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The Illinois Affordable Energy Campaign (IAEC) started meeting in January of 2003 to discuss policy
changes that can improve the current Low Income Home Energy Assistance Program (LIHEAP).
While the LIHEAP program is a great benefit for low-income people, the program can be greatly
improved through a series of common sense reform measures that will: make energy more affordable
for the program LIHEAP customers; fund program changes by redistributing program resources rather
than increasing program costs; and improve the ability of utilities to manage or bear the cost of
providing services to low-income consumers without serious harm or loss.
The basic goals of the IAEC are:
1. To make energy more affordable for LIHEAP program consumers by redistributing
program benefits in a manner that will allow for an affordable payment plan.
2. Propose a portfolio of cost containment and revenue enhancing mechanisms that will allow
for a redistribution of program resources in an affordable manner and suggest
opportunities to secure additional resources needed to serve more of the eligible
population.
3. Reconfigure the interrelated funding and service complexities of the program in a manner
that will simplify program regulations and the distribution of the program resources.
4. To use market mechanisms to stabilize the volatile costs of natural gas.
5. To reduce: the number of households chronically behind on monthly bill payments; the
number of households that need to have services disconnected due to non-payment; and
reduce collection expenses for delinquent LIHEAP customers.
Current Low Income Home Energy Assistance Program (LIHEAP) Program Description
For many Illinois households, energy costs place a severe and continuing stress on the family's
budget. In some instances, the household is forced to make painful decisions regarding which bills to
pay and which necessities to survive without. The Low Income Home Energy Assistance Program
(LIHEAP) was started in the mid 1970’s to assist eligible low-income households pay for winter energy
services. The LIHEAP is funded by the U. S. Department of Health and Human Services and the
State of Illinois. Both the federal and state programs are administered by the Illinois Department of
Commerce and Economic Opportunity (DCEO). Energy Assistance is provided by local community
action agencies or not-for-profit agencies throughout the state.
The federal LIHEAP program is designed to help low-income households with their home energy bills.
LIHEAP can assist eligible households to stay warm in the winter and cool in the summer. By doing
so, the risk of health and safety issues (such as illness, fire, or eviction) is reduced. The federal
government does not provide energy assistance directly to the public. Instead, LIHEAP services are
provided by Community Action Agencies and other not-for-profit service agencies called Local Area
Agencies (LAA’s) under contract with the State of Illinois DCEO.
The Illinois LIHEAP program is funded through a monthly meter (gas & electric) surcharge. The
surcharge rate schedule is:
1) $0.40 per month on each account for residential electric service;
2) $0.40 per month on each account for residential gas service;
3) $4 per month on each account for non-residential electric service which had less than 10
megawatts of peak demand during the previous calendar year;
4) $4 per month on each account for non-residential gas service which had distributed to it
less than 4 million therms of gas during the previous calendar year;
5) $300 per month on each account for non-residential electric service which had 10
megawatts or greater of peak demand during the previous calendar year; and
6) $300 per month on each account for non-residential gas service which had 4 million or
more therms of gas distributed to it during the previous calendar year.1
The federal program provides approximately $75 million per year for energy assistance and the state
program provides approximately $65 million. When the federal and state LIHEAP programs are
combined, the current program distributes a total of approximately $140 million to 316,000 households
in 2003.2
Program Eligibility
A person may be eligible to receive assistance under LIHEAP if the household's combined income is
at or below 150 percent of poverty. The chart below gives an indication of what your income can be
and still receive LIHEAP assistance. If you rent, and your heat and/or electric is included in the rent,
then your rent must be greater than 30% of your income in order to be eligible to receive benefits.
# of People Living in Household Gross Income for 30 days Prior Annual
to Application Date Income
1 $1,123 $13,470
2 $1,515 $18,180
3 $1,908 $22,890
4 $2,300 $27,600
5 $2,693 $32,310
6 $3,085 $37,020
7 $3,478 $41,730
8 $3,870 $46,440
For each additional member add $392 - Guidelines effective September 1, 2003
1
Illinois Compiled Statutes: Energy Assistance Act of 1989; 305 ILCS 20/13, Sec. 13. Supplemental
Low-Income Energy Assistance Fund.
2
DCEO; LIHEAP Status Report, Program Year 2003; As per Larry Dawson, DCEO Chief of Energy, January 15,
2004.
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Problem: Low-income people cannot afford the current high costs of household energy.
While the average American pays 4-6 percent of their income for energy, low-income people are
paying between 21-31percent. As a result, the stakeholders in the current system struggle to
maintain effectiveness through adaptability. In the meantime, more and more people are unable to
pay for their energy needs and many are accruing higher and higher arrearage amounts.
