EDC proposes new low-income power subsidy

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Thursday, October 20, 2005

Venezuela's largest private electric company EDC has proposed to the energy and oil ministry the implementation of a new electricity subsidy for its poorest clients, EDC director for prices and regulation Ricardo Luy told BNamericas.

"We are proposing a minimum subsistence consumption of 50-60kWh [a month] for free but the government will have to provide the resources," he said.

EDC, owned by US power company AES (NYSE: AES), is also proposing that the current "social rate" of 1,608 bol?vares (US$0.56) for 200kWh is increased,since it is an across-the-board subsidy for users at all income levels and does not effectively benefit lower income customers.

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"The social rate is aimed at all social strata, we are proposing to redirect [subsidies] to a specific stratum," Luy said after his presentation at an industry event sponsored by Caveinel, Venezuela's private electricity chamber.

The problem with the social rate is that while the first block of 200kWh is cheap for everybody, energy consumed above that amount is billed at more than 10 times the rate, Luy explained.

"If you use more than 200kWh, you get bumped to the next rate level regardless of your level of income, and that is an incentive for our lowes income customers to tap illegally into the grid," the official said.

Even in the poorest areas of Caracas customers use slightly more then 200kWh, he said. "Through research, we have found out that customers are willing to pay 8,000 bol?vares for one month of power," he said. Even this minimum amount would be a big change for EDC, which loses about 10% of its electricity to theft, he added.

The new 50kWh subsidy could come with a technological innovation allowing customers to plan their electricity purchases more effectively through pre-paid meters and cash cards, which EDC is already introducing through a pilot plan in 300 low-income homes in Caracas.