UBC Theses and Dissertations

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UBC Theses and Dissertations

Electricity pricing and equity Friesen, Robert Stewart 1976

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ELECTRICITY PRICING AND EQUITY by ROBERT STEWART FRIESEN B.A., U n i v e r s i t y o f Saskatchewan, 1971 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS in THE SCHOOL OF COMMUNITY AND REGIONAL PLANNING We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o t h e r e q u i r e d s t a n d a r d THE UNIVERSITY OF BRITISH COLUMBIA F e b r u a r y 1976 © Robert S t e w a r t F r i e s e n , 1976 In presenting th i s thes is in pa r t i a l fu l f i lment of the requirements for an advanced degree at the Un ivers i ty of B r i t i s h Columbia, I agree that the L ibrary sha l l make i t f ree l y ava i l ab le for reference and study. I fur ther agree that permission for extensive copying of th is thesis for scho lar ly purposes may be granted by the Head of my Department or by his representat ives. It is understood that copying or pub l i ca t ion of th is thes i s f o r f i nanc i a l gain sha l l not be allowed without my wr i t ten permission. Department of JlcJi^-rft^ Jl LA->^rv<~-^s£^ O^n/ The Univers i ty of B r i t i s h Columbia 20 75 Wesbrook Place Vancouver, Canada V6T 1W5 Date $an~C 3-Q / f 7 / T i i . . ABSTRACT Our s o c i e t y has become h e a v i l y d e p e n d e n t on i n p u t s o f e n e r g y . R e c e n t l y , however, c o n c e r n has been e x p r e s s e d t h a t t h e f u t u r e s u p p l y o f e n e r g y w i l l be i n a d e q u a t e t o meet o u r demands. I t seems t h a t f u t u r e s u p p l i e s o f e n e r g y w i l l be a v a i l a b l e o n l y a t r e l a t i v e l y h i g h c o s t . M o r e o v e r , c o n s c i o u s p u b l i c p o l i c y a t t e m p t s t o r e d u c e consumption may be a t t e m p t e d by r a i s i n g t h e p r i c e o f e n e r g y . A p r o b l e m a r i s e s i n the e q u i t a b l e d i s t r i b u t i o n o f o u r e n e r g y r e s o u r c e s . To u n d e r s t a n d t h e e q u i t y i s s u e and t h e p r i c e e l a s t i c i t y o f demand q u e s t i o n , a s t u d y was u n d e r t a k e n o f t h e p a t t e r n s o f e l e c t r i c i t y c o n s u m p t i o n among r e s i d e n t i a l consumers i n V a n c o u v e r . The h y p o t h e s e s p r o p o s e d a r e t h a t t h e p r o p o r t i o n o f income d e v o t e d t o e l e c t r i c i t y c o nsumption d e c l i n e s as income i n c r e a s e s ; t h e demand f o r e l e c t r i c i t y i s p r i c e e l a s t i c ; and, t h e a b i l i t y t o r e d u c e e l e c t r i c i t y c onsumption i n c r e a s e s w i t h income. The methodology used t o s t u d y t h e s e q u e s t i o n s i n v o l v e d two s t e p s . F i r s t l y , a q u e s t i o n n a i r e was a d m i n i s t e r e d t o 291 V a n c o u v e r h o u s e h o l d s t o i d e n t i f y v a r i a b l e s p o t e n t i a l l y s i g n i f i c a n t i n d e t e r m i n i n g , r e s i d e n t i a l e l e c t r i c i t y c o n s u m p t i o n . Q u e s t i o n s were a l s o a s k e d t o d e t e r m i n e p e r c e p t i o n s o f t h e a b i l i t y o r w i l l i n g n e s s t o r e d u c e o r i n c r e a s e e l e c t r i c i t y c onsumption p a t t e r n s under v a r i o u s h y p o t h e t i c a l p r i c e i n t e r v e n t i o n p o l i c i e s . i i i . S e c o n d l y , e l e c t r i c i t y consumption h i s t o r i e s were o b t a i n e d f r o m B.C. Hydro and Power A u t h o r i t y f o r t h e s e 291 r e s p o n d e n t s . The s t u d y shows t h a t a b s o l u t e e l e c t r i c i t y c o nsumption i s n o t s i g n i f i c a n t l y a f f e c t e d by income. Hence, t h e p r o p o r t i o n o f income d e v o t e d t o e l e c t r i c i t y d e c l i n e s as income i n c r e a s e s . S e c o n d l y , i t was f o u n d t h a t t h e demand f o r e l e c t r i c i t y i s s e n s i t i v e t o p r i c e i n c r e a s e s , b u t n o t t o p r i c e d e c r e a s e s . T h i r d l y , low income consumers a r e l e s s r e s p o n s i v e t o p r i c e i n c r e a s e s i n e l e c t r i c i t y . They a r e l e s s w i l l i n g / a b l e t o s w i t c h f r o m e l e c t r i c i t y t o n a t u r a l gas as a f u e l s o u r c e , and a r e l e s s w i l l i n g / a b l e t o r e d u c e e l e c t r i c i t y c o n s u m p t i o n l e v e l s when t h e p r i c e i s i n c r e a s e d . The r e s u l t s i n d i c a t e t h a t a c r o s s t h e b o a r d p r i c e i n c r e a s e s i n e l e c t r i c i t y w i l l b e a r v e r y h e a v i l y on t h e p o o r . V a r i o u s p r i c e schemes were examined w i t h r e s p e c t t o t h e i r i m p l i c a t i o n s f o r e q u i t y , a l l o c a t i v e e f f i c i e n c y and e n v i r o n m e n t a l q u a l i t y . The p r e f e r r e d scheme s e t s a l l o c a t i v e e f f i c i e n c y and e n v i r o n m e n t a l q u a l i t y as c o n s t r a i n t s . I n c l u d e d i n t h e package i s a r e d i s t r i b u t i o n o f income t o a c h i e v e e q u i t y . The s e c o n d b e s t a l t e r n a t i v e s a r e p r i c i n g based on income and i n c r e a s i n g b l o c k p r i c i n g . i v . T A B L E OF CONTENTS Page CHAPTER ONE APPROACH J O J T U D Y 1.1 I n t r o d u c t i o n 1.2 The Problem 1.3 L i t e r a t u r e Review 1.4 Hypotheses 1.5 Methodology CHAPTER TWO It!E_PRICE_OF_ENERGY 2.1 I n t r o d u c t i o n 13 2.2 The I n t e r n a t i o n a l Background 14 2.3 The Canadian Energy S i t u a t i o n 16 2.4 Coal Resources 17 2.5 O i l Resources 20 2.6 N a t u r a l Gas Resources 22 2.7 E l e c t r i c i t y and Hydro Resources - 24 2.8 N u c l e a r Resources 25 2.9 Summary 27 1 1 3 11 11 V. Page CHAPTER T H R E E ENERGY_AND_EgUITY 29 CHAPTER FOUR RES PQNDENT_CHARACTERISTICS 4.1 I n t r o d u c t i o n 35 4.2 Household Income 37 4.3 Consumption 39 4.4 Number o f Persons 40 4.5 Number o f Rooms 40 4.6 The Sto c k o f A p p l i a n c e s 41 4.7 Awareness o f Consumption 42 4.8 E l e c t r i c i t y E x p e n d i t u r e s 45 CHAPTER F I V E DATA_ANALYSIS 5.1 I n t r o d u c t i o n 46 5.2 Income - Consumption R e l a t i o n s 47 5.3 Number o f Persons - Consumption R e l a t i o n s 47 5.4 Number o f Rooms - Consumption R e l a t i o n s 48 5.5 P r o p o r t i o n a t e Consumption 49 5.6 C o n c l u s i o n 50 v i , Paje C H A P T E R S I X SIMULATING BEHAVIOR FROM PRICE §I?ySiyBLI?!IiBy§NTioN^pgLiciES 6.1 I n t r o d u c t i o n 51 6.2 P r i c e S e n s i t i v i t y o f Demand F o r E l e c t r i c i t y 51 6.3 S i m u l a t e d P r i c e I n c r e a s e s 54 6.4 S i m u l a t e d P r i c e Decreases 64 6.5 I n t e r f u e l C o m p e t i t i o n 68 CHAPTER S E V E N §yt ^ 5 Y,_C0NCLySigNS i_PQLICY 7.1 I n t r o d u c t i o n 73 7.2 The E x i s t i n g P r i c e S t r u c t u r e 74 7.3 The Impact o f P r i c e I n c r e a s e s 75 7.4 The R a t c h e t E f f e c t 76 7.5 The D i s t r i b u t i o n o f a Re d u c t i o n i n Demand 77 7.6 W i l l i n g n e s s o r A b i l i t y t o S u b s t i t u t e F u e l s 77 7.7 E q u i t y , E c o l o g y and E f f i c i e n c y 79 7.8 C o n c l u s i o n 89 BIBLIOGRAPHY APPENDIX I The Q u e s t i o n n a i r e APPENDIX II Map o f Study Areas ( i i p o c K l ) APPENDIX I I I Notes on Methodology v n ACKNOWLEDGEMENTS I would l i k e t o thank D rs. Douglas Webster, P e t e r Nemetz and Henry Hightower f o r t h e i r a d v i c e and a s s i s t a n c e i n c o m p l e t i n g t h i s s t u d y . J . W. W i l s o n , R. W. Rac i n e and D. L a r s o n o f B. C. Hydro and Power A u t h o r i t y were h e l p f u l i n p r o v i d i n g e l e c t r i c i t y consumption d a t a and f i n a n c i a l a s s i s t a n c e f o r t h e s u r v e y . C e n t r a l Mortgage and Housing C o r p o r a t i o n p r o v i d e d f i n a n c i a l a s s i s t a n c e f o r t he academic y e a r 1974-1975. I would a l s o l i k e t o thank t h e f o l l o w i n g p e o p l e f o r t h e i r a s s i s t a n c e on t h e s u r v e y : A v i v a , J a y , Karen, S h e r y l and Jan. CHAPTER ONE APPROACH_Tg_STUDY 1.1 INTRODUCTION The purpose "of t h i s s t u d y i s t o examine: (a) the e f f e c t o f p r i c e i n c r e a s e s on t h e demand f o r e l e c t r i c i t y i n B r i t i s h Columbia; and (b) t h e i n c i d e n c e impact o f p r i c e i n c r e a s e s i n e l e c t r i c i t y on d i f f e r e n t income groups i n t h i s p r o v i n c e . P a t t e r n s o f e l e c t r i c i t y use among Vancouver consumers a r e examined i n an attempt t o d e t e r m i n e t h e s e e f f e c t s . Data f o r t h i s s t u d y were o b t a i n e d by i n t e r v i e w i n g a sample o f consumers and from i n f o r m a t i o n p r o v i d e d by B. C. Hydro and Power A u t h o r i t y . 1.2 THE PROBLEM Throughout t h e 1950's and 1960's, t h e c o s t o f en e r g y t o Canadian consumers' d e c l i n e d r e l a t i v e t o most o t h e r p r i c e s and c o s t s . The F e d e r a l Government r e p o r t s t h a t : Between 1961 and 1970 the c o s t o f energy t o i n d i v i d u a l consumers d e c l i n e d by about 20% r e l a t i v e t o t h e Consumer P r i c e Index, w h i l e t h e c o s t t o commercial and i n s t i t u -t i o n a l u s e r s d e c l i n e d by 10% on t h e same b a s i s . The c o s t t o i n d u s t r y d e c l i n e d by 8% i n terms o f the C.P.I, and 30% r e l a t i v e t o l a b o u r c o s t s i n m a n u f a c t u r i n g . (Government o f Canada, 1975) - 2 -Not o n l y has energy been i n e x p e n s i v e , but s u p p l i e s have been adequate. Our p r o d u c t i o n o f energy has been s u f f i c i e n t t o meet d o m e s t i c demand, and a f t e r i m p o r t s , l e a v e us w i t h a modest ne t e x p o r t . These two i n t e r r e l a t e d f a c t o r s , t h e a v a i l a b i l i t y and r e l a t i v e i n e x p e n s i v e n e s s o f e n e r g y , have, t o a c o n s i d e r a b l e e x t e n t , i n f l u e n c e d t h e development o f o u r now e n e r g y - i n t e n s i v e and h e a v i l y energy-dependent s o c i e t y . R e c e n t l y , however, the c o s t o f energy has been r i s i n g , and though t h e s e i n c r e a s e s w i l l i n t u r n be r e f l e c t e d i n h i g h e r wages and p r i c e s i n g e n e r a l , i n d i c a t i o n s a r e t h a t i n c r e a s e s i n the p r i c e o f energy w i l l be r e l a t i v e l y g r e a t e r than t h e " a c r o s s t h e b o a r d " i n f l a t i o n a r y t r e n d s . In Canada, o v e r the l o n g term, one would e x p e c t t h a t i n c r e a s e s i n t he p r i c e o f energy would s t i m u l a t e the development o f a more energy c o n s e r v i n g s o c i e t y : i n the p r o d u c t i o n and consumption o f goods and s e r v i c e s ; i n h o u s i n g and urban form; i n l e i s u r e a c t i v i t y ; and i n p e r s o n a l m o b i l i t y . Indeed, energy p r i c e may be the l e v e r used t o implement a p o l i c y o f energy c o n s e r v a t i o n by f o r c i n g such s h i f t s . - 3 -Over the s h o r t term, however, when o p p o r t u n i t i e s f o r c o n s e r -v a t i o n a r e f e w e r , one would e x p e c t t h a t p r i c e i n c r e a s e s would have major and perhaps d e l i t e r i o u s r e p e r c u s s i o n s . U n f o r t u n a t e l y , c o m p a r a t i v e l y l i t t l e r e s e a r c h has been undertaken t o d e t e r m i n e t h e e f f e c t s , c o n s e q u e n t l y t h e y remain l a r g e l y u n a n t i c i p a t e d . T h i s s t u d y seeks t o p r o v i d e a b e t t e r u n d e r s t a n d i n g o f one d i m e n s i o n o f t h e problem: the i n c i d e n c e impact o f energy p r i c e i n c r e a s e s on s o c i e t a l sub-groups d e f i n e d by income. A t t e n t i o n w i l l a l s o be g i v e n t o t h e q u e s t i o n o f whether e n e r g y demand i s r e s p o n s i v e t o changes i n p r i c e , and, a n c i l l a r y t o t h a t , how r e d u c t i o n s i n demand would be s h a r e d a c r o s s income groups. 1.3 LITERATURE REVIEW There i s a g r e a t d e a l o f l i t e r a t u r e on t h e economics o f e n e r g y , u n f o r t u n a t e l y most i s d e v o t e d t o t h e s t u d y o f the economics o f s u p p l y and r e l a t i v e l y l i t t l e t o t h e economics o f demand. R e c e n t l y however, a number o f a r t i c l e s have been p u b l i s h e d which a r e c e n t r a l t o t h i s s t u d y . B e f o r e d i s c u s s i n g t h e s e works, i t would be h e l p f u l t o r e v i e w the c o n c e p t o f e l a s t i c i t y . - 4 -The concept of e last ic i ty is particularly useful to describe the magnitude of the influence of casual factors. The e last ic i ty of demand measures the responsiveness of the quantity demanded of a good to changes in the price of the good (price e l a s t i c i t y ) ; to changes in consumer income (income e las t i c i ty ) ; to changes in the cost of alternatives (cross e l a s t i c i t y ) ; or to changes in any casual factor. For example, a price e last ic i ty of demand equal to "x" means that a 1% increase in price wil l cause an "x" % decrease in demand. In this review, eight studies wil l be examined. All these studies contribute to our understanding of the variables that affect residential demand for e lec t r i c i ty , and six of these studies provide an insight into the impact of e lect r i c i ty price increases on income groups. Determining Variables Though the studies discussed in this section were conducted for dissimilar reasons and often with differing methodologies, they a l l exhibit one common characteristic. That i s , they a l l attempt to arrive at plausible e last ic i ty coefficients for the variables that influence residential demand for e lect r i c i ty . - 5 -U n d e r l y i n g t h e s e s t u d i e s i s t h e assumption t h a t t h e consumer maximizes a u t i l i t y f u n c t i o n d e f i n e d o v e r a range o f goods s u b j e c t t o t h e i n d i v i d u a l ' s income. These s t u d i e s s u g g e s t t h a t t h e v a r i a b l e s t h a t a f f e c t r e s i d e n t i a l demand f o r e l e c t r i c i t y a r e among t h e f o l l o w i n g : t he p r i c e o f e l e c t r i c i t y , t h e income o f t h e h o u s e h o l d , the number o f persons i n the h o u s e h o l d , the s i z e o f t h e d w e l l i n g , t h e p r i c e o f a l t e r n a t i v e s , p a r t i c u l a r l y n a t u r a l g as, c l i m a t i c c o n d i t i o n s such as t e m p e r a t u r e , and t h e f r a c t i o n o f t h e p o p u l a t i o n l i v i n g i n n o n m e t r o p o l i t a n a r e a s . J . W. W i l s o n r e p o r t s , i n " R e s i d e n t i a l Demand f o r E l e c t r i c i t y " ( 1 9 7 1 ) , t h a t t h e p r i c e o f e l e c t r i c i t y i s t h e dominant d e t e r m i n a n t o f e l e c t r i c i t y consumption and t h a t p r i c e i n c r e a s e s would dampen demand. He a l s o n o t e s , however, t h a t p r i c e i n c r e a s e s i n e l e c t r i c i t y would s t i m u l a t e s a l e s o f n a t u r a l gas. W i l s o n a l s o d e t e r m i n e d t h a t c l i m a t e i s , on the whole, not a s i g -n i f i c a n t d e t e r m i n a n t , e x c e p t i n e v a l u a t i n g e l e c t r i c i t y demands f o r s p e c i f i c a p p l i a n c e s ; and though t he s i z e o f the d w e l l i n g was found t o be an i n s i g n i f i c a n t v a r i a b l e , W i l s o n m a i n t a i n s i t i s an i m p o r t a n t d e t e r m i n a n t . 