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Trend of Utility Affordability and Impacts of State Utility Concessions in Victoria

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Trend of Utility Affordability and Impacts of State Utility Concessions in Victoria

  1. 1. Trend of Utility Affordability and Impacts of State Utility Concessions in Victoria PhD(Public Policy) (work in progress) Crawford PhD Conference 2013 4 November 2013 Noel Wai Wah CHAN Supervisor panel: Prof. Quentin Grafton, Dr Hoa Nguyen, Dr Karen Hussey, Prof Michael Ward (advisor), Dr David Stanton (advisor)
  2. 2. Presentation outline • • • • • • Background Research Questions Theoretical Framework Data and methodology Preliminary results Limitations & what’s next? 2
  3. 3. Background 3
  4. 4. Water price trends Note: Consumer price index water and sewerage series, deflated by the consumer price index for all groups at major Australian cities. Source: ABS, Consumer price index, Cat. No. 6401.0 4
  5. 5. Electricity price trends Note: Consumer price index electricity series, deflated by the consumer price index for all groups at major Australian cities. Source: ABS, Consumer price index, Cat. No. 6401.0 5
  6. 6. Gas price trends Note: Consumer price index gas series, deflated by the consumer price index for all groups at major Australian cities. Source: ABS, Consumer price index, Cat. No. 6401.0 6
  7. 7. Change of real price index (1998 to 2013) Water Electricity Gas Sydney 42% 102% 65% Melbourne 71% 72% 50% Brisbane 85% 71% 80% Adelaide 62% 96% 69% Perth 33% 24% 86% Hobart 33% 66% 32% Darwin 111% 44% 31% Canberra 88% 73% 69% Australia 59% 78% 60% Note: Consumer price index, deflated by the consumer price index for all groups at major Australian cities. Source: ABS, Consumer price index, Cat. No. 6401.0 7
  8. 8. Distribution of water and energy expenses among Australian households (2009-10) Household Income Quintile Q1 Mean gross household income per week (AUD$) 367 Q2 785 Q3 1327 Q4 2,024 Q5 3,937 Average 1,688 Energy supply – domestic fuel and power (includes purchase of wood, heating oil etc) 2009-10 $/week 22.34 28.11 31.44 36.55 44.21 32.52 4.00 3.45 2.69 2.47 2.05 2.63 $/week 4.89 6.32 7.97 9.53 12.26 8.19 % expenditure 0.87 0.78 0.68 0.64 0.57 0.66 27.23 34.43 39.41 46.08 56.47 40.71 4.87 4.23 3.37 3.11 2.62 3.29 % expenditure Water and sewage service 2009-10 Total energy and water 2009-10 $/week % expenditure Source: ABS Household Expenditure Survey (2011) 8
  9. 9. Victoria State utility concession policy 9
  10. 10. Victoria State utility concession policy Water concession Energy concession Main and non-main water concession - 50% on water consumption, sewerage disposal and service charge up to a maximum annual cap • • • • • • • Annual Energy Concession Winter Energy Concession Off-peak concession Service to Property Concession Medical Cooling Concession Life support concession Electricity Transfer concession 10
  11. 11. Research Questions • What is the trend of utility affordability? Increasing, decreasing, or unchanged? • Who are the vulnerable groups with risk of utility affordability problem? • What are the impacts of State utility concession to address utility affordability problem? • Whether the utility concession policy effectively target the vulnerable groups? 11
  12. 12. Theoretical Framework: Affordability analysis • Affordability Utility-burden ratio (rh) (OECD 2003) – Actual expenditure as a proportion of household income • ‘Excessive burden’ if its expenditure share for utilities exceed the critical ‘burden-threshold’ level r u • Head count index (HI) is the fraction of households with rh ≥ r u where N is the total number of households, 1(.) equals one if its argument is true, zero otherwise 12
