Overview of Low-Income Restructuring
Legislation and Implementation

Pennsylvania
Last Updated: November 2009
Summary

Pennsylvania 's electric and gas utilities spent about $394 million on low-income rate assistance and energy efficiency programs during 2008, a 10 percent increase over the $358 million spent in 2007. Most of these programs were mandated under the state's utility restructuring laws.

Pennsylvania is into its tenth year of experience with electric restructuring. Electric utility restructuring became law in September 1996, and electric choice began in January 1999. In June 1999, it became one of the first states to offer both gas and electric supplier choice with the passage of natural gas competition legislation.

Both the electric and the gas restructuring legislation required regulated utilities to continue their existing low-income rate assistance and energy efficiency programs and consumer protection provisions beyond restructuring.

The following summarizes electric restructuring universal service provisions, followed by natural gas provisions.

Electric companies

Regarding low-income programs, Pennsylvania's restructuring law states that "the Commonwealth must, at a minimum, continue the protections, policies, and services that now assist customers who are low-income to afford electric service." It also states that "electric distribution companies should continue to be the provider of last resort in order to ensure the availability of universal electric service in this Commonwealth unless another provider of last resort is approved by the Commission."

The costs of universal service and energy conservation services are recovered by non-bypassable, competitively neutral distribution service charges, according to the law. Electric cooperatives are also required to continue their universal service and energy conservation programs, using the same funding mechanism.

Electric restructuring plans filed by eight major electric utilities went into effect January 1, 1999. Each subsequent year, through 2008, the plans have shown considerable gains in low-income program funding and enrollments. The programs are to continue at least at those levels because the restructuring legislation stipulates that universal service programs are to be appropriately funded and available.

The most common form of utility rate assistance in Pennsylvania is the Customer Assistance Program (CAP). The programs must follow the universal service guidelines set forth in the relevant state statute at 52 Pa. Code, subchapters 54.71 through 58.15. In place at most major gas and electric utilities for over a decade, CAPs usually provide a percentage-of-bill plan or a percentage-of-income payment plan, wherein low-income customers' utility payments are based upon their incomes and/or utility bills. Some programs include utility arrearage forgiveness; others provide flat rate discounts or bill credits.

CAP expenditures have been increasing every year since 1998; and since 2003 they have more than tripled, from $107.6 million that year to nearly $364 million in 2008. Likewise, enrollments have increased in the past five years, from 290,193 households receiving rate assistance through CAPs in 2003 to 419,980 in 2008.

Low-income energy efficiency is provided through the Low-Income Usage Reduction Program (LIURP), which was mandated by a 1987 Public Utility Commission (PUC) order, renewed in 1992 through 1996, and continued under the universal service provisions of restructuring legislation. Pre-restructuring funding levels were established at about 2/10 of one percent of each utility's total revenues; post-restructuring levels have been established in restructuring filings. Total spending has tripled from $10.2 million in 1996 to $30.1 million in 2008. (See chart below). LIURP includes an education component that addresses energy savings and regular bill payment behavior and provides application assistance.

The PUC addressed the question of who will administer the low-income programs early on. In July 1997, the PUC issued a Final Order establishing Guidelines for Universal Service and Energy Conservation Programs. The PUC order stated that utilities themselves should continue to administer their programs, relying on community-based organizations. Currently, some utilities use community action agencies and community-based organizations to administer their programs locally.

The Order stated that the "universal service funding mechanism should be collected by the electric distribution company (EDC) as a non-bypassable distribution charge, paid by all customers. Universal service and LIHEAP benefits should be assigned to the EDC."

The state office that administers LIHEAP, the Department of Public Welfare, has also weighed in on assignment of LIHEAP benefits. It has maintained its policy of sending the LIHEAP payment to the EDCs because it believes this is the best way to protect low-income customers. Under Pennsylvania's restructuring statute, the EDCs are the suppliers of last resort, they remain regulated, and they must comply with the state's winter termination rules.

The department also decided it would not split the LIHEAP benefit between suppliers and distributors, nor would it split the benefit between electric and gas utilities or other vendors. This is because a two or three way division of benefits would be administratively burdensome and would likely result in a very small grant to each entity. (Currently Pennsylvania LIHEAP clients may designate which vendor — gas, electric or bulk fuel — is their primary heating vendor, and the payment is sent to the vendor they designate.)

