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 S a s k a t c h e w a n , 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 to the required standard  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 p r e s e n t i n g t h i s  thesis  an advanced degree at the L i b r a r y s h a l l I  f u r t h e r agree  for  fulfilment of  the requirements f o r  the U n i v e r s i t y of B r i t i s h Columbia,  make i t  freely available  that permission  for  I agree  r e f e r e n c e and  f o r e x t e n s i v e copying o f  this  that  study. thesis  s c h o l a r l y purposes may be granted by the Head of my Department or  by h i s of  in p a r t i a l  representatives.  this  written  thesis  It  is understood that  f o r f i n a n c i a l gain shall  not be allowed without my  permission.  Department of  JlcJi^-rft^  The U n i v e r s i t y o f B r i t i s h  Jl  $an~C  3-Q  LA->^rv<~-^s£^  Columbia  20 75 W e s b r o o k P l a c e V a n c o u v e r , Canada V6T 1W5  Date  copying or p u b l i c a t i o n  /f7/T  O^n/  ii..  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 .  Recently,  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 .  Moreover,  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 c o n s u m p t i o n 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 problem 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 our energy resources. 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 n s u m p t i o n 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, the a b i l i t y to reduce e l e c t r i c i t y c o n s u m p t i o n i n c r e a s e s w i t h income. The m e t h o d o l o g y 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 to 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 determining, r e s i d e n t i a l e l e c t r i c i t y consumption.  Q u e s t i o n s were a l s o a s k e d  to determine perceptions o f the a b i l i t y o r w i l l i n g n e s s t o reduce o r i n c r e a s e e l e c t r i c i t y c o n s u m p t i o n p a t t e r n s under v a r i o u s hypothetical price intervention policies.  i i i.  S e c o n d l y , e l e c t r i c i t y c o n s u m p t i o n h i s t o r i e s were o b t a i n e d B.C. Hydro and Power A u t h o r i t y f o r t h e s e 291  from  respondents.  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 n s u m p t i o n 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, the 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 to p r i c e i n c r e a s e s , but not t o p r i c e  decreases.  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 in e l e c t r i c i t y .  to p r i c e  They are l e s s w i l l i n g / a b l e to switch  increases  from  e l e c t r i c i t y to 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 to 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 the p r i c e i s increased. 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 the b o a r d p r i c e i n c r e a s e s  in  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 e x a m i n e d 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 .  Included  income to a c h i e v e e q u i t y .  i n the p a c k a g e i s a r e d i s t r i b u t i o n o f 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 .  iv.  TABLE OF CONTENTS Page C H A P T E R ONE APPROACH J O J T U D Y 1.1  Introduction  1  1.2  The Problem  1  1.3  L i t e r a t u r e Review  3  1.4  Hypotheses  11  1.5  Methodology  11  C H A P T E R TWO It!E_PRICE_OF_ENERGY  2.1  Introduction  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 R e s o u r c e s  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  V.  Page CHAPTER THREE ENERGY_AND_EgUITY  CHAPTER  29  FOUR  RES PQNDENT_CHARACTERISTICS 4.1  Introduction  35  4.2  Household Income  37  4.3  Consumption  39  4.4  Number o f P e r s o n s  40  4.5  Number o f Rooms  40  4.6  The S t o 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 Expenditures  45  CHAPTER  FIVE  DATA_ANALYSIS 5.1  Introduction  46  5.2  Income - Consumption R e l a t i o n s  47  5.3  Number o f P e r s o n s - 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  Conclusion  50  vi, Paje  CHAPTER S I X SIMULATING BEHAVIOR FROM PRICE §I?ySiyBLI?!IiBy§NTioN^pgLiciES  6.1  Introduction  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  Simulated P r i c e Increases  54  6.4  S i m u l a t e d P r i c e Decreases  64  6.5  Interfuel Competition  68  CHAPTER SEVEN §yt^5Y,_C0NCLySigNS _PQLICY i  7.1  Introduction  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 R e d u c t i o n i n Demand  77  7.6  Willingness o r A b i l i t y to Substitute Fuels  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  Conclusion  89  BIBLIOGRAPHY APPENDIX I  The Q u e s t i o n n a i r e  APPENDIX I I  Map o f Study Areas  APPENDIX I I I  Notes on Methodology  (ii  pocKl)  vn  ACKNOWLEDGEMENTS  I would l i k e t o thank D r s . 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 in completing t h i s study.  J . W. W i l s o n , R. W. R a c 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 h e 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 J a n .  CHAPTER  ONE  APPROACH_Tg_STUDY 1.1  INTRODUCTION  The purpose "of t h i s study 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 .  Patterns o f e l e c t r i c i t y  use among Vancouver consumers a r e examined i n an a t t e m p t t o d e t e r m i n e these e f f e c t s .  Data f o r t h i s study 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 e n 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 . F e d e r a l Government r e p o r t s t h a t :  Between 1961 and 1970 t h e c o s t o f e n e r g y 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 t h e C.P.I, and 30% r e l a t i v e to labour costs i n manufacturing. (Government o f Canada, 1975)  The  - 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 net 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 our 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  society.  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 board" i n f l a t i o n a r y trends.  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 the 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  of  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  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 .  be  - 3 -  Over t h e s h o r t t e r m , 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 u n d e r t a k e n t o d e t e r m i n e the e f f e c t s , consequently they 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 s e e k s 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 dimension o f the problem:  t h e i n c i d e n c e impact o f e n e r g y 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.  Attention  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 g r o u p s . 1.3  LITERATURE REVIEW  T h e r e 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 t h e 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 central to t h i s study.  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 t h e concept o f e l a s t i c i t y .  - 4-  The concept of e l a s t i c i t y i s p a r t i c u l a r l y useful to describe the magnitude of the influence of casual factors.  The e l a s t i c i t y 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 l a s t i c i t y ) ; to changes in the cost of alternatives any casual factor.  (cross e l a s t i c i t y ) ; or to changes in  For example, a price e l a s t i c i t y of demand  equal to "x" means that a 1% increase in price w i l l cause an "x" % decrease in demand.  In this review, eight studies w i l l be examined.  A l l these  studies contribute to our understanding of the variables that affect residential demand for e l e c t r i c i t y , and six of these studies provide an insight into the impact of e l e c t r i c i t y  price  increases on income groups.  Determining Variables  Though the studies discussed in this section were conducted for d i s s i m i l a r reasons and often with d i f f e r i n g methodologies, they a l l exhibit one common c h a r a c t e r i s t i c .  That i s , they a l l  attempt  to arrive at plausible e l a s t i c i t y coefficients for the variables that influence residential demand for e l e c t r i c i t y .  - 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 :  1) 2) 3) 4) 5) 6) 7)  the p r i c e o f e l e c t r i c i t y , the income o f t h e h o u s e h o l d , the number o f persons i n t h e 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 , the 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 natural gas, 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 the f r a c t i o n o f the population l i v i n g i n nonmetropolitan areas.  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 t h e whole, n o t 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 h e s i z e o f t h e 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 important determinant.  - 6 -  Halvorsen, "Residential 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 r u n 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 h e income e l a s t i c i t y o f s a l e s p e r 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 increases.  Unlike Wilson, Halvorsen concluded that p r i c e increases i n e l e c t r i c i t y would n o t 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 natural gas.  