RESIDENTIALD_
FOR ELECTRICITYAND
PRICING POLICY IMPLICATIONSIN A DEVELOPING ECONOMY :.THECASE OF THE PHILIPPINES * Clod_aldo
R. Erancisco _*
STAFF PAPER
May
SERIES
# 8703
1987
This paper was presented at the Energy and'Environmental Policy Center (EEPC), John F. Kennedy School of Government, Harvard University on March 9, 1987 during the EEPC Research Fellows Seminar Series. It also draws from an earlier study of the author covering residential, commercial and industrial consumers. Suggestions by Dale Jorgenson on an earlier draft, financial support from the Philippine Institute for Development Studies (PIDS) and the United Nations Development Program (UNDP), and the use of office and research facilities at Harvard University are gratefully acknowledged. Possible errors and omissions are, however, the author's sole responsibility. Research Fellow, Philippine Institute for Development Studies (PIDS) and Adjunct Research Fellow, Energy and Environmental Policy Center, John F. Kennedy
School of Government,
Harvard
University.
Abstract
A simple model elasticities
its own price,
nal,
Company
franchise
for electricity
variables
A finding
area
is found
prices
of positive
to be responsive
extent
comprise
marginal
in terms of consumers'
response
structure
of
Some pricing
are derived.
prices.
to
equipment, income,
Margi-
the own price
price
explained
subsidized
in the Philippines,.
consuming
and to a certain
and average
and long-run
by residentialconsumers
the price of electricity
inframarginal
variables.
the short-run
for electricity
Electric
demand
environmental
to estimate
of demand
in the Manila Residential
is used
elasticity
to Signals policy
given
is by a
implications
I.
Introduction
and
Organization
This paper uses a simple model long-run
elasticities
and derives
some implications
The specific which
Company I grid.
The remaining Ii descrlbes
consumer
demand
portion
using
of this paper the specific
structure
A model of demand
In Section
consumers
is organized features
reforms. the price
at
in the
as follows.
it is usually
as a
sold and the
of the dynamics demand
is specified
and the nature
the empirical
Electrlc
in the Luzon
of electricity
and long-run
for electricity
III, the data,
economy
of the Manila
electricity
illustration
in the literature
and
data from the PhiliPpines,
at which
showingshort-run
policy
are considered
distributes
A simple diagrammatic
the development
available.
which
briefly
for electricity
presented. account
a utility
good, the price
it is utilized.
is tested
in a developing
as a commodity,
the data on residential
(MERALCO),
Section
of electricity
both the short-run
pricing
way it is utilized
The demand model
specifically,
for electricity
for electricity
characteristics
it is sold and the
analysis. more
of demand
to estimate
6f
behavior
taking
way
is
into
of thedata
specification
of the
I There are seven power grids in the Philippines and the Luzon grid accounts for approxima_ely80% of total electrlclty production and consumption. Total electricity consumption in the MERALCO franchise area accounts for approximately 60% of the total country-wide use of electricity.
demand
model,
and the estimates
of vaiidation, policy
II.
SectloniV
implications.
Features A.
Sectionv
and energy,
hours(kwh) power
generating
length
of
time
and derives
As a form
some
pricing
thestudy.
theDemand
Model
2
time power it must
utilized, expressed
The quantity available
in kilowatts(kw)
of
power
supplied
and the necessary
The quantity
is made
has two related
of energy
available.
be contlnually
supplied
is limited and
depends
the
electricity
to meet
and kilo_att-
transmission
supplied
Since
components,
on
cannot
demand
by
the
be stored
whlch'is
usually
dependent.
demand,
that
for electrlcity,_slde
The use of electricity
electricity
consuming
the stock
demand
utillzatlon Most different
as well electric levels
kw or kwh and respectively. schedule
for
wherein
the demand as
Unlike
since
their
those
of the industrial
equipment
the rate
wherein
is fixed,
depends
it is assumed
the level
of utillzation.of of electricity
via
of
the existing
consuming
on both
equip-
the rate of
level. electricity These
at different
consumption
to as
"demand"
the co_ercial
c0nsumersusua!ly
requirements
is a derived
or satisfaction
In the short-run,
are referred
that of
residential power
sell
time dependent,
utility
for electricity
of consumption.
the prices
being
provides
the stock
the stock
utilities
from
consuming
depends'on
In the long-run,
is not fixed,
only
equipment.
of electricity
for electricity
stock, ment
and
are usually
capacity
The demand
an
which
facilities.
economically,
summarizes
as it is being
respectively.
distribution
the results
are presented.
Dem@.nd and Price
Electricity, power
explains
of Electricity
Supply_
of the parameters
and
and comerclal
levels
small
only
for
are in blocks
and "energy"
industrial
contains
are relatively
prices
charges
users,
the price
the energy
as contrasted
of
charge
with
users.
2 Technically, this characterization differentiates between work. From the economic viewpoint, each component corresponds cular type of cost, capacity and energy costs respectively.
power and to a parti-
_
B.
A Diagrammatic Following
ration
of
Pit' qt
per unit of time while
the other
equal
refers
goods,
to unity. P2t'
> q2t
respectively,
schedule,
level
is shown
where
then
by ABCD.
by his
indifference
BC of his
budget
constraint.
Suppose
the short-run, 0 to q2t with 0 to I. stock
stock
the quantity
that
change. relative
by a shift demand must
> P3t'
range q*t'
a block
demand
which
income
is q*t as
T on the segment
could
be consumed
equlpment. 3
fall within
of the rate of stock
the rate
decreasing
for a given
consuming
only
t are
< qt -< q2t and
at point
of energy
of
assumed
a time period
constraint
equilibrium
could
to the bundle
conveniently
i.e._
curve
electricity
refers
during
IC I tangent
amount
of
qt _> qlt_ qlt
budget
demanded
however,
Suppose, prices
the stock
the consumer's
do not change_
the budget where
purchased
level
been
of the electricity
demand
indifference
illust-
of utilization
In
the range utilization of existing
to q,t/q2t.
is at q*L'
have
llnrium
of
> P2t
curve
the corresponding
In the long-run, could
level
At equilibrium
is equal
levels
Plt
q2t is the maximum
at the existing
axis
has
The consumer's
indicated
using
of electricity
the resulting
a diagr----atic
to the quantity
the vertical
and P3t for consumption
price
demand
the price of which
If the prices
Demand
I provides
of el_ctricity
The horlzontalaxls
demanded
of Electricity
Taylor(1975),oFigure
the dynamics
analysis.
all
Illustration
L is some
additional
income
this
constraint
of electricity level
increas_
to A'BtC'D '. time periods
stock
increases.
in income
equipment
Assuming
is illustrated
The new equilibrium
after
to be able
consuming
t.
The consumer
to reach
this new equi-
of demand.
Suppose, the new stock zation
is q,L/q3L .
income
and other
result
in relatively
This
level
implies
explanatory larger
is q3L"
Here,
that changes
variables changes
which
his rate of stock
over
utili-
time L in relative
determine
demand
prices,
could
in quantity
3 The stock level is usually during period t. If t is equal
measured in power rating of kw, say s to one month, then the maximum quanti_y
of energy which couid be used by the given stock approaches 730s_ kwh. This means that q_ is proportional to s t assuming out non-llnearltles at higher rate of utilization. This simpllfles the representatlon of the concept of rate of utilization of the stock of _electricity consuming equipment.
4
A
!
|
!
i c ! I!
o
.! qlt
i 2
I.
I
J
'
,_
I
I
I
_
I q*t
_ -
'*
q2t q*L
Figure
D'
= qSL
1
Indifference Curve Analysis of â&#x20AC;˘ Consumer Demand for Electricity
--_"-_
';-qt (kwh)
5
demanded both
than over
the direct
and other
and
L.
