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- Energy affordability has become a major concern for many Americans, including many in Indiana.
- In an effort to address soaring electricity bills, the Indiana House passed legislation that would change the way state decides whether to approve rate hikes.
- The new system would allow Indiana to reward or penalize companies on the basis of their affordability, reliability and resilience.
In an ambitious attempt to address what many have called an energy affordability crisis, Indiana state representatives passed legislation on the evening of Jan. 28 that addresses Hoosiers’ rising electricity bills, passing it on to their colleagues in the Indiana Senate.
House Bill 1002, a state priority bill, was designed to address how investor-owned electric public utilities operate in Indiana, bill author Rep. Alaina Shonkwiler (R-Noblesville) said. She wants to see utilities prioritize affordability, reliability and resilience.
At a hearing of the House Committee of Utilities, Energy and Telecommunications on Jan. 13 she said this bill will give the state much needed power to hold utilities accountable.
“Electricity is increasingly a health and safety necessity, not merely a discretionary service,” Shonkwiler said. The legislation aims to directly address affordability, she added, especially for vulnerable Hoosiers.
The bill arrives after a year of unprecedented increases in electricity rates. The Citizens Action Coalition, an Indianapolis based consumer-advocacy group and utility watchdog, found that electricity rates jumped more than 17% statewide from 2024 to 2025, or about an extra $28 each month.
The bill approaches Indiana’s rising electricity costs from several angles. It proposes several short term assists for Hoosiers like stabilizing volatile bills by averaging out monthly costs to avoid seasonal shocks. It would also keep on power for low-income households during extreme heat events.
But the main thrust of the bill focuses on the long game.
“The bill is a significant restructuring of the ratemaking process,” said Rep. Matt Pierce (D-Bloomington), who initially expressed some consternation that the bill did not do more to provide Hoosiers immediate relief.
The bill introduces a system known as performance based ratemaking, or PBR, that would change how utilities petition the state to increase their rates. This framework would allow Indiana to reward or penalize utilities based on their performance — with one performance metric being affordability for customers.
Shonkwiler said that PBR responds to a rapidly evolving energy landscape. At least 17 other states have adopted the framework in recent years as grid infrastructure ages, extreme weather events increase and economic pressures mount, making it trickier for utilities to provide energy consistently and cheaply.
“We’re updating our regulatory tools so utilities are held accountable for delivering the outcomes we want: strong reliability, improved resilience and better affordability,” Shonkwiler said. “This is the essence of performance based ratemaking.”
A system built on reward and punishment
Indiana has been shuffling toward PBR for several years.
In 2023, the Indiana General Assembly directed the Indiana Utility Regulatory Commission (IURC) to study what it would look like if the state adopted pieces of a PBR framework. Last year, the IURC published its findings in a 135-page report, which the bill authors leaned on as they crafted HB 1002.
The bill does not jump full-throttle into PBR, Shonkwiler said. Rather it incorporates pieces of PBR into the state’s current regulatory framework to avoid some of the downsides commonly associated with PBR. For example, if a state incentivizes certain metrics, some fear a utility might drop the ball elsewhere to focus on meeting those measures.
The bill calls for the state to increase the length of time between rate cases by transitioning utilities onto multi-year rate planning timelines, allowing for new rate cases every three years. Currently, Indiana utilities work inside a cost-based system. This means utilities can ask for rate increases with more flexibility, as seen with AES’s back to back requests in 2024 and 2025.
“Back when things were really stable, it could be twenty years between rate cases or it could be two,” said Rep. Ed Soliday (R-Valparaiso), a co-author on the bill. “This establishes a more consistent system and has very defined rewards, incentives, and negative incentives.”
Disincentives are the second piece of the PBR puzzle. When utilities approach the IURC to file rate cases, the commission will judge their performance metrics, based on the three state-defined pillars of affordability, reliability and resilience that will result in rewards or penalties.
The current regulatory system incentivizes capital investment into infrastructure, regardless of how those investments perform for customers, Shonkwiler said. PBR would allow the state to focus on outcomes.
“PBR is like a performance review, something nearly every employer uses for its employees. It creates expectations, measures real world results and aligns compensation with performance,” Shonkwiler said. “We expect accountability and transparency from every sector of government and business. It’s reasonable to expect the same of our utilities.”
Bill includes short-term solutions, too
Apart from PBR, which is touted as the bill’s longer term affordability fix, House Bill 1002 includes several shorter term solutions for Hoosiers struggling to budget for energy, keep the lights on or pay their bills.
To start, it would create something akin to a state-wide budget billing system. After much hullabaloo and edits, the bill as of Jan. 29 prohibits utilities from calling the program budget billing. Instead, all electricity suppliers under IURC’s jurisdiction must place their residential customers on “levelized billing plans” after June 30th, 2026. Customers will be able to opt out, but the bill reverses Indiana’s typical “opt-in” model.
Levelized billing is designed to smooth out the monthly bill spikes that can hit during sweltering summer and frigid winter months. Customers on these plans receive monthly bills that do not fully reflect their monthly usage; instead, their first monthly bill under the plan might be an average of their last 12 monthly bills. Instead of paying next to nothing in April and an arm and a leg in July, customers on levelized billing plans are charged something close to the same average amount each month.
In cases where discrepancies arise between how much the customer pays based on the estimate and how much electricity they use, utilities will typically “true up” with customers once a year.
Shonkwiler conceded that some ratepayers can be stuck with significant expenses in these true ups if their estimate led them to underpay for 12 months. Sometimes those bills can be several hundred dollars.
These surprise costs make budget billing “wildly unpopular,” said Kerwin Olson, the executive director of the Citizens Action Coalition, who argued against this aspect of the bill in a Jan. 13 hearing.
Lobbyists and lawmakers debated the merits of keeping levelized billing in House Bill 1002, but for now, it remains, with the request that utilities conduct two yearly “true ups” to minimize sticker shock.
The bill also orders utilities to implement low-income financial assistance programs and creates a moratorium for electricity shutoffs during warmer weather. Utilities will not be able to disrupt service to customers when the National Weather Service has issued a heat index above 95 degrees.
Support and apprehension from lobbyists, lawmakers
Almost every lawmaker and lobbyist who testified for or against the bill as it was dissected for hours across three committee hearings supported the bill’s intention.
“We are still reviewing the bill, as amended, but note that several of the committee changes addressed concerns raised during testimony about process and regulatory matters,” Danielle McGrath, president of the Indiana Energy Association, a trade association that represents investor owned utilities, wrote in an email to IndyStar.
Pierce, a lawmaker with lingering discontent about the bill’s current iteration, wanted it to do more. He pushed forward an amendment to remove the sales tax on electricity for one year, but that died on the House floor 61-34 on Jan. 27th.
“We need to provide some immediate relief to our constituents on these utility bills. The underlying bill has some positive things in it, but it’s gonna take a bit of time to get it all into place,” he said.
Despite the failed amendment, Pierce voted in favor of the bill when it passed through the House on Jan. 28 with a vote of 89-4.
The bill will now move to the Senate, with the support of Senator Eric Koch (R-Bedford).
IndyStar’s environmental reporting is made possible through the generous support of the nonprofit Nina Mason Pulliam Charitable Trust.
Sophie Hartley is an IndyStar environment reporter. You can reach her at [email protected] or on X at @sophienhartley.