  13. 13. Theoretical Framework - Benchmark • UK Affordability benchmark – 3% for water (Breisach 2004; DEFRA 2012) – 10 % for energy (electricity and gas) (Boardman 1991; Fankhauser and Tepic 2007) – 13% for utility (total water and energy) • Bottom 40% of the income distribution (equivalised disposable household income) (Harding 2004) – Exclude non-poor households who consume large amount of water and energy (i.e. over-consumption) 13
  14. 14. Theoretical Framework: Evaluation of Concession policy (i) Change of utility burden ratio for concession HHs (ii) Targeting analysis (Sumarto and Suryahadi 2001) Utility burden ratio and Poverty status High utility burden & Low utility burden poor household ratio / non-poor (bottom 40% of income household distribution) Concession State utility concession program HHs Success targeting Inclusion error (leakage) Non-Concession Exclusion error HHs (under-coverage) Success exclusion 14
  15. 15. Data • 2001 & 2007 Victorian Utility Consumption Household Surveys • 2013 data - adjusted from 2007 data • Derived Gross Household Income • Disposable Household Income • Equivalisation process (OECD modified scale) – Assigns a value of 1 to the household head, of 0.5 to each additional adult member and of 0.3 of each child. 15
  16. 16. Preliminary Results 16
  17. 17. Trend of utility affordability – Disposable household income Utility burden Distribution of Utility burden (water and energy), under Disposal Household income 0.18 0.16 0.14 0.12 0.10 0.08 0.06 0.04 0.02 0.00 2001 2007 2013 (lower bound) 2013 (upper bound) 1 2 3 4 5 6 Income decile 7 8 9 10 17
  18. 18. Trend of utility affordability – Equivalised income Distribution of Utility burden (water and energy), Under Disposal household income in OECD modified scale 0.25 2001 2007 Utility burden 0.20 2013 (lower bound) 0.15 2013 (upper bound) 0.10 0.05 0.00 1 2 3 4 5 6 7 8 9 10 Income decile 18
  19. 19. Decomposition of households in utility affordability stress % Households in utility stress (2006/07) – Melbourne vs Rural Victoria Melbourne Regional Average HH income (AUD) 32,737 31,693 Average water burden ratio Average energy burden ratio Average utility burden ratio 0.019 0.061 0.078 0.022 0.057 0.077 % of HH with wburden >=3% % of HH with eburden >=10% % of HH with uburden >=13% 19.6% 12.3% 12.7% 25.2% 9.6% 9.3% • • HH under bottom 40% of income distribution, All computation is based on equivalised disposable household income (2006/07) 19
  20. 20. % Households in utility stress – by family type (2006/07) Couple only Average HH income (AUD) Couple w/ children Single parent Lone Person Group HH 21,713 21,185 17,064 19,399 20,653 Average utility burden ratio 0.118 0.120 0.136 0.084 0.119 Average water burden ratio 0.030 0.029 0.032 0.025 0.029 Average energy burden ratio 0.089 0.092 0.107 0.063 0.092 36.6% 40.4% 43.1% 38.3% 42.6% 25.0% 37.4% 41.7% 10.3% 32.0% 23.1% 35.3% 45.0% 12.5% 39.9% % of HH with wburden >=3% % of HH with eburden >=10% % of HH with uburden >=13% • • HH under bottom 40% of income distribution, All computation is based on equivalised disposable household income (2006/07) 20
  21. 21. % Households in utility stress – by tenure type (2006/07) Owner outwright Purchaser Private renter Public renter 19,959 21,019 20,331 20,460 Average water burden ratio 0.113 0.029 0.127 0.033 0.090 0.019 0.078 0.020 Average energy burden ratio 0.084 0.094 0.077 0.064 36.1% 41.6% 42.7% 47.3% 23.4% 33.1% 27.4% 17.6% 26.4% 34.6% 20.1% 20.4% Average HH income (AUD) Average utility burden ratio % of HH with wburden >=3% % of HH with eburden >=10% % of HH with uburden >=13% • • HH under bottom 40% of income distribution, All computation is based on equivalised disposable household income (2006/07) 21
