Overview of Low-Income Restructuring
Legislation and Implementation

Ohio
Last Updated: April 2008

Ohio’s electric Universal Service Fund is now in its eighth year of operations and escalating energy costs continue to send more low-income people to the state’s longstanding Percentage of Income Payment Plan (PIPP).

Ohio's restructuring legislation, signed into law July 6, 1999, established a Universal Service Fund (USF) for low-income customer assistance programs, to include Ohio's existing Percentage of Income Payment Plan, 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 Ohio Department of Development (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.)

First implemented in 1983, based on an order of the Public Utilities Commission of Ohio (PUCO), Ohio’s PIPP is the largest and oldest state-mandated PIPP in the country, serving over 200,000 households (both electric and gas) during FY 2007. Originally, the PIPP had been funded by a PIPP rider, or ratepayer surcharge on customers of Ohio’s regulated electric and gas utilities. The restructuring legislation converted the electric PIPP rider to a universal service rider, assessed on customers of eight electric utilities. (The gas PIPP rider remains unchanged for gas utilities, as does the gas portion of the PIPP).

PIPP 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 the riders.

ODOD’s Office of Community Services, the LIHEAP grantee, 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 it 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 2007 totaled around $111.5 million; they are projected to total around $148 million for 2008. While the majority of the rider revenues funds the PIPP (at least $99 million during 2007), about $7 million is set aside each year for the 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.

During March of 2007 the program’s enrollment was the highest in its history – 230,205 households. Average enrollment for the year was 215,000 households. Since 2001, enrollment has increased by 56 percent from the total of 137,399 that year. The average PIPP payment for 2007 was $477.

The natural gas PIPP, administered by the utilities, served about 208,000 households during 2007, up from 194,000 during 2006. The program cost about $85 million during 2006; costs were not available for 2007 The gas PIPP rider is embedded in gas distribution charges and companies collect for costs as needed, rather than readjusting the rider annually.

For the past couple years, a PIPP reform working group has been studying ways to improve the PIPP and will propose program changes during 2008. The working group is composed of ODOD, the Public Utilities Commission of Ohio, the Office of Consumer Counsel and low-income advocates.

According to a presentation by the group, the reform proposals will try to:

• Contain escalating costs of the program while continuing to provide a valuable benefit. Records show the rider revenue required for the 2008 electric USF ($148 million) will be an increase of more than 100 percent over the 2001 level ($64.6 million). Additionally, according to ODOD, the high program cost creates a cash-flow dilemma that requires ODOD to borrow funds to avoid paying penalties to companies.
  
  
• Increase payment frequency while reducing PIPP payment requirements. Many stakeholders see the 15 percent of income customer payment as too high; the group recommends a more affordable amount of between 6 to 8 percent of income, in part because less than 9 percent of participating households make their payment every month.
  
  
• Create more program similarity between the gas and the electric PIPPs.
  
  
• Create a better way to repackage energy assistance programs, including LIHEAP, to make payment plans for affordable and reduce reliance on emergency LIHEAP. The number of repeat users of emergency LIHEAP in consecutive years has been as high as 40 percent. The new model would require customers to meet a standard for payments in order to retain eligibility for PIPP.

Energy Efficiency

Since 2006, the efficiency program, called the Electric Partnership Program (EPP), (formerly Targeted Energy Efficiency Program), 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 program has three components: for those with high baseload use, moderate baseload use and those with moderate or high electric heating or cooling. The evaluation found the programs for high baseload users and for high heating and cooling users were cost effective with savings-to-investment ratios of 1.50 and 1.37 respectively. The program for moderate users was not cost effective.

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. EPP also provides weatherization measures for those who heat with electricity and who have moderate to high usage. It 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 ermit 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.

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, visit the Ohio LIHEAP website, or the information page of the Public Utilities Commission of Ohio. The Ohio law can be accessed at:
www.legislature.state.oh.us/BillText123/123_SB_3_10_N.htm

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Page Last Updated: December 19, 2008