The Final Order did not specify any particular spending level for universal service or energy conservation. In its tentative order, the PUC had recommended expansion of spending on these programs and had pegged funding of at least 0.2 percent of revenues for LIURP and 0.5 percent of jurisdictional revenues for customer assistance programs. Some local agencies and some members of the state legislature had concurred. Utilities, on the other hand, opposed specific funding levels for LIURP or CAPS. They cited the rate cap that was imposed under the restructuring legislation as a limiting factor, adding that they should not be expected to expand existing programs or incur increased expenses. They also recommended that each utility determine its own funding based on existing programs and customer needs.

The Final Order stated that each restructuring filing must include a needs assessment to "ensure that programs are well directed to meet the greatest need in the community for affordable energy. The needs assessment should examine the market for an acceptance of universal service programming in the territory."

Gas companies

According to reports filed with the Pennsylvania PUC and the state LIHEAP office under the leveraging incentive program, gas rate assistance programs (also known as CAPs) amounted to about $20 million in 1998. Low-Income Usage Reduction or conservation programs funded by gas utility ratepayers totaled about $7.3 million. From 1999 through 2001, the PUC and seven major gas utilities agreed on enrollment levels for gas universal service programs as part of restructuring filings. Funding levels were not established in the filings; rather, utilities must spend what is necessary to meet the enrollment levels.

As with electric low-income programs, all of the gas companies have committed to expanding their CAP enrollment levels. For example, CAPs enrolled about 54,000 households in 1998; enrollment reached over 182,000 by the end of 2006, falling to 171,000 during 2007, and climbing to 179,958 in 2008. Spending has jumped from around $20 million in 1998 to over $175 million during 2008. (See chart below.) As is the case with electric utilities, gas programs must follow the guidelines of the Pennsylvania statute at 52 Pa. Code, subchapters 62.1 through 62.8.

The above-mentioned totals include the low-income expenditures and enrollments of the municipal utility Philadelphia Gas Works (PGW.) Under the 1999 gas restructuring law, PGW was placed under the jurisdiction of the PUC, effective July 2000. Prior to that, it was under the jurisdiction of the Philadelphia Gas Commission; it was not required to file a restructuring plan and its low-income programs did not fall under the state's universal service guidelines. PGW's restructuring plan was approved by the PUC in April 2003, and it went into effect in September 2003. In its plan, PGW committed to serving 65,000 customers through its CAP. During 2008 its CAP served about 78,000 customers at a cost of about $102.5 million.

In addition to the above-mentioned assistance, PGW has for many years provided a 20 percent rate discount to seniors aged 65 and over of all income levels, amounting to about $20 million per year and serving 80,000 households. In its restructuring plan, PGW said it would phase out the program, keeping it in place for currently enrolled customers, but adding no new customers after September 1, 2003.

The following chart shows electric and gas utility CAP and LIURP enrollment and funding levels for 1996 and 1998 (pre-restructuring) and for the last two years, 2007 and 2008.

Pennsylvania Universal Service Funding History
	Prior to Restructuring
Electric	1996	2007	2008
CAP Enrollment	45,707	219,748	240,002
CAP Funding	$26,000,000	$147,635,291	$189,171,318
LIURP Funding	$10,200,000	$20,558,560	$21,634,127
Natural Gas	1998	2007	2008
CAP Enrollment	54,646	171,014	179,958
CAP Funding	$20,600,000	$182,732,645	$174,497,927
LIURP Funding	$7,385,659	$7,505,665	$8,918,930
Total		2007	2008
CAP Enrollment		390,762	419,960
CAP Funding		$330,367,936	$363,669,245
LIURP Funding		$28,064,225	$30,553,057

Information on low-income programs is available at the Public Utility Commission website; the universal service plans of most the utilities are also found at this website (bottom of page).

A copy of the statutes governing universal service may be found at
www.pacode.com/secure/search.asp; search for "Chapter 52" or "universal service."

Report on 2008 Universal Service Programs and Collection Performance of the Pennsylvania Electric Distribution and Natural Gas Distribution Companies, the PUC’s annual report on universal service programs.

Reports from the Natural Gas Task Force (2001 through 2004)

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Page Last Updated: November 4, 2009