1) 2) 3) 4) 5) 6) 7) - 6 -H a l v o r s e n , " R e s i d e n t i a l E l e c t r i c i t y : Demand and S u p p l y " ( 1 9 7 2 ) , found t h a t t h e l o n g run p r i c e e l a s t i c i t y o f demand i s g r e a t e r t h a n u n i t y . He a l s o d e t e r m i n e d t h a t t he income e l a s t i c i t y o f s a l e s p er customer i s l e s s than u n i t y i n d i c a t i n g t h e p r o p o r t i o n o f income d e v o t e d t o e l e c t r i c i t y consumption d e c r e a s e s as income i n c r e a s e s . U n l i k e W i l s o n , H a l v o r s e n c o n c l u d e d t h a t p r i c e i n c r e a s e s i n e l e c t r i c i t y would not s i g n i f i c a n t l y a f f e c t r e s i d e n t i a l demand f o r n a t u r a l gas. Anderson, " R e s i d e n t i a l Demand f o r E l e c t r i c i t y : E c o n o m e t r i c E s t i m a t e s f o r C a l i f o r n i a and t h e U n i t e d S t a t e s " ( 1 9 7 2 ) , found t h e p r i c e o f e l e c t r i c i t y , income, s i z e o f h o u s e h o l d , c l i m a t e and t h e f r a c t i o n o f t h e p o p u l a t i o n l i v i n g i n n o n m e t r o p o l i t a n a r e a s a l l i m p o r t a n t e x p l a n a t o r y v a r i a b l e s . The p r i c e o f gas and c l i m a t e were, a t b e s t , m a r g i n a l l y s i g n i f i c a n t . Chapman, T y r e H and Mount, " E l e c t r i c i t y Demand Growth and t h e Energy C r i s i s " ( 1 9 7 2 ) , c o n c u r t h a t demand i s p r i c e e l a s t i c and t h e s e c o n c l u s i o n s a r e s u p p o r t e d by a t l e a s t t h r e e o t h e r s t u d i e s . (MacAvoy (1969), G r i f f i n (1974) and Houthakker e t . a l . (1973).) - 7 -A d i s s e n t i n g view i s o f f e r e d by F i s h e r and Kaysen, "A s t u d y in E c o n o m e t r i c s : The Demand f o r E l e c t r i c i t y in the U n i t e d S t a t e s " (1962). However, t h e i r c o n c l u s i o n t h a t p r i c e e f f e c t s a r e sm a l l has been f a i r l y t h o r o u g h l y d i s c o u n t e d by W i l s o n . L e s t e r D. T a y l o r summarizes t h e s e and o t h e r f i n d i n g s in t a b u l a r form i n an i n t e r e s t i n g r e c e n t a r t i c l e , "The Demand f o r E l e c t r i -c i t y : A Surv e y " (1975). PRICE AND INCOME ELASTICITIES OP ELECTRICITY DEMAND SUMMARY OF ECONOMETRIC ESTIMATES Type of Demand Type of Price Price E l a s t i c i t y Income E l a s t i c i t y Type of Data Short Long Run Run Short Long Run Run RESIDENTIAL Houthakker (27) Fisher & Kaysen Houthakker & Taylor Wilson Mount, Chapman & T y r r e l l Anderson (l) Lyman Houthakker, Verleger & Sheehan M A A A* A A* A M -0.89 NE -0.15 0 -0.13 -1.89 NE -2.00 -0.14 -1.20 NE -1.12 (-0.90) -0.90 -1.02 1.16 NE 0.10 SMALL 0.13 1.94 NE 0 0.02 0.20 NE 0.80 (-0.20) 0.14 1.64 CS CS-TS TS CS CS-TS CS CS-TS CS-TS : Ci t i e s (U.K.) : States : Aggregate U.S. : SMSA's : States States Areas Served by U t i l i t i e s States COMMERCIAL Mount, Chapman & T y r r e l l Lyman A A -0.17 -1.36 (-2.10) 0.11 0.86 CS-TS: States CS-TS: Areas Served by U t i l i t i e s INDUSTRIAL Fisher & Kaysen Baxter & Rees Anderson (2) Mount, Chapman & T y r r e l l Lyman A A A A A NE -1.25 NE -1.50 NE -1.94 -0.22 -1.82 (-1.40) CS-TS: CS-CS-TS: CS-TS: States Industries (U.K.) States States Areas Served by U t i l i t i e s HOTE: NE: Not Estimated A: Ex Post Average Price CS: Cross-Section A*: Average Price for a fixed TS: Time-Series . Amount of E l e c t r i c i t y M: Marginal Price Consumed per Month. - 8 -The c o n c l u s i o n t o be drawn from t h e f o r e g o i n g i s t h a t t h e demand f o r e l e c t r i c i t y i s p r i m a r i l y a f f e c t e d by: 1) t h e p r i c e o f e l e c t r i c i t y , and 2 ) t h e income o f t h e h o u s e h o l d . Less c o n s i s t e n t l y , t h e p r i c e o f n a t u r a l gas was a l s o c i t e d as a d e t e r m i n i n g v a r i a b l e . W i l s o n s u g g e s t s t h e s i z e o f t h e d w e l l i n g u n i t i s i m p o r t a n t and Chapman e t . a l . found p o p u l a t i o n s i z e s i g n i f i c a n t . Anderson s u p p o r t s t h e l a t t e r f i n d i n g . The i m p l i c a t i o n o f t h i s r e l a t i v e l y h i g h , l o n g run p r i c e e l a s t i c i t y d f demand, i n t h e American e x p e r i e n c e , i s t h a t p o l i c i e s which attempt t o redu c e demand, by r a i s i n g t h e p r i c e o f e l e c t r i c i t y , w i l l be s u c c e s s f u l . One o f t h e most i m p o r t a n t c o n c l u s i o n s i s , however, as H a l v o r s e n p o i n t s o u t , t h a t such p o l i c i e s would have a r e g r e s s i v e e f f e c t on income d i s t r i b u t i o n . An e x a m i n a t i o n o f t h i s e f f e c t w i l l be a major theme o f t h i s p a per. D i s t r i b u t i o n E f f e c t s T h r e e Rand s t u d i e s a r e p a r t i c u l a r l y e n l i g h t e n i n g on t h e impact o f e l e c t r i c i t y p r i c e s on income groups and t h e d i s t r i b u t i o n o f a p o s s i b l e r e d u c t i o n i n demand among s o c i o - e c o n o m i c groups. - 9 -The f i r s t i s a s t u d y p r e p a r e d by Berman, Hammer and T i h a n s k y e n t i t l e d "The Impact o f E l e c t r i c i t y P r i c e I n c r e a s e s on Income Groups: Western U n i t e d S t a t e s and C a l i f o r n i a " (1972). They d e t e r m i n e d t h a t consumers w i t h incomes o f $5,000 and o v e r , some 60% o f the p o p u l a t i o n , a c c o u n t e d f o r 80% o f r e s i d e n t i a l demand. The under $3,000 income c a t e g o r y , some 17% o f t h e p o p u l a t i o n , a c c o u n t e d f o r o n l y 6% o f t o t a l r e s i d e n t i a l demand. T h i s s t u d y a l s o p o i n t s o u t t h a t a g g r e g a t e d d a t a d i s t o r t s p e r -c e p t i o n s o f t h e a b i l i t y t o reduc e consumption. T h e i r own c o n c l u s i o n i s t h a t t h e a b i l i t y t o r e d u c e consumption i n c r e a s e s w i t h income. High income consumers u n l i k e low income consumers, a l s o have open t h e o p t i o n o f r e d u c i n g t h e i r consumption o f e l e c t r i c i t y by s h i f t i n g t o a l t e r n a t i v e energy s o u r c e s o r by p u r c h a s i n g more e f f i c i e n t a p p l i a n c e s . Berman and Hammer complemented t he f o r e g o i n g s t u d y w i t h an i n -depth c a s e s t u d y e n t i t l e d "The Impact o f E l e c t r i c i t y P r i c e I n c r e a s e s on Income Groups: A Case Study o f Los A n g e l e s " (1973). They c o n c l u d e t h a t r e s i d e n t i a l e l e c t r i c i t y consumption i s " p r i m a r i l y dependent on h o u s e h o l d income and number o f h o u s e h o l d members when the p r i c e o f f u e l s i s c o n s t a n t a c r o s s h o u s e h o l d s . - 10 -Consumption o f e l e c t r i c i t y i s most i m p o r t a n t l y i n f l u e n c e d by h o u s e h o l d income ..." (Berman e t . a l . , 1973). The impact o f p r i c e i n c r e a s e s w i l l be most f e l t , r e l a t i v e t o income, by t h e low income g r o u p s . As i n t h e p r e v i o u s s t u d y , low-income groups have " l i m i t e d a b i l i t y " t o r e d u c e consumption and high-income groups have a l a r g e range o f o p t i o n s . They s u g g e s t t h a t low-income groups c o u l d be exempted from any p r i c e i n c r e a s e s r e s u l t i n g from attempts t o dampen e l e c t r i c i t y demand and c o n c l u d e t h a t such p u b l i c p o l i c i e s would n o t be much r e d u c e d i n e f f e c t i v e n e s s . The f i n a l s t u d y , " C a l i f o r n i a ' s E l e c t r i c i t y Quandry: I I I . S l o w i n g the Growth R a t e " , by D o c t o r and Anderson e t . a l . ( 1 9 7 2 ) , r e i t e r a t e s t h e p o i n t s made i n t h e p r e v i o u s s t u d i e s . I t i s a p p a r e n t from t h e s e s t u d i e s t h a t p r i c e i n c r e a s e s i n e l e c t r i c i t y a r e l i k e l y t o be r e g r e s s i v e and i n e q u i t a b l e -- low-income groups b e i n g most h e a v i l y burdened, e i t h e r as a r e s u l t o f p u b l i c p o l i c i e s o f c o n s e r v a t i o n , o r as a r e s u l t o f p r i c e i n -c r e a s e s from o t h e r f a c t o r s . HYPOTHESES Earlier in this study it was suggested that the price of energy would rise relative to other prices and costs. It was also pointed out that price increases may result from attempts to conserve energy. The literature review, of American origin, suggests that price increases would reduce consumption, and that these increases would be distributionally regressive. The appropriateness of these conclusions will be tested in one Canadian context. To guide this study, the following hypotheses will be tested: 1) The demand for energy 21 price sensitive. 2) Price increases in energy will have a regressive effect on income distribution. 3) The ability to reduce consumption of electricity increases with income. METHODOLOGY The organization of the thesis is based on the following themes which are treated sequentially. - 12 -1) Why p r i c e s f o r energy a r e g o i n g t o r i s e . The A u t h o r i i d e n t i f i e s and d e s c r i b e s t h e f a c t o r s whi.ch c o u l d cause t h e p r i c e o f energy t o r i s e both i n an I n t e r n a t i o n a l and Canadian c o n t e x t . 2) Why we s h o u l d be c o n c e r n e d about d i s t r i b u t i v e j u s t i c e w i t h r e s p e c t t o r e s o u r c e s , p a r t i c u l a r l y e n e r g y r e -s o u r c e s . An o v e r v i e w o f t h e s o c i a l j u s t i c e and e q u i t y i s s u e . 3) Determine t h e e f f e c t s o f p r i c e i n c r e a s e s i n e n e r g y . U s i n g e l e c t r i c i t y use as an example (based on t h e a c c e s s i b i l i t y o f i n f o r m a t i o n ) an attempt was made t o d e t e r m i n e the e f f e c t s o f p r i c e i n c r e a s e s on demand and on income d i s t r i b u t i o n . T h i s was done by i n t e r v i e w i n g a random sample o f a p p r o x i m a t e l y 300 r e s i d e n t i a l e l e c t r i c i t y consumers. The s t u d y a r e a was Vancouver. From w i t h i n t h i s a r e a , f i v e s u b - a r e a s were s e l e c t e d on t h e b a s i s o f v a r y i n g mean income, and because t h e y e x h i b i t e d wide v a r i a t i o n s i n t h e number o f p e r s o n s i n t h e h o u s e h o l d and i n t h e s i z e o f t h e d w e l l i n g . Because i t was f e l t t h a t m u l t i p l e h o u s i n g u n i t s , which s h a r e among r e s i d e n t s c e r t a i n e l e c t r i c i t y consuming a p p l i a n c e s o r p r o d u c t s would b i a s consumption p a t t e r n s , o n l y s i n g l e f a m i l y d e t a c h e d h o u s e h o l d s were s e l e c t e d f o r s t u d y . A p p r o x i m a t e l y 600 such c a s e s were i n each s u b - a r e a and a t e n p e r c e n t random sample was i n t e r -viewed from each. A t t h e c o n c l u s i o n o f t h e s u r v e y , 291 q u e s t i o n n a i r e s had been completed. B. C. Hydro and Power A u t h o r i t y t h e n made a v a i l a b l e t h e e l e c t r i c i t y consumption h i s t o r y f o r each o f t h o s e d w e l l i n g s . 4. A n a l y s i s o f q u e s t i o n n a i r e d a t a . I n f o r m a t i o n c o l l e c t e d i n t h e s u r v e y and f r o m B. C. Hydro and Power A u t h o r i t y i s then p r e s e n t e d . 5. S y n t h e s i s o f i n f o r m a t i o n . I n s i g h t s g a i n e d f o r t h e s t u d y o f e l e c t r i c i t y demand a r e a p p l i e d t o energy demand i n g e n e r a l and some c o n c l u s i o n s w i t h r e s p e c t t o energy and e q u i t y a r e p r e s e n t e d . - 13 -CHAPTER TWO ™L P .5IQL9L§NERGY 2.1 INTRODUCTION The assumption u n d e r l y i n g t h i s s t u d y i s t h a t t h e p r i c e o f ene r g y i s g o i n g t o i n c r e a s e r e l a t i v e t o o t h e r p r i c e s and c o s t s . In t h e p r e v i o u s c h a p t e r i t was not e d t h a t t h e r e a l p r i c e o f energy has dropped i n t h e post-war p e r i o d b u t t h i s t r e n d w i l l r e v e r s e . To c a t e g o r i c a l l y " p r o v e " , i f t h a t i s i n d e e d p o s s i b l e , t h e v e r a c i t y o f t h i s a s s u m p t i o n , would be a major s t u d y i n i t s e l f . S i n c e , i n t h i s s t u d y , we a r e i n t e r e s t e d i n a n t i c i p a t i n g t h e e f f e c t s o f such an o c c u r r e n c e , i t i s s u f f i c i e n t t o o u t l i n e a number o f f a c t o r s which w i l l l i k e l y c o n t r i b u t e t o i n c r e a s e d e n e r g y c o s t s . Canada buys and s e l l s e n e r g y i n the i n t e r n a t i o n a l market, t h e r e f o r e i t i s a p p r o p r i a t e t o commence w i t h an a n a l y s i s o f the i n t e r n a t i o n a l s e t t i n g . - 14 -2.2 THE INTERNATIONAL BACKGROUND The n e o - M a l t h u s i a n s p e c t r e o f a complete p h y s i c a l e x h a u s t i o n o f t h e w o r l d ' s e n e r g y r e s o u r c e s , w h i l e n o t t o be d i s m i s s e d i n t h e l o n g r u n , i s n o t imminent. In f a c t , t he energy r e s o u r c e s o f t h e w o r l d a r e enormous. The energy p r o b l e m i s more s u b t l e . The l a r g e e n e r g y r e s o u r c e p o o l s a r e c o n c e n t r a t e d i n a few a r e a s o f the w o r l d which would c r e a t e s h o r t a g e s i n e n e r g y poor a r e a s . The s p o t t y g e o g r a p h i c a l o c c u r r e n c e p r o v i d e s the f o r t u n a t e n a t i o n s w i t h c o n s i d e r a b l e l e v e r a g e o v e r t h e i n t e r n a t i o n a l p r i c e . Many o f t h e l e s s c o s t l y and most a c c e s s i b l e r e s o u r c e p o o l s have now been t a p p e d , l e a v i n g h i g h e r c o s t r e s o u r c e s t o meet f u t u r e demand. I n c r e a s i n g oppo-s i t i o n t o energy developments f o r e n v i r o n m e n t a l , s o c i a l , and p o l i t i c a l r e a s o n s may c r e a t e temporary and l o n g - t e r m s h o r t a g e s . Moreover, the growth i n demand may o u t s t r i p t h e a b i l i t y o f the energy i n d u s t r y t o market t h e r e s o u r c e s . Such f a c t o r s as b o t t l e n e c k s i n c a p i t a l m a r k e t s , manpower markets o r i n t r a n s -p o r t a t i o n f a c i l i t i e s c o u l d c o n t r i b u t e t o t h e l a t t e r s i t u a t i o n . The i n f l u e n c e o f t h e s e f a c t o r s and t h e t i m e l a g i n t h e d e v e l o p -ment o f a p p r o p r i a t e new t e c h n o l o g y , not the f i n i t e r e s o u r c e - 15 -b a s e , w i l l a f f e c t t h e p r i c e and a v a i l a b i l i t y o f e n e r g y i n t h e w o r l d market i n t h e coming two o r t h r e e d e c a d e s . Canada i s not i s o l a t e d from t h e v a g a r i e s o f the i n t e r n a t i o n a l e n e r g y market. Though h i g h e r p r i c e s f o r e nergy mean a d d i t i o n a l income from our e x p o r t s o f c o a l , n a t u r a l gas and o i l , we a r e a l s o s u b s t a n t i a l i m p o r t e r s o f c o a l and o i l . In 1974 i t i s e s t i m a t e d we i m p o r t e d n e a r l y 1,000 b a r r e l s o f c r u d e and c r u d e o i l p r o d u c t s per day. (Government o f Canada, 1975.) We a l s o i m p o r t e d some 14 m i l l i o n s h o r t tons o f c o a l i n 1974. (Govern-ment o f Canada, 1975 .) These e n e r g y s o u r c e s a r e c o s t l y i n t h e i n t e r n a t i o n a l market. The O r g a n i z a t i o n o f P e t r o l e u m E x p o r t i n g C o u n t r i e s , formed o r i g i n a l l y t o combat d e c l i n i n g c r u d e o i l p r i c e s , has now s u c -c e s s f u l l y f o r c e d t h e p r i c e o f crude t o a l e v e l f o u r t i m e s t h e p r e v a i l i n g 1972 p r i c e s . As w i l l be seen l a t e r , t h i s a c t i o n has had c o n s i d e r a b l e e f f e c t on t h e p r i c e o f c o a l as w e l l . Worldwide i n c r e a s e s i n demand, s k y r o c k e t i n g development and e x p l o r a t i o n c o s t s , and the v u l n e r a b i l i t y o f the market t o p r i c e , m a n i p u l a t i o n and p r o d u c t i o n q u o t a s , s t r o n g l y s u g g e s t t h a t i n t e r n a t i o n a l p r i c e s w i l l not e x p e r i e n c e any d e c l i n e . - 16 -I t seems u n l i k e l y t h a t Canada w i l l be a b l e t o l e s s e n dependence on i m p o r t e d o i l , a t l e a s t f o r a decade o r s o , and even then o n l y w i t h t h e development o f h i g h c o s t i n t e r n a l s o u r c e s ; and t h e a l t e r n a t i v e t o i m p o r t e d c o a l i s t h e development o f e x p e n s i v e t r a n s p o r t a t i o n f a c i l i t i e s t o d e l i v e r w e s t e r n c o a l t o e a s t e r n p u r c h a s e r s . 2.3 THE CANADIAN ENERGY SITUATION Canadian energy demands a r e v e r y l a r g e . Canada ranks a c l o s e second t o t h e U n i t e d S t a t e s i n p e r c a p i t a e n e r g y consumption; and as D a r m s t a d t e r p o i n t s o u t , t o g e t h e r Canadian and U. S. per c a p i t a consumption i s 2.5 t i m e s t h a t o f t h e second r a n k i n g r e g i o n , t h e U.S.S.R., and 40 t o 50 t i m e s consumption l e v e l s i n A f r i c a . ( D a r m s t a d t e r e t . a l . , 1971.) A 1975 s t u d y by t h e M i n i s t e r o f M i n e s , Energy and Resources p r e d i c t s t h a t demand f o r energy w i l l s o f t e n i n coming decades as p o p u l a t i o n l e v e l s o u t , as the i n d u s t r i a l mix and l e v e l o f economic a c t i v i t y change, and as h i g h e r p r i c e s f o r energy t a k e e f f e c t . Per c a p i t a consumption however, w i l l remain h i g h . r 17 -The a v e r a g e annual growth r a t e s p r o j e c t e d f o r t o t a l e n e r g y consumption o v e r t h e p e r i o d 1975 - 1980 range between 4.8% and 3.7%. (Government o f Canada, 1975) D e s p i t e s l o w e r growth r a t e s , t h e i n c r e m e n t s i n en e r g y s u p p l y t h a t w i l l have t o be added each y e a r a r e l a r g e . There i s c o n s i d e r a b l e i n t e r e s t b e i n g f o c u s e d on o u r a b i l i t y t o meet t h i s demand, and a t what p r i c e t h e s e s u p p l i e s w i l l be a v a i l a b l e . The o u t l o o k f o r a l l energy s o u r c e s i s i n c r e a s e d p r i c e s though t h e a v a i l a b i l i t y o f s u p p l y v a r i e s w i t h energy s o u r c e . 