  22. 22. % Households in utility stress – by concession type Aged Concession Non-aged concession All Concession Nonconcession 20,789 20,227 20,491 20,083 Average utility burden ratio 0.084 0.103 0.094 0.123 Average water burden ratio 0.024 0.026 0.025 0.031 Average energy burden ratio 0.062 0.081 0.072 0.094 % of HH with wburden >=3% 31.2% 40.1% 35.9% 42.7% % of HH with eburden >=10% 9.7% 26.2% 18.4% 32.7% % of HH with uburden >=13% 12.3% 25.8% 19.5% 33.3% Average HH income (AUD) • • HH under bottom 40% of income distribution, All computation is based on equivalised disposable household income (2006/07) 22
  23. 23. Summary findings • Decreasing trend of utility burden (across all household income deciles) • bottom 40% households has high utility burden in 2001 • Within the bottom 40% income distribution, larger proportion of certain HH types with utility affordability stress Water affordability stress Fuel affordability stress Utility affordability stress Melbourne vs rural Rural HH Melb HH Melb HH Family type Single parent Single parent Single parent Tenure type Public renter Purchaser Purchaser Concession type Non-concession Non-concession Non-concession 23
  24. 24. Evaluation of Concession policy Reduction of utility expenditure and utility burden for concession households Water expenditure and water burden (hhwatcon=1) Variable Obs Weight Mean wsbill wsbillwcon wsburden4 wsburdenwc4 932 932 932 932 711442 711442 711442 711442 540.3475 396.0082 .0136241 .0097458 Std. Dev. 221.1929 208.8816 .0099476 .0078371 Min Max 13.2 6.6 .0005648 .0002824 1431.1 1389.3 .0704651 .0585774 Energy expenditure and energy burden (hhegcon=1) Variable Obs Weight Mean egbill egbillwcon egburden4 egburdenwc4 1412 1412 1412 1412 1140390 1140390 1140390 1140390 1548.548 1438.286 .0358428 .0330528 Std. Dev. 653.1013 629.6529 .0246499 .0229791 Min Max 180.4 58.3 .0044544 .0026638 8606.4 8390.8 .3897325 .3833695 . 24
  25. 25. Target analysis of State concessions Distribution of utility concession beneficial across income quintiles (2006) Concession coverage (%) Among HH in different income quintile Water concession Energy concession Q3 Q4 Q5 (Q3 to Q5) Q1 to Q2 (Q2 to Q5) Q1 Overall Utility concession Q2 Ratio non-poor to poor Q1 66.8% 69.3% 75.0% 76.5% 62.7% 49.3% 0.87 0.95 40.0% 46.1% 47.9% 45.9% 35.3% 24.0% 0.75 0.83 64.2% 65.3% 72.5% 73.6% 60.1% 48.3% 0.88 0.98 25
  26. 26. Evaluation of Concession policy Targeting analysis Utility burden ratio and Poverty status High utility burden & Low utility burden poor household ratio / non-poor (bottom 40% of income household distribution) Concession State utility concession program HHs Success targeting Inclusion error (leakage) Non-Concession Exclusion error HHs (under-coverage) Success exclusion 26
  27. 27. Targeting outcome of Victorian utility concession to households in utility stress and below 40% Income distribution (2006/07) Success targeting Inclusion error Exclusion error (a) (b) (c) Success Overall exclusion success (d) Overall error (a) + (d) (b) + (c) Utility stress benchmark (13%) & hhucon = 1 Disposable income Eq. Disposable income 1.6% 7.0% 65.1% 59.7% 0.9% 3.7% 32.3% 29.5% 33.9% 36.5% 66.0% 63.5% 37.2% 34.0% 5.6% 9.9% 54.4% 50.0% 57.2% 56.0% 42.8% 44.0% 1.4% 6.1% 58.6% 53.8% 59.7% 58.0% 40.3% 41.9% Water stress benchmark (3%) & hhwcon = 1 Disposable income Eq. Disposable income 2.8% 6.0% Energy stress benchmark (10%) & hhecon = 1 Disposable income Eq. Disposable income 1.1% 4.2% 38.9% 35.8% 27
