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CAC negotiated a Universal Service Fund Program with Vectren, Citizens Gas, industrial customers, and the Office of Utility Consumer Counselor. The USP is designed to keep low-income customers connected. This, as CAC's expert witness describes, is beneficial not only to individual low-income households but to all customers.

Direct Testimony of Roger D. Colton before the Indiana Utility Regulatory Commission, pertaining to Cause No. 42590, Joint Petition of Indiana Gas Company, Inc.; Southern Indiana Gas and Electric Company, and the Board of Directors for Utilities of the Department of Public Utilities of the City of Indianapolis; for approval of the establishment of a Universal Service Program. 28 May 2004.

In 2004 Citizens Action Coalition negotiated a settlement authorizing the implementation of a two-year pilot "Universal Service Program" by Vectren and Citizens Gas. The universal service program discussed here provides tiered utility assistance and weatherization services to customers enrolled in the federal Low-Income Home Energy Assistance Program (LIHEAP)1. It is designed make natural gas bills more affordable to low-income Indiana customers, which improves payment patterns and reduces the business and social costs of inability to pay.

For natural gas bills to be considered affordable, they should be equivalent to approximately 4% of a household's income. The program provides percentage discounts in levels, depending on a household's income, that bring natural gas bills to a value that is 4% of the household's income or, at least, closer to 4%. The program also provides funding for weatherization services to many program participants, which can substantially lower gas bills, bringing them to a more affordable level. These services are funded by a public benefits charge on customers' gas utility bills.

The benefits of a program like this are clear for low-income customers, and they actually save money for all customers, as well as the company. Programs like this also benefit businesses and health care providers. Affordable home energy benefits all customers because:

  1. Low-income customers will be more able to pay their bills in full.
  2. This lowers the cost of energy for all customers, because the company reduces expenses related to debt collection.
  3. More affordable home energy can mean better health for low-income customers. It helps them keep their homes warmer in the winter, and it frees funds that can go towards better nutrition and medical attention.
  4. More affordable home energy reduces missed work days and employee turnover at low-wage jobs.

A universal service program addresses payment patterns for low-income households.

The payment patterns for low-income households are adversely affected by unaffordable home energy costs. For example:

  • According to data reported by the U.S. Census Bureau (1995), the percentage of poor families unable to pay their utilities in full (32.4%) is significantly higher than the percentage non-poor families unable to do so (9.8%).
  • The percentage of poor families having their electric and/or natural gas services disconnected for non-payment within the previous year (8.5%) is also substantially higher than the percentage of non-poor families (1.8%).

Further, the study of payment patterns for low income households in Iowa shows that:

  • The heavier cost burden of heating during winter months has a greater impact on low-income households. About twice as many energy-assisted accounts compared to the total population are behind on their payments in non-heating months, whereas three times as many energy-assisted accounts compared to the total population are behind on their payments during the winter.
  • The level of debt is higher for energy assistance customers, and it racks up faster in winter months.

Several universal service programs are being run across the country, and have tracked their program's impact on payment patterns. Universal Service Programs have been found to:

  • Increase the number of payments made;
  • Improve the completeness of each bill paid;
  • Improve the promptness of payments;
  • Decrease the number of disconnections;
  • Improve the extent to which payments reduce account balances to zero.

Making natural gas bills more affordable for low-income households through a universal assistance program benefits all customers and the company, in addition to low-income households.

By addressing the payment patterns of low-income customers by making home energy more affordable, benefits of the program extend to all customers. Because the program reduces the number of accounts in arrears (debt) and the level of arrears, it also decreases the cost of service that is passed onto ratepayers. For example, fewer resources and staff will be needed to direct collection efforts towards low-income customers. This expense reduction also helps postpone future base rate cases, which benefits all classes of customers.

The ability to afford natural gas bills positively affects the health of low-income households.

The inability to pay energy bills has serious affects on the quality of life, including a negative impact on the health of people in low-income households. For example, the National Energy Assistance Survey (funded by Congress) found that:

  • 22% of energy assistance recipients reported going without food for a day. Good nutrition promotes good health and reduces the incidence of chronic diseases, and affects childhood development and the health of the elderly.
  • 38% reported foregoing medical or dental care, which can increase bad health and result in larger health bills in the long run.
  • 30% reported going without medicine prescribed by their doctor, or taking a lower dosage than was prescribed, which can prolong illness.
  • 21% perceived that they had become sick because their house was too cold;
  • 14% reported taking a trip to the hospital or doctor because of an illness they perceived was caused by their house being too cold.

When home energy is unaffordable, it can have serious health-related consequences when it affects budgeting for medical care or nutrition. Additionally, when gas or electric for heating is disconnected in the winter, it can make people sick. This is a problem that also impacts the health industry and businesses.

Making natural gas bills more affordable for low-income households benefits businesses-especially small businesses--as well as the health care industry.

Making home energy more affordable for low-income persons most directly benefits businesses that employ them because it reduces employee turnover and absenteeism:

  • Unaffordable home energy leads to frequent mobility of households, increasing employee turnover.
  • To the extent that unaffordable home energy contributes to the poor health of the employee or his/her family (outlined above), it increases missed work days.

Employee turnover and missed work days impact the productivity of a business. It can be costly and time consuming to train new workers.

Small businesses especially benefit from affordable home energy for low-income households. That is because, in Indiana and elsewhere, small business disproportionately employs residents with limited employment skills. The employees of small businesses often would not have other employment opportunities. At the same time, small firms disproportionately pay low wages that do not allow a household to exist without public assistance. They can continue to offer low-wage employment when external programs are available to fill the wage gap.

Health care providers also benefit from the program. It is generally less expensive to keep someone healthy than to make them healthy once they become ill. Specific behaviors and characteristics of low-income households impose high costs on the health care system, including:

  • Many are uninsured
  • They will often postpone immediate care, which can make a small problem big.
  • They are more likely to use emergency rooms as a primary health provider.

All of these impose larger costs on the healthcare system, and to a large degree, unaffordable home energy contributes to each of these problems. For example, on an Iowa LIHEAP Energy Survey, 20.9% of respondents reported going without medical care (including postponing assistance, not filling prescriptions, or not taking the dosage of medicines ordered by the doctor) to pay for energy bills. When energy bills are affordable, it saves low-income households money that can go towards keeping themselves healthy, reducing the instances of large health problems and emergency room visits.

In sum, the implementation of this program should prove beneficial to all energy customers. It makes home energy more affordable for low-income customers, making them more able to keep up with their payments, and helping to keep them healthy and productive. It also saves all customers and the company money by reducing administrative costs and bad debt.

1Eligibility based on income and family size.

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