Thus,
income
elasticities
Now,
constraint
could
income
be at a lower
been
than
but
i.e.,
that
price
long-run
short-run
stock
level
him only
to purchase
additional
electrical
enters
allows
any addition
he may have
it is evident
into
elasticities. of the
Then,
equipment
and
in the shift
he did not make
Thus,
income
a longer
equipment.
level.
> q*t'
reallzedover
results
the Consumer
from q*L In prices,
consuming
utility
consuming
have
aside
changes
in income
of electricity,
that
these
it is expected
that an increase
a part
of
in magnitude
to A'B'C'D'
q2t_wh
electricity
effects
are larger
of electricity
will
is true because
varlables
his stock of
This
on the average,
suppose
to consume
t.
indlrect
explanatory
period
budget
time
to spend
appliances that
the consumer's
to
and he
the priceof demand
function
of electricity
consum-
for electricity. Mor_over_ ing equipment and ure
humidity. increases
other
equipment
the demand affect
of utilization
is affected
as explanatory
For instanc_in
for electrlcity
tropical
the use of refrigerators, for ventilation
Thus_
and warm
Demand
the foregoing
such
regions,
airconditioners_
and are,
as temperature rising
temperat-
electric
consumers.
environmental
for electricity 4 variables.
on
variables
by residential
demand
The Electricity Based
of the st_ck
by envlrJonmental
for electrlcity.
consumer
C.
the rate
variables therefore,
This are
tans and
increases expected
also
to
included
Model discussion,
the following
demand
model
is postulated. qt = qt(Pt ' Bt' At'
Zt' Yt )
(l)
where, Pt Is a vector
of prices
of
electricity
at
B t is a vector
of 'prices of
substitutes
for electricity,
A t is a vector
of prices
Zt is a vector
of environmental
Y
t
is the income
of electricity
period t,
consuming
variables,
equipment,
a_d
variable.
4 For some recent U.S. studies which explicitly include environmental variables, see for instance, Lilllard and Aigner(1984), Dubin(1985) and Engle, et. ai.(1986).
6
The price
vector
of electricity.
Pt consists
Figure
2 shows
the consumer
is at consumption
for quantity
ql
< q _ q2'
Pl is inframarginai price both
results
and
has no
Taylor(1975)
OCDI.
purchase
the desired
schedule
is instead
could
quantities
cation
payment
implying
at
could
be rep_@sented
definition
by
price
could
block,
should
enable price
as shown
be represented or
the total
instead
be
the consumer
P2'
to
If the price
in Figure
by payment
OAIH,
or payment
ABJI
(P3 - P2 )
induces
in the superfluous
the marginal
will
price
3, Taylor's while which
that
of
are negative
subsidy. is theoretically
of the inframarginal B t may
in the inframarginal
the price
the marginal
increasing,
to the consumer,
in the marginal
changes 5 the name.
which
Suppose
is the price
is marginal
while
block
a net
(LPG) and others
BCDE
prices
schedule.
P2' which
ChanRes
that
inframarginal
price
the inframarginal
argues
be represented
The vector gas
that
quantity
price
NordinVs
which
up to but not including
(Pl - P2 ) or the total
Nordln
Then,
changes
hence
and
decreasing
q,.
effects,
on demand,
Nordin(1976)
inframarginal
level
effect,
suggests
by Pl' the price payment
a block
P3 "superfluous".
in an income
effect
the marginal
is the price
income, and substitution
price
of
price
include
which
is used
prices
may
more
serve
appealing
in this
possible
specifi-
study. 6
of firewood, as
and his
liquified substitutes
petroleum for electri-
city. A t is a vector on Figure Electrical are
some Yt
posable
I, these
of prices equipment
appliancessuch
income
are
consuming
the consumer's
is used
a part
consuming
of the bundle
as refrigerator,
of the electricity represents
of electricity
to measure
cooking
equipment. of other
ranse
and
Based
goods. television
equipment.
income. this.
Usually, However,
the personal
dis-
in its absence_
other
5 For added details Murray, et.al.(1978).
on these
observations,
see Taylor(1975,
1977)
and
6 Franclsco(1986) made two sets of parameter and NordlnVs deflnitlons_ The results indicate specification of the inframarginal price yields
estimates using Taylor_s that the latter's better results.
Price
Pl
Price
-
D
p.
D
I
P2 B
_]E -
A
J
P31
-c-
I I
I I 1[
0
F
' !
I I
I I i
_
q*
-
p3
,, ._
.--I j__
,I"I
0
,H
Block
Decreasing
t I
-_F
I I f
I i |
,
IG
, I
q2
)[q ql
Figure
. ! I | j I
'_
>.q ql
_ '
P2
,| ! I - I -
B
2 Price
Figure Schedule
Block
Increasing
q_
q2
3 Price
Schedule
8
income
surrogates
such as employment
level
or
the gross
national
product.
(GNP) are used. Z t could humidity. data
be represented
The choice
llmitatlons_
Iii.
Data,
by factors
of which
factor
such as
to use is most
as it is the case for many
Empirical
Specification
temperature often
and
relatlve
dictated
by
of the above-described
variables.
and Results
A. Data
1984 on
MERALCO
provided
the total
number
consumption
revenues
monthly
hills.
by MERALCO.
taking
consumption,
which
total kwh data, is marginal.
were
fuel
over
The monthly
to determine
The inframarglnal
period
which
Rrices
price
were
made
changes were
also
per
Computed
based
on
provided and
capita
of customers
on the price
kwh
in the
marginal
average
number
monthly
were
other
the monthly
the total
to December
the total
cost and
schedules,
from
1971
Adjustments
thesame
calculated.
is computed
is used
customers,
revenues.
into account
on these rate
prices
from January
of residential
The rate schedules
Based
inframarginal
kwh
and
schedule
on
Nordin's
definition. Monthly
data
refrigerator (NCSO). for
data
and the total monthly
monthly
(1976)
monthly
are
on
the index
taken from
LPG and firewood
electricity.
consuming
firewood,
Census
and
to represent'the
iron and refrigerator
flat
iron
Statistics possible
represent
Monthly
These
The dependent
the level
employment
monthly
maximum
by the Philippine
data are available
Instead,
Quarterly
the corresponding
electricity
the National
are used
monthly
income.
surrogate.
(PAGASA).
of LPG,
and
Office substitutes
the electricity
equipment.
No comparable disposable
Flat
price
employment
temperature
Atmospheric, represent variable
is deflated
data
on per capita
of employment from
NCSO
is used
as income
interpolated
to get
levels.
and relatlve Geophysical
is in per capita the price
humidity
data
and Kstronomical
the environmental
using
were
personal
index
were
provided
Administration
variables. kwh per month. for fuel,
light
The price andwater
of
9
.
with
1978
electricity B.
and electricity
Empirical Assume
More
-The
as the .base year.
price
consuming
indices
of substitutes
equipment
have
the same
for base
year.