A n d e r s o 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 :  Econometric  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 the f r a c t i o n o f the population l i v i n g i n nonmetropolitan areas a l l important explanatory 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 study in Econometrics: (1962).  The Demand f o r E l e c t r i c i t y in t h e U n i t e d  States"  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 small  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 a n d 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 city:  A S u r v e y " (1975).  PRICE AND INCOME ELASTICITIES OP ELECTRICITY DEMAND SUMMARY OF ECONOMETRIC ESTIMATES  Type o f Demand  Type of Price  Price Elasticity Short Run  Long Run  Income Elasticity Short Run  Type of Data  Long Run  RESIDENTIAL Houthakker (27) F i s h e r & Kaysen Houthakker & T a y l o r Wilson Mount, Chapman & T y r r e l l Anderson ( l ) Lyman  M A A A* A A* A  -0.89 NE -0.15 0 -0.13 -1.89 NE -2.00 -0.14 -1.20 NE -1.12 (-0.90)  1.16 NE 0.10 SMALL 0.13 1.94 NE 0 0.02 0.20 NE 0.80 (-0.20)  CS : CS-TS : TS : CS : CS-TS : CS CS-TS  Houthakker, V e r l e g e r & Sheehan  M  -0.90 -1.02  0.14  1.64  CS-TS  A A  -0.17 -1.36 (-2.10)  0.11  0.86  CS-TS: CS-TS:  States Areas Served by Utilities  A A A A A  NE -1.25 NE -1.50 NE -1.94 -0.22 -1.82 (-1.40)  CSTS: CSCS-TS: CS-TS:  States I n d u s t r i e s (U.K.) States States Areas Served by Utilities  C i t i e s (U.K.) States Aggregate U.S. SMSA's States States Areas Served by Utilities States  COMMERCIAL Mount, Chapman & T y r r e l l Lyman INDUSTRIAL F i s h e r & Kaysen Baxter & Rees Anderson (2) Mount, Chapman & T y r r e l l Lyman HOTE:  NE: CS: TS: M:  Not Estimated Cross-Section Time-Series Marginal Price  .  A: A*:  Ex Post Average P r i c e Average P r i c e f o r a f i x e d Amount of E l e c t r i c i t y 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) 2)  t h e p r i c e o f e l e c t r i c i t y , and 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 determining  variable.  Wilson suggests the s i z e o f the dwelling  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 significant.  size  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 r u n 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  a t t e m p t t o r e d u 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 p e r .  Distribution Effects  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 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 8 0 % 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.  This study a l s o points out that aggregated data d i s t o r t s perc e p t i o n s o f t h e a b i l i t y t o r e d u c 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 efficient appliances.  Berman and Hammer complemented  t h e 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 L o s 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 t h e 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 h i g h - i n c o m e 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 a t t e m p t s 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:  III.  S l o w i n g t h e 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 -- lowincome 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 i t 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 e n e r g y 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 e n e r g y t o r i s e both i n an I n t e r n a t i o n a l and C a n a d i a n 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 a b o u t d i s t r i b u t i v e j u s t i c e with r e s p e c t to r e s o u r c e s , p a r t i c u l a r l y energy r e sources. 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 a t t e m p t was made t o d e t e r m i n e 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 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 e a c h . 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 c o m p l e t e d . 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.  Analysis of questionnaire data. 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.  Synthesis of information. 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 e n e r g y and e q u i t y a r e presented.  - 13 -  C H A P T E R TWO ™L .5IQL9L§NERGY P  2.1  INTRODUCTION  The a s s u m p t i o n u n d e r l y i n g t h i s study i s t h a t t h e p r i c e o f e n e 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 noted 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  reverse.  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 m a j o r 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 sufficient to outline 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 energy costs.  Canada buys and s e l l s e n e r g y i n t h e 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 t h e international setting.  - 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 energy 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 not imminent.  In f a c t , the 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 problem i s more s u b t l e . The l a r g e energy 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 energy 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. s i t i o n t o energy developments  I n c r e a s i n g oppo-  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 markets, manpower markets o r i n t r a n s portation f a c i l i t i e s could contribute to the 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 the 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 the 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 the 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 n e r g y 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 also s u b s t a n t i a l importers  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 o i l p r o d u c t s per day.  b a r r e l s o f c r u d e and c r u d e  (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. ment o f Canada, 1975  are  .)  (Govern-  These energy sources are c o s t l y i n the  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  of Petroleum Exporting Countries,  formed  o r i g i n a l l y to 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  suc-  c e s s f u l l y f o r c e d the p r i c e o f crude to a l e v e l f o u r t i m e s the 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 the 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 to p r i c e , manipulation  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  decline.  - 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 t h e n 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 to d e l i v e r western coal to e a s t e r n purchasers.  2.3  THE CANADIAN ENERGY SITUATION  Canadian e n e r g y 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 c o n s u m p t i o n ; 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 Africa.  ( 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 R e s o u r c e s p r e d i c t s t h a t demand f o r e n e r g y 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 t h e 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 e n e r g y t a k e effect.  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 e n 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 e n e r g y 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 supply v a r i e s with energy source.  2.4  COAL RESOURCES  C a n a d i a n 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 o n s o f which a r e l o c a t e d i n t h e t h r e e w e s t e r n p r o v i n c e s . A r e p o r t from t h e M i n i s t e r o f M i n e s , 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 t h e 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 greater production levels".  (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 "imports o f coal s t i l l account f o r over h a l f o f t o t a l domestic 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 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 the S t a t e s than from Western Canada. ments, however, may change. consumers are e x p e r i e n c i n g  United  These t r a d i t i o n a l a r r a n g e -  A recent report states that d i f f i c u l t i e s both w i t h  Ontario  present  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 . ment o f Canada, 1975.)  for  (Govern-  F u r t h e r m o r e , the p r i c e o f c o a l i s  rising.  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 the 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 the p r i n c i p a l c o a l p r o d u c e r s o f the 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 , are 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 to 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 to $22 per ton d u r i n g 1974 and w i l l p r o b a b l y reach $30 i n 1975; the 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 are $21, $37 and $50 per ton r e s p e c t i v e l y . (Government o f Canada, 1975.)  Due to 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 t e r n 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 to expand p r o d u c t i o n and to p r o v i d e a t r a n s p o r t a t i o n  infrastructure.  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 . 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 guarantee  The their  a v a i l a b i l i t y t o consumers.  