Chart #1: 3
Winter Energy Bills as Percentage of Income
35%
31%
Cold Winter
30%
Warm Winter
25%
21%
20%
20%
17%
15% 13%
10% 9%
6%
5% 4%
0%
General Households LIHEAP before LIHEAP after Low Income
assistance assistance unassisted
Also there is the issue that the current Illinois LIHEAP services are not being distributed as equitably
as they should be to the neediest of the needy. As many as 10 percent of the current LIHEAP
population actually get a credit from the Direct Vendor Payment system while nearly half of all
LIHEAP households still have to pay as much as 10 percent to more than 25 percent of their incomes
for energy after they have been served by LIHEAP. According to an Illinois Department of Natural
Resources analysis of this proposal, this unfortunate pattern could be significantly changed by the
Affordable Energy Plan. The chart below shows that instead of having only 21 percent of the LIHEAP
population paying between 5-10 percent of their incomes for energy after assistance (as the current
program does), the Affordable Energy Plan would have as many as 73 percent of the LIHEAP
population paying 5-10 percent of their incomes after assistance for energy. At the same time, the
Affordable Energy Plan could reduce the number of households paying between 10 percent of their
income to more than 25 percent of their incomes after assistance from more than 50 percent of the
current LIHEAP population to 12 percent.
3
Illinois Department of Natural Resources, February, 2004.
3
Percent of Income for Natural Gas Heat
Before assistance
>25% of income
41%
0-5% of income
2%
5-10% of income
12%
10-25% of income
45%
After Assistance Existing Program After Assistance Proposed Program
<0% (credits)
0-5% of income
10%
19% 0-5% of income
12%
<0% (credits)
>25% of income 3%
20% >25% of income
3%
5-10% of income 5-10% of income
21% 10-25% of income
9% 73%
10-25% of income
Solution: By using a series of cost containment and revenue generating concepts, the Affordable
Energy plan proposes fundamental changes in LIHEAP program design. The affordable plan will
target available resources to households that: have the lowest income; households that have the
highest energy burden; and have the highest arrears.
The Illinois Affordable Energy plan has several interdependent components designed to: make energy
more affordable for participants; to encourage regular and affordable payments from L-I consumers;
and to pay for itself through various cost containment options. There are nine components to the
plan.
A brief description of each component is outlined below.
(1) Percentage of Income Payment Plan (PIPP):
Under the affordable plan, Illinois LIHEAP consumers will have the option to participate in a
Percentage of Income Payment Plan (PIPP). The PIPP will be a year round program that will
require participants to pay 7 percent of their income for primary heat and 3 percent for
secondary energy. If PIPP payments exceed the current bill (i.e. people who continue with the
PIPP in summer months will possibly pay more than they owe) the excess amount will go for
paying off default amounts and arrearages. The balance of what is owed to the utility would
be paid from a portfolio of cost containment measures proposed in section 9 below. Prior to
gaining entry to the PIPP, the customer would be counseled concerning the possible benefits
of the PIPP program. The Local Area Agency (LAA) will work with the individual consumer to
develop an energy self-sufficiency plan (an energy payment plan).
The amount of the PIPP payment will be based on typical energy usage as determined by the
Illinois Department of Natural Resources (DNR) annual report. Any consumption of energy
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over the typical use amount will be paid by the client. If a household is an all-electric home,
the household is eligible for a 10% electrical PIPP. Households who have utility costs included
as an undesignated portion of their rent or “heat in rent”, and households that have home
delivered fuel will continue to be served under the current DVP. Consumers who pay electric
and have heat included in their rent can receive a 3 percent PIPP. Consumers who pay a gas
bill and have electricity included in their rent can receive a 7 percent PIPP.
Other eligible LIHEAP consumers who chose to not participate in the PIPP will receive a basic
flat grant. The flat grant amount will be set annually by the Illinois Department of Commerce
and Economic Opportunity (DCEO) in consultation the DCEO Policy Advisory Council (PAC).
The flat grant amount will be determined by taking into consideration the amount of available
program resources and should be set at a level so as to encourage participation in the PIPP.
Some have argued that a PIPP would cost the state as much as $100 million. While an
analysis was done in 1996 that shows a PIPP would cost approximately that much, that
analysis was done prior to the Illinois LIHEAP (meter charge) was implemented, and that
analysis did not include a hedging strategy. A Illinois Department of Natural Resources
analysis of the PIPP proposed in this plan demonstrates that the program could conceivably
serve more people for the same price ($140 million) during a warm winter. During a cold
winter the LIHEAP program could need as much as $10-$20 million. See the chart below:
Net Cost of 7%/3% PIPP
with insurance
$60.0
$40.0
$20.0
illions
cold
$0.0
warm
m
$150 DVP $300 DVP
($20.0)
($40.0)
($60.0)
(2) Energy Efficiency:
Energy efficiency is an important component of any future LIHEAP plan because of its ability
to help control the state’s cost by lowering the heating bills of participants. The DCEO in
consultation with the PAC shall establish an energy efficiency and weatherization program
targeted, to the extent practicable, to high-cost, high-volume use structures occupied by
customers eligible for the PIPP, with the goal of reducing the energy bills of the occupants.