Specification
that
(I) takes a double
logarithmic
functional
form.
specifically,
inqt a+bi inl Pit + cj in Bit+
in
+ em E in Zmt + f in Yt + ut m
where
a, bi, cj, dk,
u t is the error buted
The problem
random
could
be minimized
is exogeneously
under
a strong
blocks possible
behavior,
However,
equipment
available however,
ent variable. econometric
price.
mean
0 and
variance
as recognized
the price
is based
on
which
being
2 ou.
by
a function
the rate,schedule
is In
turn usually
the priceschedules
with
significant
This
further
are
number
reduces
of
the
problem. consider
consumers'
earlier,
the price
overcome
this deficiency.
on stock of elec6ricity
However, 8 problems.
distri-
Moreover,
Imcreasing
not explicitly
to overcome
from
by the utility
the same
to help
identlcally
t with
the price
environment.
as stated
is included
possible,
arising
of this potential
(2) does
and
to represent
for all
_
and block
practically
effects
Equation
no data
regulatory
to be estimated
and identification,
determined
decreasing
having
variables
and Taylor(1975),
which
bot_block
is assumed
of simultaneity
Halvorsen(1975) of.quantity,
em and f are the parameters
term which
independent
(2)
this data
this usually
stock
of electr,icity
consuming
Besides,
consuming
equipment.
limitation
by using
leads
adjustment
to autocorrelation
there
is
It is lagged and
depend-
other
7 The price index for fuel, light and water closely approximates the Consumer Price Index (CPI)except for the last few years of the sample period. The former is used to be able to make more meaningful comparison in a related study (Francisco, 1986) of residential demand responses with that of commercial and industrial consumers. However, using the CPI as deflator yields similar:testresults. 8 and
For a discussionof the various demand specifications for electrlcity the associated econometric problems, see Bohi(1981, chapter 2 and 3).
I0
Equation demand t.
(2) could be used
elasticities
Suppose
to assume
by making
t is one month.
that one month
stock
of electricity
within
a one-month
is possible desired
stock levels
variables data
demand
perhaps
this procedure
been
Results
I.
Short-Run
is shown below.
as estimates
of their
hand,
the time
the stock
level
adjust
of changes
Thus,
using
their
is fixed year.
It
to their
in the other
monthly
estimates
of short-run
With
available
data
period
to adjust
t is one
can fully
long-run
it is reasonable
suppose
effects
realized.
adequate
and
for
and annual long-run
168 months,
implemented.
Elasticitles:
The estimated data
fully
and
for consumers
i.e.,
consumers
respectively. 9
can be
C.
one year,
provide
elasticities
the other
and the indirect
could have
could
On
on
consumers,
a period
equipment,
short-run
assumption
For residential
is too short
period.
both
the necessary
consuming
that within
to estimate
Monthly
resldentia_.demand The coefficients short-run
Data(January model
based
1971 on
of the explanatory
elasticities
to November
(2) using variables
1984)
monthly serve
of demand.
in qt = 3.0326 + 0.0893 in PI - 0.0385 In P2 (0.7822) (4.7027j (-0.6364) + 0.0939
in B 1 - 0.0073
(1.1104) - 0.0640
in B 2
(-0.1442) in A 1 - 0.2272
(-0.8943) + 0.3900 in
in'A 2
(-1.8495) Z 1 + 0.1893
(3.1278) + 0..1930 in Y,
in Z 2
(I.9488) (3)
_0.6011)
9 This implicitly assumes that the time period captured by the data coincides with the timing of consumers t decisions on stock adjustments which is not observable. Moreover, some consumers might be able to adjust their stock levels in a period of one month while others may not be able to adjust in a period of one year. This could have effects on the masnltudes of the parameter estimates. For further discussion on this, see Francisco(1986, chapter 6) where a dynamic reformulation of (2) Is used to interpret the results. Suffice it is to say here that the characterization of one month and one year as short-run and long-run respectively is only an approximation of an underlying unoBservable phenomenon.
ii R2 = 0.6620, The figures
_2 = 0.6425,
in the parenthesis
P1 and P2are
are
the marginal
B1 and B2 are the prices A 1 and A 2 are the prices
The price
variable I0 surrogate.
elasticity
from zero while possible
match
of flat
significant.
and
relative
level
and significantly but with
sign.
but with
The signs
(A 2) is
the expected
the correct
Both
positive
of A I and A 2
of refrigerator
ofc_ I and Z 2 are with level'has
different
the correct
insignificant
the price
as an
sign and
sign but
insigni-
requires
verification.
ii of a positive price
Since the price
decreasing
and block
the problems could be
earlier, being
the recent
published
schedules
increasing
Also,
price
does not justify
account
their
as an additional
the sample
period
as relatively
and
average
in their
prices.
Moreover,
residential
based on
could
electri-
the cost-
of additional
behavior
out
has the advantage
behavior
information
if the cost demand
that
demand
are both block
as pointed
price
inframarginal indicates
price
flat for some block
and identification,
additional
Otherwise,
the benefits,
over
Shln(1985)
of getting
schedules.
introduced
the expost
of the marginal
take into
considerations
price,elasticity
as well
of simultaneity
study of Jeong-Shik may
_arginal
is therefore
minimal.
independent
consumers
benefit
i0
respectively,
temperature
by employment
are
but only
Employment
variable.
city
represented
The coefficients
The ex post average
of
maximum
of PI is positive
expectations
The finding
levels,
prices
iron and refrigerator,
monthly
for electricity
both are significant. ficant,
and where,
signs for B I and B 2 respectively.
a priori
= 1.8289.
of LPG and firewood,
that of P2 is insignificant
substitutes
and negative
the t ratios
D.W.
and
Y is the income income
= 0.0603,
and inframarginal
Z I and Z 2 are the average humidity,
S.E.E.
the information
be based
on a
To be able to use (2) in the test, the origin is shifted for the computed data series of inframarginal prices which for some periods are negative for a block increasing price based on Nordin's(1976) definition. This introduces a specification blas on the intercept but hot on the explanatory variables as long as the orthogonality conditions among these variables are met. Care should therefore be taken in looking at the estimated values of the intercept. However, our primary concern here are the parameter estimates of the explanatory variables. Estimates using Taylor's(1975) definition, which do not require this procedure, are comparable with the results here except for the values of the intercept and the coefficient of the inframarginal price. Ii The level of statistical significance used is at least 10% using a twotailed t test.
12
notion
of an average
adequate
measure
Also, the clue
price.
the significant
the former
finding
the price
and ventilation
airconditioner
such
consumes
is used.
relatively
more
1.5524.
This
elasticity result
are presented
in A 1 - 0.2264 (-1.9087)
+ 0.3771 (3.0850)
in
except
insignificant
but
and
level
explanation
he done
of B 1 and
B2 are still
as expected
the same
fan,
previous as before.
the t ratio
The
price
increased,
(4)
of
the
in magnitude
variable,
has a
a t ratio
of
for theposltlve for this perverse section. but now both
of airconditioner
the signs values.
income
Y,
to those
insignificant
of the price
estimated
in
ffi 1.8441,
but with
in the next
while
in A 3
of P2: increased
of confirmation
This will
from
an
and A 3 is the p_Ice
are similar
insignificant
Further
D.W.
of electricity
the t ratio
The coefficient
and A 2 did not change
Since
ln P3
Z 2 + 0.4034 (1.3288)
P3 _ the ex pos't average
and significant
for Z I and Z2 are
that
for PI"
sign.
in A2 - 0.2974 (-3.304.6)
ffi 0.0584,
the results
positive,sign
coefficlents
positive
negative
variables,
of demand
S.E.E. p_ice
some
fans.
for
B2
Z 1 + 0.18211n (1.9173)
ffi 0.6647,
provides
used
(0.6960)
-0.0646 (-0.9291)
_2
provide
below.
in
B I + 0.0349
as an
than an electric
in
is necessary.
The have
electricity
+ 0..1217
insignificant. with
and electric
in P2 + 0.0881 (1.5524)
test results
coefficient
equipment
In PI - 0.0852 (-1.4948)
where P3 is the _average of airconditioner.
but still
variables
consuming
as alrconditione=
serve
price.
+ 0.0989 (5.1075)
R 2 = 0.6870,
previous
could
on the environmental
(1.5508)
the price
price
of the average
of electrlcity
The results
in qt = 3.3913 (0.9293)
For
average
of this consumer'snotion
to include
cooling
The ex post
and magnitudes Also,
varlable
is of A I
the results
Y is still
13
2.
