The Distributional Incidence of Residential Water and Electricity Subsidies

Subsidies to residential utility customers are popular among policymakers, utility managers, and utility customers alike, but they are nonetheless the subject of much controversy. Utility subsidies are seen as a way to help make utility service affordable for poor households and as an alternative me...

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Bibliographic Details
Main Authors:	Komives, Kristin, Halpern, Jonathan, Foster, Vivien, Wodon, Quentin, Abdullah, Roohi
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ADVERSE CONSEQUENCES ADVERSE EFFECTS APPROACH BLOCK TARIFFS CONNECTED HOUSEHOLDS CONNECTION CONNECTION CHARGE CONNECTION CHARGES CONNECTION RATE CONNECTION SUBSIDY CONNECTIONS CONSUMER BEHAVIOR CONSUMERS CONSUMPTION INCREASES CONSUMPTION LEVELS COST RECOVERY CUBIC METER CUBIC METERS CUBIC METERS OF WATER CUBIC METERS PER MONTH DISTRIBUTION OF BENEFITS ELECTRICITY ELECTRICITY CONSUMPTION ELECTRICITY PRICES ELECTRICITY TARIFF ELECTRICITY TARIFFS ELECTRICITY UTILITIES EMPLOYMENT ENERGY SOURCES ESP FINANCIAL VIABILITY FIXED CHARGE FIXED CHARGES GRID EXTENSION HIGH-VOLUME CONSUMERS HOUSEHOLDS INCOME INEFFICIENCY KILOWATT-HOURS MAINTENANCE COSTS METERING MONTHLY CHARGE PAYMENT OF BILLS PER CAPITA INCOMES PERFORMANCE INDICATORS POWER PRICE SUBSIDIES PRICE SUBSIDY PUBLIC TAP PUBLIC TAPS PUBLIC WATER QUANTITY OF WATER RESIDENTIAL CUSTOMERS RESIDENTIAL WATER SENSITIVITY ANALYSIS SERVICE PROVISION SERVICE QUALITY SOFT BUDGET CONSTRAINTS TARIFF STRUCTURE TARIFF STRUCTURES UNDERESTIMATES URBAN AREA USE OF WATER USERS UTILITIES UTILITY BILL UTILITY MANAGERS UTILITY OPERATIONS UTILITY PAYMENTS UTILITY POLICY UTILITY SERVICES VOLTAGE VOLUMETRIC CHARGE WATER CONSUMPTION WATER DEPARTMENT WATER DISTRIBUTION WATER DISTRIBUTION NETWORK WATER SECTOR WATER SERVICE WATER SERVICES WATER SUBSIDY WATER SUPPLY WATER TARIFFS WATER UTILITIES
Online Access:	http://documents.worldbank.org/curated/en/2006/04/6708395/distributional-incidence-residential-water-electricity-subsidies http://hdl.handle.net/10986/8731

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Summary:	Subsidies to residential utility customers are popular among policymakers, utility managers, and utility customers alike, but they are nonetheless the subject of much controversy. Utility subsidies are seen as a way to help make utility service affordable for poor households and as an alternative mechanism for income redistribution. These arguments in favor of subsidies are countered by serious concerns about their adverse effects on consumer behavior, utility operations, and the financial health of utilities. Both the affordability and redistributive arguments for subsidies are based on the presumption that poor households benefit disproportionately from water and electricity subsidies, that they are well-targeted to the poor. The authors test this assumption by examining the extent to which the poor benefit from consumption and connection subsidies for water and electricity services. Their analysis of a wide range of subsidy models from around the developing world shows that the most common form of utility subsidy-quantity-based subsidies delivered through the tariff structure-are highly regressive. Geographically targeted or means-tested subsidies do better, and in many cases have a progressive incidence, but large numbers of poor households remain excluded. Low levels of coverage and metering severely limit the effectiveness of consumption subsidy schemes to reach the poor. Simulations suggest that connection subsidies are an attractive alternative for low coverage areas, but only if utilities have the means and motivation to extend network access to poor households and only if those households choose to connect.

The Distributional Incidence of Residential Water and Electricity Subsidies

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