Acceptance of energy efficiency and weatherization services provided by the program shall be
a condition for the eligibility of any such customer to participate in the percentage of income
payment plan program.
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There are two main goals for the energy efficiency component of Affordable Energy Plan.
1) Targeting the highest cost households for weatherization
2) Providing no-cost, low-cost efficiency strategies for all participants
As a guideline, the DCEO and the PAC should consider information provided by participants
on the size, heating systems, building characteristics, etc. of their homes as well as analyzing
gas bills of participants and targeting the top energy users to receive further weatherization
services. These services would be inline with those currently offered by the state
weatherization program, i.e. home repairs, replacement windows, furnaces etc. The resources
would also come from the current state and federal LIHEAP weatherization funds.
The program should also include some form of agreement that participants will implement a
series of low-cost/no-cost energy efficiency measures. To ensure participation in this
component, it is important to create an incentive structure of some kind. For example, the
program could include a bonus payment for households whose weather-adjusted use of gas
during the winter is lower than their use during the previous winter. Other incentives (as
mentioned above) would be to have a maximum payment based on average consumption of
energy. The efficiency information could be relayed in two ways 1) at required workshops or
2) at the time of application.
PIPP participants should also be provided with the option to enroll with the local Workforce
Investment Agency (WIA) for job referral and training at the time of application for energy
assistance.
3) Hedging on Natural Gas Costs:
As everyone is aware, the price of natural gas has been volatile for the past several years.
There is a very high demand from natural gas in the current marketplace. Also, there has
been a decreasing supply of natural gas, creating a market force that drives up the price of
natural gas. For a chart that shows the volatility of natural gas in Illinois see attached page 9.
To protect the LIHEAP program from having to pay very high gas bills in during a time when
prices are very high (i.e. the winter of 2001), the department will have to use financial hedging
tools. DCEO and the PAC will predetermined the amount of funding allocated for this purpose
each year. The amount should be based upon projections in the price of natural gas, and the
consumption of gas by program participants. If hedging results in the accrual of program
resources in excess of what is needed for the program, these resources should be carried
over to the next year to purchase the hedging costs for the next program year.
The current IL LIHEAP design simply allows higher natural gas costs to be passed on to the
LIHEAP consumers. Hedging will correct that flaw by providing a protection for LIHEAP
resources at minimal cost to the program. The most practical way of understanding hedging is
to view it as purchasing insurance that natural gas prices will not exceed a certain amount. If
the price of natural gas exceeds projections, the hedging options will add resources during a
colder winter rather than the opposite effect of the current system that increases cost burden
on consumers. In a warmer than average heating season the hedging will be a cost to the
program much like car insurance is a cost if there are no accidents or repairs that can be
claimed against the insurance. In either case, the program planning will be simpler due to the
ability to project program costs outside the parameters of market fluctuations.
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The volume of natural gas consumed by the participants in the PIPP program will be estimated
and the DCEO will put out to bid the development and implementation of the hedging strategy.
(4) Automatic Reconnection
A Chicago Tribune story in November, 2003 estimated that 40,000 to 50,000 homes were
disconnected from utilities due to large unpaid balances. This creates a health and safety
issue that can only be described as a crisis. Due to organizing efforts of service providers and
advocates, the Illinois Commerce Commission and the Governor negotiated with utilities for an
affordable reconnection plan ($250 payment or a payment of 20% of the outstanding bill
whichever the least amount). This was put into effect for this year only on December 11th,
2003.
This reconnection agreement should be made permanent for several basic reasons:
a. The current Emergency Services (ES) provision of IL LIHEAP is using
approximately 15 percent of all LIHEAP resources.4 This amounts to millions of
LIHEAP resources being utilized for reconnection and arrearage reduction. As
described below, the primary purpose of LIHEAP is to help meet the immediate
needs of eligible households.