Long-Run Using
shown
below,
Due
the statistical included.
Elasticities:
annual
data,
to the number
analysis,
These
Annual
Data
the estimated
only
(1971-1984).
residential
of degrees
demand
of freedom
one variable
each
model
is
consideration
in
for Bt, A t and Zt is
are Bl, A 3 and Z 1 respectively.
in qt = -5.6962 + 0.1990 in P1 - 0.0592 in P2 - 0.4646 in P3 (-0.7967) (2.0724) (-1.4829) (-3.7049) + 0.1855 in B 1 (0.9302) + 0.0749 in A 3 (0.6325) + 0.2526
in Z 1
(0.4940) +0.6568
in Y
(1.44609 R2 The with
signs of
those
twice
E2
0.9111,
using
as much
. significant.
the estimated monthly
as
= 0_8070,
data.
S.E.E.
coefficients
income
variable
D.W.
of PI and P2
The magnitude
that of the estimate
The
= 0.0321,
using
increased.
well
as
maximum
IV.
Explaining This
results
temperature
Y is still
especially tests
perverse
result
schedules the nature
provides
data
looks
monthly into
of the price presented.
Pricing
data.
of residential
signals.
Policy and
the evolution
of P1 is
but
the value
increased. P3 of the coefficient
(B i) and airconditioner
of positive
and annual
the same
and is still
insignificant
insignificant
interpretation
and the responses
are thereafter
Some
on the finding
using
of LPG
(Z I) are all
the Results:
section
for both
The price
are
of the coefficient monthly
of the coefficient increased by 70% and the t ratio also is significant and with the correct sign and th6magnitude dramatically
= 2.8622.
using
(A3) as
annual
data.
Implications
explanation marginal
price
The attempt
of the structure demand
The implications
of the preceding elasticities
to explain of
this
the rate
for electricity for pricing
given policy
14
A.
The
Over rate
Evolution
the
schedule
schedules
15-year
period
changes
made
at various
price
adjustments
steam
dosts
observed
(usually
and other
adjustments.
The minimum
the indexed
to unity. levels
I0 kwh)
This
price
shows
block
increasing,
flat
shows
the evolution
First.
the basic
and block occurs for
increasing
somewhere
the rate
the rate
a block
increasing
blocks
at
schedules structure
has been
of cdnsumption
"flat"
with over
October
from the
price
though
of the ex pos E
average Table
block
block price
I also
is set equal
at various
block
decreasing,
basic
rate
evident
from
Figure
This
Figure
is both
block
decreasing
the base
of the V
1972 and September
of
block
evident 1974.
decreasing
the 0 to 200
to
kwh block
Finally,
the real
15 years
especially
the last
4.
is particularly
a basically
the years.
over
in fuel and
4 graphically 12 schedules.
form where
block.
exclude
is block
types.
schedules
a '_-type"
evolved
declining
of all
rate
the initial
length.
schedule
residential
1970,
at
of electricity
are
basic
adjustments_
the first
the price
the rate
of May
changes
in the calculation
of
price
the 100-120kwh
practically
electricity
of
exhibiting
schedules
Second,
becoming
structure
schedules
price
the block
the price
observations
five
to the corresponding
by
or a combination
related
rate
for consumption
bill
of the MERALC_
sets of
baslc
fluctuations,
is converted
whether
there were
1 sumlnarizes these
The average
the relative
indicates
Three
These
payment
where
and also
the data,
included
monthly
Schedule
Table
rate
have been
the minimum
by
levels.
to exchange
the first
by dividing
covered
due
prices.
Rate
by MERALCO.
block
to be minima_
average
shows
of the MERALCO
price
of
for
up to 200 kwh per month.
12 It is noted that the data used _s only up to November 1984. is to pmclude the possible effects of outlayers which could arise the December 1984 rate schedule change.
This from
Table 1 AVER_BE PRICES - I_R_LI))a RESIDENTIAL - I_.FLPTED (BASEYEAR:197B)
19701984 _AY Kk+l BLOCKS
(k-IO ll_l_ 15-5_ 51-_ _I-l_ . lOl-I_ 1_1-_5@ ISI-L_(_ 2_1-_ _;-75e 751-_ )L_
197i
OCT 1972
SEPT
1974
DEC
19a|
OEC
Ig6,4
D_XED IHDEXEI} INDEZEO INDEXED INDEXED IRDEIE'I} AVERA.r--E1) RVE_GEI} PRICEDEFLATED I)EFUIIEOPRICEDEFLqTED DEFLATED PRICEDEFLATED DEFLATEDPRICE OEFLqTEI) [F.FI.PTEOPRICE DEF'LATEI) OEF_TED DG:_t-ED_LATEI) APb FIP AP AP AP AP AP AP AP AP AP AP .1429 .40_ .14_ .4_-"5 .125 .3522 .125 .35;.72. ,_7 •197_ ,@7 .197_ ,I ,2BIB .l ,2818 .I ,_18 .l .2818 ,09 ,_3& ,_8 ,2Z'_
l I ,875 .875 ,_9 ._9 ,7 7 .7 .7 .63 ,5&
.14_ .1429 ,IL_ .125 ,@7 ,@7 .lk .14 ,1_ .1_ ,ll ,l
.2459 .2qSG .21¢9 .E149 ,I_03 .1_3 ,2407 _407 ._149 .2149 ,1691 ,1719
aprices are in Pesos (_) per kilowatt-hour. b"AP" means average prlce.
l 1 875 .675 .49 ,49 96 .,% 675 ._75 .,77 .7
.I_ .1548 I .14_ .154B l :125 .135_ _ ,875 .IE5 .135_ .875 .07 ..@75B ,_9 .@7 ,_758 .49 ,I4 ,1517 ,% .14 ,1517 ,58 .35 ,3792 2.45 ,35 .3792 2.45 ,35 ,379_. 2.45 ,35 ,3792 _,45
.I_ ._39 ,14E'9 ,0639 .IE-'5 ,0559 .15 .0671 •15 ,_71 ._ .e694 ,_ .@8% .2 ._B9_ .365 .1632 .365 .IG.,_ ,365 ,163_ ,365 ,163_
"
I 1 .875 I._ I._5 1.4 1,4 i,4 2.55_9 _.5549 _.55_9 2.55_9
.2 ,2 ._ .E_ ,_5 .25 ,25 ,25 2.36 2,.,% _,36 2._
.0392 .0392 ._392 .e49 ,0_9 , @(9 ,_9 .. 49 ._G2] ,462.3 ,4G_ ,4683
I I 1 1.25 1.25 I.E5 1.5 1.25 ll.8 11.6 11,6 If,@
.1812 .1812 .I595 .1637 ,I_19 ,1_6( IE.Z'5 .16Z.5 ._3 ._3 ._95 ,_B@4
,88_ .9¢_ ._2 .58 ,9%' ,_9_' l._, 1.&57, 1,597_ 1,5471
16
Price (F/KWH),
.5 .....
.4
"_
Dec 1984
..___.. Sep L974 •
|ll,
.--._-.
°_
.....
Dec 1981
.1
0
: I0
: 14
50
, 60
I00
L20
_ 150
200-250
_ ; _ .... > KWH 750 2000 >2000
MERALCO Price Schedule By Blocks (Deflated) Residential, May 1970-Dec 1984 (1978=I00) Figure 4
17
B.
Cons_uers
Table
2 shows
of customers, April
Demand
1984 based
on Table
2.