2.4 COAL RESOURCES Canadian c o a l r e s o u r c e s a r e e s t i m a t e d t o be some 120 b i l l i o n t o n s , 118 b i l l i o n t ons o f which a r e l o c a t e d i n t h e t h r e e western p r o v i n c e s . A r e p o r t from t he M i n i s t e r o f Mines, Energy and Resources s t a t e s , " i t i s a p p a r e n t t h a t Canada has s u f f i c i e n t m i n e a b l e c o a l f o r the f o r e s e e a b l e f u t u r e , even a t s u b s t a n t i a l l y g r e a t e r p r o d u c t i o n l e v e l s " . (Government o f Canda, 1973.) In s p i t e o f t h e s e r e s e r v e s , however, Canada i s n e i t h e r a l a r g e consumer o f c o a l n o r p r e s e n t l y s e l f - s u f f i c i e n t . In 1974 we e x p o r t e d h a l f o f o u r c o a l p r o d u c t i o n y e t a t t h e same time " i m p o r t s o f c o a l s t i l l a c c o u n t f o r o v e r h a l f o f t o t a l d o m e s t i c demand". (Government o f Canda, 1975.) - 18 -The s i t u a t i o n a r i s e s from the s u b s t a n t i a l demands o f O n t a r i o f o r c o a l which has been more r e a d i l y a v a i l a b l e from t h e U n i t e d S t a t e s than from Western Canada. These t r a d i t i o n a l a r r a n g e -ments, however, may change. A r e c e n t r e p o r t s t a t e s t h a t O n t a r i o consumers a r e e x p e r i e n c i n g d i f f i c u l t i e s both w i t h p r e s e n t c o n t r a c t s and i n n e g o t i a t i o n s f o r f u t u r e c o a l s u p p l i e s . (Govern-ment o f Canada, 1975.) F u r t h e r m o r e , t h e p r i c e o f c o a l i s r i s i n g . Coal p r i c e s have e s c a l a t e d s h a r p l y s i n c e mid-1973 due i n p a r t t o t h e immense i n c r e a s e s i n o i l p r i c e s but a l s o because o f a w o r l d s h o r t a g e o f m e t a l l u r g i c a l c o a l . In both c a s e s t h e p r i n c i p a l c o a l p r o d u c e r s o f t h e w o r l d , a f t e r 20 y e a r s o f r e c e s s i o n , a r e i n c a p a b l e o f r e s p o n d i n g q u i c k l y enough t o meet demand. The a v e r a g e p r i c e o f U. S. thermal c o a l s d e l i v e r e d t o O n t a r i o p l a n t s i n c r e a s e d from $15 t o $22 per t o n d u r i n g 1974 and w i l l p r o b a b l y r e a c h $30 i n 1975; t h e c o r r e s p o n d i n g f i g u r e s f o r m e t a l l u r g i c a l c o a l a r e $21, $37 and $50 per ton r e s p e c t i v e l y . (Government o f Canada, 1975.) Due t o t h e s e s h o r t a g e s and p r i c e i n c r e a s e s t h e r e i s g r e a t e r i n t e r e s t b e i n g f o c u s e d on the w e s tern c o a l f i e l d s . However, l a r g e c a p i t a l i n v e s t m e n t s would have t o be made both t o expand p r o d u c t i o n and t o p r o v i d e a t r a n s p o r t a t i o n i n f r a s t r u c t u r e . LEAF 19 OMITTED IN PAGE NUMBERING. - 20 -2.5 OIL RESOURCES Canadian o i l r e s o u r c e s appear t o be r e l a t i v e l y l a r g e when o i l sands and f r o n t i e r a r e a s * a r e i n c l u d e d i n t h e e s t i m a t e s . The e x i s t e n c e o f t h e s e r e s o u r c e s however does n o t gu a r a n t e e t h e i r a v a i l a b i l i t y t o consumers. Throughout t he t w e n t i e t h c e n t u r y and p a r t i c u l a r l y i n the p o s t World War II p e r i o d , t h e i n t e r f u e l s h i f t from c o a l t o o i l and n a t u r a l gas has c o n t i n u o u s l y d r i v e n demand f o r o i l upwards. In r e s p o n s e t o t h i s demand the o i l i n d u s t r y has e x p l o r e d and d e v e l o p e d our r e s o u r c e s and each y e a r has r e v i s e d e s t i m a t e s o f pro v e d r e s e r v e s upwards. By 1974 however, the N a t i o n a l Energy Board c o u l d r e p o r t t h a t -Canadian o i l p r o d u c t i o n c o u l d be e x p e c t e d t o d e c l i n e from a peak o f 2,100 b a r r e l s a day i n 1975 t o some 1,710 b a r r e l s a day i n 1980 and to 1,330 b a r r e l s a day i n 1985, i n c l u d i n g p r o -d u c t i o n f r o m t h e e s t a b l i s h e d a r e a s and from t h e o i l sands o f A l b e r t a . (Government o f Canada, 1975) A f t e r a r e v i e w o f t h e s i t u a t i o n , t h e M i n i s t e r o f Mines, Energy and Resources c o n c l u d e d -*No major o i l r e s e r v e s have as y e t been l o c a t e d i n the f r o n t i e r a r e a s . - 21 -A t t h e p r e s e n t time Canadian o i l p r o d u c t i o n i s somewhat l e s s than consumption, and c u r r e n t e x p e c t a t i o n s a r e t h a t i m p o r t s w i l l exceed e x p o r t s f o r a t l e a s t t e n y e a r s , u n t i l p r o d u c t i o n from t h e o i l sands and f r o n t i e r a r e a s can r e a c h s u b s t a n t i a l l e v e l s . (Government o f Canada, 1975) In view o f t h i s t h e N a t i o n a l Energy Board has moved t o r e t a r d t h e growth i n the e x p o r t o f o i l . P r o d u c t i o n from t h e o i l sands and f r o n t i e r a r e a s , however p r o m i s i n g i n terms o f s u p p l y , i s g o i n g t o be e x p e n s i v e . The N a t i o n a l Energy Board b e l i e v e s t h e s e a r e a s c o u l d make Canada " s e l f - s u f f i c i e n t i n e n e r g y f o r a l o n g p e r i o d " . (Government o f Canada, 1975.) T h i s would depend on t e c h n o l o g i c a l p r o g r e s s , s u f f i c i e n t l e a d - t i m e and " f a v o u r a b l e economic c o n d i t i o n s f o r development, p r o d u c t i o n and t r a n s p o r t a t i o n " . * (Government o f Canada, 1975.) In e s s e n c e t h e " f a v o u r a b l e economic c o n d i t i o n s " a r e r e l a t i v e l y h i g h p r i c e s , though t a x and r o y a l t y p o l i c i e s a r e o t h e r p o s s i b l e c o n s i d e r a t i o n s . The e x p e r i e n c e i n the Athabaska t a r sands t o d a t e s u g g e s t s t h a t t h o s e r e s o u r c e s w i l l o n l y be a v a i l a b l e a t h i g h p r i c e s . (Government o f Canada, 1975.) *And the e x i s t e n c e o f a net energy s u r p l u s . - 22 -The p r i c e o f o i l i n Canada, as i n t h e w o r l d , has e s c a l a t e d r a p i d l y i n t h e p a s t few y e a r s . The p r i c e o f A r a b i a n c r u d e has r i s e n from $1.20 per b a r r e l i n 1970 t o $10.50 i n 1975 p l u s t r a n s p o r t c h a r g e s . (Government o f Canada, 1975.) Western Canada w e l l head p r i c e s i n t h e same p e r i o d have r i s e n from $2.60 t o $6.50. (Government o f Canada, 1975.) These p r i c e s a r e not e x p e c t e d t o d e c l i n e . In f u t u r e y e a r s Canadians can e x p e c t them t o i n c r e a s e . R a p i d l y i n c r e a s i n g demand f o r o i l worldwide and i n Canada i s . c r e a t i n g a s i t u a t i o n , i n w h i c h , i f we want t o meet demand, we must e x p l o i t i n c r e a s i n g l y c o s t l y r e s o u r c e s . These r e s o u r c e s a r e o f t e n found i n a r e a s where e n v i r o n m e n t a l and s o c i a l c o s t s o f development a r e h i g h and a m e l i o r a t i v e programs c o s t l y and g e n e r a l l y i n a d e q u a t e . 2.6 NATURAL GAS RESOURCES Proved r e s e r v e s o f n a t u r a l gas l i k e o i l , were c o n s t a n t l y r e v i s e d upwards u n t i l r e c e n t l y . The s i t u a t i o n i s now r e v e r s e d and demand i s o u t s t r i p p i n g i n c r e m e n t s o f new s u p p l i e s . Much o f t h i s demand, some 45 p e r c e n t , i s a c c o u n t e d f o r by l o n g term e x p o r t c o n t r a c t s w i t h t h e U n i t e d S t a t e s . Because o f the r e c e n t r e -e v a l u a t i o n o f gas r e s e r v e s , no new e x p o r t l i c e n s e s have been - 23 -i s s u e d s i n c e 1970 by t h e N a t i o n a l Energy Board. (Government o f Canada, 1975.) However, o u t s t a n d i n g l o n g - t e r m c o n t r a c t s a r e l a r g e and w i l l c o n t i n u e t o a c c o u n t f o r a c o n s i d e r a b l e s h a r e o f demand. The r a p i d l y growing demand f o r n a t u r a l gas has l a r g e l y been t h e r e s u l t o f i t s r e l a t i v e cheapness v i s - a - v i s o i l . "As a con-sequence", the F e d e r a l Government r e p o r t s , " t h e r e a r e u n s a t -i s f i e d demands f o r gas and the ! p r o s p e c t o f c o n t i n u i n g s h o r t a g e s d e s p i t e r a p i d growth i n t h e s u p p l y o f gas d u r i n g t h e p a s t 20 y e a r s " . (Government o f Canada, 1975.) Canada may p o s s e s s c o n s i d e r a b l e r e s e r v e s o f n a t u r a l gas i n t h e A r c t i c and o t h e r f r o n t i e r a r e a s . The e x p l o i t a t i o n o f t h e s e r e s o u r c e s , however, depends on the b u i l d i n g o f p i p e l i n e s . The development c o s t o f such f a c i l i t i e s a r e h i g h ; t h e e n v i r o n m e n t a l and s o c i a l c o s t s a r e u n p r e d i c t a b l e but c e r t a i n l y l a r g e . There i s c o n s i d e r a b l e doubt about whether t h e s e r e s o u r c e s s h o u l d be d e v e l o p e d , but i f t h e y a r e , t h e c o s t t o consumers w i l l be c o n -s i d e r a b l y h i g h e r than t h e p r e v a i l i n g l e v e l . In a d d i t i o n , t h e Government o f Canada b e l i e v e s the c o s t o f c u r r e n t l y a v a i l a b l e n a t u r a l gas s h o u l d r i s e " t o r e f l e c t a more c o m p e t i t i v e v a l u a t i o n w i t h r e s p e c t t o o i l , on a d e l i v e r e d - 24 -ener g y e q u i v a l e n t b a s i s " . (Government o f Canada, 1975.) 2.7 ELECTRICITY AND HYDRO RESOURCES Canada i s r i c h l y endowed w i t h hydropower r e s o u r c e s and many o f t h e s e s i t e s have been d e v e l o p e d t o p r o v i d e a cheap and renewable s o u r c e o f en e r g y . E l e c t r i c i t y i s a v e r y c o n v e n i e n t s o u r c e o f energy and i t s use has grown from v i r t u a l l y t h e z e r o l e v e l i n 1900 t o a p o i n t now where i t a c c o u n t s f o r 33 p e r c e n t o f t o t a l p r i m a r y energy con-sumption. The f o r e c a s t s h a r e f o r e l e c t r i c i t y i n 1990 i s n e a r l y 40 p e r c e n t . (Government o f Canada, 1975.) However, t h e c o s t o f e l e c t r i c i t y i s l i k e l y t o r i s e . As was p o i n t e d o u t i n p r e v i o u s d i s c u s s i o n , thermal f u e l s such as o i l and c o a l a r e i n c r e a s i n g i n p r i c e . E m i s s i o n c o n t r o l t e c h n o l o g y f o r s t a c k gases w i l l i n c r e a s e p r o d u c t i o n c o s t s h i g h e r s t i l l . And c a p i t a l c o s t s and f i n a n c i n g c o s t s f o r c o n s t r u c t i o n , t r a n s -m i s s i o n and d i s t r i b u t i o n o f e l e c t r i c i t y , whether from hydro o r thermal s o u r c e s , a r e e s c a l a t i n g r a p i d l y . - 25 -Most o f the more a t t r a c t i v e hydro s i t e s have now been d e v e l o p e d l e a v i n g o n l y t h e more c o s t l y and/or more d i s t a n t s i t e s . More-o v e r , i n c r e a s i n g l a n d use c o m p e t i t i o n and e n v i r o n m e n t a l c o n c e r n w i l l reduce t h e p o t e n t i a l number o f s i t e s and i n c r e a s e c a p i t a l c o s t s f o r e n v i r o n m e n t a l p r o t e c t i o n . E l e c t r i c i t y i s no doubt a b u n d a n t l y a v a i l a b l e , however, l i k e o t h e r p r i m a r y e n e r g y s o u r c e s , f u t u r e p r i c e s a r e l i k e l y t o r i s e . 2.8 NUCLEAR RESOURCES N u c l e a r power has l o n g been b i l l e d as the "energy s o u r c e o f the f u t u r e " . I n i t i a l l y a t l e a s t , i t was b e l i e v e d t h a t n u c l e a r power would be uncommonly i n e x p e n s i v e — "too cheap t o meter". Recent e x p e r i e n c e however, i s n o t c o n s i s t e n t w i t h t h e p r o g n o s i s . N u c l e a r power a c c o u n t e d f o r a p p r o x i m a t e l y 5 p e r c e n t o f Canadian e l e c t r i c i t y g e n e r a t e d i n 1974, and i t i s a n t i c i p a t e d t h a t i t c o u l d a c c o u n t f o r as much as 20 p e r c e n t i n 1990. (Government o f Canada, 1975.) - 26 -T h e r e appear t o be ample r e s e r v e s o f uranium, b a r r i n g major e x p o r t s , t o s u p p o r t e x p e c t e d demand p r o j e c t i o n s . The Candu r e a c t o r r e q u i r e s no f u e l e n r i c h m e n t p r o c e s s i n g , c o n s e q u e n t l y t h e impact o f f u e l p r i c e s i s l i k e l y t o be minimal enough t o e n a b l e r a t e s t o remain a t t r a c t i v e even w i t h i n c r e a s e s in t h e p r i c e o f uranium. (Government o f Canada, 1975.) The Candu r e a c t o r however, has l a r g e c a p i t a l c o s t s f o r con-s t r u c t i o n and f o r the p r o v i s i o n o f heavy water. In both a r e a s c o s t s a r e i n f l a t i n g r a p i d l y . (Government o f Canada, 1975.) The Candu r e a c t o r i s in o p e r a t i o n i n Quebec and in O n t a r i o , and p l a n s a r e underway t o i n t r o d u c e i t i n t o New Brunswick. Never-t h e l e s s t h e r e i s c o n s i d e r a b l e o p p o s i t i o n t o t h e s e developments. The p r i m a r y p r o b l e m , l o n g - t e r m s t o r a g e o f w a s t e s , has n o t been found amenable t o an easy o r e f f e c t i v e s o l u t i o n . A d d i t i o n a l l y , t h e r e has been c o n c e r n e x p r e s s e d o v e r h e a l t h f a c t o r s i n m i n i n g , o p e r a t i o n a l and t r a n s p o r t a t i o n s a f e t y , and s a b o t a g e . For t h e above r e a s o n s , many Canadians w i s h t o see n u c l e a r development f o r e s t a l l e d whether t h e c o s t o f power produced by such means i s a t t r a c t i v e o r n o t . - 27 -These doubts n o t w i t h s t a n d i n g , i t a p p e a r s t h a t because o f i n -c r e a s i n g p l a n t c o s t s , n u c l e a r produced e l e c t r i c i t y w i l l , l i k e o t h e r e n e r g y s o u r c e s , i n c r e a s e i n c o s t i n t h e f u t u r e . 2.9 SUMMARY In t h i s c h a p t e r a number o f f a c t o r s have been d i s c u s s e d which w i l l l i k e l y c o n t r i b u t e t o i n c r e a s e d e n e r g y c o s t s t o Canadian consumers d e s p i t e a s l o w e r growth r a t e i n demand. Some o f t h e s e f a c t o r s a r e summarized i n p o i n t form below: even w i t h s l o w e r growth r a t e s t h e i n c r e m e n t i n s u p p l y t h a t must be added each y e a r i s l a r g e t h e l e s s c o s t l y and more a c c e s s i b l e energy r e s o u r c e s have, f o r the most p a r t , been d e v e l o p e d , l e a v i n g h i g h e r c o s t r e s o u r c e s t o meet f u t u r e demand o p p o s i t i o n from e n v i r o n m e n t a l i s t s c o u l d c r e a t e s h o r t a g e s i f t h e i r e f f o r t s f o r e s t a l l o r i n h i b i t e n e r g y development p r o j e c t s i n c r e a s e d e n v i r o n m e n t a l c o n c e r n r e q u i r e s a m e l i o r a t i v e a c t i o n which addes t o p r o d u c t i o n c o s t s c o n s e r v a t i o n p o l i c i e s o f government may be e f f e c t e d i n p a r t t h r o u g h i n c r e a s e d p r i c e s f o r e n e r g y i n c r e a s i n g c a p i t a l and c o n s t r u c t i o n c o s t s b o t t l e n e c k s i n f i n a n c i n g , manpower markets o r t r a n s p o r t a t i o n i n f r a s t r u c t u r e may c r e a t e energy s h o r t a g e s and s t i m u l a t e p r i c e i n c r e a s e s - 28 -h i g h i n t e r n a t i o n a l p r i c e s f o r e n e r g y s o u r c e s upon which we a r e dependent. - 29 -CHAP T E R T H R E E Ey§B9Y_AND_EguiTY John P o r t e r i n The V e r t i c a l Mosaic o b s e r v e s : One o f t h e most p e r s i s t e n t images t h a t Canadians have o f t h e i r s o c i e t y i s t h a t i t has no c l a s s e s . T h i s image becomes t r a n s l a t e d i n t o t h e a s s e r t i o n t h a t Canadians a r e a l l r e l a t i v e l y equal i n t h e i r p o s s e s s i o n s , i n t h e amount o f money t h e y e a r n , and i n t h e o p p o r t u n i t i e s which t h e y and t h e i r c h i l d r e n have t o g e t on i n t h e w o r l d . ( P o r t e r , 1965) T h i s image however does not f i t r e a l i t y . P o r t e r f i n d s t h a t s o c i a l s t a t u s , o p p o r t u n i t i e s , income and power a r e not s h a r e d " r e l a t i v e l y e q u a l l y " among Canadians and t h a t t h e r e i s , i n f a c t , c o n s i d e r a b l e d i s p a r i t y . Examining one i n d e x o f e q u a l i t y , p e r s o n a l income, P o r t e r f i n d s s u b s t a n t i a l d i f f e r e n c e s . In 1959, 5.2 p e r c e n t o f f a m i l i e s had incomes o v e r $10,000 and 11.2 p e r c e n t had incomes o v e r $8,000 which we have s u g g e s t e d i s the p o i n t a t which t h e i d e a l i z e d m i d d l e c l a s s l i f e c o u l d b e g i n ... In 1959 t h e median f a m i l y income was $4,423, and 41.6 p e r c e n t o f f a m i l i e s were s t i l l below $4,000. ( P o r t e r , 1965) - 30 -P o r t e r n o t e s t h a t i n t h e p e r i o d 1955 t o 1959 some f a m i l i e s i n t h e low income range d i d move upwards t o t h e a d j a c e n t income group, however, t h e r e was l i t t l e i f any change i n t h e degree o f income i n e q u a l i t y . L o r e n z e c u r v e s p l o t t e d f o r 1955 and 1959 a r e a l m o s t i d e n t i c a l , and i n both y e a r s t h e t o p 20 p e r c e n t o f t h e income r e c i p i e n t s had ( i . e . r e c e i v e d ) o v e r 40 p e r c e n t o f the t o t a l income. ( P o r t e r * 1965) These d i s t r i b u t i o n s t a t i s t i c s have been r e l a t i v e l y s t a t i c i n r e c e n t t i m e s . The Economic