b. Currently IL LIHEAP allows an eligible household to receive up to $750 of LIHEAP
resources for ES. This is in addition to a maximum Direct Vendor Payment (PVP)
of $450. The high amount of the allowed ES payment is viewed as a disincentive
for LIHEAP households to make regular payments in the warm weather months,
and represents an amount of resources that could be applied to assist the unpaid
balance of persons participating in the PIPP. For example, every time a person is
reconnected at $250 vs. $750, $500 will be made available for redistribution within
the program to help pay for the costs of PIPP. This reconnection agreement
should not preclude a possible lower reconnection payment plan negotiated by the
Local Area Agency (LAA). This agreement does not address the costs associated
with ES furnace repairs and replacements.
c. The driving principle behind an affordable energy plan is to make energy
affordable. Currently, each utility is allowed to prescribe its own payment plan as a
condition for reconnection. These payment plans require that the customer pay
their current bill plus (overtime) what they owe in arrears. Usually this periods of
time does not exceed 12 months (in some cases the repayment period is shorter
than 12 months). This is the customer’s only option regardless of: 1) the amount of
arrears owed by the customer; and 2) with no consideration for the income of the
LIHEAP customer. This is a barrier to participation in a payment plan because in
many cases it is not affordable (i.e. the larger the amount owed, the less affordable
the monthly payment will be).
d. An affordable energy plan should also be designed to reinforce the habit of making
an affordable payment on a regular basis. When payments are made routinely on
a regular basis: 1) the consumer will be rewarded by seeing the benefit of building
their good credit; and 2) increase the utilities collection of a larger share of what is
owed to them.
4
DCEO handout at December 16, 2004, Policy Advisory Council Meeting, held at CEDA in Chicago.
7
e. Finally, the bill should also make it clear that the utility cannot impose any other
conditions for the customer than those mentioned above (a payment of $250 or
20% of the total whichever is the least amount).
(5) How Payments Are Applied:5
Any money provided to the jurisdictional utility should first be applied to the customer's current
monthly payment obligation as determined in accordance with the federal LIHEAP program.
The federal program places the primary emphasis of the LIHEAP program on meeting the
immediate home energy needs of those with low incomes and high relative energy burdens,
with a secondary emphasis on reducing the energy needs and costs of such households. Any
money in excess of the amount necessary to satisfy the current monthly payment obligation
should be applied to either the amount the customer is in default on an extended payment
plan, or if no such default exists, then to the customer's arrearages.
(6) Cost Discounts for Regular Payments:
This is also a key component of the overall program because it helps achieve two program
goals. It will make the plan more affordable for consumers, and it will help create better
customers by encouraging regular payments. For each time a customer makes an on-time
regular monthly payment for (a period of time to be determined) the utility will give credit to the
customer (in a manner to be determined) towards a reduction of what the consumer owes in
arrears. The act therefore proposes to forgive an amount equal to a one month payment for
every time there are three consecutive monthly payments made.
(7) Once the arrears are written off by a utility as a bad debt, the arrearage should be
forgiven to the customer.
Advocates and service providers agree that even after utilities write off the amounts of
uncollected payments and arrears, they still continue to try and collect these balances from
individuals. This practice should be prohibited by law. Once the arrears are written off by a
utility as a bad debt, the arrearage should be forgiven to the customer.
(8) Increase reporting requirements for utilities:
Amend the Public Utilities Act, Article V, 220 ILCS 5/, by requiring every public utility that
provides gas or electric service to residential customers as primary or secondary sources of
heating or cooling to report in writing to the Illinois Commerce Commission the following
information: (1) the number of accounts that are past due each month, (2) the aggregate
amount of past due balances each month, (3) the number of disconnection notices issued to
residential customers each month, (4) the number of residential customers disconnected each
month, (5) the number of residential customers eligible for emergency services under the
Energy Assistance Act each year, and (6) the aggregate amount of arrears that are written off
as business bad debt each year.
9) Pay for the program changes by redistributing the program costs using a portfolio of
cost containment options:
5
Letter from Ohio Partners for Affordable Energy, December 2, 2003.
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1. Hedging of a portion of natural gas costs and use cold winters savings to pay for warmer
winters hedging costs.
2. Redistribute a portion of Illinois LIHEAP funds within the program to pay for PIPP costs.
3. Good faith payment credits will be given for each time a person makes three consecutive
payments. This should alleviate the arrearage problem over time.
4. Use the savings realized from the codified reconnection requirement of paying $250 or 20
percent of the total whichever is less, to pay for some the costs of the PIPP.
5. All pre-distribution interest earnings realized from LIHEAP resources that are deposited by
the State of Illinois should be available for LIHEAP program expenses.
6. Consideration of an across the board waiver to pay for a percentage of the PIPP.
7. Consideration of the Ohio practice of bulk purchasing of natural gas if it can be
demonstrated that Illinois utilities are not making good purchasing decisions.
8. All additional resources saved or realized through program redistribution or through
identifying new sources of funding should be made available to pay for the costs of the
PIPP.
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