Cross-subsidization and a reverse Averch-Johnson model of regulation: a case study of gas- and electric-utility involvement in residential energy conservation

Thesis/Dissertation · Thu Dec 31 23:00:00 EST 1981

OSTI ID:5658239

Parsons, S G

Many existing utility energy-conservation programs may fail the rate-payer subsidy-free test and/or represent a decline in consumer welfare. The federal government should reevaluate their utility home-energy-audit requirements under NECPA and utilities themselves should reexamine the cost-effectiveness of their conservation programs. The Averch-Johnson (A-J) model of the regulated firm is modified here by relaxing their assumption that the utility's rate of return(s) must exceed the cost of capital (r). This variant is termed the reverse A-J model and three utility responses to r > s are identified. First, the firm may under-capitalize. Second, the utility may adopt an expense preference accounting methodology whereby a greater proportion of costs are expensed. Or third, the utility may encourage energy conservation to eliminate or delay the need for new capacity. Evidence is presented which indicates that the cost of capital has indeed risen above the rate of return for utilities during the last decade. Interviews with utility personnel tended to substantiate the expense preference hypothesis. In addition, it was found that utilities with lower rates of return were more likely to engage in energy-conservation activities. All statistically significant findings supported the reverse Averch-Johnson theory.

• OSTI ID: 5658239
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
291000* -- Energy Planning & Policy-- Conservation
294003 -- Energy Planning & Policy-- Natural Gas
296000 -- Energy Planning & Policy-- Electric Power
CAPITAL
ELECTRIC UTILITIES
ENERGY CONSERVATION
FINANCIAL INCENTIVES
GAS UTILITIES
INCOME
PUBLIC UTILITIES