering the LIHEAP program with consistent standards and practices that create efficiency and predictability. While some CAPs have efficient procedures, others rely on outdated, handwritten paper records and use processing systems that delay applications and reimbursement and create uncertainty about procedures and requirements. NEFI asked HHS to adopt consistent standards and practices for state program authorities and CAPs to strengthen the delivery of benefits to low income families and reduce unsustainable LIHEAP overhead costs imposed on vendors.
“Heating oil dealers will do their fair share to ensure that low income families stay warm during the winter heating season,” NEFI wrote in the conclusion of its briefing paper. “However, they should not be expected to do this at the expense of profitability. In order to make LIHEAP successful and sustainable over the long run, fundamental changes must be made in the program now.
“Those changes include reducing the administrative burden on heating oil dealers from unnecessary data collection requirements and inconsistent program administration, establishing equitable and realistic pricing mechanisms and delivering timely reimbursements that are necessary to sustain operating ability in a cost effective and efficient manner.”
Going forward NEFI can help HHS hone the LIHEAP program, according to Trunzo. “They can bring best practices to the program directors, and we can talk to them about what is working well and what went poorly,” he said.
While the HHS officials were receptive to NEFI’s ideas, they have limited ability to influence practices within a given state, because LIHEAP is distributed as a block grant, which carries only general provisions about how it can be used. For example, each state is free to set LIHEAP eligibility levels and award amounts. HHS agreed to continue the dialogue with NEFI and will reach out to state program administrators to address program inefficiencies.
New England LIHEAP Programs at a Glance
EDITOR’s NOTE: Information is provided by New England Fuel Institute.
LIHEAP FY 2013 Funding: $76,014,000
LIHEAP Income Eligibility Level: 150 percent Federal Poverty Level
LIHEAP FY 2012 Benefit for Heating: $600 average
LIHEAP Households Served in FY 2012: 100,416
Pricing Mechanism: Information from the Oil Price Information Service (OPIS) is used to determine the daily Fixed Margin Price, which is used to pay oil vendors making deliveries. The Fixed Margin Price is based on the daily OPIS Standard No. 2 Fuel Oil with 0.3 sulfur content, plus a fixed margin of 31 cents per gallon. In addition, this year’s Fixed Margin Pricing Program also includes county differentials in the pricing mechanism. The differentials vary from county to county, and were determined based on a county-by-county comparison of the retail prices of 67,600 oil deliveries completed under last year’s energy assistance program.
LIHEAP FY 2013 Funding: $36,046,000
LIHEAP Income Eligibility Level: 60 percent of state median income (SMI)
LIHEAP FY 2012 Benefit Heating: $480 average
LIHEAP Households Served in FY 2012: 54,384
Pricing Mechanism: Heating oil dealers must take a 7-cent discount on retail (DOR) on all LIHEAP customer gallons, including on all gallons purchased by the customer but not paid with LIHEAP funds.
Participation: Approximately 90 percent of heating oil dealers in Maine participate in the LIHEAP program.
Reimbursement: The State pays out LIHEAP funds directly to heating oil dealers in a lump sum based on the number of LIHEAP recipients served.
LIHEAP FY 2013 Funding: $132,150,000
LIHEAP Income Eligibility Level: 60 percent SMI
LIHEAP FY 2012 Benefit Heating: $870 average deliverable fuel, $550 gas and electric; maximum $1,096 deliverable fuel, $635 gas and electric
LIHEAP Households Served in FY 2012: 197,848
Pricing Mechanism: Heating oil dealers are allowed a 50 cent MOR. The state determines the baseline wholesale price by collecting rack prices at key terminals statewide on a daily basis and then issues these prices to fuel assistance agencies who then communicate with heating oil dealers in their customer network.
Reimbursement: CAPs pay out LIHEAP funds to heating oil dealers.
LIHEAP FY 2013 Funding: $24,321,000
LIHEAP Income Eligibility Level: 200 percent of Federal Poverty Guidelines; 60 percent SMI
LIHEAP FY 2012 Benefit Heating: $120 minimum, $720 average, $975 maximum
LIHEAP Households Served in FY 2012: 38,021
LIHEAP FY 2013 Funding: $23,908,000
LIHEAP Income Eligibility Level: 60 percent SMI
LIHEAP FY 2011 Benefit Heating: $390 average; $450 maximum
LIHEAP Households Served in FY 2009: 33,932
Pricing Mechanism: Heating oil dealers are required to price fuel at the lowest cash price of the day.
Reimbursement: CAPs pay out LIHEAP funds to participating heating oil dealers.
Participation: Approximately 90 percent of heating oil dealers participate in the LIHEAP program.
LIHEAP FY 2013 Funding: $18,230,000
LIHEAP Income Eligibility Level: 185 percent Federal Poverty Level
LIHEAP FY 2012 Benefit Heating: $900 average (includes state funds)
LIHEAP Households Served in FY 2012: 38,939
Pricing Mechanism: Heating oil dealers have a choice between a margin over rack (MOR) reimbursement or a DOR. DOR is 15-cents per gallon in addition to the dealer’s discount for cash or prompt payment. The MOR option is 50 cents above a blended rack price and published daily.
Reimbursement: The state pays out LIHEAP funds directly to heating oil dealers based on the number of LIHEAP recipients served. Lump sum disbursements are made on November 15 of each year. Any unused money must be returned by the dealer no later than June 1. Community action programs only pay out LIHEAP funds for crisis fuel delivery.
Participation: Approximately 80 percent of dealers participate in the LIHEAP program.