Overview of Low-Income Restructuring
Legislation and Implementation
Ohio
Last Updated: July 2009
Summary
Ohio’s longstanding Percentage of Income Payment Plan (PIPP) has been restructured for the first time in its 26-year history. However, it is likely the new program won’t be in place until the winter of 2010-11, according to a ruling by the Public Utilities Commission of Ohio (PUCO). Consumer groups have contested the ruling.
When the new program is implemented, low-income participants will pay a maximum of 6 percent of their incomes on their natural gas bills and 6 percent on their electric bills for a total of 12 percent, or 10 percent if they heat with electricity. PIPP customers must make a minimum payment of $10 per month. This compares to a maximum energy bill payment of 15 percent of income (generally 10 percent for gas and 5 percent electric) for low-income participants in the existing PIPP.
Participants will also be offered a standard arrearage-crediting program. If they make their monthly PIPP payment on time, they will receive a bill credit that is the difference, if any, between their monthly PIPP payment and their bill. Furthermore, for each timely payment, they will receive a credit amounting to 1/24th of their historic arrearages. The arrearage crediting program was designed to keep low-income customers from falling deeper into debt; it is also expected to help control PIPP program costs by encouraging responsible payment behavior.
First implemented in 1983, based on an order of the Public Utilities Commission of Ohio, Ohio’s PIPP is the largest and oldest state-mandated PIPP in the country, serving over 200,000 households during FY 2008 under separate gas and electric components. It requires customers with incomes up to 150 percent of federal poverty guidelines to pay a percent of their monthly household incomes to the utility or utilities providing their primary and secondary heating service. There are several different PIPP plans, but the maximum PIPP payment is 15 percent of the household’s income. If customers remain current on their PIPP payments, they cannot be shut off at any time regardless of the amount of their arrears. The amount of the bill not covered by a combination of the customer’s PIPP payment, the LIHEAP payment, and any other energy assistance the customer may receive, is recovered through riders or surcharges on gas and electricity bills.
Originally, the PIPP had been funded by a PIPP rider, or ratepayer surcharge, on customers of Ohio’s regulated electric and gas utilities. The state’s 1999 restructuring legislation (see “History” section below) created a Universal Service Fund (USF) to fund the electric PIPP, along with an energy efficiency and consumer education program for PIPP households. The law converted the electric PIPP rider to a universal service rider, assessed on customers of eight electric utilities. The gas PIPP rider remained unchanged for gas utilities, as did the gas portion of the PIPP.
In 2006, a PIPP reform working group began studying ways to improve the PIPP and it finalized proposals for program changes during 2008 and 2009, with final rules for both programs approved by the PUCO in the latter year. The working group was composed of staff from the Ohio Department of Development (ODOD), the LIHEAP grantee; the PUCO, the Office of Consumer Counsel and low-income advocacy and consumer groups.
According to presentations by the group, the reform proposals were designed to improve the program as follows:
- Contain escalating costs while continuing to provide a valuable benefit. The rider revenue required for the 2008 electric USF ($148 million) had increased by more than 100 percent over the 2001 level ($64.6 million). Enrollment for the electric PIPP was around 137,500 customers in 2001; it had soared to over 230,000 by 2009.
- Increase payment frequency while reducing PIPP payment requirements. Many stakeholders saw the 15 percent of income customer payment as too high, and program records showed that less than 9 percent of participating households made their PIPP payment every month. The group initially recommended a more affordable amount of between 6 to 8 percent of income.
- Create more program similarity between the gas and the electric PIPPs. The gas PIPP payment is made year-round, while the electric PIPP payment is the PIPP amount or the actual bill, whichever is higher, for the months outside the winter heating season. Under the new rules, the electric PIPP will be year-round.
- Create a uniform arrearage crediting program for accruing and past arrearages. As mentioned above, the restructured PIPP will have a standard arrearage crediting program for gas and electric customers, designed to limit accrued arrears and help customers manage past arrears.
- Create a better way to repackage energy assistance programs, including LIHEAP, to make payment plans more affordable and reduce reliance on emergency LIHEAP. The number of repeat users of emergency LIHEAP in recent years has been as high as 40 percent. The restructured program will require customers to meet a standard for payments in order to retain eligibility for PIPP.
- Stabilize costs and reimbursement methods in order to avoid a cash-flow dilemma that has required ODOD to borrow funds to avoid paying penalties to companies.
History
Ohio's restructuring legislation, signed into law July 6, 1999, established a Universal Service Fund (USF) for low-income customer assistance programs, to include the state’s existing PIPP, targeted low-income energy-efficiency programs, a consumer education program, and administration costs. Funding originates from a universal service rider assessed on retail electric distribution service rates.
The legislation assigned administration of these programs to the ODOD, the LIHEAP and weatherization grantee, with a goal of lowering program administration costs and providing a one-stop shop for program clients. (Prior to the restructuring law, Ohio’s utilities administered their PIPPs and energy efficiency programs; gas utilities continue to administer their programs.)
ODOD’s Office of Community Services had been involved in operational aspects of PIPP since the program’s inception. Effective October 2000, it began to administer the PIPP portion of the USF funds.