C o u n c i l o f Canada r e p o r t e d i n 1968, t h a t i t a p p e a r s t h a t t h e r e may have been a t r e n d towards g r e a t e r income e q u a l i t y between 1931 and 1951, w i t h t h e s h a r e r e c e i v e d by the bottom f i f t h showing an a p p r e c i a b l e i n c r e a s e . Between 1951 and 1965, however -- a p e r i o d o v e r which av e r a g e f a m i l y income i n c r e a s e d v e r y r a p i d l y --l i t t l e s h i f t i n p e r c e n t a g e s h a r e s was a p p a r e n t . (Economic C o u n c i l o f Canada, 1968.) T h i s i s i l l u s t r a t e d i n T a b l e 3.1. - 31 -T A B L E 3.1 9I§IBI§yiI2y_9L7_NQN_FARM_FAMILY TAX D i s t r i b u t i o n o f T o t a l Income 1951 1961 1965 Lowest income f i f t h o f f a m i l i e s 6.1% 6.6% 6.7' Second f i f t h 12.9 13.4 13.4 T h i r d f i f t h 17.4 18.2 18.0 F o u r t h f i f t h 22.5 23.4 23.5 Top f i f t h 41.1 38.4 38.4 S o u r c e : Economic C o u n c i l o f Canada, 1968. Though t h e r e a r e many r e a l problems i n a s s e s s i n g income d i s -t r i b u t i o n , t h e minimal c o n c l u s i o n t h a t can be drawn from t h i s b r i e f o v e r v i e w i s t h a t p e r s o n a l income i s d i s e q u i t a b l y d i s -t r i b u t e d among f a m i l i e s and t h a t t h e i n c i d e n c e o f low income i s l a r g e , much l a r g e r than we might s u s p e c t . I t i s worth r e i t e r a t i n g t h a t P o r t e r , and Adams e t . a l . , i n The Real P o v e r t y R eport (1971), s t r e s s t h a t o p p o r t u n i t i e s , as w e l l as income, a r e i n e q u i t a b l y d i s t r i b u t e d . G a l b r a i t h a r g ues t h a t i n e q u a l i t y , a major c o n c e r n o f the n i n e -- 32 -t e e n t h c e n t u r y , i s not a b u r n i n g i s s u e now because a massive e x p a n s i o n i n p r o d u c t i o n o f goods and s e r v i c e s has b r ought a " t r a n s i t i o n o f t h e v e r y poor from a m a j o r i t y t o a m i n o r i t y p o s i t i o n " . ( G a l b r a i t h , 1958.) T h a t t h i s t r a n s i t i o n o c c u r r e d i s not t o be d o u b t e d , y e t the f a c t remains t h a t t h e r e a r e l a r g e numbers o f p e o p l e who have n o t b e n e f i t e d from o u r a f f l u e n t s o c i e t y , and t h i s i s h a r d l y a s i t u a t i o n w i t h which we s h o u l d be c o n t e n t . I t would be i n a p p r o p r i a t e i n t h i s s t u d y t o t a c k l e the immensely d i f f i c u l t and complex i s s u e o f a j u s t d i s t r i b u t i o n o f income*. We s h o u l d however, a t a l l times be c o n c e r n e d w i t h t h e e f f e c t o f a p o l i c y , measure o r s i t u a t i o n on t h e d i s t r i b u t i o n o f income. In t h e p r e v i o u s c h a p t e r i t was s u g g e s t e d t h a t the p r i c e o f e n e r g y was g o i n g t o r i s e r e l a t i v e t o o t h e r p r i c e s and incomes. T h i s s i t u a t i o n w i l l r e s u l t from a m u l t i t u d e o f f a c t o r s o p e r a t i n g i n the energy market; and p o s s i b l y , a l s o as a r e s u l t o f c on-s e r v a t i o n measures i n i t i a t e d by p u b l i c b o d i e s . There i s h a r d l y a f a c e t o f our l i v e s i n which energy does n o t p l a y a p a r t . I t i s w e l l r e c o g n i z e d as a b a s i c need. P r i c e i n c r e a s e s i n such a n e c e s s a r y commodity a r e bound t o a f f e c t * I f the r e a d e r w i s h e s t o p ursue t h i s s u b j e c t , t h e y c o u l d examine s t a n d a r d r e f e r e n c e s such a s : R e s c h e r , N., D i s t r i b u t i v e J u s t i c e (1967) o r Pen, J . , Income D i s t r i b u t i o n (197TJL - 33 -the w e l f a r e o f a l l consumers. I t appea r s t h a t t h e poor members o f o u r s o c i e t y w i l l be most a d v e r s e l y a f f e c t e d . In a s t u d y o f h o u s e h o l d e x p e n d i t u r e s , S t a t i s t i c s Canada r e p o r t s t h a t t h e average e x p e n d i t u r e on power and f u e l (and water) f o r a l l f a m i l i e s a c r o s s a l l income c l a s s e s i s 2.5 p e r c e n t o f f a m i l y income. T h i s e n e r g y e x p e n d i t u r e c a t e g o r y e x c l u d e s t h e o p e r a t i o n o f an a u t o m o b i l e . The l o w e s t income c l a s s , under $3,000, however, d e v o t e d some 4.5 p e r c e n t o f f a m i l y income t o power and f u e l , w h i l e t h e h i g h e s t group, o v e r $15,000, d e v o t e d o n l y 1.8 p e r c e n t . FAMILY INCOME DEVOTED TO POWER, FUEL (AND WATER) 1969 Under $3,000 4.5 p e r c e n t 3.4 p e r c e n t 3.2 p e r c e n t 2.7 p e r c e n t 2.9 p e r c e n t 2.8 p e r c e n t 2.7 p e r c e n t 2.8 p e r c e n t 2.6 p e r c e n t 2.4 p e r c e n t 2.3 p e r c e n t 1.8 p e r c e n t $ 3,000 t o $ 3,999 $ 4,000 t o $ 4,999 $ 5,000 t o $ 5,999 $ 6,000 t o $ 6,999 $ 7,000 t o $ 7,999 $ 8,000 t o $ 8,999 $ 9,000 t o $ 9,999 $10,000 t o $10,999 $11,000 t o $11,999 $12,000 t o $14,999 Over $15,000 ( S o u r c e : S t a t i s t i c s Canada, 1969) - 34 -These s t a t i s t i c s i n d i c a t e t h a t t h e poor d e v o t e a h i g h e r p r o -p o r t i o n o f t h e i r income t o en e r g y p u r c h a s e s than do h i g h income consumers. The o b v i o u s danger i s t h a t p r i c e i n c r e a s e s i n e n e r g y w i l l have a v e r y r e g r e s s i v e e f f e c t , l e a v i n g many Canadians i n an even more d e p r i v e d s t a t e than a t p r e s e n t . R e g r e s s i v e , i n t h i s c o n t e x t , means t h a t t h e poor pay more i n r e l a t i o n t o income and n o t i n a b s o l u t e terms. T h i s unhappy s i t u a t i o n would be g r o s s l y u n j u s t i f i t r e s u l t e d f r o m d e l i b e r a t e p u b l i c a c t i o n however worthy t he c a u s e , i . e . , e n e r g y c o n s e r v a t i o n measures worked o u t th r o u g h t he p r i c e mechanism. The s u c c e e d i n g c h a p t e r s t u r n t o t h e q u e s t i o n o f the r e l a t i o n s h i p between income and energy demand and p r i c e and energy demand i n an attempt t o e x p l o r e t he hypotheses p r e s e n t e d i n t h i s s t u d y . - 35 -C H A P T E R FOUR BE§PONDENT_CHARACTERISTICS INTRODUCTION To t e s t t h e hypotheses advanced i n t h e f i r s t c h a p t e r , a s t u d y was undertaken o f r e s i d e n t i a l e l e c t r i c i t y consumption i n Vancouver, Canada. E l e c t r i c i t y , a p r i m a r y e n e r g y form, was chosen p r i n c i p a l l y because o f the a c c e s s i b i l i t y o f r e l i a b l e i n f o r m a t i o n on consumption. A sample o f 291 r e s i d e n t i a l consumers showed t h a t consumption o f e l e c t r i c i a l v a r i e d w i d e l y from a low o f 969 KWH i n a one-y e a r p e r i o d , t o a h i g h o f 56,805 KWH. I t must be p o i n t e d o u t t h a t no attempt has been made t o e x p l a i n a l l t h e v a r i a t i o n i n t h e above range. R a t h e r , t he emphasis i n t h i s s t u d y i s on t h e r e l a t i o n s h i p between income and demand. As n o t e d , t h e l i t e r a t u r e on t h e d e t e r m i n a n t s o f r e s i d e n t i a l demand f o r e l e c t r i c i t y p o i n t s t o s e v e r a l s i g n i f i c a n t v a r i a b l e s . Many o f t h e s e v a r i a b l e s a r e not i n c l u d e d here because t h e y f a l l o u t s i d e t h e purview o f t h i s s t u d y . - 36 -F a c t o r s such as c l i m a t e and degree o f u r b a n i z a t i o n have been s u g g e s t e d i n o t h e r s t u d i e s as p o s s i b l y s i g n i f i c a n t v a r i a b l e s . In t h i s s t u d y , t h e p o s s i b l e e f f e c t s o f t h e s e v a r i a b l e s have been c o n t r o l l e d f o r by t h e s t r u c t u r e o f t h e s t u d y . F i r s t l y , d a t a was c o l l e c t e d on a sample o f Vancouver consumers o n l y ; and s e c o n d l y , consumption i n f o r m a t i o n , o b t a i n e d from B. C. Hydro and Power A u t h o r i t y , p e r t a i n s t o t h e 365-day p e r i o d p r e c e d i n g August 1975 i n a l l c a s e s . Had d a t a been c o l l e c t e d p r o v i n c e -wide o v e r a number o f y e a r s , t h e s e two v a r i a b l e s may have i n f l u e n c e d the r e s u l t s . The e x p l a n a t o r y v a r i a b l e s t o be t e s t e d a r e : income o f the h o u s e h o l d , number o f p e r s o n s i n t h e d w e l l i n g and t h e number o f rooms i n the d w e l l i n g . A l a t e r s e c t i o n w i l l d e a l w i t h t h e p r i c e o f e l e c t r i c i t y as an e x p l a n a t o r y v a r i a b l e , and i n t e r f u e l s u b s t i t u t i o n . F i v e a r e a s o f t h e C i t y o f Vancouver were chosen on the b a s i s o f median h o u s e h o l d income, based on 1971 census i n f o r m a t i o n : A r e a One had a median h o u s e h o l d income o f under $6,000, A r e a Two, $6,000 - $8,999, Area T h r e e , $9,000 - $11,999, A r e a Four $12,000 - $15,000, and Area F i v e , o v e r $15,000. On t h e b a s i s o f income a l o n e , a s u b s t a n t i a l number o f a r e a s c o u l d have been chosen. C o n s e q u e n t l y s t u d y a r e a s were a l s o s e l e c t e d on t h e - 37 -b a s i s o f l a r g e v a r i a t i o n s i n h o u s e h o l d s i z e (number o f p e r s o n s ) and d w e l l i n g s i z e (number o f rooms). These a r e a s a r e p l o t t e d on a Vancouver C i t y map i n Appendix I I . There were a p p r o x i m a t e l y 600 s i n g l e f a m i l y d e t a c h e d homes i p each o f t h e a r e a s f i n a l l y s e l e c t e d . A random sample o f approx-i m a t e l y 10 p e r c e n t o f t h e s e h o u s e h o l d e r s were i n t e r v i e w e d . O n l y s i n g l e f a m i l y d e t a c h e d d w e l l i n g s were c o n s i d e r e d because o f t he d i f f e r i n g consumption p a t t e r n s o f o c c u p a n t s o f , f o r example, apartment complexes w i t h some s h a r e d a p p l i a n c e s o r e l e c t r i c d e v i c e s , and t h o s e o f d e t a c h e d d w e l l i n g o c c u p a n t s . U l t i m a t e l y some 291 h o u s e h o l d e r s responded t o t h e q u e s t i o n n a i r e . 4.2 HOUSEHOLD INCOME As was p r e v i o u s l y mentioned, r e s p o n d e n t s were asked t o p r o v i d e i n f o r m a t i o n p e r t a i n i n g t o h o u s e h o l d income. C o n s i d e r a b l e e f f o r t was expended t o o b t a i n t h i s h i g h l y p e r s o n a l d a t a . C o n s i d e r a b l e e f f o r t was a l s o expended t o e n s u r e t h a t a r e a s o n a b l e sample o f a l l income groups was s u r v e y e d . U l t i m a t e l y , however, i t was found t h a t h i g h income groups were oversampled v i s - 3 - v i s t h e lower income groups. As i s e v i d e n t from t he f o l l o w i n g t a b l e , 41 pe r s o n s o r 14.1 p e r c e n t o f the sample r e f u s e d t o - 38 -respond t o t h i s s e c t i o n o f t h e q u e s t i o n n a i r e . In s t a t i s t i c a l t e s t s where t h e v a r i a b l e income was i n c l u d e d , t h e s e p a r t i a l n o n - r e s p o n d e r s were e x c l u d e d from t h e t e s t . T A B L E 4.1 INCOME GROUPS A b s o l u t e R e l a t i v e C u m u l a t i v e Frequency Frequency Frequency ( p e r c e n t ) ( p e r c e n t ) No Response 41 14.1 14.1 $0 - $3,000 10 3.4 17.5 $ 3,000 - $ 6,000 35 12.0 29.6 $ 6,000 - $ 9,000 22 7.6 37.1 $ 9,000 - $12,000 31 10.7 47.8 $12,000 - $15,000 44 15.1 62.9 Over $15,000 108 37.1 100.0 TOTAL 291 100.0 100.0 Respondents were asked q u e s t i o n s c o n c e r n i n g t h e i r s t o c k o f e l e c t r i c a p p l i a n c e s , t he number o f rooms i n the d w e l l i n g , t he number o f p e r s o n s o c c u p y i n g t h e d w e l l i n g , h o u s e h o l d income, and t h e i r r e a c t i o n t o f o u r h y p o t h e t i c a l e l e c t r i c i t y p r i c e changes. Appendix I , a copy o f the q u e s t i o n n a i r e , p r o v i d e s t h e complete s e t o f q u e s t i o n s . In a d d i t i o n , B. C. Hydro p r o v i d e d d a t a f o r t h e sample h o u s e h o l d s on e l e c t r i c i t y consumption. - 39 -4.3 CONSUMPTION The v a r i a t i o n i n e l e c t r i c i t y consumption i s l a r g e . As p r e v i o u s l y mentioned, t h e s m a l l e s t consumption i n t h e one-year p e r i o d under s t u d y was 969 KWH and t h e l a r g e s t 56,805 KWH. The mean consumption was 7,343.6 KWH and the median 6,582.5 KWH. T a b l e 4.2 p r o v i d e s s i m i l a r consumption s t a t i s t i c s by income groups. T A B L E 4.2 9QN§yMPII9L?LINC0ME_GRgyps ( i n KWH per y e a r ) Number o f Obser- S t a n d a r d v a t i o n s Minimum Maximum Mean Median D e v i a t i o n A l l c a s e s Under $3,000 $ 3,000 - $ 6,000 $ 6,000 - $ 9,000 $ 9,000 - $12,000 $12,000 - $15,000 Over $15,000 291 969.0 56,805.0 7,343.6 6,582.5 6,605 9 1,232.0 8,767.0 4,552.2 4,096.0 2,873 34 1,316.0 12,348.0 6,125.6 5,537.0 2,943 21 2,422.0 10,564.0 5,800.6 4,873.7 2,642 27 969.0 24,596.0 7,160.6 6,213.7 4,811 34 2,641.0 16,764.0 7,439.4 6,484.5 3,570 90 1,828.0 56,805.0 10,812.3 8,220.0 8,912 - 40 -4.4 NUMBER OF PERSONS The number o f p e r s o n s i n t h e d w e l l i n g ranged from one p e r s o n t o t e n p e r s o n s . The mean was 3.47 and t h e median 3.21. T a b l e 4.3 p r e s e n t s t h i s i n f o r m a t i o n by income group s . T A B L E 4.3 NyM§§L9[.PERS0NSJER_DWELU Number o f Obser- S t a n d a r d V a t i o n s Minimum Maximum Mean Median De v i a t -A l l Cases 291 1 10 3.47 3.21 i c Under $3,000 9 1 3 1.5 1.4 .7 $ 3,000 - $ 6,000 34 1 10 2.5 2.1 1.8 $ 6,000 - $ 9,000 21 2 7 2.9 2.3 1.3 $ 9,000 - $12,000 27 1 8 3.5 3.4 1.7 $12,000 - $15,000 34 1 10 4.2 4.1 1.8 Over $15,000 90 1 9 3.8 3.7 1.6 4.5 NUMBER OF ROOMS The v a r i a t i o n i n t h e number o f rooms i s v e r y h i g h , from 2 t o 15 rooms. The mean i s a g a i n r e l a t i v e l y h i g h , 7.0 rooms, w i t h a median o f 6.492. S l i g h t l y o v e r 50 p e r c e n t o f t h e sample how-e v e r , had s i x rooms o r l e s s . T a b l e 4.4 p r o v i d e s s i m i l a r s t a t i s -t i c s by income group s . - 41 -T A B L E 4.4 NUMBER OF ROOMS BY INCOME GROUP Number o f Obser-v a t i o n s Minimum Maximum Mean Median S t a n d a r d D e v i a t i o n A l l Cases Under $3,000 291 9 34 21 27 34 90 2 5 3 4 3 2 3 15 8 12 10 13 15 15 6.9 6.0 6.17 6.3 6.07 6.9 8.1 6.49 5.7 5.8 6.08 5.7 6.3 7.8 2.6 1.18 2.1 1.7 2.2 2.7 2.6 $ 3,000 - $ 6,000 $ 6,000 - $ 9,000 $ 9,000 - $12,000 $12,000 - $15,000 Over $15,000 4.6 THE STOCK OF APPLIANCES E l e c t r i c i t y , u n l i k e many o t h e r goods and commodities (shoes f o r example), i s not a f i n a l p r o d u c t , b u t r a t h e r i s consumed i n the o p e r a t i o n o f o t h e r goods. , E l e c t r i c i t y i s perhaps b e s t l a b e l l e d an " i n t e r m e d i a t e good". The consumption o f e l e c t r i c i t y t h e n , i s a f u n c t i o n o f t h e s t o c k o f a p p l i a n c e s , t h e f r e q u e n c y and d u r a t i o n o f use, and t h e o p e r a t i o n r e q u i r e m e n t s o f t h o s e a p p l i a n c e s . F o r t h i s r e a s o n , i t i s p e r t i n e n t t o o v e r v i e w t h e s a t u r a t i o n l e v e l s o f t h e v a r i o u s e l e c t r i c i t y consuming p r o d u c t s . - 42 -In t h e s t u d y , r e s p o n d e n t s were asked t o i n d i c a t e which e l e c t r i c a p p l i a n c e s and gadgets t h e y had i n t h e i r home from t h e l i s t i n T a b l e 4.5. Wh i l e t h i s l i s t i s not e x h a u s t i v e , i t i s hoped t h a t i t c o v e r s a l l i m p o r t a n t a p p l i a n c e s and a broad range o f t h e a v a i l a b l e p r o d u c t s . 4.7 AWARENESS OF CONSUMPTION Respondents were asked whether t h e y were aware o f how much e l e c t r i c i t y t h e y consume each month i n k i l o w a t t hours and i n terms o f d o l l a r s expended. They were a l s o asked whether t h e y were aware o f the t o t a l amount o f money expended f o r n a t u r a l gas and e l e c t r i c i t y each month. 45.4 p e r c e n t o f t h e r e s p o n d e n t s c l a i m e d t h e y were aware o f how much they spend on e l e c t r i c i t y ; 3.4 p e r c e n t c l a i m e d t h e y were aware o f how many k i l o w a t t hours t h e y consume each month; and 65.6 p e r c e n t c l a i m e d t h e y know t h e i r t o t a l hydro b i l l . * The l a t t e r f i g u r e i s r e l a t i v e l y h i g h , l a r g e l y due, i f v a l i d , t o th e a v a i l a b i l i t y o f the "Equal Payment P l a n " . * * * E l e c t r i c i t y p l u s n a t u r a l gas. **From consumption h i s t o r i e s , p r o j e c t e d annual c o s t f i g u r e s a r e c a l -c u l a t e d . Consumers then have the o p t i o n o f p a y i n g 1/12th o f t h a t each month. Y e a r l y , a c t u a l consumption i s c a l c u l a t e d and t h e d i f f e r e n c e between a c t u a l c o s t and p r o j e c t e d c o s t i s d e t e r m i n e d . Equal Payment P l a n c l i e n t s a r e e i t h e r b i l l e d f o r the d i f f e r e n c e o r compensated. APPLIANCES KITCHEN - <U -APPLIANCE SATURATION BY INCOME GROUP Expressed In Percentages A " C a s e s Under $3,000 $3,000 - 6.000 $6,000 - 9,000 $9,000 - 12,000 $12,000 - 15,000 Over $I5,00C Dishwasher Range Gas E l e c t r i c Garbage D isposa l E l e c t r i c Carv ing K n i f e E l e c t r i c Can Opener 29.2 2*1.7 75 .3* 10.3 28.2 41.6 10.0 60 .0 40.0 0 .0 20 .0 10.0 5.7 22 .9 77.1 0 .0 20.0 34.3 13.6 54.5 45 .5 4 .5 27.3 45.5 9 .7 32.3 67 .7 9 .7 25 .8 45.2 29.5 20.5 77.3 4.5 29.5 47.7 50.9 15.7 85.2 18.5 32.4 44.4 Dryer - E l e c t r i c I ron Washer - Aucomatlc Washer - Wringer 52 .6 91.4 74.6 13.4 10.0 90 .0 50 .0 30.0 31.4 91.4 71.4 22 .9 36.4 95 .5 50.0 27 .3 48.4 96 .8 74.2 19.4 52.3 90 .9 79.5 13.6 FOOD STORAGE 67.6 89.8 BI.5 3.7 R e f r i g e r a t o r Manual D e f r o s t F r o s t - F r e e F r e e z e r ENTERTAINMENT T e l e v t s ion C o l o r B lack and White Radio HI-FI o r S t e r e o Tape Recorder WATER HEATING 44 .0 56.0 42 .0 61 .2 54 .0 90.4 77-0 40.2 90 .0 10.0 20 .0 60 .0 50 .0 100.0 50 .0 30 .0 48.5 54.3 17.1 54.3 51.4 91.4 45.7 20 .0 45.5 54.5 27 .3 59.1 50.0 81 .8 63.6 27 .3 38 .7 61 .3 16.1 61.3 35.5 87.1 83 .9 45.2 47 .7 52.3 38.6 59.1 38.6 90 .9 84.1 45.5 37.0 63.0 58.3 67.6 50.9 92.6 89 .8 46.3 Gas E l e c t r i c HOME HEATING Gas O i l E l e c t r i c COMFORT 54.3 44 .3 58.4 35.7 4 . 