  28. 28. Summary findings on State concession evaluation • Substantial reduction of water and energy bills, and burden for eligible concession households • Some proportions of HH in Q3 to Q5 also received water and energy concession • Target ratio with very low exclusion error, but higher when adjusted with equivalised disposable income • Target ratio with high inclusion error  generous State concession policy and eligibility criteria? 28
  29. 29. Limitations & future work • • • • Refine data to reflect Victorian population Combine datasets for pool regression analysis Changed of Victorian concession policy in 2012, 2013 Affordability measures and standards - Burden ratio versus other residual income or subjective methods • Change of Victorian energy market (market offer vs standard offer) (flexible pricing) (smart metering) 29
  30. 30. Thank you. 30
  31. 31. Limitations: Utility Affordability analysis Utility-burden ratios (benchmark indicator) Area 1 Non-under-consumption Area 2 Willingness deficiency-related under-consumption Area 3 Under-consumption due to deficiency of willingness and of ability Area 4 Purely ability deficiencyrelated under-consumption Source: Gawel and Bretschneider (2011) Concept of Indigence Area Burden share = 1a + 2a + 3a (traditional) unaffordability +4a Rationale Household spends more on utility good consumption than the target ratio Budget restraints 3+4 Under-consumption 2+3+4 Household earns less than needed to afford the subsistence bundle Household consumes less than required 31
  32. 32. Theoretical Framework: Affordability analysis – Utility-burden ratios (benchmark indicator) • Actual expenditure as a proportion of household income (OECD 2003; Tepic 2008) • Twice the median approach (Moore 2012 on fuel poverty) • High cost/Low income approach (Hill 2011 on fuel poverty) – Residual income methods (Budget standard approach) • Residual income methods (Stone 2006 on shelter poverty, Burke et al. 2012 on housing affordability) • Potential Affordability indicator (Miniaci et al. 2008) – Subjective approach • E.g. Temple (2008) for housing affordability study; Price et al. (2012) for fuel poverty study 32
  33. 33. Victoria concession policy Eligibility Card holders of Pensioner Concession Card, Health Care Card, DVA Gold Card Water Concession Concession entitlements 2001 PCC/DVA card holders + owner occupiers: Concessions of 50%, up to a maximum of $67.5 per year, on service charge and up to $67.5 per year on volume charges. HCC card holders and tenants with PCC or DVA card: Concessions of 50% up to a maximum of $67.5 per year, on water usage charges and where applicable, up to $67.5 for sewerage disposal charges. 2007 All concession cardholders: 50% on water consumption, sewerage disposal and service charge up to a maximum annual cap. The cap in 2006-07 was $154. 2013 Same rule as 2007, cap of max rebate $277.00 for 2012-13. 33
  34. 34. Eligibility Card holders of Pensioner Concession Card, Health Care Card, DVA Gold Card Energy Concession Concession entitlements (2006-07) Annual Energy Concession 17.5 % discount off household electricity bills all year round * Winter Energy Concession 17.5% discount off mains gas on usage from 1 May to 31 October of each year * Off-peak concession 13% reduction on the off-peak on electricity bills Service to Property Concession reduction on the electricity supply charge for concession households with low electricity consumption Medical Cooling Concession 17.5 percent discount off electricity costs over a six month period from 1 November to 30 April cardholders with multiple sclerosis and other qualifying medical conditions Life support concession quarterly discount on electricity bills for cardholder's household uses certain life support machines Electricity Transfer concession full waiver of the fee when there is a change of occupancy at a property 34

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