Three
first
is one in which
share
of kwh
is exhibited
pattern
of decreasing
201-350
period.
third
May
for
ÂŁhese
1975,
of kwh consumption
from Figure
5.
The
in the percentage
This
"stable"
kwh.
The
by blocks pattern
exhibited
1971,
of MERALCO
change
exhibited
The
consumption
These
the pattern
observations
second 0-I0
is an
by blocks
are summarized
of kwh consumption,
consumption
C.
Table
_s a
to 51-80,
increasing
121-150
These
figures
that
for
the mean
and
study.
Similarly,
The last row percentage indicate
that
consumption
show
3, which
of kwh
the ratio
in fact
Marginal
shows
of
Price
is declining. decreasing
that This
of
of the mean
that
the
It is
the period
of the number
since
means
deviations
means
8
Elasticities
of the number
over
for
7 and
distributions.
share
the ratio
Those
in demand.
the weighted
declining
and
the percentage
in Figures
shifts
of the standard
consumption
had been
shown
and revenue
had been
for
and revenues.
are
kwh of the percentage
the kwh consumpt-
6.
the structural
of customers
the estimates
in Table
share
of customers
of customers
of
and plotted
of customers
the estimates
consumptio n and revenues
shares
in Figure
the Positive
3 s,,_rizes number
of the number
estimated
number
the number
kwh consumption, evident
were
and
Explanation
shares
for ;t[,epercentage
distributions
respectively.
kwh
1050 kwh,
May
share
and 351-650
share
for the percentage
follows
Frequency
kwh
the percentage
for
of the number
kwh.
closely
shares
revenues
frequencies
81-120
percentage than
the
15-year
Structure
by kwh blocks
appreciable
the
by blocks
in Rate
can be discerned
is no
over
of kwh
The pattern
ion.
there
and greater share
of
patterns
consumption
pattern
and
on bill
5 shows a graph
based
percentage
breakdown
the kwh consumption
Figure
651-1050
to Changes
the percentage
1980 and June
period.
Responses
of customers, under
declined. kwh of
the
of customers,
the per caplta
the ratio
fell
from
kwh
3.241
to 1,832. Since
the dependent
and the marginal
price
variable P1 is shown
qt _s in per to have
capita
been
kwh consumption
declining
over
the sample
Table
2
I_
HERALCOResidential Consumers Percentage Breakdown By _ Blocks a (1971, 1975, 1980, 1984)
K_fHBlocks 0-10 11-30 31-50 51-80 81-120 121-150 151-200 201-350 351-650 651-1050 1050-above
No. of Customers 3.9 16.8 12.6 II.8 11.1 7.6 I0.O 13.4 6.0 3.1 3.7
1971 KWH Consumption 0.180 1.591 2.266 3.429 4.972 4.601 7.809 15.576 12.619 11.332 35.705
Revenue 0.349 2.210 2_997 4.266 5.280 4.620 7.848 15.668 12.705 11.289 32.768
No. of Customers 2.7 13.I 10.9 II.I ii.9 9.5 13.6 I5.6 5.6 2.9 3.1
1980 KNItBlocks 0il0 11-30 31-50 51-80 81-120 121-150 151-200 201-350 351-650 651-1050 1050-above
No. of Customers 1.8 5.0 5.7 7.8 11.4 10.4 17.4 26.9 8.5 2.8 2.3
asource of da_a: MERALCO,
_ Consumption 0.028 0.454 0.983 2.128 4.864 5.903 12.784 28.871 16.273 9.336 18.376
Revenue 0.075 0.302 0.625 1.267 2.473 2.988 6.967 23.525 19.515 13.238 29.024
No. of Customers 2.1 3.5 3.8 6.1 10.8 10.6 21.8 30.2 7.3 2.2 1.6
1975 KWH ConsUmption 0.074 1.284 2.047 3.329 5.581 5.962 11.05_ 18.319 12.333 10.839 29.173 1984 K_ Consumption 0.030 -0.326 0.681 1.787 4.855 6.402 16.959 33.741 14.731 7.751 12.737
Revenue '0.116 0.797 1.211 1.851 2.646 2.806 5,596 13.691 13.921 14.316 43.048
Revenue 0.100 0.328 0.640 1.273 3.362 4.540 12.359 30.635 17.622 10.515 18.725
Computed from the bill frequencies for flay 1971, 1975, LprÂŁ1 1980 and June 1984.
Percent
I >
1
0
5
0
_
\ \ \
2oi-.35o Icw
\ 30
_
/
\. \
/ \
/\ 20
/
\ \
/.
\
%
2Q1--350 ._
35.1-650
_
"----.---- -------.,
____.._...- -
_-L_.... 351-650
/
\ ",,
I
651-I050"_
_
'>I050
ist-zoo _/
"_.
8.1-120 121-,.150 _ 51 80 31 50 II 30
I*._,
_
_--_"_. "_---'-'--
- --
6_t-t65o
_ ......
121-150 '
m
'
"- ..... -" _'-" --
"" "" ---.--."-""_
_'_
'
-"
"-"....
81 - I20
51-80 tO
71
72
73
74
75
76
77
78
79
80
81
MERALCO RESIDENTIAL CONSUMERS Percent Discribut£on of _/flConsumntion By K}/H Blocks May 1971 co June 1984 Figure 5
82
83
84
Year
I-I
_-
,'1 r_ M _u _ 0 _ B o-
tl m rl"
0 t-_ _"
('_ _ 0
"0 0
o
!
!
_ m
a
K
_" o
_"
v
U)
I-,1'
0
O
c)
0
-
_"
H
0
o
_I
0
0
_I
_4
_¢
O
_
X
o
0
0
_
0
0
_4
_1-'1
1 9 ? / KWH
CONSUMPTTON HE_LCO,
40'
IN %
Residential
3530-
25rQ
20(3
/5t_
_. 0
/o.5.. ,_-._ 0
.-
0
N r
0.2
I
. I
0.4
_
T
O,G ( TA.ou.ca_ d.s) K I#H M/DPOIHTS Figure
7a
r
l
0.8
l
1
1980
KWH
CONSUMP:TTOiV IN % NF.RALCAI_ Residential
191B16% (3
1_-"14-.
. £,
1112"/'0-
9-_.
7..-
_ _
5-4-
_
.\.\. ...
•_
_
\
0
--
•0
1
I
0.2.
i
I
I
O.#.
I
D.6
Figure
7c
i
I
_.8
|
I
I
o,
ii
me i
_I
...I
I
I
I
I
•
I ._
_
__
.._
_Z
_'_ •
_._]
i
IN
_-
--
i
0.8S._RVATZONS
Q)
-
I
G O_SUIW.;'TIOtV
_' -
4_
1_-
\y
I
X_'H
1971 9
NO.
OF CUSTOMERS NRALCO,
Residential
IN
%
1975
NO.
_.._
OF .....
CUSTOMER,S'
IN
%
MERAL'CO_ Residential
.i
_.
5-
_
4
""
;'J
2
N
6
_'"
r.
' 0
1 I
0 '
[
0.2
I
i
0.4
!
T
I_.6" [Th,ot_ a.-nc¢,_ _ KtYH MiDPO/NT,_ Figure
8b
r ---_--
i
0,8
_
_i
!
]'_
980
NO.
OF
CUSTOMERS
HERALCO, Residential
_,
2.5
¢, g, 1.5
O..5
r]I]"
1
.[N %
, 1
.
I
J!
I
.,o.-I I1
a
_
-_,
i8 C3
111
I
I
J
'J
;
t
.
I
i
7
I
o_fl
I
,=
'"h_
i
"k
i
_ _ ._
i
r_O
_.
• _l
"¢0
.IN 2;
'
.',
""
OF' GUSTOM.E'..R._
_
A
.__"
J
I
I,
!