Throughout  t h e 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 t h e p o s t  World War I I 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 t h e 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 o u r 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 proved r e s e r v e s upwards.  By 1974 however, t h e 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 from 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 t h e 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 imports 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 levels. (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 energy 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 the p a s t few y e a r s . r i s e n from $1.20  The p r i c e o f A r a b i a n c r u d e has  per b a r r e l i n 1970 t o $10.50 i n 1975  transport charges.  (Government o f Canada, 1975.)  plus  Western  Canada w e l l head p r i c e s i n the 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  expected 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  to increase.  R a p i d l y i n c r e a s i n g demand f o r o i l w o r l d w i d e 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 . o f t e n found i n a r e a s where environmental  These r e s o u r c e s  are  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 generally  2.6  inadequate.  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  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 .  and  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 the 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 share 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 the 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-  s e q u e n c e " , 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 the s u p p l y o f gas d u r i n g the p a s t 20 years".  (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 the 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 . 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  The  environmental  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 they a r e , the c o s t t o consumers w i l l be cons 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 , the 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 -  energy e q u i v a l e n t b a s i s " .  2.7  (Government o f Canada, 1975.)  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 energy.  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 sumption. 40 p e r c e n t .  con-  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 (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  concern  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 costs f o r environmental 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 energy 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 future".  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 not 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. Canada, 1975.)  (Government o f  - 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 cons 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. costs are i n f l a t i n g r a p i d l y .  In both a r e a s  (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 .  Additionally,  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 , nuclear 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 the 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 slower growth r a t e s the increment 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 the l e s s c o s t l y and more a c c e s s i b l e e n e r g y r e s o u r c e s have, f o r the most p a r t , been developed, leaving higher cost resources 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 shortages i f t h e i r e f f o r t s f o r e s t a l l or 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 concern 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 costs 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 through i n c r e a s e d p r i c e s f o r energy 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 -  high i n t e r n a t i o n a l prices f o r energy sources upon which we a r e dependent.  - 29 -  CHAPTER THREE y§B9Y_AND_EguiTY  E  John P o r t e r i n The V e r t i c a l M o s a i c  observes:  One o f the most p e r s i s t e n t images t h a t C a n a d i a n s 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 C a n a d i a n s 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 the amount o f money they e a r n , and i n the o p p o r t u n i t i e s which they and t h e i r c h i l d r e n have t o g e t on i n the w o r l d . (Porter,  1965)  T h i s image however does not f i t r e a l i t y .  Porter finds that  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  shared  " r e l a t i v e l y e q u a l l y " among C a n a d i a n s and t h a t t h e r e i s , i n f a c t , considerable disparity.  Examining one index 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 substantial differences.  In 1959, 5.2 p e r c e n t o f f a m i l i e s had incomes over $10,000 and 11.2 p e r c e n t had incomes over $8,000 which we have suggested i s the point at which the i d e a l i z e d middle c l a s s l i f e c o u l d begin ... In 1959 the 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. (Porter,  1965)  - 30 -  P o r t e r notes 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 g r o u p , however,  t h e r e was l i t t l e i f any change i n t h e d e g r e e o f income i n e q u a l i t y . Lorenze c u r v e s p l o t t e d f o r 1955 and 1959 a r e almost 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 t h e 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 recent times.  The Economic C o u n c i l o f Canada r e p o r t e d i n 1968,  that  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 share r e c e i v e d by t h e 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 a v 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 percentage 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_9L_NQN_FARM_FAMILY  TAX  7  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  Third fifth  17.4  18.2  18.0  Fourth  22.5  23.4  23.5  41.1  38.4  38.4  Top  fifth  fifth  Source:  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 c a n 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 e p o r t (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 u e s t h a t i n e q u a l i t y , a major concern o f t h e 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 m a s s i v e 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 o u g h t a " t r a n s i t i o n o f the 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 position".  ( 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 not b e n e f i t e d from our 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  content.  I t would be i n a p p r o p r i a t e i n t h i s study 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 t i m e s be c o n c e r n e d w i t h the 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 the d i s t r i b u t i o n o f income.  In the p r e v i o u s c h a p t e r i t was suggested  t h a t the p r i c e o f  e n e r g y was going 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 e n e r g y 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 o n 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 .  T h e r e 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 e n e r g y does not play a part.  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.  Price  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 u r s u e t h i s s u b j e c t , they 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 as: 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 a p p e a 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 a v e r a g e e x p e n d i t u r e on power and f u e l (and w a t e r ) 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.  This energy expenditure category excludes the operation  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 percent. FAMILY INCOME DEVOTED TO POWER, FUEL (AND WATER) 1969  Under $3,000 $ 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 (Source:  4.5 3.4 3.2 2.7 2.9 2.8 2.7 2.8 2.6 2.4 2.3 1.8  S t a t i s t i c s Canada, 1969)  percent percent percent percent percent percent percent percent percent percent percent percent  - 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 p o o r 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 e n 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 not 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 h e 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 t h r o u g h t h e 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 t h e r e l a t i o n s h i p between income and e n e r g y demand and p r i c e and e n e r g y demand i n an attempt t o e x p l o r e t h e h y p o t h e s e s 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 h y p o t h e s e s 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 u n d e r t a k e n 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 t h e 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 oney 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 h e 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 n o t i n c l u d e d here because t h e y f a l l outside t h e purview o f t h i s study.  - 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 .  Firstly,  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 substitution.  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 a p p r o x -  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 h e 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.  Considerable  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 f o u n d t h a t h i g h income groups were o v e r s a m p l e d v i s - 3 - v i s the lower income groups.  As i s e v i d e n t from t h e f o l l o w i n g  t a b l e , 41 p e r s o n s o r 14.1 p e r c e n t o f t h e 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 the 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 .  TABLE  4.1  INCOME GROUPS Absolute Frequency  Relative Frequency (percent)  Cumulative Frequency (percent)  No Response $0 - $3,000 $ 3,000 - $ 6,000 $ 6,000 - $ 9,000 $ 9,000 - $12,000 $12,000 - $15,000 Over $15,000  41 10 35 22 31 44 108  14.1 3.4 12.0 7.6 10.7 15.1 37.1  14.1 17.5 29.6 37.1 47.8 62.9 100.0  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 h e number o f rooms i n t h e d w e l l i n g , t h e 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 t h e 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  m e n t i o n e d , t h e s m a l l e s t consumption i n t h e o n e - y e a r 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 t h e 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 g r o u p s .  T A B L E 4.2 9QN§yMPII9L?LINC0ME_GRgyps  ( i n KWH p e r y e a r ) Number of Observations 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  291 9 34 21 27 34 90  Minimum  Maximum  Mean  969.0 56,805.0 7,343.6 1,232.0 8,767.0 4,552.2 1,316.0 12,348.0 6,125.6 2,422.0 10,564.0 5,800.6 969.0 24,596.0 7,160.6 2,641.0 16,764.0 7,439.4 1,828.0 56,805.0 10,812.3  Median  Standard Deviation  6,582.5 4,096.0 5,537.0 4,873.7 6,213.7 6,484.5 8,220.0  6,605 2,873 2,943 2,642 4,811 3,570 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 ten p e r s o n s .  The mean was 3.47 and t h e median 3.21.  Table  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 groups.  TABLE  4.3  NyM§§L9[.PERS0NSJER_DWELU Number of ObserVations  Minimum  Maximum  Mean  Median  Standard De v i a t -  291 9 34 21 27 34 90  1 1 1 2 1 1 1  10 3 10 7 8 10 9  3.47 1.5 2.5 2.9 3.5 4.2 3.8  3.21 1.4 2.1 2.3 3.4 4.1 3.7  ic .7 1.8 1.3 1.7 1.8 1.6  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  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 i c s by income groups.  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 -  - 41 -  T A B L E 4.4 NUMBER OF ROOMS 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  4.6  Number of Observations  Minimum  291 9 34 21 27 34 90  2 5 3 4 3 2 3  Maximum 15 8 12 10 13 15 15  Mean  Median  Standard Deviation  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  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 n o t 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 t h e 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  labelled  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 then, i s a function o f the stock  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 u s e , and t h e operation requirements o f those appliances.  For this reason, i t  i s p e r t i n e n t t o overview the s a t u r a t i o n l e v e l s o f t h e various 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  electric  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. W h i l e t h i s l i s t i s n o t 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 available products.  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 t h e 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 d u e , i f v a l i d , t o t h e a v a i l a b i l i t y o f t h e "Equal Payment P l a n " . * *  * E l e c t r i c i t y plus natural 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 t h e 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 t h e d i f f e r e n c e o r compensated.  - <U APPLIANCE SATURATION BY INCOME GROUP Expressed APPLIANCES  A  "  C  a  s  e  s  $3,000  Under  In P e r c e n t a g e s  $3,000 - 6.000  $6,000 - 9,000  $ 9 , 0 0 0 - 12,000  $12,000 - 15,000  $I5,00C  Over  KITCHEN Dishwasher Range Gas Electric Garbage D i s p o s a l E l e c t r i c Carving Knife E l e c t r i c Can Opener  Dryer - E l e c t r i c I ron Washer - A u c o m a t l c Washer - W r i n g e r  29.2  10.0  5.7  13.6  9.7  29.5  50.9  2*1.7 75.3* 10.3 41.6  60.0 40.0 0.0 20.0 10.0  22.9 77.1 0.0 20.0 34.3  54.5 45.5 4.5 27.3 45.5  32.3 67.7 9.7 25.8 45.2  20.5 77.3 4.5 29.5 47.7  15.7 85.2 18.5 32.4 44.4  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  44.0 56.0 42.0  90.0 10.0 20.0  48.5 54.3 17.1  45.5 54.5 27.3  38.7 61.3 16.1  47.7 52.3 38.6  37.0 63.0 58.3  61.2 54.0 90.4 77-0 40.2  60.0 50.0 100.0 50.0 30.0  54.3 51.4 91.4 45.7 20.0  59.1 50.0 81.8 63.6 27.3  61.3 35.5 87.1 83.9 45.2  59.1 38.6 90.9 84.1 45.5  67.6 50.9 92.6 89.8 46.3  54.3 44.3  55.6 44.4  31.4 68.6  76.2 23.8  50.0 50.0  63.6 36.4  58.4 35.7 4.8  70.0 30.0 0.0  57.1 37.1 5.7  59.1 40.9 0.0  71.0 29.0 0.0  62.8 34.9 2.3  54.7 39.6 5.7  31.6 13.1 16.8  50.0 10.0 0.0  37.1 14.3 14.3  40.9 9.1 13.6  29.0 12.9 16.1  36.4 9.1 11.4  28.7 16.7 25.0  64.3  40.0 20.0 0.0 40.0  51.4 8.6 5.7 48.6  50.0 0.0 4.5 54.5  45.2 22.6 6.5 48.4  75.0 22.7 2.3 52.3  77.8 28.7 9.3 51.9  20.0 0.0 70.0 20.0 50.0 70.0 40.0 100.0 40.0  60.0  63.6 9.1 72.7 9.1 63.6 63.6 31.8 95.5 36.4  48.4 16.1 64.5 16.1 64.5 67.7  31.8 6.8 68.2 20.5 75.0 70.5 63.6 100.0  47.2 15.7 66.7 23.1 75.9 81.5 72.2 96.3 29.6  28.2  67.6  89.8 BI.5 3.7  FOOD STORAGE Refrigerator Manual D e f r o s t Frost-Free Freezer ENTERTAINMENT T e l e v t s ion Color B l a c k and White Radio HI-FI o r S t e r e o Tape R e c o r d e r WATER HEATING Gas Electric HOME HEATING Gas Oil Electric COMFORT E l e c t r i c Blanket Sun Lamp Space H e a t e r PERSONAL GROOMING H a i r Dryer Hair Setter E l e c t r i c Toothbrush E l e c t r i c Shaver  I8.9  6.2 51.2  PORTABLES Coffee Percolator Corn Popper F r y Pan Deep F r y e r Kettle Mixer BIender Toaster W a f f l e Iron LIGHTING  46.0 11.3 67.7 21.6 71.1 74.2 57.4 95.9  29.9 100  8.6 71.4 14.3 71.4  80.0  40.0 91.4 31.4  100  100  100  61.3 100.0  32.3 100  25.0 100  100  AIR CONDITIONING Central Room  1.7 1.7  0.0 0.0  E l e c t r i c Lawnmower E l e c t r i c Saw Electric Drill E l e c t r i c Sander  38.5 38.5 50.9 36.8  60.0 10.0 10.0 10.0  Clock Sewing Machine Vacuum C l e a n e r Floor Polisher  85.6 73,2 93.8 1»6.7  80.0 50.0 90.0 40.0  5.7** 0.0  0.0 4.5  0.0 3.2  0.0  51.4 17.1 31.4 25.7  22.7 36.4 31.8 22.7  41.9 45.2 54.8 45.2  38.6 40.9 52.8 52.3  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  2.3  1.9 1.9  OUTDOORS AND SHOP  34.3 50.0  64.8 40.7  OTHER  * 9.3* o f t h e sample had e l e c t r i c * * E r r o n e o u s due t o sample s i z e .  ranges w i t h s e l f  clean  ovens.  T A B L E 4.5  87.O  78.7  95.5 50.0  - 44 -  Respondents were a l s o a s k e d 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 themselves with operating costs. affirmative.  30.2 p e r c e n t answered i n t h 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  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  Electricity Use i n Dollars  Electricity Use i n Kilowatt Hours  Total Hydro B i l l  45.4% 70.0% 60.0% 31.8% 45.2% 54.5% 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 h e e l e c t r i c i t y c o n s u m p t i o n 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 h e 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 .  TABLE  4.8  ELECTRICITY EXPENDITURES ONE YEAR PERIOD Minimum Maximum Mean Median Standard Deviation Number o f O b s e r v a t i o n s  $ 39.00 $862.00 $171.00 $175.00 $108.50 291  - 46  CHAPTER  -  FIVE  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 h e same s t a t i s t i c a l procedures.  In a l l c a s e s , consumption i s t a k e n as t h e  dependent v a r i a b l e and income, rooms and p e 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 c o n s u m p t i o n , rooms t o consumption and p e r s o n s t o c o n s u m p t i o n , 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 c o n s u m p t i o n was a c c o u n t e d f o r by t h e 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 h e 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 h e 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 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 .  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 s i g n i f i c a n t determinant of consumption than either of the above, with a correlation c o e f f i c i e n t of nearly 0.5.  Table 5.1 provides the complete  correlation c o e f f i c i e n t matrix.  TABLE  5.1  CORRELATION MATRIX  Consumption Number of Rooms Number of Persons Household Income  Consumption  Number of Rooms  Number of Persons  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 f o r ; 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 to 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  monies).  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 .  