Transcript 20060509theory-and-p..

THEORY AND PRACTICE OF PUBLIC
UTILITY POLICY OF WATER,
ELECTRIC POWER AND CITY GAS:
THE TAIWAN EXPERIENCE
GEORGE J.Y. HSU
DIRECTOR, CENTER FOR INDUSTRIAL DEVELOPMENT RESEARCH
PROFESSOR, DEPARTMENT OF MANAGEMENT INFORMATION SYSTEMS
PROFESSOR, DEPARTMENT OF APPLIED ECONOMICS
NATIONAL CHUNG HSING UNIVERSITY, TAICHUNG, TAIWAN
2006 .05. 09
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Ⅰ. Introduction
A. Role and Importance of the Public Utility
B. Significance of the Public Utility Policy
C. Studied Scope
1) The Core Value of Public Utilities
2) Supply Planning of the Public Utility
3) Demand Management of the Public Utility
4) Utility Pricing Policy and Regulation
5) Utility Deregulation Policy
6) Future Perspectives of the Utility Policy
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Ⅱ. The Core Value of Public Utilities
A. Option Demand /Value—a non-use value, a
potential value, an external economy
B. Anytime Option—always reliable; instantly
available
C. Anywhere Option—all those pipes/wires and
meters coverage areas
D. Any Amount Affordable—due to stable tariffs and
depend on the consumer’s budget constraint,
energy conservation consciousness, lifestyle and
weather conditions
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Ⅱ. The Core Value of Public Utilities
E. Outage Cost Very High (Reflecting the Loss of
Option Demand and Option Value)
F. Shadow Price (Marginal Utility) Very High During
Shortage
G. Shadow Price (Marginal Utility) Close/Equal to
Zero When Abundant
H. Marginal Cost Normally Very Low (Reserve
Margin Is Very Important)
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Ⅲ. Supply Planning of the Public Utility
A. Attributes of the Utility Supply
1) Natural Monopoly (AC Decreases When Scale
Increases), i.e. Economy of Scale
2) Capital-Intensive (e.g. Electric Utility Alone Represents
More Than 30% of the Total Capital Formation in
Developing Countries)
3) Supply Is Subject to Meet the Needs of Demand
(Reserve Margin Needed)
4) Long-term Planning with Significant Lead Time
5) Large Land Requirement (Social Capital Assets Utilized
for Piping Networks)
6) Electric Power: Multi-inputs for Producing A Single and
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Homogeneous Output
Ⅲ. Supply Planning of the Public Utility
B. Evaluation of the Feasibility of Supply
Alternatives
1) Technical Feasibility
2) Economic Feasibility
3) Financial Feasibility
4) Environmental Feasibility
5) The General Public’s Acceptance Feasibility
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Ⅲ. Supply Planning of the Public Utility
C. Key Concepts of Public Utility Economics
1) Economic Cost vs. Accounting Cost of Supply
Alternatives
2) Economics of Single Alternative vs. Economics of the
Whole System vs. Economics of the Nation
3) Optimization (Global Optimization) vs. Simulation
(Local Optimization) for Supply Alternatives
4) NPV vs. BCA vs. IRR of Supply Alternatives
5) Environmental Cost and Others External Costs
(Direct/Indirect, Plant on-site/off-site,
Tangible/Intangible)
6) Benefits Should Be Also Considered
7) Importance of Option Demand and Option Value
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Ⅲ. Supply Planning of the Public Utility
D. Taiwan’s Experience
1) Least-Cost Planning Approach
2) Ad hoc Review Committee for Supply Alternatives
Selection (e.g. Power Generation Alternatives)
3) Environmental Concerns Highly Increased (e.g.
Kyoto Protocol on CO2 Emission and Circulationtype of Resource Uses, and WEEE, RoHS, EUP)
4) Nuclear, Coal-fired and Hydro Power Plants Not
Easily Accepted by the Environmentalists and the
General Public
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Ⅲ. Supply Planning of the Public Utility
D. Taiwan’s Experience
5) Renewable Power Generation Being Promoted by Laws
and Government’s Measures
6) LNG Power Plant Also Exists Problems, e.g. Storage
Terminals and Piping Transmission
7) Water Shortages Occasionally Happened and Causes
Great Social and Political Concerns
8) 25 City Gas Utility Companies are not Enough
Economy-of-Scale
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Ⅳ.Demand Management of the Public Utility
A. Attributes of the Utility Demand
1) Collective Consumption
2) Inelasticity of Demand
3) Market Segmentation by Piping (e.g. Voltages or
Pressures) and Meters
4) Derived Demand Normally Greater Than Final
Demand (e.g. Taiwan’s Experience)
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Ⅳ.Demand Management of the Public Utility
B. Economics of Outage Cost
B. Importance of Outage Cost
C. Economic Meanings of Outage Cost (Social Cost,
Shadow Price and WTP)
D. TC (Total Cost) = SC (Supply Cost) + OC (Outage
Cost)
E. Diagram of the Above Equation
F. Types of Outage Cost
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Ⅳ.Demand Management of the Public Utility
C. Demand-Side Management (DSM)
1. Economic Meaning of DSM (Industries, Processes, Enduses; Households, Activities, End-uses)
2. Objectives of DSM
3. Alternatives of DSM (e.g. Electric Power TOU Rate,
Seasonal Rate, Interruptible/Curtailable Rate, Direct
Rebate, Commercial Advertisement, Education, ESCo.
etc.)
4. Evaluation/Selection of DSM Alternatives
5. Enforcement of DSM
6. Evaluation/Adjustment of DSM Program
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Ⅳ.Demand Management of the Public Utility
D. Taiwan’s Experience
1) TOU Power Rate
2) Seasonal Power Rate
3) 7 Types of Interruptible/Curtailable Power Rate
4) Air-Conditioning Ice-Cooling Storages and Heat Pumps
5) Significant Amount of Cogeneration
6) Fuel Cells under Promotion
7) ESco Being Encouraged
8) Education and Promotion on Energy/Water
Conservation, e.g. Conservation Ideas/Pictures/Figures
Printed on the Electricity and Water Bi-Monthly Bills
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Ⅴ. Utility Pricing Policy and Regulation
A. Impacts and Principles of Utility Pricing
1) Impacts of Utility Pricing on Social-Economic
Development
 Welfare of the general public
 The development of Rural Areas
 The competitiveness of Industries
 The fiscal situation of governments for those state-
owned utilities.
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Ⅴ. Utility Pricing Policy and Regulation
A. Impacts and Principles of Utility Pricing
2) Principles for Setting Utility Tariffs
 Economic efficiency
 Fairness among consumer groups
 Fair rate of return for the utility
 Other social-economic objectives (e.g. discount rates for
military, rural or power plant-site consumers).
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Ⅴ. Utility Pricing Policy and Regulation
B. Pricing Models of a Natural Monopolist
1) MC = MR (Profit max)
2) MC = P (welfare max)
3) AC = P (fair return)
4) Second Best Pricing (Ramsey pricing)(Cost-plus
Pricing)
5) “Price-cap” Method
6) Most Utility Policies Adopt “Cost-plus” Regulatory
Scheme
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Ⅴ. Utility Pricing Policy and Regulation
C. Problems of Cost-Plus Pricing
1) Allocative Inefficiency (MC not equal to P)
2) Technical Inefficiency (eg. A-J Effect)
3) X-inefficiency
4) Moral Hazard
5) Adverse Selection
6) Incentive Compatibility Needed
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Ⅴ. Utility Pricing Policy and Regulation
D. Utility Tariffs in Practice
Industrial Users
1) Two-Part Tariff