.q_
_0.
29 ,---t---
Table
3
Estimates of Mean _H. and Standard Deviations a Consumer, Consumption and Revenue DistriSution _EKALCO Residential Consumers [1971. 1975, 1980, 1984)
197"I Number
of Custome_si
Cl_
Mean: Std,
Kwh Consumption
:
(2)
:
(3)
aweighted values block lengths.
Dev:
:Mean: Std.
Kwh Consumption No. of Customers
Dev_
Mean: Std.
Revenue
187.358
C2): C1)
based
on frequency
1980
1984
191.161
228.808
224.614
231.687
213.123
189.224
607.241
548.183
471.006
411.452
40_.688
393.904
348.20_
3.17.2.19
60Q.83_
2g6_810
361.87_.
257.677
247.189
577.9.43 Dev:
1975
701.171
403.303
376.690
3.241
2.868
distributions
taking
into
2.059
account
the
1.832
kwh
30
period,
the estimates
monthly
and annual
explanatory
of the marginal
d_ta
variables
Regarding
could be positive
are moving
the ex post
significant
and with
by dividing
total annual
ion.
the annual
Also,
total annual Since
consumption,
number
the results
indicate
demand
behavior
theory.
average
will
by
At the micro
demand
maximize
This will
D.
utility. ImRlications i.
levels
for a block
by the tangency
is expected consuming
his consumption the bundle have
the
of other
relatively
ion will load
path
equipment. traced goods _.
low load
increase
equilibrium
efficiency
demand
signals
look
as
they
below.
for two income
price levels
of the indifference
of demand
curves
decreasing
This
is indicated
Since
moves
more
residential
this
by
schedule,
the direction
towards
q rather
are known
in the rate
in the use of electricity
the
of his stock
consumers
improvement
are
at T and T'.
price
his rate of utilization
by TT' which
facÂŁor,
to further
constraints
decreasing
the case of a block
to increase
consumer
losers.
to price
discussed
the budget
The
9, which
and
overall
Schedules
and block
points
levels,
Policy
of PEice
increasing
indicated
electricity
further
in kwh
standard
be necessary
in response
9 and i0 show
respectively.
in Figure
be
for Prlcing
schedules
consumer
behavZ_r
The Structure Figures
it might
by dividing
consumers
are gainers
consumpt-
of customers.
shifts
with
is
is computed
kwh
at var iousbloek
and in accordance
however,
annual
number
residential
there
price
is computed
the structural
the whole
into the consumers'
and
elasticity
average
average
and revenues
however,
level,
both
dependent
by total
kwh consumption
the annual
of Customers
is rational
both
The annual
revenues
not reveal
that on
since
using
P3' the estimated
sign.
per capita
In the process,
price
residential
kwh consumption
elasticities
in the same direction.
the correct
this procedure
price
of of than
to
of utilizat-
and hence
improve
factor.
In Figure the consumption
i0 which is the case of a block path
traced
by TT' moves
away
increasing from
price
schedule,
the direction
of q in
'r_ A
:,
&" B! I •
' It2
I
' ,
I
,
I t,
ql
q* Figure
: I
I_ l
q2
q_ 9
IC2 .T
t
I
!
I
i l
I
I _
i
,
, D
D'
' '
P II I,
ql
q* q* q2 Figure
10
D'2
'DI D
-q
..1 1
32
contrast
with
electricity
that
in Figure
consuming
9.
This
equipment,
implies
that,
the consumer
given
his
is not given
stock
of
incentive
to 13
increase
his
Suppose that
rate
of utilization.
that
the block
the prices
kwh per month. consumers
became
more
in Figure becomes
evident
4. 14
his utilty
budget
is due
to a positive
the binding consuming has been true
q2"
somewhere
utility T_is
budget level
constraint
to IC
effect.
of income such
polnts
Consuming
signal shown
Figure
I0
The and
T I and T_.
This
of the infra-
this.
at a given
determined
that he is expected
is indicated
at the corner
levels.
for resid-
the lower
be the stock
applies
= 200
AtB'ctn ' -2-2"
for
by the subsidy
the schedule
q2
constralntin
confirms First,
3 issuch
the price
The negative,coefflcient
insignificant,
factor.
1984 as previously
and IC
the administratively
since
subsidy
becomes
at tangency
to 200 kwh per _onth
for all consumers regardless
1981 and December
may not necessarily
but
> q2 _ where
1974 but
budget
load
in Figure
price
in September
the lower
the low
schedule
the MERALCO
sets of impl_icati0ns.
constraint equipment
consumer's
13
income
worsen
and Pl for q
respectively
P2' although three
set equal
consumers
level
constraint
price has
in December
the higher
higher
This
started
Correspondingly,
improves
marsinal
was
could price
_q2
case represents
which
ABCID I and
consumer
increasing
are P3 for 0 _ q This
ential
This
income
level,
of electricity quantity
program.
q2 which This
is
for all residential beyond
to remain
q2 lowers
the
at consumption
bV the tangencY points T I and T_ which are _5 _ If the consumer's consumption level is
points.
Statistical estimates of the load factor for the period from Jan6ary 1971 to November 1984 are 0.22 for Tesidential, 0.30 to 0.45 for three types of commercial and 0.46 to 0.74 for four typesâ&#x20AC;˘ of industrial consumers (Francisco, 1986, Table 6.8). 14 Table I shows that by the end of 1984, the price beyond the 200 kwh block is 9 to 12 times more than the price at th_ 0 tO 200 kwh block. 15 It may not be a coincidence, therefore, that the average per capita kwh consumption from 1970 to 1984 is 216 kwh per month with standard deviation of 22 kwh. It is recalled that prior to 1974, the price schedule is a V-type with the base of the V at the 100-120 kwh block.
33
at q2' then he is able given
by
a stock
to
take
area ACDF
in Figure
level which
enables
plausible, separate
of the subsidized
level
therefore
and
higher
which
increased
area,
as a basis
franchise
area
are able
the number areas
from
Manila, problems
the center
meter
and hence
fact
isqulte
which
enables
records
him
a
to take
for multiple 17 of connections.
this
subsidy
at the fringes
from
government
that
residential
the MERALCO of M_nila.
customers
provided of
the MERAL_O
consumers
Consequently,
This
since
the_price
regulators
franchise also
most
meters"
area
franchise
to expand
the
in these
areas
in
the
1984,
covering
effectively
a radius
increased
of thesenewlyacqu_red
18
priceslgnal,
the prlceof
arising
q2' which
electric
of the subsidy.
to expand
this
provided
but
such
of residential
Finally, to stabilize
is that
advantage
are residential.
has in
of a "market
the number
for demanding
decided
of 50 miles
the period
outside
of MERALCO
to take
government
for another
beyond
consumption
implication
to consumers
to consume
consumer
but at a higher overall Consumption 16 utility. This provides an explanation
during
The second
if the
payment
price
for the emergence effectively
of the net subsidy
However,
him
of 0 to200kwh
advantage
signal,
3.
then he may apply block
advantage
.coupled With
primary
inducement
products
for urban
from a denser
the efforts
and services
in-migration
population.
AgaiQ,
of the government in Metropolitan
compounding this
other
effectively
16 Overall kwh consumption could increase while per capita kwh consumption could d.ecrease. Estimates of the marginal price elasticities, are expected to be positive given the declining real marginal price while the average price elasticities using annual data could be negative confirming previous explanation. 17 The number of customers is based on the number of connectiqns. MERALCO expressly prohibits multiple meters per household. However, the cost of enforcement andadmlnlstration by the end of 1984 there are
could be very prohibitive considering 1.2 millioh residential connections. _
that
18 In ef[ect, this expands the MERALCO franchise area to 7,850 square miles from 1,020 square miles in 1974. The subsidy for the new!y_acqulred areas are lesser than the old franchise areas resulting in athree-tiered geographic price structure for residential consumers in the Luzon grid,, the highest price being that for consumers outside the MERALCO franchise area who are made to bear the full cost of electricity. For added details on this observation, see Francisco(1984, pp. 190-191).
