State PBF/USF History, Legislation, Implementation
Last Updated: February 2011
On November 1, 2010, Ohio began an updated Percentage of Income Payment Plan (PIPP) for low-income households. Called "PIPP Plus," it revamped the PIPP that had been in place in Ohio since 1983 (the oldest and largest PIPP in the nation).
The new program makes customers' monthly payments more affordable on a year-round basis. Participating households pay six percent of their monthly income or $10 per month to both electric and natural gas utilities, whichever is greater. All-electric customers pay 10 percent of their income or $10 as their monthly payment, whichever is greater.
This compares to a maximum energy bill payment of 15 percent of income (generally 10 percent for gas and five percent for electric) for participants in the original PIPP.
According to the Ohio Department of Development (ODOD), which administers LIHEAP and the electric portion of the PIPP, the new PIPP was designed to improve the program as follows:
- Contain escalating costs while continuing to provide a valuable benefit. Costs of the electric PIPP have increased by 221 percent since 2001, from $47.7million in 2001 to $153 million in 2010, and enrollment has soared from 137,000 in 2001 to 288,630 in 2010. Current costs for the gas PIPP aren't available, but in 2008 it enrolled over 211,000 households at a cost of at least $85 million.
- Increase payment frequency while reducing PIPP payment requirements. Program records showed that less than five percent of participants made their PIPP payment every month.
- Align the gas and electric PIPPs. Under the original program, the gas PIPP payment was made year-round, while the electric PIPP payment was the PIPP amount or the actual bill, whichever was higher, for the non-winter months. Under the new program, the electric PIPP will be year-round. Most participants, over the course of a year, will pay less under PIPP Plus than they paid under the original program.
- Create a uniform arrearage-crediting program for accruing and past arrearages. If customers 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. If the customer makes 24 consecutive payments, in full and on time, the entire debt will be forgiven. The 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 original PIPP was the largest and oldest state-mandated PIPP in the country. It required 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 were several different PIPP plans, but the maximum PIPP payment was 15 percent of the household’s income. If customers remained current on their PIPP payments, they could not 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, was recovered through riders or surcharges on gas and electricity bills.
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 comprised of staff from the Ohio Department of Development (ODOD), the LIHEAP and weatherization grantee; the PUCO, the Office of Consumer Counsel and low-income advocacy and consumer groups. As mentioned above, it developed proposals to improve the program, while containing escalating costs and continuing to provide a valuable benefit.
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 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.
The legislation assigned administration of the electric PIPP, and the energy efficiency and consumer education programs to the ODOD, 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 it 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 2010 totaled around $198 million. While the majority of the rider revenues funds the PIPP (at least $153 million during 2010), about $15 million is set aside each year for the low-income energy efficiency program and 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.
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 2005-2006, 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 Plus
Rules for the restructured gas PIPP, along with other case documents
Consumer information page of the Public Utilities Commission of Ohio