Capacity charge (and customer charge)
 Flow charge
 Peak-load vs. off peak-load pricing (time of use; TOU)
2) Residential Users

Single charge
 Accumulated increasing block rates (for conservation and
“distributive justice” of the low income groups)
3) Interruptible and curtailable rates for specific users
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Ⅴ. Utility Pricing Policy and Regulation
E. Taiwan Experience
1)
Cost-plus Regulation
 Administrative control and implemented measures by
MOEA
 “Prudent review” procedures
 “Used and useful” accounting principle
 Accumulated increasing block rates of electric utility
supply
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Ⅴ. Utility Pricing Policy and Regulation
E. Taiwan Experience
2) Examples of Electric Utility Policy
 IPP
 Cogeneration
 Renewable power generation
 Deregulation: ISO, PX, and three majors markets,
including whole sale generation power market,
transmission congestion management market, ancillary
services (12 kinds) market.
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Ⅵ. Utility Deregulation Policy
A. Problems of Regulation
1) Regulation Deprivation
2) Regulation Captive
3) Regulation Misleading
 Due to the long “lead-time” with unforeseeable future
and causing over-supply or under-supply of the utility
capacity
 Due to the political or non-professional intervenes
4)
Captive Customers Shouldering All Investment
Risks and Costs
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Ⅵ. Utility Deregulation Policy
B. “Digital Revolution” Accelerating the Pace
of Deregulation
Internal and External Information/Transaction
Cost Down Significantly
2) “Unbundling” the Value-Chain of the Utility
Supply Industry
3) Segmenting the Market Components between
Contestable Ones and Monopoly Ones
1)
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Ⅵ. Utility Deregulation Policy
B. “Digital Revolution” Accelerating the Pace
of Deregulation
4) Competition Mechanism for the Market
Components with Contestability Attribute(No More
Price and Quantity Regulation, and Focusing on
“Fair Trade” Regulation)
5) Government’s Price and Quantity Regulation on
the Market Components with Natural Monopoly
Attribute(the Network of Transmission and
Distribution)
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Ⅶ. Future Perspectives of the Utility Policy
A. The Trend of Market Liberalization Policy Is the
B.
C.
D.
E.
F.
Mainstream: Every Economy Is Pursuing the
Maximum Efficiency
From Supply-oriented to DSM in Regulated Market
From Supply-oriented to Demand Response in
Deregulated Market
From State-owned to Privatization
From Economy-of-Scale to Economy-of-Scope
From Capital-intensive to Knowledge-Intensive
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Ⅶ. Future Perspectives of the Utility Policy
G. The Rise of Soft-path Resolution(e.g. Renewable
Energy) for Environmental Protection
H. The Circulation-type of Resource Uses Due to
International Environmental
Protocols/Directives(Kyoto, WEEE, RoHS, EUP)
I. The Rise of Distributive Utilities and Multi-Utilities
for More Option Demand/Value
J. The Need of A Better Integrated Policy Planning,
Enforcement and Evaluation(e.g. SCM &CRM
Implementation, ex ante and ex post BCA, and the
General Public Communication) for More
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Satisfaction of the Consumers
THANK YOU!
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