34
increased
the number
The
combined
the price
signal
customers.
the growth
592,902 Since
the subsidy
of production
and perhaps While
extent
as oil,
this does
This
three
sets
increase
to 1974
and
per year.
of MERALCO
of demand
_esponses
in the number 1974 to 1979,
respectively.
of
the number from ten
customers
to
of residential
However,
In a span
residential
have
rapid
is borne
and electricity
have
1979 to
years,
almost
of MERALCO
Philippine
their
of
dependence
from
doubled
of GNP growth
apply
impact
in the number
input
industrlesmay
1979 may
on economic
of residential
have
have
resulted
energy
and GNP. 21
schedule
into
in the world
on primary
to electricity price
and larg_
factor
competitiveness
197.3-74 and
residentlal
had considerable
by industrial
is an important
lost
shocks
not necessarily
increase
mostly
and operations,
could
the lesser
the restructuring
19
I0.7%
the energy
to some
program=my
1970
burden
_helr
market. 20
these
customers.
to 1,163,795. 19
consumers,
cost
all
per year
rate was
the number
residential
in a _apid
and'5,6%
commercial
suffered
_f
resulted
by 5.3%
1974 to 1984, from
effects
For the periods
increased 1984,
of MERALCO
and
such
Thus,
the subsidy
growth.
consumers
could
also
result in hlgher average cost of distrlbutionfor MERALCO including technlcal and non-technlcal losses. 20 In 1985, a 5-year plan to reduce the subsidized consumption from 200 to 50 kwh per month was implemented. However, the adjustment process appears to be slow. In May 1986, for instance, MERALCO data show that industrial consumers pay â&#x20AC;˘ 2.23, while the overall average rate is P 1.78 and the overall subsidized rate is P 0.29 per kwh. The correspGnding percentage kwh share of residential and industrial consumers are 36Z and 29% respectively, unlike the 1974 shares which are 26% and _0%. A comparison of average indus_rlal power rates in selected Asian countries show that MERALCO has the highest rate followed by â&#x20AC;˘Japan. The lowest rate are those of Taiwan, Thailand and South Korea(NEDA, 1986). 21 In the U.S., for instance, Jorgenson(1984,19_6 ) observes that the use of electricity plays an important role in productivity growth. Sioshansi(1986) shows tha_thls so-called "decoupllng of energy and GNP" does not necessarily apply _to electrlcity and GNP.
35
It can be seen to
the price
are not These
signals
electricity consumers
the
shift
an
from
in Figure
therefore
22 The
=esource.
the economy,
income
price
couldslow
down 2.
are plausible may
electricity,
This
electrle_y
the economic
has
pricing
increasing
is made that
consumers
lO compared more
policy
makers
the subsidized
allocation strong
is
to those by
put more in resource
pricing
of electricity
linkages
as a means
which
pronounced
than on efflcleney by
price
with
is as a
the rest
for redistributing
of income
growthprocess.
for El_ctricity do not appear
considering
First,
getting
Second,
substitutes
a substitute
have
These
been
results
for electricity
electricity
the relative
the first 200 kwh,
for electri-
of electrlcity.
its use whlchrequires
purposes. for
to be
to be a complement
for two reasons.
especially
of
behavlorof
in Figure
means
the efficient
electricity
for specific
consumers.
features
to residential
This
given
LPG appears
not be easy
equipment
levels.
structure
â&#x20AC;˘Substitutes
in fact
the technical
curves
rather
LPG and firewood city.
schedule
of residential
to block
income
of income
to
Since
using
of
structure.
antithetical
responses
increasing
maximizing
decreasing
indifference
on redistribution
al!ocatlon"
both
and the utility
transfer
the same price
of demand
in a block
behavior
to consider
from block
the higher
the subsidized
the subsidy
sets
pricing.
implicit
9 at
three
the rational
the need
in electricity
schedulels
scarce
with
as a commodity
Also,
evident
the foregoing
given by
inconsistent
demonstrate
weight
that
and real
consuming prices of
decllnlng.
23
22 In 1974, MERALCO started the price subsidy for reeidentlal consumers as a form of socialized pricing. This is in line with the Price Control Law which expired on June 1973 but subsequently extended. An earlier demand study on residential and industrial consumers (MERALCO, 1973), where price and income elasticities were estimated at _arlous blocks of kwh consumption, was used to evaluate the impact of the 1974 rates on demand as well as the financial viability of the electric utillty(Cantoria, 1977, p. 10). 23 A declining relative price, however, may not be unusual. In the U.S., for instance, Hogan(1985) observes that the relative price of electricity for residential, as well as commercial and industrial consumers, relative to non-electrlc energy declined from 1960 to 1980 resulting in the interfuel substitution in favor of electricity.
36
One could
possible
be used
different is low, look
area
instead
equipment especially
at the first
vities
for cooklng
firewood
more
complementarity positive using
The
of energy
and gas and firewood.
although of this
signlflcant_
Using
monthly
then
can be used. flat
for flat
stock This
its coefficient using
The price earlier
of flat
stated.
of
results
will
the test
sources
the coefficients the correct are
true as
with
equipment
Consequently,
equipment
and
for refrigerator
the
slgnand
consuming
refrigerator
of
in accordance
be bought.
consuming
electricity,
less
there
electricity
and airconditioner.
oF airconditioner
the insignificant
but
and
correct
expected.
data,
the price
iron and
These
in
of electricitydoes
of electricity
equipment
couldbe
annual
the
Equipment
are with
These
is not used as often as much
Thus,
not be unexpected.
estimates
equipment
is particularly
sign of
reason
all
of electricity
not consume
indicating
the use of alternative
Consuming
If the prices
it does
As income
especially
If the price
then
iron.
less of these
iron
However,
data,
consuming
except
may
electricity
and developed.
of Electrleity
be lesser
ficant.
value,
Price
expectations.
increase,
Since
is clear.
may not be explored
of electricity
a priori
insiE_ificant,
its true scarcity
3.
will
electricity
implication
not reflect
price
between
data,
be used
substitutes,
acti-
is expected
control.
and LPG will
of
commu-
and use LPG or
electricity
the price
these
therefore,
of both
of
and
but using
to price
to
consumer
consumers,
appliances
subject
reason
refrigeration
The consumer,
electrical
LPG is also
coefficient
annual
this level.
of electricity
a residential
kwh per month,
firewood
requires
is no compelling
For most
met by200
for all those
for cooking.
increases,
there
ventilation,
exceed
to use electricity
200 kwh,
and television.
LP@ and
the relat_ive price
for lighting,
be adequately could
Since
where
LPG or firewood
Thus,
such as radio could
However,
for electricity.
use electricity
nication
is in cooking
of electricity.
for cooking.
for substitutes
might
of substitution
of airconditioner
refrigerator
insignificant
were
results
not
could
is inslg_iincluded perhaps
for
37
be
explained
by
two reasons.
and price of alrconditloner version
of the
some level
data
and
thereby
might
have
during
insignificant
to adjust
been
their
desired
a one month
period
equipment
appear
not
long-run
is quite
usually
plausible
belong
in consonance data. of
to
It also
one-month
period
city
consuming
confirms
these
equipment
a priori
in
could
be
the price
of
out over
the
residentlalconsumers
that changes
inprices
on demand
since
who
bracket.
purchase
This
coefficients of
with
indicate
it
reason using
is
monthly
the characterization
one year
that
the consumer
of these
for electrlclty.
those
limitation
considering
there
are averaged
income
results
demand
of electricltyconsuming
in contrast
influence
expectation
seasons
and negative
a possible
as short-run
however,
speclfically#
effects
or higher
the significant
demonstrates
In general,
such
in both
out in theannuallzed
Second,
stock
for alrconditioner
the middle
with
More
results.
within
This
averaged
in prices
equipment
to have
variations
dry and rainy
these Variations
giving
be able
may
monthly
in the test.
of seasonality
aircondltioner year
used
First,
the prlce
demand
the derived
am long-run. of electri-
behavior. nature
This
of demand
for electricity. _.
