Box: People’s Power—Energy to the Poor

· The best solution is to price electricity services at commercial rates and provide assistance to low-income groups through social assistance programs, such as pensions, benefits to low-income families with children, and so forth. However, such an approach requires sophisticated management and delivery systems for social benefits.

· The next best solution is to introduce a "lifeline" rate by reducing the price of electricity for the first 50–100 kWh per month to all households. The lifeline rate would help cover most essential electricity needs. If cross-subsidies are avoided (as they should be), subsequent units of electricity have to be priced slightly higher than the standard cost-based average household tariff in order to recoup the revenue lost on the lifeline rate.

· Addressing energy poverty through a cross-subsidy from industrial consumers (as is currently done) is grossly inefficient, with most of the benefit going to middle- and upper-income consumers. This approach is also unsustainable if industry can choose its supplier (as is required under the EU Electricity Directive 96/92).

The difficulty in Central and Eastern Europe and the CIS is that, for understandable reasons, governments have been unable or unwilling to raise household electricity prices. Policymakers are reluctant to raise rates because real income levels have remained low and have not grown as fast as was hoped in 1990. Moreover, similar relative price increases are needed for housing, public transport, water and sewerage, health, and other basic goods, and it is not possible to sharply increase the prices of all of these services simultaneously.