Electricity Prices and the Poor

What Are the Effects and What Can We Do?

by Jan Paul Acton

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Energy prices have risen faster than consumer prices in general and faster than incomes during the 1970s. Poorer households may have been particularly adversely affected if they have little price responsiveness. The paper explores the evidence of responsiveness to changes in electricity prices among low income households and households using below-average amounts of electricity. Such customers are found to have lower price elasticity of demand, so that price rises are taken mainly out of disposable income. The paper reviews the Los Angeles experience with a lifeline electricity rate for low income senior citizens. The program provided relief from rapidly rising prices without destroying the efficiency gains generally associated with market-clearing prices.

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