1. Low-Income Rate Affordability Programs: A Multi-State Study Legal Implications Presented By: Roger D. Colton Fisher, Sheehan & Colton Belmont, MA 02478 October 21, 2007

2. Ohio PIPP Reform2 October 2007 Ohio’s Percentage of Income Payment Plan (PIPP): Background  1983 PUCO proceeding initiated by Columbia Gas  Relied on “emergency powers” of R.C. 4909.16 Unable to retain service due to DNPs Increases in cost of electricity and gas Decrease in level of government aid  “Necessary alternative service to be available to residential customers.”

3. Ohio PIPP Reform3 October 2007 Ohio’s PIPP: Background (#2) Public Utility Commission of Ohio: “We have in this proceeding looked at such alternatives to the percentage of income plan as maintaining the status quo, extending payment plans from six months to twelve or more months, and having another moratorium. All things considered, the [PIPP] will do the most to assist those in need to maintain utility service while protecting the companies remaining ratepayers.”

4. Ohio PIPP Reform4 October 2007 Ohio’s PIPP: Background (#3) Ohio supreme court: PUCO’s emergency powers “include authority to impair contractual provisions as needed to alleviate an emergency, if it bears a real and substantial relation to the health, safety, morals or general welfare of the public, and if it is not unreasonable or arbitrary.”

5. Ohio PIPP Reform5 October 2007 Past rationales (#1 of 3): More effective collections  Pennsylvania (Customer Assistance Program): Stop the wasteful cycle of payment plans, then disconnects, then reconnects, then more payment plans.  Wisconsin (Early Identification Program): Disconnections are an effective collection tool for only 12% of residential accounts in arrears.

6. Ohio PIPP Reform6 October 2007 Past rationales (#2 of 3): Stop post-winter disconnections

7. Ohio PIPP Reform7 October 2007 Past rationales (#3 of 3): Generate positive financial benefits to all

8. Ohio PIPP Reform8 October 2007 Legal justification (#1 of 3): Indiana’s Alternative Regulation  Whether...operating conditions...render the exercise, in whole or part, of jurisdiction by the commission unnecessary or wasteful.  Whether the commission’s declining to exercise, in whole or in part, its jurisdiction will be beneficial for the energy utility, the energy utility’s customers, or the state.  Whether the commission’s declining to exercise, in whole or in part, its jurisdiction will promote energy utility efficiency.

9. Ohio PIPP Reform9 October 2007 New legal justification (#2 of 3): Indiana’s Alternative Regulation  Whether the commission should “decline to exercise, in whole or in part, its jurisdiction over either the energy utility or the retail energy service of the energy utility, or both.”  Commission authorized to “establish rates and charges that are in the public interest as determined by consideration of the [statutorily- prescribed] factors...” Indiana state supreme court: The “public interest” under the alternative regulation statute “encompasses a wide range of considerations” and “is not confined to customer interests.”

10. Ohio PIPP Reform10 October 2007 New legal Justification (#3 of 3): Indiana’s Alternative Regulation  Operating conditions render regulation “unnecessary or wasteful.” Responding to structural change in gas prices. Responding to volatility in gas prices.  Promote efficiency in energy utility processes. Existing processes fail to collect revenue; Existing processes fail to keep customers on system.  Beneficial to the utility, its customers, or the state. Health and safety benefits. Economic competitiveness benefits.

11. Ohio PIPP Reform11 October 2007 New legal Justification: U ntried [energy] legal rationales  Universal service is a “public good” to be supported by the system. Payment for local loop in telecomm rates.  Rate discounts/arrearage forgiveness used as “incentive” need not be strictly cost-based. Late charges; “Price signals” in inverted block rates.  Discount rates justified to level the reverse subsidy. Peaking/capacity costs imposed on small users.  Generic authority to construe regulatory jurisdiction to further health and safety. Environmental regulation vs. “economic” regulation.  Can contract out to third party to do indirectly what utility cannot do directly. Imposed surcharges for credit cards/bank cards.

12. Ohio PIPP Reform12 October 2007 Legal “lessons learned”  Existing practices have costs embedded in rates.  Revenues are as important as costs.  What happens in absence of program is relevant.  Issue is “which of these” alternatives.  Health and safety regulation along with economic regulation  Treating the same is not the same as treating equally.  Program design is not unrelated to legal questions.  Diverging from “cost-based not uncommon.

13. Ohio PIPP Reform13 October 2007 For more information: http://www.fsconline.com News Library

14. Ohio PIPP Reform14 October 2007 For more information: roger@fsconline.com