Challenge

Roughly a quarter of  households across the country are “energy-burdened,” meaning they pay more than 6% of their income towards energy bills.¹ Urban low-income households pay an average of 8.3% of their incomes towards energy bills, but some are even higher: an estimated one-quarter of urban low-income households pay more than 15.2% of their income for energy.² Meanwhile, average rural low-income households face energy cost burdens of 9.5%.³ Energy affordability is an escalating challenge which forces households to face difficult trade-offs between paying their energy bills or for other essential needs, including food, medicine, and housing. Lack of utility bill payment can also lead to utility disconnections, which put vulnerable populations such as children and the elderly at particular risk.

Policy Solution

Percentage-of-Income Payment Plans place a cap on utility bills at a percentage of household income. This cap is typically set such that total energy bills—e.g. combined gas and electricity bills—do not exceed 6% of income for low-income households. Lower thresholds may be set for the lowest-income households.

Model Policy Features

Key policy components that make PIPPs effective include:

• Cap utility bills at an agreed-upon “affordable” threshold (typically 6%) for low-income households, including consideration of lower caps for very low-income households. 
• Ensure policies are opt-out for low-income households receiving other benefits, rather than opt-in, which can often lead to low enrollment. 
• Minimize the paperwork required for enrollment.
• Eliminate requirements that may put mixed status households at risk due to the process of signing up.
• Enable households to self-attest income.
• Couple with arrearage management/forgiveness programs.
• Include provisions for regular data reporting and public transparency (e.g., public-facing data dashboards, program evaluation, audits to ensure meaningful benefits reach intended populations).”
• Ensure sufficient funding to cover all income-eligible households, without a waiting list. 
• Conduct ongoing engagement efforts with eligible households, including in multiple languages and to recipients of other benefits programs.
• Integrate non-energy benefits, both to the low-income households and to society at large, such as reduced loss of housing and reduced cost of shelter and emergency room visits into accounting for benefits of increasing affordability.

Potential Policy Drawbacks and Pitfalls

• PIPPs help improve energy affordability, but alone they do not address the root causes of high energy cost burdens. If the money for a PIPP runs out, households will face the same affordability challenges as before. PIPPs therefore should be combined with root cause policies that help reduce energy bills, such as energy efficiency and weatherization . 
• Policy design can also significantly impact enrollment levels—and therefore effectiveness—of PIPPs; many existing PIPP programs report very low enrollment of eligible customers.
• Unlike discounted rates for low-income households, PIPPs reduce some the price signals that would potentially encourage energy-saving behavior (e.g. conservation); however, such conservation is often out of reach for renter households or those unable to afford energy efficiency measures, and so PIPPs can help ensure bills are reduced to an “affordable” threshold in a way that discounted rates cannot.
• Does not affect bills for propane or fuel oil.

Complementary Policies

Complementary policies include: 

• Bill credits, arrearage management plans, and disconnection protections to help pay for bills and reduce the impacts of late payments.
• Weatherization, residential solar+storage programs, efficient residential electrification and community solar to help systemically reduce energy demand and, in turn, energy bills and the overall funding required for a PIPP program.