TABLE  5.2  Percentage of Respondents  Percentage of Consumption  Percentage of D o l l a r s Spent  Under $6,000 $6,000 - $12,000 Over $12,000  19.9 22.6 57.4  13.6 18.0 68.3  16.6 21.0 62.3  Bottom 30% Top 70%  30.0 70.0  20.5 79.4  26.0 74.0  Under $12,000 Over $12,000  42.5 57.4  31.6 68.3  37 62  Under $15,000 Over $15,000  58.3 41.6  45.8 54.1  53.37 46.6  *N0TE:  The r e a s o n f o r t h e d i s c r e p a n c y between p e r c e n t a g e o f consumption 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 h e 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 c o n s u m p t i o n 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 t h e d w e l l i n g . a more s i g n i f i c a n t v a r i a b l e .  The number o f rooms i s  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 h e i m p l i c a t i o n , on a p r i o r i g r o u n d s , 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 t h a n h i g h income h o u s e h o l d s . The data supports that reasoning.  I t i s c l e a r from T a b l e 5.3 t h a t  the 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 .  TABLE  5.3  ELECTRICITY EXPENDITURE AS AS A PERCENTAGE OF INCOME  Under $6,000 $6,000 - $12,000 Over $12,000  Percentage  Number of Cases  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 l e c t r i c i t y consumption were studied.  In this chapter an attempt is made to  simulate the behavior of e l e c t r i c i t y consumers under different e l e c t r i c i t y price conditions.  The concern i s focused on the  demand for e l e c t r i c i t y and on interfuel  2  substitution.  PRICE SENSITIVITY OF DEMAND FOR ELECTRICITY  The relationship between the demand f o r , and the price of e l e c t r i c i t y , is inadequately understood.  A number of studies,  discussed previously, suggest quite strongly that the demand for e l e c t r i c i t y is price s e n s i t i v e , p a r t i c u l a r l y in the longrun.  Estimates of the e l a s t i c i t y c o e f f i c i e n t , however, vary  among researchers.  This study does not attempt to derive an empirically determined price e l a s t i c i t y .  While this would no doubt be of some con-  siderable i n t e r e s t , 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 i n v i d i d u a l s , in various income groups, of t h e i r need and/or a b i l i t y to adjust e l e c t r i c i t y consumption levels in the face of e l e c t r i c i t y price changes.  To accomplish t h i s , four hypothetical price changes were posited, and the reactions of respondents recorded. were:  These price changes  Case One, a doubling of the present price (2x); Case  Two, a t r i p l i n g of the present, price (3x); Case Three, a price level f i v e 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 a l t e r n a t i v e l y , 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 l e c t r i c i t y consuming devices and appliances.  *No useful information was gleaned from this l a t t e r alternative.  - 53 -  A few of the options relate to fuel s u b s t i t u t i o n , to be d i s cussed in the succeeding section.  Respondents could choose any number of options, though obviously 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)  no change in buying behavior (0)  begin to turn out unnecessary l i g h t s (1)  switch from incandescent to fluorescent l i g h t i n g (1)  cut down a l i t t l e on use of luxury appliances (2)  purchase fewer luxury appliances (2)  severely cut down on use of high energy appliances (3)  purchase smaller, more energy e f f i c i e n t appliances (2)  cease using non-basic applicances altogether (4)  improve insulation in home to save money (2)  could not afford this price increase - would have to cut down purchases in other areas (5)  cease purchasing high energy, non-basic appliances (3) where possible switch from e l e c t r i c i t y to gas (3) avoid building or buying a home with e l e c t r i c heating (3)  - 54 -  TABLE  6.2  LIST OF OPTIONS Applicable to P r i c e Reduction:  Case Four (%x)  Consumption H a b i t s  Buying  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 purchase more l u x u r y a p p l i a n c e s (1)  use h i g h energy a p p l i c a n c e s more (2)  -  Behavior  would purchase l a r g e r h i g h energy 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)  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 t h e 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 (found 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 appropriate.  SIMULATED PRICE INCREASES  T a b l e s 6.3A and 6.3B show t h e " 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 t h e 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 .  - 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 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 ) Price Change  All Cases  Under $6,000  $6,000 $12,000  Over $12,0(  No change i n use  2x 3x 5x  27.4 14.9 6.5  42.2 31.1 15.6  30.2 15.1 5.7  25.0 11.2 3.3  Begin t o t u r n o u t unnecessary l i g h t s  2x 3x 5x  57.7 75.0 77.0  55.6 84.4 84.4  50.9 64.2 66.0  55.9 71.1 73.7  Cut down a l i t t l e on use o f l u x u r y a p p l i a n c e s  2x 3x 5x  45.6 62.5 70.6  31.1 46.7 57.8  43.4 56.6 64.2  45.4 64.5 69.1  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  2x 3x 5x  23.4 50.0 64.9  6.7 15.6 35.6  11.3 37.7 64.2  27.0 37.5 64.5  Cease u s i n g n o n - b a s i c appliances altogether  2x 3x 5x  8.9 21.8 33.1  4.4 15.6 17.8  11.3 18.9 22.6  7.9 20.4 34.9  Could not a f f o r d t h i s p r i c e i n c r e a s e - would have t o c u t down p u r c h a s e s in other areas  2x 3x 5x  7.7 21.8 47.6  11.1 31.1 51.1  9.4 17.0 45.3  3.3 15.8 40.8  SAMPLE SIZE - * **  250 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  *  *** ****  **  ***  53 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 -  TABLE  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 ) Price Change  All Cases *  Under $6,000  $6,000 $12,000  Over $12,0(  **  ***  ****  No change i n b u y i n g behavior  2x 3x 5x  39.1 25.4 15.3  55.6 42.2 31.1  32.1 24.5 15.1  34.9 17.1 8.6  S w i t c h from i n c a n d e s c e n t to fluorescent l i g h t i n g  2x 3x 5x  6.9 12.5 17.7  6.7 11.1 17.8  3.8 3.8 15.1  7.2 13.8 15.8  Purchase fewer l u x u r y appliances  2x 3x 5x  35.1 48.4 58.5  28.9 37.8 48.9  28.3 39.6 47.2  35.5 50.7 59.2  Purchase s m a l l e r more energy e f f i c i e n t a p p l i a n c e s  2x 3x 5x  22.2 31.9 40.3  13.3 17.8 22.2  18.9 24.5 32.1  20.4 32.9 40.8  Improve i n s u l a t i o n i n home t o save money  2x 3x 5x  24.2 32.3 35.1  13.4 20.0 22.2  18.9 30.2 32.1  25.7 32.9 36.2  Cease p u r c h a s i n g h i g h energy non-basic appliances  2x 3x 5x  23.8 35.9 48.0  15.6 15.6 33.3  24.5 37.7 43.4  21.1 37.5 47.4  Where p o s s i b l e s w i t c h from e l e c t r i c i t y t o gas  2x 3x 5x  13.7 24.2 32.3  8.9 15.6 22.2  7.5 17.0 24.5  15.8 27.0 34.2  Avoid b u i l d i n g o r buying a home w i t h e l e c t r i c heating  2x 3x 5x  27.0 32.7 38.3  22.2 26.7 26.7  20.8 24.5 32.1  27.6 33.6 38.2  SAMPLE SIZE - * **  250 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  *** ****  53 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 l e c t r i c i t y is price s e n s i t i v e .  Some 27 percent of  the respondents claim t h e i r consumption habits would not change i f the price of e l e c t r i c i t y doubled.  Some 73 percent would,  therefore, modify t h e i r consumption patterns, at least to some extent.  Under the conditions hypothesized in Case Two, a  t r i p l i n g in the p r i c e , only 15 percent would not reduce consumption and only 6.5 percent remain adamant when facing a price f i v e times the present l e v e l .  A similar pattern emerged when respondents were asked to r e f l e c t on their buying behavior (Table 6.3B) of new appliances, etc. When faced with an e l e c t r i c i t y price level two times the present l e v e l , some 40 percent of the respondents claimed this would not a l t e r their purchasing patterns. percent could s t i l l  However, only 15  claim this when the cost of e l e c t r i c i t y was  hypothesized to be f i v e times the present l e v e l .  In the face of price increases for e l e c t r i c i t y , a l l income groups reacted in e s s e n t i a l l y the same manner.  That i s , i n -  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 responded i n t h i s manner.  who  Specifically, a consistently smaller  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 habits" or "buying behavior".  "consumption  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 n e x t 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 vention policies.  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 the " 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 the 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 response i s zero. 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 increasing e l e c t r i c i t y price conditions.  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 cases under t h e d i f f e r e n t price intervention policies.  TABLE  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 Standard Deviation  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  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  Buying  Behavior  Minimum P o s s i b l e Response Maximum P o s s i b l e Response Mean Response Median Response Standard D e v i a t i o n  - 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  Habits  jg  Minimum P o s s i b l e Response Maximum P o s s i b l e Response Mean Response Median Response Standard Deviation  X  0.0 2^0  o!o95 o!o43  Q!O2  Buying Behavior Minimum P o s s i b l e Response Maximum P o s s i b l e Response Mean Response Median Response Standard Deviation  0.0 3^0  o!359 0.096  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 categorized according to the following c r i t e r i a . r e s p o n s e was termed "no r e s p o n s e " .  