The restructuring law requires utilities to collect the rider revenues and remit them to OCS, which must keep them in an interest-bearing account called the USF. OCS verifies the amount of unpaid PIPP customers' bills, called PIPP arrears, and returns that amount to the appropriate company. Remaining funds from the rider collection stay in the USF, to be spent on electric energy efficiency and consumer education services to high-consumption, high-arrears PIPP households.
During a year-long process of USF implementation after the law’s passage, a USF rider was determined for each electric utility territory to cover the newly authorized programs. The rider is adjusted each year, based on the revenue requirements of the programs, and the revenue collected varies because it is based on electric consumption.
USF rider revenues for 2008 totaled around $148 million; they are projected to total around $156 million for 2009. While the majority of the rider revenues funds the PIPP (at least $120 million during 2009), about $7 million is set aside each year for the low-income energy efficiency program and $6 million for consumer education. By comparison, rider revenues for 2001 were $64.6 million, while the amount spent on the PIPP was less than $50 million.
The natural gas PIPP, administered by the utilities, served over 211,000 households during 2008, up from 194,000 during 2006. The program cost about $85 million during 2006; costs were not available for later years. The gas PIPP rider is embedded in gas distribution charges and companies collect for costs as needed, rather than readjusting the rider annually.
Energy Efficiency
The low-income efficiency program, called the Electric Partnership Program (EPP), began in March 2002, and is targeted to high consumption, high arrears PIPP or PIPP-eligible households who are customers of the state’s investor-owned electric utilities. Its goal is to reduce electric consumption by these households in order to reduce the growth of PIPP household arrears and, as a result, reduce the amount of money ratepayers pay to support the PIPP.
As of June 2007, the program had helped over 45,000 PIPP households, providing 26,081 new energy efficient refrigerators, 9,784 freezers, and 635,489 compact fluorescent light bulbs.
The third impact evaluation of the EPP was completed in June 2006 and is posted on the website of the Ohio Department of Development, the weatherization grantee. The evaluation shows the EPP continues to produce substantial electricity savings in thousands of PIPP households each year.
The EPP is composed of two types of programs: a baseload efficiency program which audits lighting, appliances and all other uses of electricity not related to heating, and installs appropriate measures; and a weatherization program for those who heat with electricity and who have moderate to high usage.
The program provides in-home audits, appropriate electric baseload and thermal energy efficiency measures, and consumer education. The major baseload measures are replacement of inefficient refrigerators and freezers and installation of compact fluorescent light bulbs. Weatherization measures include insulation and heating system inspections. EPP also addresses health and safety issues. The education component varies in intensity depending on the PIPP customer's electric consumption and other factors. Participants may receive in-home visits, attend workshops or receive materials by mail.
As to whether EPP has reduced PIPP costs, the evaluation notes that the $12.7 million in lifetime bill savings shown in the evaluation will reduce the cost of PIPP by an estimated $11.3 million and provide about $1.4 million in out-of-pocket savings to the participants.
ODOD’s Office of Energy Efficiency (OEE), the state weatherization grantee, administers the EPP. In coordination with OCS, it monitors monthly consumption, bill payment and arrearage data from electric utilities for their PIPP accounts. Households whose total energy burdens exceed a certain threshold are targeted for EPP and conservation education services. (For more information, see the LIHEAP Networker, Issue # 41.)
A unique feature of Ohio’s restructuring law forgave arrearages owed by elderly (age 65 and older) or disabled PIPP customers who had complied with their payment responsibilities. As of the end of 2001, utilities had forgiven over 22,000 accounts totaling about $34 million. The arrearage forgiveness provision was one-time, not ongoing.
In 2003, the PUCO authorized arrearage crediting programs in several gas utility territories; these permit gas PIPP customers who pay their bills on time to eliminate arrearages over three years. Credits are provided annually. In 2005-06 gas companies forgave about $6.5 million in PIPP arrearages. The gas arrearage crediting programs were the model for the standard arrearage crediting program that will be implemented once the reformed PIPP gets underway.
Per the restructuring legislation, ODOD is also authorized to aggregate electric PIPP customers for the purpose of seeking competitive generation supplies; any savings that results from aggregation of PIPP customers would be reinvested in the EPP. The gas supplies of PIPP customers are already aggregated (see Residential Natural Gas Choice Programs: Overview and Close-up Of Low-income Aggregation).
ODOD issued an RFP in 2002 seeking a supplier to aggregate electric PIPP customers, either statewide or in selected regions or utility territories. ODOD received three bids, but did not find savings significant enough to accept any of them, a reflection of the lack of competitive electricity prices within the state. ODOD issued another RFP in 2004, but it was withdrawn due to continued lack of competition in the market and rate stabilization cases pending before the regulatory commission that prevented prudent forecasting by potential bidders and the department.
For more information, see:
Rules for the restructured electric PIPP
Rules for the restructured gas PIPP, along with other case documents
The Ohio LIHEAP website, or the consumer information page of the Public Utilities Commission of Ohio
The 1999 restructuring Ohio law
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Page Last Updated: September 24, 2009