8 55.6 44.4 70.0 30.0 0 .0 31.4 68.6 57.1 37.1 5.7 76.2 23 .8 59.1 40 .9 0 .0 50.0 50.0 71.0 29 .0 0 .0 63.6 36.4 62.8 34.9 2.3 54.7 39.6 5.7 E l e c t r i c B lanket Sun Lamp Space Heater PERSONAL GROOMING H a i r Dryer H a i r S e t t e r E l e c t r i c Toothbrush E l e c t r i c Shaver PORTABLES Cof fee P e r c o l a t o r Corn Popper Fry Pan Deep Fryer K e t t l e Mixer BIender T o a s t e r W a f f l e Iron LIGHTING AIR CONDITIONING C e n t r a l Room OUTDOORS AND SHOP E l e c t r i c Lawnmower E l e c t r i c Saw E l e c t r i c D r i l l E l e c t r i c Sander 31.6 13.1 16.8 64 .3 I8.9 6.2 51.2 46 .0 11.3 67 .7 21.6 71.1 74.2 57.4 95 .9 29.9 100 1.7 1.7 38.5 38.5 50.9 36.8 50.0 10.0 0 .0 40 .0 2 0 . 0 0 .0 40.0 20 .0 0 .0 70.0 20 .0 50.0 70.0 40.0 100.0 40 .0 100 0 . 0 0 .0 60 .0 10.0 10.0 10.0 37.1 14.3 14.3 51.4 8.6 5.7 48 .6 60.0 8.6 71.4 14.3 71.4 80.0 40.0 91.4 31.4 100 5.7** 0 .0 51.4 17.1 31.4 25.7 40 .9 9.1 13.6 50.0 0 .0 4 .5 54.5 63.6 9.1 72.7 9.1 63 .6 63 .6 31 .8 95.5 36.4 100 0 .0 4 .5 22.7 36.4 31.8 22 .7 29.0 12.9 16.1 45.2 22 .6 6.5 48.4 48.4 16.1 64 .5 16.1 64.5 67 .7 61.3 100.0 32.3 100 0 . 0 3.2 41 .9 45.2 54 .8 45.2 36.4 9.1 11.4 75.0 22.7 2.3 52.3 31.8 6 .8 68.2 20.5 75.0 70.5 63 .6 100.0 25.0 100 0 .0 2.3 38.6 40.9 52.8 52.3 28 .7 16.7 25.0 77.8 28.7 9.3 51.9 47.2 15.7 66 .7 23.1 75.9 81.5 72.2 96.3 29.6 100 1.9 1.9 34.3 50.0 64.8 40.7 OTHER C lock 85 .6 80 .0 Sewing Machine 73,2 50 .0 Vacuum C leaner 93.8 90 .0 F l o o r P o l i s h e r 1»6.7 40 .0 * 9.3* o f the sample had e l e c t r i c ranges w i t h s e l f c l e a n ovens . **Erroneous due to sample s i z e . 85 .7 71.4 94.3 48.6 90 .9 77.3 100.0 50 .0 83 .9 71.0 87.1 45.2 88.6 72.7 95.5 40 .9 87.O 78.7 95.5 50.0 T A B L E 4.5 - 44 -Respondents were a l s o asked whether o r n o t , when c o n s i d e r i n g t h e p u r c h a s e o f a new e l e c t r i c a p p l i a n c e , t h e y f a m i l i a r i z e them-s e l v e s w i t h o p e r a t i n g c o s t s . 30.2 p e r c e n t answered i n the a f f i r m a t i v e . These a g g r e g a t e f i g u r e s a r e broken down by income group i n T a b l e s 4.6 and 4.7. T A B L E 4.6 AWARENESSOFCQNSUMPTION BY INCOME GROUP E l e c t r i c i t y Use i n D o l l a r s E l e c t r i c i t y Use i n K i l o w a t t Hours T o t a l Hydro B i l l A l l Cases 45.4% Under $3,000 70.0% $ 3,000 - $ 6,000 60.0% $ 6,000 - $ 9,000 31.8% $ 9,000 - $12,000 45.2% $12,000 - $15,000 54.5% Over $15,000 40.7% 3.4% 0.0% 5.7% 0.0% 0.0% 4.5% 5.6% 65.6% 70.0% 71.4% 63.6% 67.7% 77.3% 64.8% T A B L E 4.7 AWARENESS OF OPERATING COSTS BY INCOME GROUP A l l Cases Under $3,000 $ 3,000 - $ 6,000 $ 6,000 - $ 9,000 $ 9,000 - $12,000 $12,000 - $15,000 Over $15,000 30.2% 50.0% 25.7% 27.3% 25.8% 22.7% 33.3% - 45 -4.8 ELECTRICITY EXPENDITURES In a d d i t i o n t o p r o v i d i n g t he e l e c t r i c i t y consumption p a t t e r n s i n k i l o w a t t h o u r s , B. C. Hydro and Power A u t h o r i t y a l s o p r o v i d e d t h e e x p e n d i t u r e s by h o u s e h o l d on e l e c t r i c i t y d u r i n g t he 365-day p e r i o d under s t u d y . The f o l l o w i n g T a b l e p r e s e n t s t h i s i n f o r m a t i o n . T A B L E 4.8 ELECTRICITY EXPENDITURES ONE YEAR PERIOD Minimum Maximum Mean $ 39.00 $862.00 $171.00 $175.00 $108.50 Median S t a n d a r d D e v i a t i o n Number o f O b s e r v a t i o n s 291 - 46 -CHAPTER F I V E DATA_ANALYSIS 5.1 INTRODUCTION In t h i s c h a p t e r t h e d a t a w i l l be a n a l y z e d w i t h r e s p e c t t o t h e r e l a t i o n s h i p t h a t e x i s t s between e l e c t r i c i t y consumption and income, number o f rooms and number o f p e r s o n s i n t h e d w e l l i n g . Income-consumption r e l a t i o n s h i p s were e s t i m a t e d u s i n g c o r r e l a -t i o n and s t e p - w i s e r e g r e s s i o n p r o c e d u r e s . S i m i l a r i l y , number o f rooms-consumption r e l a t i o n s h i p s and number o f p e r s o n s -consumption r e l a t i o n s h i p s were e s t i m a t e d u s i n g t he same s t a t -i s t i c a l p r o c e d u r e s . In a l l c a s e s , consumption i s taken as t h e dependent v a r i a b l e and income, rooms and pe r s o n s as t h e i n -dependent v a r i a b l e s . C l e a r l y , we have a one-way c a u s a l dependence r u n n i n g from income t o consumption, rooms t o consumption and pe r s o n s t o consumption, however t h e r e i s l i k e l y some i n t e r d e p e n d e n c e among the i n d e p e n d e n t v a r i a b l e s . The problem o f m u l t i - c o l l i n e a r i t y , t h e r e f o r e , does a f f e c t t h e r e s u l t s . - 47 -U s i n g t h e s t e p - w i s e r e g r e s s i o n p r o c e d u r e , a p p r o x i m a t e l y 54 p e r c e n t o f t h e v a r i a t i o n i n e l e c t r i c i t y consumption was a c c o u n t e d f o r by the t h r e e v a r i a b l e s : income, number o f rooms, and number o f p e r s o n s . Based on r e s e a r c h advanced by o t h e r s , n o t a b l y W i l s o n ( 1 9 7 1 ) , H a l v o r s e n (1972) and Anderson (1972) i t i s l i k e l y t h a t t he p r i c e o f e l e c t r i c i t y and t h e p r i c e o f a l t e r n a t i v e f u e l s a c c o u n t f o r much o f t h e r e s i d u a l . INCOME-CONSUMPTION RELATIONS t h e low c o r r e l a t i o n c o e f f i c i e n t o f 0.304 between income and e l e c t r i c i t y consumption s u p p o r t s t h e view t h a t e l e c t r i c i t y i s a b a s i c need i n o u r s o c i e t y . (See T a b l e 5.1.) The income l e v e l o f t he h o u s e h o l d does n o t appear t o have a l a r g e e f f e c t on t h e consumption o f e l e c t r i c i t y . NUMBER OF PERSONS-CONSUMPTION RELATIONS The number o f p e r s o n s , l i k e income, does not appear t o have a l a r g e e f f e c t on t h e consumption o f e l e c t r i c i t y . The c o r r e l a -t i o n c o e f f i c i e n t between number o f p e r s o n s and consumption i s 0.337. - 48 -5.4 NUMBER OF ROOMS-CONSUMPTION RELATIONS The number of rooms is a more signif icant determinant of consumption than either of the above, with a correlation coefficient of nearly 0.5. Table 5.1 provides the complete correlation coefficient matrix. TABLE 5.1 CORRELATION MATRIX Number Number of of Consumption Rooms Persons Income Consumption Number of Rooms Number of Persons Household Income 1.00 0.496 0.3369 0.3038 0.496 1.00 0.367 0.2826 0.3369 0.3672 1.00 0.304 0.3038 0.2826 0.304 1.00 Using the step-wise regression procedure, the number of rooms was found to account for approximately 49 percent of the variation in consumption. On the second round, with number of persons included in the analysis, 52 percent of the variation was accounted for; 54 percent of the variation was accounted for on the third round with income included in the analysis. - 49 -5.5 PROPORTIONATE CONSUMPTION From an a n a l y s i s o f t h e d a t a i t was found t h a t h o u s e h o l d s under $12,000, some 42.5 p e r c e n t o f t h e sample, consumed 31.6 p e r c e n t o f t h e e l e c t r i c i t y (and s p e n t 37 p e r c e n t o f t h e d o l l a r s d e v o t e d t o e l e c t r i c i t y by t h e whole s a m p l e ) . * Those o v e r $12,000, some 57.4 p e r c e n t o f t h e sample, consumed 68.3 p e r c e n t o f t h e e l e c t r i c i t y (and s p e n t 62.3 p e r c e n t o f t h e t o t a l m o n i e s ) . T a b l e 5.2 d e t a i l s t h e s e f i n d i n g s . T A B L E 5.2 P e r c e n t a g e o f Respondents P e r c e n t a g e o f Consumption P e r c e n t a g e o f D o l l a r s Spent Under $6,000 $6,000 - $12,000 Over $12,000 Bottom 30% Top 70% Under $12,000 Over $12,000 Under $15,000 Over $15,000 19.9 22.6 57.4 30.0 70.0 42.5 57.4 58.3 41.6 13.6 18.0 68.3 20.5 79.4 31.6 68.3 45.8 54.1 16.6 21.0 62.3 26.0 74.0 37 62 53.37 46.6 *N0TE: The r e a s o n f o r the d i s c r e p a n c y between p e r c e n t a g e o f con-sumption and p e r c e n t a g e o f d o l l a r s s p e n t on consumption i s t h a t customers f a c e a d e c l i n i n g b l o c k p r i c e s c h e d u l e . That i s , each s u c c e s s i v e b l o c k o f power i s l e s s e x p e n s i v e than t he b l o c k p r e c e d i n g i t . - 50 -5.6 CONCLUSION E l e c t r i c i t y consumption does n o t v a r y g r e a t l y w i t h h o u s e h o l d income o r t h e number o f p e r s o n s i n the d w e l l i n g . The number o f rooms i s a more s i g n i f i c a n t v a r i a b l e . With r e s p e c t t o t h e h o u s e h o l d income v a r i a b l e t he i m p l i c a t i o n , on a p r i o r i g r ounds, seems t o be t h a t low income h o u s e h o l d s would t h e r e f o r e expend a l a r g e r p r o p o r t i o n o f t h e i r income on e l e c t r i c i t y than h i g h income h o u s e h o l d s . The d a t a s u p p o r t s t h a t r e a s o n i n g . I t i s c l e a r from T a b l e 5.3 t h a t t h e p r o p o r t i o n o f income d e v o t e d t o e l e c t r i c i t y d e c l i n e s as income i n c r e a s e s . T A B L E 5.3 ELECTRICITY EXPENDITURE AS AS A PERCENTAGE OF INCOME P e r c e n t a g e Number o f Cases Under $6,000 $6,000 - $12,000 Over $12,000 5 1.83 1.27 43 49 124 These f i n d i n g s w i l l be a d d r e s s e d a g a i n i n C h a p t e r Seven. - 51 -CHAPTER SIX SIMULATING BEHAVIOR FROM PRICE §IByQiyBE_INTE5VENTION_POLICIES 1 INTRODUCTION In the previous chapter, existing patterns of e lect r i c i ty con-sumption were studied. In this chapter an attempt is made to simulate the behavior of e lect r i c i ty consumers under different e lect r i c i ty price conditions. The concern is focused on the demand for e lec t r i c i ty and on interfuel substitution. 2 PRICE SENSITIVITY OF DEMAND FOR ELECTRICITY The relationship between the demand for, and the price of e lec t r i c i ty , is inadequately understood. A number of studies, discussed previously, suggest quite strongly that the demand for e lect r i c i ty is price sensitive, particularly in the long-run. Estimates of the e last ic i ty coeff ic ient, however, vary among researchers. This study does not attempt to derive an empirically determined price e last i c i ty . While this would no doubt be of some con-siderable interest, the type of data collected does not lend i t s e l f to such an analysis. Rather, the present study con-- 52 -centrates on the perceptions of invididuals, in various income groups, of their need and/or ab i l i ty to adjust e lec t r i c i ty consumption levels in the face of e lect r i c i ty price changes. To accomplish th i s , four hypothetical price changes were posited, and the reactions of respondents recorded. These price changes were: Case One, a doubling of the present price (2x); Case Two, a t r ip l ing of the present, price (3x); Case Three, a price level f ive times the present level (5x); and Case Four, a f i f t y percent reduction from the present price level (%x). Respondents were accorded the opportunity to check options as shown in Tables 6.1 and 6.2, or alternatively, to provide original responses.* The options in Table 6.1 relate to the hypothetical price increases and those in Table 6.2 relate to Case Four, the hypothetical price reduction. The options in the left-hand column of both Tables 6.1 and 6.2 are concerned with possible actions based on present appliance ownership and use; those in the right-hand column relate to decisions regarding future purchases of e lect r i c i ty consuming devices and appliances. *No useful information was gleaned from this latter alternative. - 53 -A few of the options relate to fuel substitution, to be dis-cussed in the succeeding section. Respondents could choose any number of options, though ob-viously i f they chose a "no change" option, no other response in that set was open. TABLE 6.1 LIST_0F_0PTI0NS Applicable to Price Increases: Case One (2x), Two (3x) and Three (5x) Consumption Habits Buying Behavior no change in use (0) begin to turn out unnec-essary l ights (1) cut down a l i t t l e on use of luxury appliances (2) severely cut down on use of high energy appliances (3) cease using non-basic applicances altogether (4) could not afford this price increase - would have to cut down purchases in other areas (5) no change in buying behavior (0) switch from incandescent to fluorescent l ighting (1) purchase fewer luxury appliances (2) purchase smaller, more energy eff ic ient appliances (2) improve insulation in home to save money (2) cease purchasing high energy, non-basic appliances (3) where possible switch from e lect r ic i ty to gas (3) avoid building or buying a home with e lectr ic heating (3) - 54 -T A B L E 6.2 LIST OF OPTIONS A p p l i c a b l e t o P r i c e R e d u c t i o n : Case Four (%x) Consumption H a b i t s B u y i n g B e h a v i o r no change i n h a b i t s (0) no change i n b u y i n g b e h a v i o r (0) use l u x u r y a p p l i a n c e s more (1) would p u r c h a s e more l u x u r y a p p l i a n c e s (1) use h i g h e n e r g y a p p l i c a n c e s - would p u r c h a s e l a r g e r h i g h Each o f t h e s e o p t i o n s i s , i n e f f e c t , a p o s s i b l e " r e a c t i o n " t o t h e h y p o t h e t i c a l p r i c e change. The o p t i o n s a r e l i s t e d i n a s c e n d i n g o r d e r o f the s e v e r i t y o f t h e " r e a c t i o n " . V a l u e s have been a s s i g n e d t h e s e o p t i o n s ( f o u n d i n t h e p a r e n t h e s e s f o l l o w i n g each o p t i o n ) . Though a r b i t r a r y , i t i s hoped t h i s o r d e r i s a p p r o p r i a t e . SIMULATED PRICE INCREASES T a b l e s 6.3A and 6.3B show the " r e a c t i o n s " o f t h e r e s p o n d e n t s , e x p r e s s e d as a p e r c e n t a g e o f the r e s p o n d e n t s who chose each o f t h e s e o p t i o n s under t h e d i f f e r e n t p r i c e i n t e r v e n t i o n s . more (2) ene r g y a p p l i a n c e s (2) s w i t c h from gas o r o i l t o e l e c t r i c a l p r o d u c t s (3) - 55 -T A B L E 6.3A CONSUMPTION HABITS - OPTIONS CHOSEN BY RESPONDENTS §Y_INCQME_GRQyPS_yNDER_THREE_ ( e x p r e s s e d as a pe r c e n t a g e o f r e s p o n d e n t s i n c a t e g o r y ) P r i c e Change No change i n use 2x 3x 5x Begin t o t u r n o u t 2x unne c e s s a r y l i g h t s 3x 5x Cut down a l i t t l e on 2x use o f l u x u r y a p p l i a n c e s 3x 5x S e v e r e l y c u t down on use 2x o f h i g h energy a p p l i a n c e s 3x 5x Cease u s i n g n o n - b a s i c 2x a p p l i a n c e s a l t o g e t h e r 3x 5x C o u l d not a f f o r d t h i s 2x p r i c e i n c r e a s e - would 3x have t o c u t down p u r c h a s e s 5x i n o t h e r a r e a s A l l Under $6,000 - Over Cases $6,000 $12,000 $12,0( * ** *** **** 27.4 42.2 30.2 25.0 14.9 31.1 15.1 11.2 6.5 15.6 5.7 3.3 57.7 55.6 50.9 55.9 75.0 84.4 64.2 71.1 77.0 84.4 66.0 73.7 45.6 31.1 43.4 45.4 62.5 46.7 56.6 64.5 70.6 57.8 64.2 69.1 23.4 6.7 11.3 27.0 50.0 15.6 37.7 37.5 64.9 35.6 64.2 64.5 8.9 4.4 11.3 7.9 21.8 15.6 18.9 20.4 33.1 17.8 22.6 34.9 7.7 11.1 9.4 3.3 21.8 31.1 17.0 15.8 47.6 51.1 45.3 40.8 SAMPLE SIZE - * 250 O b s e r v a t i o n s *** 53 O b s e r v a t i o n s ** 45 O b s e r v a t i o n s **** 152 O b s e r v a t i o n s - 56 -T A B L E 6.3B BUYING BEHAVIOR - OPTIONS CHOSEN BY RESPONDENTS BY INQQME JRgyPS_UNDER_^^ ( e x p r e s s e d as a p e r c e n t a g e o f r e s p o n d e n t s i n c a t e g o r y ) P r i c e A l l Under $6,000 - Over Change Cases $6,000 $12,000 $12,0( * ** *** **** No change i n b u y i n g 2x 39.1 55.6 32.1 34.9 b e h a v i o r 3x 25.4 42.2 24.5 17.1 5x 15.3 31.1 15.1 8.6 S w i t c h from i n c a n d e s c e n t 2x 6.9 6.7 3.8 7.2 t o f l u o r e s c e n t l i g h t i n g 3x 12.5 11.1 3.8 13.8 5x 17.7 17.8 15.1 15.8 Purchase fewer l u x u r y 2x 35.1 28.9 28.3 35.5 a p p l i a n c e s 3x 48.4 37.8 39.6 50.7 5x 58.5 48.9 47.2 59.2 Purchase s m a l l e r more 2x 22.2 13.3 18.9 20.4 energy e f f i c i e n t a p p l i a n c e s 3x 31.9 17.8 24.5 32.9 5x 40.3 22.2 32.1 40.8 Improve i n s u l a t i o n i n home 2x 24.2 13.4 18.9 25.7 t o save money 3x 32.3 20.0 30.2 32.9 5x 35.1 22.2 32.1 36.2 Cease p u r c h a s i n g h i g h energy 2x 23.8 15.6 24.5 21.1 n o n - b a s