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A proposal to revamp Indiana’s regulatory framework and affordability programs for electricity service providers is headed to the House floor.
A legislative priority for Republicans, House Bill 1002 requires the state’s investor-owned utilities to start low-income-customer assistance programs, bans service shutoffs in the summer and moves all customers to “levelized” billing plans.
The legislation would also see Indiana dip its toes into performance-based ratemaking—a new regulatory framework in which utilities are locked into rates for three-year periods.
After lengthy testimony and debate last week over how best to make sure low-income families would be protected from shutoffs in the summer and would understand their monthly utility bills, the legislation passed the House Committee on Utilities, Energy and Telecommunications on Tuesday with unanimous support.
“The goal … is to prioritize affordability for Hoosier ratepayers and ensure our utilities are maintaining transparent, cost-effective practices,” the bill’s author, Rep. Alaina Shonkwiler, R-Noblesville, said in committee testimony.
Gov. Mike Braun also signaled his support for the legislation in his State of the State address.
Levelized billing
A point of emphasis for the bill is to help for low-income customers amid price hikes caused by rising energy demand.
The bill would require utilities, starting July 1, to enroll all eligible customers in a low-income assistance program to help pay for monthly bills. Many utilities already offer such programs.
Debates in committee centered on how to pay for assistance programs. The original bill suggested utility companies fund the offerings from half of the amount they recovered from ratepayers under their IURC-approved energy-efficiency programs in the most recent year.
Danielle McGrath, president of the Indiana Energy Association, cautioned that using such a mechanism could lead to unpredictable spikes and dips in funding from year to year, while Rep. Matt Pierce, D-Bloomington, questioned whether the Indiana Utility Regulatory Commission should have a say in how to administer low-income programs.
An amendment from committee chair Rep. Ed Soliday, R-Valparaiso, on Tuesday changed funding for low-income programs to be at least 0.2% of a utility company’s total yearly revenue.
“They’re all going to have to do something and it’s going to cost them some money,” said Soliday about the funding mechanism. “Somebody’s going to have to pay to make this work.”
The bill attempts to prevent surprises when customers see their monthly utility bills. To that effect, the legislation requires all customers to go to what’s commonly known as “budget billing,” in which utility companies average a customer’s electricity usage for the past year and charge the monthly average cost of their usage for that period.
A few times a year, the customers must “true up” and pay for the actual amount of electricity they used. The idea is for customers to have a fixed electricity bill to make budgeting expenses easier.
But Rep. Cherish Pryor, D-Indianapolis, and Rep. Alex Burton, D-Evansville, said their constituents have been confused, saying the term “budget” implies customers are on a low-income assistance program.
Burton offered an amendment to change the term budget billing to “levelized” billing to make the process more clear. As written, HB 1001 requires all customers to have levelized billing, but users can opt out at any time.
Language was also added during Tuesday’s committee session to prevent power shutoffs from June 1 through Sept. 23, similar to existing prohibitions against shutoffs in the winter.
“This bill is a good start; we think it could be improved a bit along the way,” said Pierce, who is the ranking minority member on the House utilities committee.
Pierce offered an amendment Tuesday that would have eliminated the state’s 7% sales tax on utility bills, saying it would give ratepayers more immediate relief, but it was voted down by Republicans on the committee who worried about budgetary impacts.
Multiyear planning
HB 1001 also marks a significant change in how regulators set electric rates for monopoly utility providers.
For much of the past century, Indiana has used a “cost of service” model to determine rates, in which utilities calculate how much money it took to provide service, add on a rate of return for investors and submit their rate requests to the Indiana Utility Regulatory Commission.
The IURC hears testimony and documentation from the utility and from other stakeholders, then decides what a “reasonable” amount of cost recovery includes and sets rates for customers accordingly.
But Shonkwiler’s bill shifts the state to a performance-based ratemaking model that involves multiyear rate plans. The idea is to set electricity rates for three years at a time. Knowing they can’t ask for rate increases for a prolonged period, utilities are incentivized to operate more efficiently in order to make a profit.
The proposed legislation outlines that the process for setting multiyear rate plans would look similar to current rate requests utilities make before the IURC.
Along with multiyear plans, the bill sets up performance-based metrics that utilities would be rewarded for meeting or penalized for falling short.
Specifically, providers would be incentivized to keep rates in line with the national electricity inflation average, as measured by the consumer price index. Regulators can also use service restoration times as an incentive, though some people who testified in committee questioned whether the one basis point of financial reward or penalty would be enough for utility companies to change their behavior.
The Indiana Energy Association, which represents utility providers, supported making multiyear rate plans optional for utilities, but the bill as written requires the new practice starting in 2027.
Ratepayers advocates like Kerwin Olson, the executive director of the Citizens Action Coalition, had technical concerns over what information electric providers had to submit for rate plans. Overall, he thinks the bill will be a welcome initiative for low-income families, but wouldn’t have much effect on most customers in the short term.
“I think this bill is conflating affordability with stability a little bit,” Olson said. “We don’t see anything in the bill that is going to reduce rates for customers going forward, unless you are a low-income customer.”
The bill heads to the House floor for more potential amendments and a vote.
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