Environmental Monthly
which
were
used to
and significant data.
This
warm months
average
effects
cooling
mately
since
relatlvely
A/so,
increase
0.4%
increase
in demand
in relative
humidity
is half
This economic during
finding concerns.
the
has
more
day and during
during economic
as
that of
for pricing
temperature of
uslng
monthly
is needed
for
of the day and are usually
The results results
being
indicate in approxi-
The effect
of
changes
temperature. policy
and relative the year,
hours
activities
in temperature
as much
months
for tests
warm
humidity,
havepositive
electricity
for electricity.
implications
Since
more
relative
variables,
of the dry season.
point
and
for electricity
and ventilation
to take advantage
that a one percentage
temperature
the environmental
on demand
of the year.
undertaken
maximum
represent
is expected
refrigeration,
Variables
and
humidity
demand
in turn
on other
fluctuate
for eleetriclty
38
correspondingly ioad of
fluctuates.
This is
evidenced
curve
for a given
day in a month
typical
load curves
across
city
at higher
variables
demand
provldesas
seasonal
pricing
of tlme-of-day The first premium
activities and since
for work
done by
concentrated
over
in higher
after
the exlstingprlce policies
implicitly
peakload,
be realized
load
If the price
of electricity
eletrlc
might
the overtime
labor might
offset
be employed
given
a fixed
a.m.
which
or night
Since
needelectrlcity,
differentiated,
hours.
to be
Th_s
results
inefficient
use of
is time differentiated,
stock
most
for electricity
and hence
and night
described.
overtime
8:00
premium
of capital
the lower
payments
and more
and equipment
i_n the
economy, 25 The second, movements electricity to do work
which
of people is not outside
is related
to and
from
to
the first,
is on
the effects
places
of work.
Since
the price
of
is none
or little
incentive
time differentiated, of
the traditional
there 8:00 a.m.
to 5:00
p.m. work
of
schedule.
24 The _mplementation of seasonal pricing canbe easily done. On the other hand, time-of-day pricing requires electric meters capable of recording tlme-of-day consumptlon levels. Here, ther_ is a need to compare the cost with the potential benefit _f implementation. This, howeger, is a technological issue which time can resolve, i.e.,eventually, an inexpensive meter which can be devised.
is appropriate
for the average
residential
25 The positive effect of environmental variables on demand city is not only true for residential but also for industrial consumers(Franclsco, 1986).
24
effects
are briefly
is not time
or working
of electrlclty.
beneflc_al
require
or before
factor
electricity. bills
laws
the demand
offlce
lower
where
or equipment
tailor
of electri-
on envlro_mental
value
could
of electricity
and troughs
time-of-dayprlclngor
areas
structures
in pesks
here
three
5:00 p.m.
the traditional
system
for using
Existin 8 labor
labor use
the existing
pricing
daily
the marglnalcost
the true scarslty
concerns,
is on employment.
difference
the result
basis
reflect
and seasonal
payment
Since
is higher,
will
economic
and the
months.
empirical
which
On the other
level
by the typical
consumers for electriand commercial
39
As people
leave
their homesto
surges
in the arrivals
roads,
traffic
observed wastes
when of fuel
Finally, signals and
of cooling
The result
5.
there
result
price demand
on
could
appear
elasticity.
over
congestion
is
results
that
for pure
only
in
on demand
who design the cost
of electricity,
owners
aesthetic
to adopt
for
European
consideration
26
the temperature Since
v&_iations
have
monthly been
variable
was
temperature
averaged
data
out such
that
be expected. Price
and Income
for marginal
long-run
larger
income
prices,
in magnitude
with
theory.
elasticity
small
while 27
their
long-run
than Similarly,
is larger
the i-_,ediate effects
are relatively
are relatively
Elasticities
and average
is in accordance
These meanthat
the long-run
low price
to be relatively This
and engineers,
environment.
data,
the resulÂŁ
elasticities.
and income
phenomenon
of
will send the correct
home and building
and Long-Run
is an indication
short-run
and capacity
to take into consideration
insignificant. these
Short-Run
elasticities
short-run
annual
is
pricing
The relatively
for warm
seasonal,
Based
Traffic
as architects
and designs
the test using
the insignificant
price
such
influenced
may not be suited
basically
size
The same
for home.
and buildings,
architecture
included. are
have
the fixed
arises.
or seasonal
agents
houses
Given
there arelnevltably
air pollution.
a time-of-day
might
and Western
For
work
and ventilation.
instance,
which
naturally
leave
andmore
to economic
construct
of vehicles.
congestion people
be on time for work,
than
of changes effects
in
on
larger.
26 It is not unusual to see houses andlow-ceillng buildings in Metro Manila with walls and roofs covered by bricks reminiscent of London, New York and Boston environment. The heat absorblty coefficient of bricks, especially dark colored, is very high making it ideal for temperate places but may not be suitable for warm environment. 27 In a review of 25 residential demand studies in the U.S., for instance, Bohi(1981, p.56) observes that..."Overall, there are wide disparities among the estimates reported by different studies. To add to the confusion, some short-run estimates exceed (in absolute value) other long-ru n estimates. Price elasticities range from -0.03 to -0.54 in the short-run and from -0.45 to -2.20 in the long-run. The overlap is even more confusing among the income elasticities, as both short-run and long-run range from 0 to 2.0. It is little wonder that decision makers are reluctant to place great
confidence
in any
specific
values."
40
Thus,
another
of electricity short-run provides
should
be made
consumptiDn
policy
relatiVely A price
a clear and consistent
signal
In sum,
this study shows that the
a certain employment
extent,
indications
magnitude
vector
prices.
of the general therefore casting
•explained
prices
demand
the price
humidity,
of
and to
by changes
in
to be considered behavior
elasticities
comprise
responses
to signals
and there
are greater
in
both
in the demand
here,
for policy
of standard
only
and
provide Care
especially
demand
as a commodity.
by a structure
model
Nevertheless,
consumer
is .•
are derived.
reforms.
parameters,
for electricity.
of electricity
at best,
elasticity
given
implications
derived
the Dwn price
price
policy
directions
the context
features
not
demand
marginal
be taken in using the estimated
the specific
appear
and income
limitations,
and possible
within
for electricity
and relative
of positive
Some pricing
implications
residential
demand
to its own price,
electricity
and average
in terms of consumers'
the policy
short-_un
temperature
price
A finding
Due to the various used,
for their
elasticities.
inframarglnal
of subsidized
to consumers
residential
in their
that long-run
of variables.
explained
and staDle
in income •levels as approximated
consumers
than short-run
Marginal,
from
is simple
The prices of substitutes
by the residential
be free
which
is responsive
equipment,
changes
levels.
stable and should
the prices
Remarks
franchise•area
consuming
is that
decisions.
and Concluding
electricity
implication
schedule
Summary
in the MERALCO
are
pricing
cost adjustments.
and long-run V.
important
the data indications should for fore-
t•he results theory
are
considering
41
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