i c a p p l i a n c e s 3x 35.9 15.6 37.7 37.5 5x 48.0 33.3 43.4 47.4 Where p o s s i b l e s w i t c h from 2x 13.7 8.9 7.5 15.8 e l e c t r i c i t y t o gas 3x 24.2 15.6 17.0 27.0 5x 32.3 22.2 24.5 34.2 A v o i d b u i l d i n g o r b u y i n g 2x 27.0 22.2 20.8 27.6 a home w i t h e l e c t r i c 3x 32.7 26.7 24.5 33.6 h e a t i n g 5x 38.3 26.7 32.1 38.2 SAMPLE SIZE - * 250 O b s e r v a t i o n s *** 53 O b s e r v a t i o n s ** 45 O b s e r v a t i o n s **** 152 O b s e r v a t i o n s - 57 -From an examination of Table 6.3A i t would appear that the demand for e lec t r i c i ty is price sensitive. Some 27 percent of the respondents claim their consumption habits would not change i f the price of e lect r i c i ty doubled. Some 73 percent would, therefore, modify their consumption patterns, at least to some extent. Under the conditions hypothesized in Case Two, a t r ip l ing in the price, only 15 percent would not reduce con-sumption and only 6.5 percent remain adamant when facing a price f ive times the present level . A similar pattern emerged when respondents were asked to ref lect on their buying behavior (Table 6.3B) of new appliances, etc. When faced with an e lect r ic i ty price level two times the present leve l , some 40 percent of the respondents claimed this would not alter their purchasing patterns. However, only 15 percent could s t i l l claim this when the cost of e lect r i c i ty was hypothesized to be five times the present level . In the face of price increases for e lec t r i c i ty , a l l income groups reacted in essentially the same manner. That i s , in-dividuals across a l l income groups suggested they would reduce consumption in both the "consumption habits" and "buying behavior" categories. Not a l l individuals reacted in this manner, of course, but more importantly, there were differences - 58 -i n the p r o p o r t i o n o f i n d i v i d u a l s w i t h i n income groups who responded i n t h i s manner. S p e c i f i c a l l y , a c o n s i s t e n t l y s m a l l e r p e r c e n t a g e o f low income r e s p o n d e n t s would a l t e r "consumption h a b i t s " o r " b u y i n g b e h a v i o r " . On the f a c e o f i t , t h i s i m p l i e s t h a t h i g h income p e o p l e a r e , g e n e r a l l y , more r e s p o n s i v e t o p r i c e i n c r e a s e s than low income groups. To examine t h i s i n more d e t a i l t h e next s t a g e o f t h e a n a l y s i s was t o a s s i g n v a l u e s t o the o p t i o n s , p r o v i d i n g some measure o f t h e i n t e n s i t y o f r e a c t i o n t o the h y p o t h e t i c a l p r i c e i n t e r -v e n t i o n p o l i c i e s . These v a l u e s were d i s c u s s e d e a r l i e r i n t h e c h a p t e r and a r e f o u n d i n p a r e n t h e s e s f o l l o w i n g t h e o p t i o n s l i s t e d i n T a b l e s 6.1 and 6.2. F o r each c a s e t h e s e v a l u e s were summed and t h e sum d i v i d e d by t h e number o f o p t i o n s chosen. T h i s f i g u r e i s c a l l e d t he " i n t e n s i t y o f r e s p o n s e " . For example, i f a r e s p o n d e n t chose "no change i n use" (as seen i n T a b l e 6.1) when asked f o r t h e i r r e a c t i o n t o a d o u b l i n g i n t h e p r i c e o f e l e c t r i c i t y , t h e i r i n t e n s i t y o f r e s p o n s e i s z e r o . I f t h e y chose " b e g i n t o t u r n o u t u n n e c e s s a r y l i g h t s " and " s e v e r e l y c u t down on use o f h i g h energy a p p l i a n c e s " t h e " i n t e n s i t y o f r e s p o n s e " i s (1) + ( 3 ) : 2 = 2. - 59 -The l e a s t i n t e n s e r e s p o n s e i s z e r o (0) and t h e most i n t e n s e r e s p o n s e i s f i v e (5) i n t h e "Consumption H a b i t s " c a t e g o r y under i n c r e a s i n g e l e c t r i c i t y p r i c e c o n d i t i o n s . T a b l e s 6.4 and 6.5 p r o v i d e t h e r e l e v a n t s t a t i s t i c s f o r a l l c a s e s under t h e d i f f e r e n t p r i c e i n t e r v e n t i o n p o l i c i e s . T A B L E 6.4 INTENSITY OF RESPONSE (ALL CASES) TO SIMULATED INTERVENTION IN PRICE STRUCTURE P r i c e Change Consumption H a b i t s 2x 3x 5x Minimum P o s s i b l e Response Maximum P o s s i b l e Response Mean Response Median Response S t a n d a r d D e v i a t i o n 0.0 5.0 1.26 1.33 0.065 0.0 5.0 1.85 1.9 0.064 0.0 5.0 2.17 2.5 0.069 Buying B e h a v i o r Minimum P o s s i b l e Response Maximum P o s s i b l e Response Mean Response Median Response S t a n d a r d D e v i a t i o n 0.0 3.0 1.25 1.89 0.072 0.0 3.0 1.49 2.02 0.069 0.0 3.0 1.63 2.22 0.066 - 60 -T A B L E 6.5 INTENSITY OF RESPONSE (ALL CASES) TO §IMyLAIED_INTERVENTION IN PRICE STRUCTURE P r i c e Change Consumption H a b i t s jg X Minimum P o s s i b l e Response 0.0 Maximum P o s s i b l e Response 2^ 0 Mean Response o!o95 Median Response o!o43 S t a n d a r d D e v i a t i o n Q!O2 Buyi n g B e h a v i o r Minimum P o s s i b l e Response 0.0 Maximum P o s s i b l e Response 3^ 0 Mean Response o!359 Median Response 0.096 S t a n d a r d D e v i a t i o n o!o5 To s i m p l i f y t h e a n a l y s i s , t h e " i n t e n s i t i e s o f r e s p o n s e " were c a t e g o r i z e d a c c o r d i n g t o the f o l l o w i n g c r i t e r i a . A z e r o (0) resp o n s e was termed "no r e s p o n s e " . A res p o n s e up t o and i n c l u d i n g 1.7 was termed a "moderate r e s p o n s e " . I n t e n s i t y o f re s p o n s e s g r e a t e r than 1.7 were termed, " i n t e n s e r e s p o n s e s " . T a b l e 6.6A (Consumption H a b i t s ) and T a b l e 6.6B (Buy i n g B e h a v i o r ) r e c o r d t h e p e r c e n t a g e o f re s p o n d e n t s found i n each o f the c a t e g o r i e s , by income, under t h e s i m u l a t e d p r i c e i n c r e a s e s . - 61 -T A B L E 6.6A CONSUMPTION HABITS - "INTENSITY OF RESPONSE" §LINQ9ME_6ROyPJNDER_SIMU^^ ( e x p r e s s e d as p e r c e n t a g e o f r e s p o n d e n t s i n c a t e g o r y ) P r i c e Change 2x Under $6,000- Over $6,000 $12,000 $12,000 No Response 44.4 30.2 30.9 Moderate Response 37.6 30.2 27.6 In t e n s e Response 20.0 39.7 41.4 P r i c e Change 3x No Response 15.6 13.2 12.5 Moderate Response 35.5 28.3 28.9 In t e n s e Response 48.9 58.5 58.5 P r i c e Change 5x No Response 15.6 13.2 12.5 Moderate Response 22.2 7.6 17.1 In t e n s e Response 62.3 79.2 70.4 62 T A B L E 6.6B BUYING BEHAVIOR - INTENSITIES OF RESPONSE" §X_INCOME-GROyP_yNDER_SIMULA^^ ( e x p r e s s e d as p e r c e n t a g e o f r e s p o n d e n t s i n c a t e g o r y ) P r i c e Change 2x Under $6,000- Over $6,000 $12,000 $12,000 No Response 53.3 47.2 44.1 Moderate Response 0.0 0.0 0.7 I n t e n s e Response 46.6 52.8 55.3 P r i c e Change 3x No Response 46.7 37.7 31.6 Moderate Response 0.0 0.0 1.3 I n t e n s e Response 53.3 62.3 67.1 P r i c e Change 5x No Response 37.8 34.0 26.3 Moderate Response 0.0 1.9 1.3 I n t e n s e Response 62.2 64.1 72.4 When o r g a n i z e d i n t h i s f o r m a t , t h e d a t a c l e a r l y shows t h a t low income r e s p o n d e n t s a r e l e s s r e s p o n s i v e t o p r i c e i n c r e a s e s i n e l e c t r i c i t y , than a r e h i g h income consumers. T h i s f i n d i n g demands some comment as t h e r e i s no s e l f - e v i d e n t e x p l a n a t i o n . - 63 -Part of the explanation may l i e in fact , that, though the income e last ic i ty of demand for e lect r i c i ty is low, there is some evidence that consumption rises s l ight ly as income in-creases. (See Table 4.2.) Low income people may, therefore, be somewhat closer to e lectr ic subsistence than high income consumers. Secondly, the saturation level of many appliances is high across a l l income groups. (See Table 4.5.) There is a possi-b i l i t y that the ownership and use of these appliances and gadgets means more to low income people, than to high, in which case they may be less wi l l ing to give up the use of these appliances or their aspirations to possess more appliances. Thirdly, the poor may not be as good money managers as the upper income groups or they may have less of a long term financial horizon. Lastly, a part of the explanation may l i e in the range of alternatives open to the different socio-economic groups. It may be that the poor have fewer alternatives to a home-based social and family l i f e , hence an increased dependence on e lect r i c i ty . - 64 -6.4 SIMULATED PRICE DECREASES One i n t e r e s t i n g f i n d i n g w i t h r e s p e c t t o t h e p e r c e p t i o n o f t h e i n d i v i d u a l s a b i l i t y o r w i l l i n g n e s s t o a d j u s t e l e c t r i c i t y con-sumption under d i f f e r e n t s i m u l a t e d p r i c e c o n d i t i o n s i s t h a t demand i s p r i c e s e n s i t i v e i n o n l y one d i r e c t i o n . T h i s phenom-enon c o u l d be termed a " R a t c h e t E f f e c t " . E s s e n t i a l l y , t h i s term i m p l i e s , i n t h e p r e s e n t c o n t e x t , t h a t demand i s s e n s i t i v e t o p r i c e i n c r e a s e s b u t n o t t o p r i c e d e c r e a s e s . The d a t a p r e s e n t e d i n the p r e v i o u s s e c t i o n on t h e p r i c e s e n -s i t i v i t y o f demand i n d i c a t e s t h a t g e n e r a l l y a r e d u c t i o n i n demand would o c c u r i f t h e p r i c e o f e l e c t r i c i t y were r a i s e d . F u r t h e r , t h e h i g h e r t h e p r i c e , t h e more s i g n i f i c a n t t h e r e -d u c t i o n i n demand. T h e o r e t i c a l l y , one would e x p e c t t h e c o n v e r s e t o be t r u e as w e l l . The d a t a , however, i n d i c a t e s t h a t t h i s i s , g e n e r a l l y , not t r u e . - 65 -T a b l e 6.7 r e c o r d s the p e r c e n t a g e o f r e s p o n d e n t s found i n each c a t e g o r y when a f i f t y p e r c e n t r e d u c t i o n i n the c o s t o f e l e c -t r i c i t y i s p o s t u l a t e d . A v e r y h i g h p e r c e n t a g e o f r e s p o n d e n t s c l a i m t h e y would n o t a l t e r e i t h e r t h e i r "Consumption H a b i t s " o r "Buying B e h a v i o r " . T A B L E 6.7 CONSUMPTION HABITS/BUYING BEHAVIOR - OPTIONS CHOSEN BY RESPONDENTS BY INCOME GROUPS TO A SIMULATED P?I9LB§9y9II9L9LfI [TLP E B9^I ( e x p r e s s e d as p e r c e n t a g e o f r e s p o n d e n t s i n c a t e g o r y ) A l l Under $6,000- Over Cases $6,000 $12,000 $12,000 Consumption H a b i t s No change i n h a b i t s 90.7 84.4 84.9 89.5 Use Luxury A p p l i a n c e s More 8.5 11.1 9.4 7.9 Use High Energy A p p l i a n c e s More 2.8 4.4 3.8 2.0 B u y i n g B e h a v i o r No change i n Buying B e h a v i o r 87.1 93.3 79.2 83.6 Would Purchase More Luxury A p p l i a n c e s 6.9 4.4 9.4 6.6 Would Purchase L a r g e r , High Energy A p p l i a n c e s 3.2 2.2 5.7 2.6 S w i t c h from Gas o r O i l t o E l e c t r i c a l P r o d u c t s 10.9 4.4 7.5 13.2 - 66 -As i n t h e p r e v i o u s s e c t i o n , t h e i n t e n s i t y o f r e s p o n s e s were c a l c u l a t e d and c a t e g o r i z e d . "No Response" i s , o f c o u r s e , a g a i n z e r o (0) and a n y t h i n g g r e a t e r than z e r o (0) i s termed a moderate r e s p o n s e . T h e r e were no i n t e n s e r e s p o n s e s . T a b l e 6.8 r e c o r d s t h e p e r c e n t a g e o f r e s p o n d e n t s i n each c a t e g o r y . T A B L E 6.8 CONSUMPTION HABITS/BUYING BEHAVIOR -"INTENSITY OF RESPONSE" BY INCOME GROUPS TO A SIMULATED PRICE REDUCTION OF FIFTY PERCENT Under $6,000- Over $6,000 $12,000 $12,000 Consumption H a b i t s No Response 86.7 88.7 92.8 Moderate Response 13.3 11.3 7.2 Buying B e h a v i o r No Response 88.9 79.2 80.9 Moderate Response 11.1 20.8 19.1 An overwhelming m a j o r i t y o f r e s p o n d e n t s a c r o s s a l l income g r o u p i n g s c l a i m t h e i r e x i s t i n g p a t t e r n s o f e l e c t r i c i t y con-sumption would n o t change i f the c o s t o f e l e c t r i c i t y were reduced by as much as f i f t y p e r c e n t . T h i s f i n d i n g w a r r a n t s some comment. - 67 -One explanation for this may l i e in the fact that e lectr ic appliances and gadgets have f a i r l y high saturation levels already across a l l income groups. The respondents present stock of appliances may already be adequate to their needs, and, i t may be v ir tual ly impossible to increase the intensity of use of these appliances. Secondly, new kinds of appliances and gadgets are not being introduced to the marketplace as rapidly as in previous decades, and those that are, are typical ly devices with low e lect r i c i ty consumption requirements. Thirdly, the respondents may be aware of the environmental problems associated with e lect r i c i ty generation and d i s t r i -bution and hence, concerned enough to feel their present consumption is adequate. Lastly, part of the explanation may l i e in the ratio of fixed to variable costs. The fixed costs, in this context, are those charges for the purchase (and instal lat ion) of a new appliance while the variable costs are the operating (electr ic i ty) costs. Generally, the variable costs are low (in the short run) relative to the fixed costs. Consequently, people are more concerned with their ab i l i ty to absorb the fixed costs and are - 68 -l e s s c o n c e r n e d and/or c o g n i z a n t o f t h e v a r i a b l e c o s t s . A p p r o x i m a t e l y 30 p e r c e n t o f a l l r e s p o n d e n t s c l a i m t h e y do f a m i l i a r i z e t h e m s e l v e s w i t h t h e o p e r a t i n g c o s t s o f a p p l i a n c e s when c o n s i d e r i n g a new p u r c h a s e . ( T a b l e 4.7 C h a p t e r Four.) An i n t u i t i v e r e a c t i o n t o t h i s s t a t i s t i c i s t h a t i t i s too h i g h . The most p r o b a b l e e x p l a n a t i o n s f o r t h i s h i g h f i g u r e a r e t h a t r e s p o n d e n t s were e i t h e r l e s s than t r u t h f u l o r t h e y r e f l e c t e d on a major d e c i s i o n such as t h e d i f f e r i n g c o s t s o f a gas o r e l e c t r i c water h e a t e r , and were n o t d i r e c t i n g t h e i r t h o u g h t s t o s m a l l a p p l i a n c e s such as h a i r d r y e r s o r e l e c t r i c k e t t l e s . 6.5 INTERFUEL COMPETITION The f o c u s o f t h i s s t u d y has been e l e c t r i c i t y , however, i t would be i n a p p r o p r i a t e t o c o n s i d e r t h i s e n e r g y form i n i s o l a t i o n from t h e o t h e r f u e l s which compete w i t h i t . T o t a l h o u s e h o l d energy demand i s l a r g e l y c o m p r i s e d o f t h e demand r e s u l t i n g from the use o f a s m a l l number o f a p p l i a n c e s . Household o p e r a t i o n s such as water h e a t i n g o r home h e a t i n g --t h e two most e n e r g y - i n t e n s i v e o p e r a t i o n s -- can be e f f e c t e d by t h e use o f a number o f f u e l s : e l e c t r i c i t y , n a t u r a l g a s , o i l , c o a l o r propane. - 69 -Appliances such as ranges and, to a lesser extent, refrigerators are also subject to interfuel competition. Most other appliances are dependent on e lec t r i c i ty . The demand for e lect r i c i ty then is part ia l ly a function of the price and avai lab i l i ty of substitute fuels and the relative cost of the energy consuming appliance. In the studies presented in Chapter One the researchers excluded consideration of o i l , coal and propane (the latter two of which are, at best, only marginally signif icant in meeting direct household energy demands) and concentrated their efforts on estimating the cross e las t i c i ty between e lect r i c i ty and natural gas. Wilson (1971) found a relat ively high cross e last i c i ty and Halvorsen (1972) a rather low e last ic i ty coefficient between e lectr ic i ty and natural gas. The "natural gas cost" variable was not included in the present study, to explain the variation in e lect r i c i ty consumption. However, some subjective information on perceptions of sub-st i tutab i l i ty was made available through the survey. - 70 -The questionnaire contained three options relating to fuel substitution which could have been chosen by respondents. Table 6.1, relating to price increases, records two of the options: (1) where possible, switch from e lect r i c i ty to gas; and (2) avoid building or buying a home with e lectr ic heating. Table 6.2, relating to a price reduction of 50 percent, records the third option: switch from gas or o i l to e lectr ica l products. Table 6.9 indicates the percentage of respondents who chose these options, by income group, under the different simulated price intervention pol ic ies. Some 13.7 percent of a l l respondents would switch from elec-t r i c i t y to gas, where possible, i f the price of e lect r i c i ty were doubled;* some 24 percent would switch i f the price were t r ip led; and 32 percent would switch i f the price rose to a level five times the present cost. * And the price of natural gas remained constant. - 71 -T A B L E 6.9 FUEL SUBSTITUTION - OPTIONS CHOSEN BY RESPONDENTS -_§Y_INCOME_GROyP_yNDER_SIMyL ( e x p r e s s e d as p e r c e n t a g e o f r e s p o n d e n t s i n c a t e g o r y ) Such a d e c i s i o n , however, i s a l s o dependent on "changeover" c o s t s f o r new a p p l i a n c e s o r u n i t s (example, Water H e a t e r ) . When the p r i c e o