Hours of Electricity versus Fraction of Revenue for Selected Feeders in Poor, Rural Areas
Note: Data from rural or small-town areas of Bihar, India.
Source: The Consequences of Treating Electricity as a Right, Journal of Economic Perspectives, Winter 2020
In the United States, and other high-income countries, nearly everyone pays their electricity bills and receives access to electricity all day, every day. As such, a high-income country depicted in the chart would take up a dot in the northeast corner, with the revenue rate (ratio of revenue collected to revenue that should have been collected) at one and the hours of electricity supplied at twenty-four. In a study using microdata from poor, rural or small-town communities in Bihar, India, EPIC Director Michael Greenstone, South Asia Director Anant Sudarshan, and their coauthors found that there was almost no link between consumer payments and the quality of service. The supply of electricity was heavily rationed and variable. Customers received on average only about 17 hours of electricity a day. In some areas the full cost of power was recovered from consumers. In others, this fraction was less than 20 percent. On average only 38 percent of the cost of supplying electricity was returned to utilities via bill payments. Part of the shortfall was filled by subsidies provided by the government, the rest contributed to a slowly increasing mountain of debt.
Most strikingly, areas that paid more did not necessarily get more electricity and some of the most reliable supply went to neighborhoods with abysmally poor bill payments.
In combining this granular data with national-level statistics on electricity supply from across the world, researchers found that electric utilities in developing countries often do not get fully paid by consumers for the power they supply, leading to widespread outages and rationing of power. This sets off a vicious cycle: Consumers regularly don’t pay their full bills and governments often tolerate this. Power utilities then lose money every time they supply more electricity. Eventually, these companies become bankrupt and choose to cut-off supply because they can longer afford to pay generators without recovering costs from consumers. And finally, because customers then receive poor energy supplies, they are even less likely to pay their full bills.
Breaking out of this vicious cycle is made ever harder when society begins to treat electricity as a right, rather than a commodity to be bought and sold. This view can lead to non-payment being tolerated in general, including among those who are not very poor. To achieve the goal of universal access to electricity that runs reliably 24-hours a day, every day of the year, the researchers argue that a functioning market for electricity needs to first be rebuilt. On the one hand this means cutting down on non-payment through solutions such as introducing smart meters with automatic disconnections, or changing the bill collection process. On the other hand, instead of electricity subsidies and tolerance of theft which benefit consumers across the income spectrum, direct transfers could be targeted to the poor improving their ability to pay while enforcing a requirement to do so.