A z e r o (0)  A r e s 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 " .  Intensity of  r e 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 ( B u y 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 r e s p o n d e n t s found i n each o f t h e 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 -  TABLE 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 ) Under $6,000  $6,000$12,000  Over $12,000  44.4 37.6 20.0  30.2 30.2 39.7  30.9 27.6 41.4  15.6 35.5 48.9  13.2 28.3 58.5  12.5 28.9 58.5  15.6 22.2 62.3  13.2 7.6 79.2  12.5 17.1 70.4  P r i c e Change 2x No Response Moderate Response I n t e n s e Response P r i c e Change 3x No Response Moderate Response I n t e n s e Response  P r i c e Change 5x No Response Moderate Response I n t e n s e Response  62  TABLE  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 ) -  Under $6,000  $6,000$12,000  Over $12,000  P r i c e Change 2x No Response Moderate Response I n t e n s e Response  53.3 0.0 46.6  47.2 0.0 52.8  44.1 0.7 55.3  46.7 0.0 53.3  37.7 0.0 62.3  31.6 1.3 67.1  37.8 0.0 62.2  34.0 1.9 64.1  26.3 1.3 72.4  P r i c e Change 3x No Response Moderate Response I n t e n s e Response  P r i c e Change 5x No Response Moderate Response I n t e n s e Response  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.  This finding  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 f a c t , that, though the income e l a s t i c i t y of demand for e l e c t r i c i t y is low, there is some evidence that consumption rises s l i g h t l y as income i n creases.  (See Table 4.2.)  Low income people may, therefore,  be somewhat closer to e l e c t r i c subsistence than high income consumers.  Secondly, the saturation level of many appliances i s 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 w i l l i n g to give up the use of these appliances or t h e i r aspirations to possess more appliances.  T h i r d l y , 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.  L a s t l y , 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 electricity.  - 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 consumption 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 , 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  The data p r e s e n t e d  that decreases.  i n t h e 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 w o u l d 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 w o u l d 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 well.  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 very high percentage o f respondents 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  Habits" or  "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[TLPEB9^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 ) All Cases Consumption  Under $6,000  $6,000$12,000  Over $12,000  Habits  No change i n h a b i t s Use Luxury A p p l i a n c e s More Use High Energy A p p l i a n c e s More  90.7 8.5  84.4 11.1  84.9 9.4  89.5 7.9  2.8  4.4  3.8  2.0  87.1  93.3  79.2  83.6  6.9  4.4  9.4  6.6  3.2  2.2  5.7  2.6  10.9  4.4  7.5  13.2  Buying Behavior No change i n B u y i n g B e h a v i o r Would Purchase More Luxury Appliances Would Purchase L a r g e r , High Energy A p p l i a n c e s 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 Products  - 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 response.  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 .  TABLE  6.8  CONSUMPTION HABITS/BUYING BEHAVIOR "INTENSITY OF RESPONSE" BY INCOME GROUPS TO A SIMULATED PRICE REDUCTION OF FIFTY PERCENT  Consumption  Under $6,000  $6,000$12,000  Over $12,000  86.7 13.3  88.7 11.3  92.8 7.2  88.9 11.1  79.2 20.8  80.9 19.1  Habits  No Response Moderate Response  Buying Behavior No Response Moderate Response  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 consumption 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 r e d u c e d by as much as f i f t y p e r c e n t . some comment.  This f i n d i n g warrants  - 67 -  One explanation for this may l i e in the fact that e l e c t r i c 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 i r t u a l l y 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 t y p i c a l l y devices with low e l e c t r i c i t y consumption requirements.  T h i r d l y , the respondents may be aware of the environmental problems associated with e l e c t r i c i t y generation and d i s t r i bution and hence, concerned enough to feel their present consumption is adequate.  L a s t l y , part of the explanation may l i e in the r a t i o of fixed to variable costs.  The fixed costs, in this context, are those  charges for the purchase (and i n s t a l l a t i o n ) of a new appliance while the variable costs are the operating ( e l e c t r i c i t y )  costs.  Generally, the variable costs are low (in the short run) r e l a t i v e to the fixed costs.  Consequently, people are more  concerned with their a b i l i t y to absorb the fixed costs and are  - 68 -  l e s s concerned a n d / o r c o g n i z a n t o f the v a r i a b l e c o s t s .  Approximately  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 themselves w i t h the 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 purchase.  ( T a b l e 4.7 Chapter 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 the 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 w a t e r h e a t e r , and were not d i r e c t i n g t h e i r thoughts  to  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 energy form i n i s o l a t i o n from the o t h e r f u e l s which compete w i t h i t .  T o t a l household energy demand i s l a r g e l y comprised o f the 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  --  the 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 the 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 gas, o i l , c o a l o r propane.  - 69 -  Appliances such as ranges and, to a lesser extent, are also subject to interfuel competition.  refrigerators  Most other appliances  are dependent on e l e c t r i c i t y .  The demand for e l e c t r i c i t y then i s p a r t i a l l y a function of the price and a v a i l a b i l i t y of substitute fuels and the r e l a t i v e 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 l a t t e r two of which are, at best, only marginally s i g n i f i c a n t in meeting direct household energy demands) and concentrated their efforts on estimating the cross e l a s t i c i t y between e l e c t r i c i t y and natural gas.  Wilson (1971) found a r e l a t i v e l y high cross e l a s t i c i t y and Halvorsen (1972) a rather low e l a s t i c i t y c o e f f i c i e n t between e l e c t r i c i t y and natural gas.  The "natural gas cost" variable was not included in the present study, to explain the variation in e l e c t r i c i t y consumption. However, some subjective information on perceptions of subs t i t u t a b i l i t y was made available through the survey.  - 70 -  The questionnaire contained three options r e l a t i n g 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 l e c t r i c i t y to gas;  and (2) avoid building or buying a home with e l e c t r i c heating. Table 6.2, r e l a t i n g to a price reduction of 50 percent, records the t h i r d option:  switch from gas or o i l to e l e c t r i c a l  products.  Table 6.9 indicates the percentage of respondents who chose these options, by income group, under the different simulated price intervention p o l i c i e s .  Some 13.7 percent of a l l respondents would switch from elect r i c i t y to gas, where possible, i f the price of e l e c t r i c i t y were doubled;* some 24 percent would switch i f the price were t r i p l e d ; 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 ) P r i ce Change  All Cases  Under $6,000  $6,000$12,000  Over $12,00(  Where p o s s i b l e , s w i t c h from e l e c t r i c i t y t o gas  2x 3x 5x  13.7 24.2 32.7  8.9 15.6 22.2  7.5 17.0 24.5  15.8 27.0 34.0  Avoid b u i l d i n g o r buying a home w i t h e l e c t r i c heating  2x 3x 5x  27.0 32.7 38.3  22.2 26.7 26.7  20.8 24.5 32.1  27.6 33.6 38.2  10.9  4.4  7.5  13.2  S w i t c h from gas o r o i l to e l e c t r i c a l products  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 t h e 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  to incur  t h e s e new " f i x e d " c o s t s w i t h t h e 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 t h e 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  - 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 . There 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 econom 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 . r e a s o n must be r u l e d o u t on two grounds:  The  former  (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 found 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 because, 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 fuel type.  - 73 -  CHAPTER SEVEN §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 society.  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 a n d , 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 exists.  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 a t t e m p t e d t o d e t e r m i n e some o f t h e 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 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.  of  That 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*  Percentage  Number of Cases  5 1.83 1.27  Under 6,000 $6,000 - $12,000 Over $12,000  43 49 124  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 s e n s e . That i s , i f the household d e s i r e d to maintain present e l e c t r i c i t y consumption l e v e l s , then 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 t h e purchase 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 at l e a s t able to absorb the p r i c e increases.  Conversely, high  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 .  Across the board increases i n the cost 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 to e l e c t r i c i t y p u r c h a s e .  I f consumption were n o t 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 d e v o t e a l a r g e r s h a r e o f t h e i r income to 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 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 or w i l l i n g n e s s t o adjust e l e c t r i c i t y cons 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 sens i t i v e to price increases but not to price  decreases.  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 n o t 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 present  purposes  to note the general 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 remedial  measures).  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 maintaining  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 through t i m e , s h o u l d not 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 reduce t h e i r ,5  consumption.  THE DISTRIBUTION OF A REDUCTION IN DEMAND  P r e v i o u s l y we noted 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 price increases.  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 t i o n s f o r t h i s were advanced 6  A number o f e x p l a n -  i n Chapter S i x .  WILLINGNESS OR ABILITY TO SUBSTITUTE FUELS  E a r l i e r i t was noted 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 fuels.  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 i n s t a l l a t i o n 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 r e l a t i v e costs of various f u e l s , for s p e c i f i c residential uses; and secondly, subsidies or the a v a i l a b i l i t y of credit to low income people to enable them to change t h e i r f u e l .  It may also be necessary to encourage or coerce residential developers to i n s t a 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 s e s s m e n t 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 goals  and  efficiency criteria.  U n f o r t u n a t e l y , when we a t t e m p t 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 are 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  values.  Environment  The e n v i r o n m e n t a l  goal 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  d i s c u s s i o n and has two components.  present  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 the e n v i r o n m e n t .  Secondly,  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 the i n c i d e n c e o f the a s s o c i a t e d environmental  damages.  - 80  Allocative  -  Efficiency  The process of selecting one use for a resource rather than an alternative use i s termed a l l o c a t i o n .  Allocative  efficiency  i s the a l l o c a t i o n 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 i s s u f f i c i e n t to regard i t as a f a i r d i s t r i b u t i o n of the "good things", and one supposes, the "bad things" of our society whether that be income, wealth, goods and services or opportunity.  There i s a great deal of debate among economists over whether one includes equity, as well as e f f i c i e n c y considerations, in the pricing decision of goods and services; or whether one takes separate measures to handle the equity issue. thing however i s c l e a r .  One  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 w i l l 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 i s the declining block pricing system.  Figure 7.1 i s a simplified  i l l u s t r a t i o n of this scheme.  FIGURE  7.1  DECLINING BLOCK PRICING  Dollars  Kilowatt hours  From this i l l u s t r a t i o n i t can be seen that each successive block of power purchased is less c o s t l y .  This scheme i s based on narrow e f f i c i e n c y 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 - a l l o c a t i v e  efficiency.  - 82 -  M a r g i n a l c o s t i s d e f i n e d as w h a t e v e r amount the p r o d u c t i o n  of  one a d d i t i o n a l u n i t adds t o the t o t a l c o s t o f p r o d u c t i o n .  The  marginal  cost curve i s a diagramatic representation of cost over  a range o f o u t p u t .  (See F i g u r e  FIGURE  7.2.)  7.2  Dollars  Output I f the marginal  c o s t curve f o r the 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, t h a t the marginal Figure  7.3.)  however, i s  c o s t curve i s r i s i n g and not f a l l i n g .  (See  - 83 -  FIGURE  7.3  Dollars  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 claim that i t i s "promotional", 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 study do n o t s u p p o r t t h i s view. l o w e r c o s t s f o r e l e c t r i c i t y d i d n o t have a p r o m o t i o n a l among r e s i d e n t i a l consumers.  Simulated effect  T h i s , however, i s n o t n e c e s s a r i l y  the 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 increases. scheme.  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  - 84 -  FIGURE  7.4  INCREASING BLOCK RATES  Dollars  2x  lx  4500  9000  Kilowatt hours This scheme is generally advocated for two reasons:  (1) to  reduce e l e c t r i c i t y demand, and (2) to redistribute the costs of whatever power i s consumed from lower to upper income groups.  The v i t a l concerns which motivate this type of policy are environment and equity issues with a l l o c a t i v e e f f i c i e n c y of much less concern.  We have seen however, that the marginal cost curve i s r i s i n g , hence the increasing block pricing structure is l i k e l y consistent with our goal of a l l o c a t i v e  efficiency.  - 85 -  The i l l u s t r a t i o n (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 i s at the e l e c t r i c a l subsistence l e v e l .  The term " e l e c t r i c a l subsistence" is used, in this study, to denote the minimum annual household e l e c t r i c i t y consumption. This i s regarded as both possible and plausible.  The annual e l e c t r i c i a l 4000 kilowatt hours.  subsistence level for a household* is This figure has been determined from an  analysis of the e l e c t r i c i t y demands of an a r b i t r a r i l y l i s t of basic appliances.  Appliance Range Refrigerator - manual defrost Radio Iron Toaster Kettle Furnace Blower Lighting  selected  These appliances are:  Annual Kwh** 1200 720 50 50 35 125 600 1080 3860  * Assumes e l e c t r i c i t y is not used for water heating and home heating. **Based on appliance consumption reported by e f f o r t . ( E f f o r t , 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 is operating  t o t h e peak, t h e h i g h e r t h e e l e c t r i c i t y p r i c e s  that  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  h e r e 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  units,  the h o u s e h o l d consumes so l i t t l e e n e r g y t h a t i t would be unaware o f peak c o s t s .  Level  ( G o l d b e r g , 1972.)  Pricing  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 c h a r g e t h e 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.  FIGURE  7.5  LEVEL_PRICING  Dollars  Ix  |—  ;  K i l o w a t t hours  - 87 -  This scheme i s not concerned with equity or e f f i c i e n c y .  More-  over i t would only have a positive effect on our environmental goal i f the price were pegged s u f f i c i e n t l y high as to discourage consumption.  The effect of t h i s , would of course, be highly  inequitable.  Measures such as a r e d i s t r i b u t i o n of income would  have to be pursued to redress the imbalance.  Pricing Based on Income  The next alternative i s to devise a number of rates, one for each of the various socio-income groups in society.  Figure 7.6  i s a simplified i l l u s t r a t i o n of this scheme.  FIGURE  7.6  MULTI PRICING BASED ON INCOME  4x  applicable to over $20,000 class  3x  applicable to $15,000-$20,000 class  Dollars  applicable to $6,000-$15,000 class 2x  applicable to under $6,000 class  lx Kilowatt hours  - 88 -  This scheme is highly equitable but not concerned with a l l o c a t i v e efficiency.  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 t u a l l y nothing for t h e i r power and high income people would pay rates  reflecting  t h e i r 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 i n a l alternative to be considered i s termed the goalsoriented package.  