f e l e c t r i c i t y i s h a l v e d (%x) o n l y 10.9 p e r c e n t o f t h e r e s p o n d e n t s b e l i e v e d i t might be advantageous t o i n c u r t h e s e new " f i x e d " c o s t s w i t h t he i d e a o f r e c o u p i n g t h e c o s t t h r o u g h lower " v a r i a b l e " c o s t s . In t h a t i n s u f f i c i e n t i n f o r m a t i o n has p r e v e n t e d r e s p o n d e n t s from making a " r a t i o n a l " economic d e c i s i o n as t o the r e l a t i o n s h i p s between f i x e d and v a r i a b l e c o s t s u s i n g d i f f e r e n t f u e l s , t h e s e r e s p o n s e s can o n l y be i n t e r p r e t e d as an awareness o f t h e P r i ce A l l Under $6,000- Over Change Cases $6,000 $12,000 $12,00( Where p o s s i b l e , s w i t c h 2x 13.7 8.9 7.5 15.8 from e l e c t r i c i t y t o gas 3x 24.2 15.6 17.0 27.0 5x 32.7 22.2 24.5 34.0 A v o i d b u i l d i n g o r b u y i n g 2x 27.0 22.2 20.8 27.6 a home w i t h e l e c t r i c 3x 32.7 26.7 24.5 33.6 h e a t i n g 5x 38.3 26.7 32.1 38.2 S w i t c h from gas o r o i l t o e l e c t r i c a l p r o d u c t s 10.9 4.4 7.5 13.2 - 72 -p o s s i b i l i t y t h a t s a v i n g s can be found u s i n g d i f f e r i n g f u e l s under d i f f e r i n g p r i c e c o n d i t i o n s . In t h i s c o n t e x t i t i s i n t e r e s t i n g t o note t h a t the two l o w e s t income c l a s s e s have a c o n s i s t e n t l y s m a l l e r number o f r e s p o n -d e n t s who would s w i t c h f r o m t h e i r one f u e l t o a n o t h e r under each o f the p r i c e c o n d i t i o n s than t h e h i g h e s t income c l a s s . T h e r e a r e two p o s s i b l e e x p l a n a t i o n s f o r t h i s : (1) lower income p e o p l e a r e n o t aware o f t h e p o s s i b i l i t i e s f o r econo-m i z i n g on v a r i a b l e ( f u e l ) c o s t s , o r (2) t h e y b e l i e v e t h a t the f i x e d ( changeover) c o s t s a r e p r o h i b i t i v e l y h i g h f o r t h e i r income l e v e l . The l a t t e r e x p l a n a t i o n seems the most a p p r o p r i a t e . The f o r m e r r e a s o n must be r u l e d o u t on two grounds: (1) A s i g n i f i c a n t number o f lower income p e o p l e do r e c o g n i z e the p o s s i b l e s a v i n g s i n v a r i a b l e c o s t s , t h a t can be found u s i n g d i f f e r e n t f u e l s , as i s e v i d e n c e d by t h e number o f r e s p o n d e n t s f o u n d i n t h e c a t e g o r y e n t i t l e d , " a v o i d b u i l d i n g o r b u y i n g a home w i t h e l e c t r i c h e a t i n g " and (2) l a c k o f awareness must a g a i n be r u l e d o u t b e c a u s e , as t h e s i m u l a t e d p r i c e i n t e r v e n t i o n becomes more s e v e r e , a g r e a t e r number o f lower income p e o p l e would s w i t c h t h e i r f u e l t y p e . - 73 -CHAPTER S E V E N §y^BY,_CONCLUSIONS^_POLICY 7.1 INTRODUCTION The c e n t r a l c o n c e r n o f t h i s s t u d y has been e q u i t y i n Canadian s o c i e t y . Income, w e a l t h , and o p p o r t u n i t y a r e n o t s h a r e d e q u a l l y among Canadians and, i n d e e d , c o n s i d e r a b l e i n e q u a l i t y e x i s t s . We have a l s o been reminded t h a t t h e e n e r g y i n p u t s t o o u r s t y l e o f l i f e a r e enormous and g e n e r a l l y c o n s i d e r e d t o be n e c e s s a r y . F u r t h e r , we have seen t h a t , f o r a number o f r e a s o n s , t h e p r i c e o f t h i s b a s i c commodity i s g o i n g t o r i s e r e l a t i v e t o o t h e r p r i c e s and wages. Such an e v e n t u a l i t y may have u n f a v o u r a b l e i m p l i c a t i o n s f o r c e r t a i n s o c i o - e c o n o m i c groups i n o u r s o c i e t y . T h i s s t u d y has at t e m p t e d t o d e t e r m i n e some o f the i m p l i c a t i o n s o f such p r i c e i n c r e a s e s u s i n g p a t t e r n s o f e l e c t r i c i t y use among Vancouver consumers. - 74 -7.2 THE EXISTING PRICE STRUCTURE In C h a p t e r F i v e i t was found t h a t the a b s o l u t e consumption o f e l e c t r i c i t y does n o t v a r y s i g n i f i c a n t l y w i t h income. T h a t i s , the income e l a s t i c i t y o f demand f o r e l e c t r i c i t y i s low. The i m p l i c a t i o n o f t h i s i s t h a t low income h o u s e h o l d s spend a h i g h e r p r o p o r t i o n o f t h e i r income on e l e c t r i c i t y than h i g h income h o u s e h o l d s . From T a b l e 5 . 3 ( r e p r i n t e d h e r e as T a b l e 7.1) we can see t h a t h o u s e h o l d e x p e n d i t u r e s on e l e c t r i c i t y d e c l i n e , as a p e r c e n t a g e o f income, as income r i s e s . T A B L E 7.1 ( 5 . 3 ) PROPORTIONATE ELECTRICITY EXPENDITURE AS A PERCENTAGE OF INCOME* Number o f P e r c e n t a g e Cases Under 6,000 5 4 3 $6,000 - $12,000 1.83 49 Over $12,000 1.27 124 The p r e s e n t e l e c t r i c i t y p r i c e system, i s t h e n , a r e g r e s s i v e s t r u c t u r e (as d e f i n e d i n C h a p t e r Two). *These p r o p o r t i o n s a r e s l i g h t l y b i a s e d because t h e y a r e c a l c u l a t e d on t h e b e f o r e t a x income o f t h e h o u s e h o l d s . I f t h e y were c a l c u l a t e d on the a f t e r t a x income t h e range would l i k e l y be s m a l l e r ; and as t h e Canadian p e r s o n a l income t a x s t r u c t u r e i s a p r o g r e s s i v e t a x system (up t o a p p r o x i m a t e l y $30,000) i t i s l i k e l y t h o s e i n the upper income groups would be more a f f e c t e d t h a n t h e d a t a i n d i c a t e s . - 75 -7.3 THE IMPACT OF PRICE INCREASES I t i s c l e a r t h a t any r e l a t i v e i n c r e a s e i n t h e p r i c e o f e l e c -t r i c i t y w i l l be f e l t by a l l income groups i n an a b s o l u t e sense. Th a t i s , i f t h e h o u s e h o l d d e s i r e d t o m a i n t a i n p r e s e n t e l e c -t r i c i t y consumption l e v e l s , t hen w i t h a p r i c e i n c r e a s e , a h i g h e r p r o p o r t i o n o f income would have t o be d e v o t e d t o the p u r c h a s e o f e l e c t r i c i t y . S i n c e low income consumers a l r e a d y d e v o t e a l a r g e p r o p o r t i o n o f t h e i r income ( r e l a t i v e t o h i g h income consumers) t o t h e p u r c h a s e o f e l e c t r i c i t y , t h e y would be a t l e a s t a b l e t o a b s o r b t h e p r i c e i n c r e a s e s . C o n v e r s e l y , h i g h income consumers have a g r e a t e r a b i l i t y t o a b s o r b p r i c e i n c r e a s e s . A c r o s s the board i n c r e a s e s i n t h e c o s t o f e l e c t r i c i t y w i l l t h e r e f o r e g e n e r a t e even g r e a t e r i n e q u a l i t y between income groups e i t h e r by d e n y i n g low income p e o p l e f u l l a c c e s s t o e l e c t r i c i t y o r by c r e a t i n g a s i t u a t i o n i n which low income p e o p l e must d e v o t e an i n o r d i n a t e l y l a r g e s h a r e o f t h e i r income t o e l e c t r i c i t y p u r c h a s e . I f consumption were not t o be f o r e g o n e , h i g h income consumers would a l s o be f o r c e d t o devote a l a r g e r s h a r e o f t h e i r income t o e l e c t r i c i t y p u r c h a s e s , but i t remains t r u e t h e y would - 76 -s t i l l be i n a l e s s u n f a v o u r a b l e economic c o n d i t i o n than low income p e o p l e . .4 THE RATCHET EFFECT One i n t e r e s t i n g f i n d i n g w i t h r e s p e c t t o the p e r c e p t i o n o f the i n d i v i d u a l ' s a b i l i t y o r w i l l i n g n e s s t o a d j u s t e l e c t r i c i t y c o n -s u m p t i o n , under d i f f e r e n t p r i c e c o n d i t i o n s , i s t h a t demand i s p r i c e s e n s i t i v e in o n l y one d i r e c t i o n . T h i s phenomenon c o u l d be termed a " R a t c h e t " e f f e c t . The term i m p l i e s , i n t h e p r e s e n t c o n t e x t , t h a t demand i s sen-s i t i v e t o p r i c e i n c r e a s e s b u t not t o p r i c e d e c r e a s e s . The p r i c e e l a s t i c i t y o f demand f o r e l e c t r i c i t y has not been q u a n t i f i e d in t h i s s t u d y . I t i s s u f f i c i e n t f o r p r e s e n t purposes t o n o t e t h e g e n e r a l e f f e c t . We c a n , however, c o n c l u d e t h a t h i g h e r e l e c t r i c i t y p r i c e s w i l l d e p r e s s demand. As was i n d i c a t e d e a r l i e r t h i s w i l l l e a d t o g r e a t e r i n e q u a l i t y i n o u r s o c i e t y ( w i t h o u t r e m e d i a l m e a s ures). One i m p l i c a t i o n o f t h i s r a t c h e t e f f e c t i s t h a t a p o l i c y o f m a i n t a i n i n g p r e s e n t p r i c e l e v e l s f o r poor p e o p l e , w h i c h , in - 77 :-e f f e c t makes t h e s e p r i c e s more i n e x p e n s i v e t h r o u g h t i m e , s h o u l d n o t i n c r e a s e t h e e l e c t r i c i t y consumption l e v e l s o f t h e poor. On the o t h e r hand, a p o l i c y o f r a i s i n g t h e p r i c e o f e l e c t r i c i t y f o r h i g h e r income consumers s h o u l d r e d u c e t h e i r consumption. ,5 THE DISTRIBUTION OF A REDUCTION IN DEMAND P r e v i o u s l y we n o t e d t h a t e l e c t r i c i t y demand i s s e n s i t i v e t o p r i c e i n c r e a s e s . I n t e r e s t i n g l y , however, low income consumers have t h e l e a s t i n t e n s e r e s p o n s e t o p r i c e i n c r e a s e s w h i l e h i g h income consumers a r e t h e most r e s p o n s i v e . A number o f e x p l a n -a t i o n s f o r t h i s were advanced i n C h a p t e r S i x . 6 WILLINGNESS OR ABILITY TO SUBSTITUTE FUELS E a r l i e r i t was n o t e d t h a t low income groups a r e l e s s w i l l i n g o r more l i k e l y , l e s s a b l e t o s w i t c h from h i g h c o s t t o low c o s t f u e l s . T h i s , i t was s u g g e s t e d , was due t o the h i g h changeover c o s t s f o r new equipment. I f t h e p r i c e s o f v a r i o u s energy forms r i s e t o r e f l e c t c h a n g i n g s u p p l y / demand s i t u a t i o n s , r e l a t i v e c o s t s on a Btu b a s i s , o r c o n s c i o u s government attempts t o m a n i p u l a t e demand, then the - 78 -i n f l e x i b i l i t y of low income consumers may create hardship. Low income people may be excluded from enjoying low or lower cost fuel because of the high "front end" costs associated with the instal lat ion of a new water heater or central heating f a c i l i t y . High income people, may, on the other hand, be able to incur these changeover costs and recoup their i n i t i a l expenditure over a period of time through lower fuel costs. To erase this inequality, two programs would be necessary. F i r s t l y , an information campaign to demonstrate the relative costs of various fuels, for specif ic residential uses; and secondly, subsidies or the avai lab i l i ty of credit to low income people to enable them to change their fue l . It may also be necessary to encourage or coerce residential developers to insta l l equipment which has the lowest fuel costs and not simply the smallest front end costs (which the developer must finance over the short run). - 79 -7.7 EQUITY, ECOLOGY AND EFFICIENCY In t h i s f i n a l s e c t i o n we w i l l examine s e v e r a l e l e c t r i c i t y p r i c i n g schemes. One c o n s i d e r a t i o n w i l l be an a s sessment o f t h e s e schemes i n r e l a t i o n t o e q u i t y . P r i c i n g schemes, however, must a l s o be c o n s i s t e n t w i t h e n v i r o n m e n t a l q u a l i t y g o a l s and e f f i c i e n c y c r i t e r i a . U n f o r t u n a t e l y , when we a t tempt t o a c h i e v e more than one goal we o f t e n f i n d t h e s e g o a l s a r e i n c o n f l i c t , n e c e s s i t a t i n g t r a d e -o f f s and s a c r i f i c e s . The g o a l s we choose as c o n s t r a i n t s , and t h o s e we a r e w i l l i n g t o s a c r i f i c e , a r e a r e f l e c t i o n o f o u r own v a l u e s . Environment The e n v i r o n m e n t a l g o a l i s r e l a t i v e l y c l e a r - c u t i n t h e p r e s e n t d i s c u s s i o n and has two components. F i r s t l y , the p r i c e o f e l e c t r i c i t y s h o u l d r e f l e c t the t o t a l c o s t s o f p r o d u c i n g and d i s t r i b u t i n g power i n c l u d i n g measures t o p r o t e c t o r enhance th e e n v i r o n m e n t . S e c o n d l y , i t i s d e s i r a b l e t o slow the r a t e o f growth i n demand f o r e l e c t r i c i t y , and w i t h t h a t , r e d u c e t h e i n c i d e n c e o f the a s s o c i a t e d e n v i r o n m e n t a l damages. - 80 -Allocative Efficiency The process of selecting one use for a resource rather than an alternative use is termed al location. Allocative eff iciency is the allocation of resources (inputs) which gives the maximum long term output. Equity The concept of equity is more d i f f i c u l t to define, however, for present purposes i t is suff ic ient to regard i t as a fa i r distribution of the "good things", and one supposes, the "bad things" of our society whether that be income, wealth, goods and services or opportunity. There is a great deal of debate among economists over whether one includes equity, as well as efficiency considerations, in the pricing decision of goods and services; or whether one takes separate measures to handle the equity issue. One thing however is clear. We have developed a society in which energy is tremendously important and we cannot now deny access to energy by a l l Canadians. We will now examine several price structures to determine the impact of these on our three goals. - 81 -Declining Block Pricing The most frequently used residential price system is the declining block pricing system. Figure 7.1 is a simplified i l lustrat ion of this scheme. FIGURE 7 . 1 DECLINING BLOCK PRICING Dollars Kilowatt hours From this i l lustrat ion i t can be seen that each successive block of power purchased is less costly. This scheme is based on narrow efficiency grounds rather than on equity considerations. There i s , however, concern as to whether i t achieves even the f i r s t goal - al locative eff iciency. - 82 -M a r g i n a l c o s t i s d e f i n e d as whatever amount t h e p r o d u c t i o n o f one a d d i t i o n a l u n i t adds t o t h e t o t a l c o s t o f p r o d u c t i o n . The m a r g i n a l c o s t c u r v e i s a d i a g r a m a t i c r e p r e s e n t a t i o n o f c o s t o v e r a range o f o u t p u t . (See F i g u r e 7.2.) I f the m a r g i n a l c o s t c u r v e f o r t h e g e n e r a t i o n o f e l e c t r i c i t y i s d e c l i n i n g as i n T a b l e 7.2 then the d e c l i n i n g b l o c k p r i c i n g s t r u c t u r e may w e l l a c h i e v e the goal o f a l l o c a t i v e e f f i c i e n c y . The i m p l i c a t i o n from the d i s c u s s i o n i n C h a p t e r Two, however, i s t h a t the m a r g i n a l c o s t c u r v e i s r i s i n g and n o t f a l l i n g . (See F i g u r e 7.3.) F I G U R E 7.2 D o l l a r s Output - 83 -F I G U R E 7.3 D o l l a r s Output Hence, t h e d e c l i n i n g b l o c k p r i c i n g s t r u c t u r e i s n o t c o n s i s t e n t w i t h e i t h e r o u r goal o f a l l o c a t i v e e f f i c i e n c y o r e q u i t y . C r i t i c s o f t h i s system a l s o c l a i m t h a t i t i s " p r o m o t i o n a l " , l e a d i n g t o i n c r e a s e d consumption due t o d e c l i n i n g p r i c e s . The d a t a from t h e p r e s e n t s t u d y do not s u p p o r t t h i s view. S i m u l a t e d l o w er c o s t s f o r e l e c t r i c i t y d i d not have a p r o m o t i o n a l e f f e c t among r e s i d e n t i a l consumers. T h i s , however, i s not n e c e s s a r i l y t h e c a s e among commerical and i n d u s t r i a l consumers. I n c r e a s i n g B l o c k Rates One a l t e r n a t i v e p r i c i n g p o l i c y t h a t i s f r e q u e n t l y p r o p o s e d i s t o i n c r e a s e b l o c k r a t e s as t h e volume o f e l e c t r i c i t y consumed i n c r e a s e s . F i g u r e 7.4 i s a s i m p l i f i e d i l l u s t r a t i o n o f t h i s scheme. - 84 -Dollars FIGURE 7.4 INCREASING BLOCK RATES 2x lx 4500 9000 Kilowatt hours This scheme is generally advocated for two reasons: (1) to reduce e lect r i c i ty demand, and (2) to redistribute the costs of whatever power is consumed from lower to upper income groups. The vital concerns which motivate this type of policy are environment and equity issues with al locative efficiency of much less concern. We have seen however, that the marginal cost curve is r i s ing , hence the increasing block pricing structure is l ike ly con-sistent with our goal of allocative eff ic iency. - 85 -The i l lustrat ion (Figure 7.4) that has been developed for this scheme is based on annual rather than monthly consumption. The point at which the block price increases is at the e lectr ical subsistence leve l . The term "electr ical subsistence" is used, in this study, to denote the minimum annual household e lec t r i c i ty consumption. This is regarded as both possible and plausible. The annual e lect r i c ia l subsistence level for a household* is 4000 kilowatt hours. This figure has been determined from an analysis of the e lect r i c