"Social " Rate Restructuring and Residential Electricity Consumption

Increases in the price of fuel and capital facilities have resulted in pressure for "social " rate-making in the electric utility industry. Southern California Edison has proposed a "lifeii~le " subsidy for half a million low-use consumers, with the revenue deficiency l,"",_novered by increasing the charges for consumption above 300 kwh/month by.001 c/kwh. An alternative social p!ogram involves the use of fuel stamps; experiments with such a program are now'being carried out in Denver and Leheigh Valley. The purpose of this paper is to compare the two redistribution policies, using the theory of the consumer under nonlinear budget constraints. Because of conflicting social goals, neither approach is ideal, although stamps appear to be a more specific, and thus cheaper, way to increase electricity consumption and/or utility of low income consumers. 1. Lifeline Rates versus the Declining Block The declining block and lifeline rate structures shown in Figure 1 correspond to the budget lines ABCDE and A'B'C'D E', respectively in Figure 2. For simplicity the price per kwh beyond K2 for declining blocks is the same as the average price per kwh up to Kl.:for lifeline rates, making the slope of CDE (x) the same as IB! Similarly, the slope of IB (z) is the same C'D E'. As drawn, the solid budget line fo