E s s e n t i a l l y , i t is a pricing scheme which  r e f l e c t s a l l costs of generating and d i s t r i b u t i n g e l e c t r i c i t y and i s structured in such a way as to achieve our goal of allocative efficiency.  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 i k e l y to be inequitable.  other essential aspect of the goals-oriented package is the redistribution of income through income tax p o l i c y .  The  - 89 -  Non-Price  Alternatives  L a s t l y , i f we a r e n a r r o w l y concerned w i t h e q u i t y as a r e s u l t o f e n e 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 goal.  One a l t e r n a t i v e i s t o p r o v i d e e n e r g y s u b s i d i e s t o low income people.  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 s y s t e m  o f e n e r g y c r e d i t s t o be used t o reduce t a x a b l e income. 7.8  CONCLUSION  T a b l e 7.2 summarizes t h e 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 three goals.  TABLE  7.2  IMPACT OF PRICING POLICIES ON GOALS Equity D e c l i n i n g Block Price Increasing Block Price Level P r i c e P r i c e Based on Income Goals-Oriented Package + N  Ecology  Allocative Efficiency  ?  +  +  +  +  +  +  Positive effect E f f e c t Unknown/Depends on Rates  N  Negative e f f e c t Uncertain  +  - 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 r u n 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 p r o b l e m 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 not 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 b r o u g h t t o b e 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 less concern.  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 s e c o n 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 are c o n s i s t e n t with our environmental goal.  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 .  Only  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  -  BIBLIOGRAPHY  Adams, I . , W. Cameron, B. H i l l and P. Penz (1971). R e p o r t . Edmonton: M. G. H u r t i g L t d .  The Real P o v e r t y  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 M o n i c a : 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 . and Company, I n c .  New York:  W. W. Norton  Canada, Department o f E n e r g y , 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). Ottawa: Queens P r i n t e r .  Household E x p e n d i t u r e P a t t e r n s ,  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 C a n a d i a n Energy S i t u a t i o n " . Unpublished. Prepared f o r the Conference 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. M c G r a w - H i l l Co.  New York:  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 the 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 R e s o u r c e s F o r 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 Corp 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 e o r y . Century - Crofts.  New York:  Appleton -  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 l u m b i a , 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 t h e U n i t e d S t a t e s . Amsterdam: N o r t h Holland.  - 93 -  /  Freeman, S. D a v i d (1974). Books.  G a l b r a i t h , J . K. (1958).  Energy:  The New E r a .  The A f f l u e n t S o c i e t y .  New York:  Toronto:  Vintage  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 Columbia, 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 Columbia, 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:  Torch Library.  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). Toronto Press.  The Vertical Mosaic.  Rescher, Nicholas (1967). Merrill.  Toronto:  Distributive J u s t i c e .  University of  Indianapolis:  Bobbs-  Taylor, L. D. (1975). "The Demand For E l e c t r i c i t y : A Survey". The' Bell Journal of Economics and Management Science. Vol. 6, No. 1: 74-111.  Tybout, Richard (1973). " E l e c t r i c 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 l e c t r i c i t y " . Quarterly Review Of Economics arid Business. Vol. I I , No. 1: 7-22.  iv  - 95 -  APPENDIX I IdE_QUESTigNNAIRE  96 GENERAL  INFORMATION  Number o f persons  i n household  Number of rooms i n d w e l l i n g How l o n g have you l i v e d a t t h i s  address?  2 years or l e s s  2 to 5 years  5 t o 10 y e a r s  more than 10 y e a r s  ELECTRIC APPLIANCES AND PRODUCTS P l e a s e i n d i c a t e which o f the f o l l o w i n g e l e c t r i c a p p l i a n c e s you have i n your home. Kitchen  Water H e a t i n g Dishwasher  Gas  Range  Electric  gas Home H e a t i n g  electric s e l f - c l e a n oven  Gas  Garbage d i s p o s a l  Oil  E l e c t r i c carving knife  Electric  E l e c t r i c can opener Laundry  Comfort E l e c t r i c blanket  Dryer  Sun  Iron  lamp  Space h e a t e r  Washer - automatic P e r s o n a l Grooming  Washer - w r i n g e r Food  Hair dryer  Storape  Hair  Refrigerator .  manual d e f r o s t auto o r f r o s t  free  Freezer Entertainment Television  _____  setter  Electric  toothbrush  Electric  shaver  Portables Coffee percolator Corn popper  colour  Fry pan  b l a c k and w h i t e  Deep f r y e r  Radio  Kettle  H i - f i or stereo  Mixer  Tape r e c o r d e r  Blender Toaster Waffle Iron  - 97 Outdoors and Homeshop  Lighting  Air  Incandescent  Electric  Fluorescent  E l e c t r i c saw  Conditioning -  lavmmower  Electric  drill  Electric  sander  Central Other  Room  Clock Sewing machine  (  Vacuum c l e a n e r Floor polisher  III.  ARE YOU AWARE OF HOW MUCH ELECTRICITY YOU CONSUME EACH MONTH: In dollars  No  In Kilowatt-hours  '  T o t a l hydro b i l l  IV.  No  WHEN CONSIDERING THE PURCHASE OF A NEW ELECTRICAL APPLIANCE OR PRODUCT, DO YOU FAMILIARIZE YOURSELF WITH ITS OPERATING COSTS: Yes  V.  No  No  CASE 1: WHAT WOULD BE YOUR REACTION IF THE PRICE OF ELECTRICITY DOUBLED? HOW WOULD YOU RESPOND? Consumption H a b i t s  Buying Behaviour  no change i n use  no change i n b u y i n g  b e g i n t o t u r n outunnecessary lights  purchase fewer l u x u r y  cut down a l i t t l e on use o f luxury appliances 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 cease u s i n g non b a s i c appliances altogether could not a f f o r d t h i s p r i c e i n c r e a s e - would have t o c u t down purchases i n o t h e r areas  cease p u r c h a s i n g b a s i c appliances  behaviour appliances  h i g h energy non-  purchase s m a l l e r , more energy e f f i c i e n t appliances where p o s s i b l e s w i t c h e l e c t r i c i t y t o gas  from  improve i n s u l a t i o n i n home t o save money s w i t c h from i n c a n d e s c e n t t o fluorescent lighting a v o i d b u i l d i n g or b u y i n g e l e c t r i c heating  a home w i t h  - 98 CASE 2: WHAT WOULD BE YOUR REACTION IF THE PRICE OF ELECTRICITY TRIPLED? HOW WOULD YOU RESPOND? Consumption Habits  Buying Behaviour  no change in use  no change in buying behaviour  begin to turn out unnecessary lights  purchase fewer luxury appliances  ______ 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  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 IF THE PRICE OF ELECTRICITY WERE REDUCED TO HALF WHAT IT ISNOW? Consumption Habits  Buying Behaviour  use luxury appliances more  no change in buying behaviour  use high energy appliances more  would purchase more luxury appliances  no change i n habits  would purchase larger high energy appliances switch from gas or o i l to electrical products  - 99 -  CASE 4: HOW WOULD YOU RESPOND IF THEPRICE OF ELECTRICITY WERE FIVE TIMES WHAT IT IS NOW? Consumption Habits  Buying Behaviour  no change i n use  no change i n buying  begin to turn out unnecessary lights  purchase fewer luxury appliances  ______ 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 t h i s p r i c e increase - would have to cut dorm purchases i n other areas  behaviour  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  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  -  APPENDIX I I __L_L_I__Y_AREAS (map  in pocket)  AREA ONE  Median H o u s e h o l d Income $6,000  AREA TWO  Median H o u s e h o l d Income $9,000  AREA THREE  Median H o u s e h o l d Income $12,000  AREA FOUR  Median H o u s e h o l d Income $15,000  AREA FIVE  Median H o u s e h o l d Income Over $15,000  Median H o u s e h o l d Income Based on 1971 Census Data  - 101 -  APPENDIX 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 p r o b l e m 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 t h e low income g r o u p s .  Rather  than a p r o b l e m w i t h t h e methodology, t h i s i s a p r o b l e m 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 t s 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 this direction.  The o t h e r p r o b l e m I w i s h t o d i s c u s s i s t h e 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 . I u n d e r e s t i m a t e d incomes.  Again, i n r e t r o s p e c t , i t i s clear  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 t h e c a t e g o r y " o v e r $15,000".  Those  h o u s e h o l d s 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 . s h o u l d be e x t e n d e d .  In f u t u r e s t u d i e s , t h e income c a t e g o r i e s  E n g . 3 0 9 - M L H 73  STREET FOB  STREETS  WITHIN  INDEX  VANCOUVER  CITY  LIMITS  

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