i ty demands of an arb i t rar i ly selected l i s t of basic appliances. These appliances are: Appliance Annual Kwh** Range 1200 Refrigerator - manual defrost 720 Radio 50 Iron 50 Toaster 35 Kettle 125 Furnace Blower 600 Lighting 1080 3860 * Assumes e lect r i c i ty is not used for water heating and home heating. **Based on appliance consumption reported by effort . (Effort, 1972.) - 86 -Peak Load P r i c i n g The e s s e n c e o f peak l o a d p r i c i n g i s t h a t t h e c l o s e r t h e s y s t e m i s o p e r a t i n g t o t h e peak, t h e h i g h e r t he e l e c t r i c i t y p r i c e s t h a t a r e c h a r g e d t o consumers. T h i s p o l i c y w i l l n o t be c o n s i d e r e d here because i t has v i r t u a l l y no e f f e c t on r e s i d e n t i a l consumers, b e c a u s e , as i n d i v i d u a l u n i t s , t h e h o u s e h o l d consumes so l i t t l e e n ergy t h a t i t would be unaware o f peak c o s t s . ( G o l d b e r g , 1972.) L e v e l P r i c i n g The l e v e l p r i c i n g a l t e r n a t i v e i s t o charge the same r a t e t o a l l r e s i d e n t i a l consumers r e g a r d l e s s o f t h e volume o f e l e c t r i c i t y consumed. F i g u r e 7.5 i s a s i m p l i f i e d i l l u s t r a t i o n o f t h i s scheme. F I G U R E 7.5 LEVEL_PRICING D o l l a r s Ix |—;  K i l o w a t t hours - 87 -This scheme is not concerned with equity or eff ic iency. More-over i t would only have a positive effect on our environmental goal i f the price were pegged suff ic ient ly high as to discourage consumption. The effect of th i s , would of course, be highly inequitable. Measures such as a redistribution of income would have to be pursued to redress the imbalance. Pricing Based on Income The next alternative is to devise a number of rates, one for each of the various socio-income groups in society. Figure 7.6 is a simplified i l lust rat ion of this scheme. FIGURE 7.6 MULTI PRICING BASED ON INCOME 4x 3x Dollars 2x lx applicable to over $20,000 class applicable to $15,000-$20,000 class applicable to $6,000-$15,000 class applicable to under $6,000 class Kilowatt hours - 88 -This scheme is highly equitable but not concerned with al locative eff ic iency. It would operate much the same as the Provincial Medical-Care Insurance scheme which sets rates based on income. Low income people would pay nothing or v i r tua l ly nothing for their power and high income people would pay rates ref lecting their greatest purchasing power. It would have a positive effect on our environmental goal, because, as we have seen, reduced rates would not encourage consumption, and high rates would discourage consumption. Gdals-Orieiited Package The f inal alternative to be considered is termed the goals-oriented package. Essential ly, i t is a pricing scheme which reflects a l l costs of generating and distributing e lec t r i c i ty and is structured in such a way as to achieve our goal of al locative eff ic iency. It has not been graphically represented here because of uncertainty as to the general shape of the cost curve. In, and of i t s e l f , this scheme is l ike ly to be inequitable. The other essential aspect of the goals-oriented package is the redistribution of income through income tax policy. - 89 -N o n - P r i c e A l t e r n a t i v e s L a s t l y , i f we a r e n a r r o w l y c o n c e r n e d w i t h e q u i t y as a r e s u l t o f ene r g y p r i c e i n c r e a s e s we c o u l d d e v i s e p o l i c i e s t o a c h i e v e t h i s g o a l . One a l t e r n a t i v e i s t o p r o v i d e energy s u b s i d i e s t o low income p e o p l e . One mechanism t o o p e r a t i o n a l i z e t h i s c o u l d be a system o f e n e r g y c r e d i t s t o be used t o reduc e t a x a b l e income. 7.8 CONCLUSION T a b l e 7.2 summarizes the i n p u t o f each p r i c i n g p o l i c y on o u r t h r e e g o a l s . T A B L E 7.2 IMPACT OF PRICING POLICIES ON GOALS E q u i t y E c o l o g y A l l o c a t i v e E f f i c i e n c y D e c l i n i n g B l o c k P r i c e ? I n c r e a s i n g B l o c k P r i c e + + L e v e l P r i c e N P r i c e Based on Income + + G o a l s - O r i e n t e d Package + + + + P o s i t i v e e f f e c t N E f f e c t Unknown/Depends on Rates N e g a t i v e e f f e c t U n c e r t a i n - 90 -From t h i s e x a m i n a t i o n , i t i s c l e a r t h a t t h e p r e f e r r e d scheme i s t h e l a s t a l t e r n a t i v e , t h e g o a l s - o r i e n t e d package. I t has t h e d i s t i n c t advantage o f l o n g run a l l o c a t i v e e f f i c i e n c y , and i s c o n s i s t e n t w i t h o u r e n v i r o n m e n t a l q u a l i t y g o a l . To be e q u i t a b l e t h e package r e l i e s on income r e d i s t r i b u t i o n . T h e r e i s however, t h e problem o f whether an e f f e c t i v e income r e d i s t r i b u t i o n p o l i c y w i l l be p u r s u e d . I f i t i s n o t pursued t h e n t h e f o r e g o i n g package i s much r e d u c e d i n a p p e a l . A t some p o i n t one's p e r s o n a l v a l u e s must be br o u g h t t o be a r on t h e d e c i s i o n o f which g o a l o r g o a l s w i l l be paramount and on which one o p t i m i z e s . I h o l d e q u i t y t o be paramount, w i t h a l l o c a t i v e e f f i c i e n c y o f l e s s c o n c e r n . From o u r range o f p r i c i n g p o l i c i e s , t h e n , e i t h e r an i n c r e a s i n g b l o c k p r i c e system o r a p r i c e system based on income c o u l d be c o n s i d e r e d as a secon d b e s t a l t e r n a t i v e . Both p o l i c i e s a r e c o n s i s t e n t w i t h o u r e n v i r o n m e n t a l g o a l . Such p o l i c i e s , though e q u i t a b l e , do n o t produce e q u a l i t y . O n l y t h e p r e f e r r e d scheme, w i t h i s r e d i s t r i b u t i o n o f income component, can move us toward a goal o f e q u a l i t y . - 91 -B I B L I O G R A P H Y Adams, I . , W. Cameron, B. H i l l and P. Penz (1971). The Real P o v e r t y  R e p o r t . Edmonton: M. G. H u r t i g L t d . A n d e r s o n , K. P. (1972). R e s i d e n t i a l Demand f o r E l e c t r i c i t y : E c o n o m e t r i c  E s t i m a t e s f o r C a l i f o r n i a and t h e U n i t e d S t a t e s . S a n t a Monica: Rand C o r p o r a t i o n . R-905-NSF. Berman, M. B. and M. J . Hammer (1973). The Impact o f E l e c t r i c i t y P r i c e  I n c r e a s e s on Income Groups: A Case Study o f Los A n g e l e s . Santa Monica: Rand C o r p o r a t i o n . R-1102 NSF/CSA. Berman, M. B., M. J . Hammer and D. P. T i h a n a s k y (1972). The Impact o f  E l e c t r i c i t y P r i c e I n c r e a s e s on Income Groups: Western U n i t e d  S t a t e s and C a l i f o r n i a . S a n t a Monica: Rand C o r p o r a t i o n . R-1050 . NSF/CSA. Budd, E. C. (1967). I n e q u a l i t y and P o v e r t y . New York: W. W. Norton and Company, Inc. Canada, Department o f Energy, Mines and Resources (1973). An Energy P o l i c y f o r Canada - Phase 1. Ottawa: I n f o r m a t i o n Canada. Volume 1. A n a l y s i s . Dominion Bureau o f S t a t i s t i c s (1969). Household E x p e n d i t u r e P a t t e r n s , Ottawa: Queens P r i n t e r . Economic C o u n c i l o f Canada (1968). The C h a l l e n g e o f Growth and  Change. Ottawa: Queens P r i n t e r . F i f t h Annual R e p o r t . i - 92 -Government o f Canada (1975). "Background Paper on t h e Canadian Energy S i t u a t i o n " . U n p u b l i s h e d . P r e p a r e d f o r t h e C o n f e r e n c e o f F i r s t M i n i s t e r s , A p r i l 9-10, 1975. Caywood, R. (1956). E l e c t r i c U t i 1 i t y Rate EconOmics. New York: McGraw-Hill Co. Chapman, D., T. T y r r e l l and T. Mount (1972). " E l e c t r i c i t y Demand Growth and t h e Energy C r i s i s " . S c i e n c e . V o l . 178, No. 4062: 703-708. D a r m s t a d t e r , J . , P. D. T e i t e l b a u m and J . G. P o l a c k (1971). Energy i n  t h e World Economy. B a l t i m o r e : John Hopkins P r e s s . P u b l i s h e d f o r Resources For The F u t u r e . D o c t o r , R. D., K. P. A n d e r s o n , e t . a l . (1972). C a l i f o r n i a ' s E l e c t r i c i t y  Quandry: I I I . S l o w i n g t h e Growth Rate. S a n t a Monica: Rand Cor-p o r a t i o n . R116 NSF/CSA. D o o l e y , P. C. (1967). E l e m e n t a r y P r i c e T h eory. New York: A p p l e t o n -C e n t u r y - C r o f t s . E f f o r d , I. E. (1972). "Energy A d d i c t i o n : A S o c i a l D i s e a s e " . Energy  and t h e EnvirOnment. Eds. Ian E. E f f o r d and B a r b a r a S m i t h , Vancouver B. C , I n s t i t u t e o f Resource E c o l o g y , U n i v e r s i t y o f B r i t i s h C o lumbia, 206-219. F i s h e r , F. M. w i t h C a r l Kaysen (1962). A Study i n E c o n o m e t r i c s : The  Demand f o r E l e c t r i c i t y i n the U n i t e d S t a t e s . Amsterdam: North H o l l a n d . / - 93 -Freeman, S. D a v i d (1974). Energy: The New E r a . New York: V i n t a g e Books. G a l b r a i t h , J . K. (1958). The A f f l u e n t S o c i e t y . T o r o n t o : Mentor. G o l d b e r g , M i c h a e l (1972). "Energy S u p p l y and Economic Growth: Some C o s t s , Doubts and Dangers". Energy and t h e Environment, eds Ian E. E f f o r d and B a r b a r a S m i t h , Vancouver, B r i t i s h C o lumbia, I n s t i t u t e o f Resource E c o l o g y , U n i v e r s i t y o f B r i t i s h C o lumbia, 141-162. G r i f f i n , J . M. (1974). "The E f f e c t s o f H i g h e r P r i c e s on E l e c t r i c i t y Consumption". The B e l l J o u r n a l o f Economics and Management S c i e n c e . V o l . 5, No. 2: 515-539. H a l v o r s e n , Robert (1973). " R e s i d e n t i a l E l e c t r i c i t y : Demand and S u p p l y " . Towards ah Energy P o l i c y . ed. K e i t h R o b e r t s . San F r a n c i s c o : S i e r r a C l u b , 287-341. Houthakker, H. S., P. K. V e r l e g e r , D. P. Sheehan (1973). Dynamic Demand  A n a l y s i s f o r G a s o l i n e and R e s i d e n t i a l E l e c t r i c i t y . L e x i n g t o n , Mass: Data R e s o u r c e s , Inc. I l l i c h , Ivan (1974). Energy and E q u i t y . New York: T o r c h L i b r a r y . MacAyoy, Paul (1969). Economic S t r a t e g y f o r D e v e l o p i n g N u c l e a r B r e e d e r  R e a c t o r s . Cambridge, Mass.: M.I.T. P r e s s . Pen, Jan (1971). Income D i s t r i b u t i o n . London: Penguin. - 94 -Porter, Johm (1965). The Vertical Mosaic. Toronto: University of Toronto Press. Rescher, Nicholas (1967). Distributive Justice. Indianapolis: Bobbs-Merr i l l . Taylor, L. D. (1975). "The Demand For E lec t r i c i ty : A Survey". The' Bell  Journal of Economics and Management Science. Vol. 6, No. 1: 74-111. Tybout, Richard (1973). "Electr ic Power Rates and the Environment". Towards an Energy Policy, ed. Keith Roberts. San Francisco: Sierra Club, 527-581. Wilson, J . W. (1971). "Residential Demand for E lectr ic i ty" . Quarterly  Review Of Economics arid Business. Vol. II , No. 1: 7-22. iv - 95 -A P P E N D I X I IdE_QUESTigNNAIRE 96 -GENERAL INFORMATION Number of persons i n household Number of rooms i n dwelling How long have you l i v e d at t h i s address? 2 years or l e s s 2 to 5 years 5 to 10 years more than 10 years ELECTRIC APPLIANCES AND PRODUCTS Please i n d i c a t e which of the following e l e c t r i c appliances you have i n your home. Kitchen Dishwasher Range gas e l e c t r i c s e l f - c l e a n oven Garbage d i s p o s a l E l e c t r i c carving k n i f e E l e c t r i c can opener Laundry Dryer Iron Washer - automatic Washer - wringer Food Storape Refrigerator . manual defrost auto or f r o s t f ree Freezer Entertainment T e l e v i s i o n colour black and white _____ Radio H i - f i or stereo Tape recorder Water Heating Gas E l e c t r i c Home Heating Gas O i l E l e c t r i c Comfort E l e c t r i c blanket Sun lamp Space heater Personal Grooming Hair dryer Hair s e t t e r E l e c t r i c toothbrush E l e c t r i c shaver Portables Coffee percolator Corn popper Fry pan Deep f r y e r K e t t l e Mixer Blender Toaster Waffle Iron - 97 -Li g h t i n g Outdoors and Homeshop Incandescent Fluorescent A i r Conditioning - Central Room Other E l e c t r i c lavmmower E l e c t r i c saw E l e c t r i c d r i l l E l e c t r i c sander Clock ( Sewing machine Vacuum cleaner Floor polisher I I I . ARE YOU AWARE OF HOW MUCH ELECTRICITY YOU CONSUME EACH MONTH: I n d o l l a r s No In Kilowatt-hours ' No T o t a l hydro b i l l No IV . WHEN CONSIDERING THE PURCHASE OF A NEW ELECTRICAL APPLIANCE OR PRODUCT, DO YOU FAMILIARIZE YOURSELF WITH ITS OPERATING COSTS: Yes No V. CASE 1: WHAT WOULD BE YOUR REACTION IF THE PRICE OF ELECTRICITY DOUBLED? HOW WOULD YOU RESPOND? Consumption Habits no change i n use begin to turn outunnecessary l i g h t s cut down a l i t t l e on use of luxury appliances severely cut down on use of high energy appliances cease using non basic appliances altogether could not a f f o r d t h i s p r i c e increase - would have to cut down purchases i n other areas Buying Behaviour no change i n buying behaviour purchase fewer luxury appliances cease purchasing high energy non-basic appliances purchase smaller, more energy e f f i c i e n t appliances where possible switch from e l e c t r i c i t y to gas improve i n s u l a t i o n i n home to save money switch from incandescent to fluorescent l i g h t i n g avoid b u i l d i n g or buying a home with e l e c t r i c heating - 98 -CASE 2: WHAT WOULD BE YOUR REACTION HOW WOULD YOU RESPOND? Consumption Habits no change in use begin to turn out unnecessary lights ______ cut down a l i t t l e on use of luxury appliances severely cut down on use of high energy appliances cease using non-basic appliances altogether could not afford this price increase - would have to cut down purchases in other areas IF THE PRICE OF ELECTRICITY TRIPLED? Buying Behaviour no change in buying behaviour purchase fewer luxury appliances cease purchasing high energy non-basic appliances purchase smaller, more energy efficient appliances where possible switch from electricity to gas Improve insulation in home to save money switch from incandescent to fluorescent lighting avoid building or buying a home with electric heating CASE 3: WHAT WOULD BE YOUR REACTION REDUCED TO HALF WHAT IT IS Consumption Habits use luxury appliances more use high energy appliances more no change in habits IF THE PRICE OF ELECTRICITY WERE NOW? Buying Behaviour no change in buying behaviour would purchase more luxury appliances would purchase larger high energy appliances switch from gas or o i l to electrical products - 99 -CASE 4: HOW WOULD YOU RESPOND IF THE WHAT IT IS NOW? Consumption Habits no change in use begin to turn out unnecessary lights ______ cut down a l i t t l e on use of luxury appliances severely cut down on use of high energ}' appliances cease using non-basic appli-ricas altogether could not afford this price increase - would have to cut dorm purchases in other areas PRICE OF ELECTRICITY WERE FIVE TIMES Buying Behaviour no change in buying behaviour purchase fewer luxury appliances cease purchasing high energy non-basic appliances purchase smaller, more energy efficient appliances where possible switch from ele c t r i c i t y to gas improve insulation i n home to save money switch from incandescent to fluorescent lighting avoid building or buying a home with electric heating VI. COULD YOU PLEASE INDICATE ON THE CARD PROVIDED YOUR APPROXIMATE ANNUAL HOUSEHOLD INCOME INCLUDING FAMILY ALLOWANCE, UIC BENEFITS, AND WELFARE INCOME IF APPLICABLE. Under $3,000 $9,000 - $12,000 $3,000 - $6,000 $12,000 - $15,000 $6,000 - $9,000 OVER $15,000 - 100 -A P P E N D I X I I __L_L_I__Y_AREAS (map in pocket) AREA ONE Median Household Income $6,000 AREA TWO Median Household Income $9,000 AREA THREE Median Household Income $12,000 AREA FOUR Median Household Income $15,000 AREA FIVE Median Household Income Over $15,000 Median Household Income Based on 1971 Census Data - 101 -A P P E N D I X I I I NQTES.ON^ETHODOLOGY In r e t r o s p e c t , i t i s c l e a r t h a t t h e p r i n c i p a l problem e n c o u n t e r e d i n t h e s t u d y was t h e o v e r s a m p l i n g o f t h e h i g h income groups and t h e u n d e r s a m p l i n g o f the low income g r o u p s . R a t h e r than a problem w i t h t h e methodology, t h i s i s a problem i n e x e c u t i o n . In t h i s s t u d y , a t t e m p ts were made t o m i n i m i z e t h i s s a m p l i n g b i a s , however, i n f u t u r e s t u d i e s even g r e a t e r e f f o r t s s h o u l d be made i n t h i s d i r e c t i o n . The o t h e r problem I wish t o d i s c u s s i s the s e l e c t i o n o f a p p r o p r i a t e income g r o u p i n g s . A g a i n , i n r e t r o s p e c t , i t i s c l e a r I u n d e r e s t i m a t e d incomes. I t was p a t e n t l y i n a p p r o p r i a t e t o group a l l " h i g h " income h o u s e h o l d s i n the c a t e g o r y " o v e r $15,000". Those households w i t h v e r y h i g h incomes were, i n f a c t , l o s t f o r t h e purposes o f a n a l y s i s . In f u t u r e s t u d i e s , the income c a t e g o r i e s s h o u l d be extended. Eng. 3 0 9 - M L H 73 STREET INDEX FOB STREETS WITHIN VANCOUVER CITY LIMITS 

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