JPRS ID: 10218 WEST EUROPE REPORT

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JPRS L/ 10218
28 December 1981
~ We~t E~ro ~ Re ort
. p p
CFOUO 67/~ 1)
F~IS FOREIGN BROADCAST INFORMATION SERVICE
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JPRS L/10218
- 28 December 1981
_ WEST EUROPE REPORT
(FOUO 67/81)
CONTENTS
ENERGY ECONONLLCS
~ ITALY
, Electric F~h ergy: Rates and Demand Regulation
(Pippo Ranci, et al.; ENERGIA ELETTRTCA: TARTEFE E CONTROLLO
DELLA DOMANDA, 1981) 1
POLITICAL
FRANCE
New Defense Policy Intended To Be 'Permanent'
(Francois d'Orcival; VALEURS ACTUELLES, 16 Nov 81) 41
SPAIN
Various Consequences of NATO Entry Analyzed
(Antxon Sarasqueta; CAMBIO 16, 9 Nov 81) 1~6
PSOE To Harden Criticism of Administration, Moderate Ideology
(Jose Ma.nuel Ari~ja, Rafael Cid; CAMBIO i6, 2 Nov 81) 50
Basque Terrorists Allegedly Released by Lenient Courts
_ (cAMBIO 16, 9 Nov 81) 58
UCD Debacle in Galicia, Possible Consequences, Reviewed
(Antxon Sarrs~gueta; CAMBIO 16, 2 Nov 81) 65
AP's I~raga Advocates Center-Right Understanding To Halt PSOE
(Manuel rraga Interview; CANIDIO 16, 2 Nov 81) 70
MILITARY
I~ R/1NC1?,
- Transportation Weakness of New Brigade Noted
_ (Freder�ic Pon:>; VAL~URS ACTUELLES, 16 Nov 81) 73
- a - [III - WE - 150 FOUO]
F(1R nFFT!'1 e i i iCF (1Ni V
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ENERGY ECONOMICS
ELECTRIC ENERGY: RATES AND DEMAND REGULATION
Milan ENERGIA ELETTRICA: TARIFFE E CONTROLLO DELLA DOMANDA in Italian 81 pp 92-133
[Article by Pippo Ranci and Gianni Cozzi, with the cooperation of M. Berra, P.
Berra, G. Oggionni, and G. Panati, preface by Sergio Vacca: "Electric Power Rates
and Demand Regulation"~
[Text] 4. Considerations on Electric Power Rate System in Italy ~
4.1. Brief Review of Italian Rate Schedule Development
From the first decades of the 20th century, power rates F~erE under government con-
trol but ~ere set by the various electric power companies on the'basis of each
company's production and distribution costs; rates also differed~considerably from
- one region to the next.
The Decree-Law of 5 October 1936 froze utility rates; this helped consolidate the
rather heterogeneous rate schedule situation which had been developing on Italian
territory in relation to the diverse cost structures presented by the various
electric power generation and distribution companies operating at that time.
- Th~ rate freeze, which was extended afterward, was followed in 1941 by the stoppage
- of supply contracts. The rate deadlock continued until 1944 when the CIP (Inter-
ministerial Price Committee), establish~d during that year, in t'~e light of the
continuing process of money devaluation fomented by the war economy, authorized an
increase of 15 percent and 30 percent of prewar rates, respectively, for light and
- power.
The rat2 revisions in 1945, 1946, 1g47, and 1948 progressively raised electric
energy sales prices whose level, figures on the basis of 1y42, through CIP direc-
tive No 101, dated 11 August 1948, reached the "figure of 24."
' Table 1 summarizes the increases approved by the CIP during the periad of 1944-1948,
in the base rates applied in 1942 for ~upplying li~ht and moving power.
CIP Directive No 348, dated 20 January 1953, launched a process of rate standardiza-
tion which ended in 1961 with Directive No 941. As of 1 January 1953, as a matter
of fact, utility rates for users with a power of up to 30 kw had tn follow the
rate schedule spelled out in Directive No 348. '
1
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Table 1. Increase in Electric Power Rates Authorized by CIP during the Psriod of
1944-1948
Anno 2 Percenlrroli di 3 Livd/u
1 Au~nrnlo (basr /9~2) (!S?d2 ~ U
4 1lluminaz. ~ S 1�i,rza motr.
19a4 IS -30 I,IS-1,3U
1~145 225 290 ~,25-3,9U
t~~an 4W aW S
600 ~
1947 1.300 l .300 14
194F 2.300 2.3W 24
Key: 1--Year; 2--Increased percentages (1942 base year); 3--Level; 4--Light;
� S--Power.
In particular, wnile public light rates were confirmed by the provisions of Direc-
tive No 101, dated 11 August 1948, r~tes for private lighting, for use with elec-
tric household appliances, and for power up to 30 kw, experienced changes which,
depending upon the case involved, brought reductions or increases in sales prices
which had been in effect until then.
A"maximum" of 42 L/kwh [lire per kilowatt-hour] was provided for private lighting
and prices higher than that level had to be lowered; prices on a lower level re-
mained unchanged.
For uses different from illumination (electric household ~ppliances and power) a
"mi?umum" and a"maximum" rate was introduced, respectively, to the extent of 67
percent and 133 percent of the rate schedule prices provided for in Directive
No 348 whose implementation was allowed provided its adoption did not involve,
for the individual user, an increase of more 30 percent of the rate cost borne
until thenl. .
Directive No 348 did not stanciardize the rates for units with a c.~nmitted power of
more than 300 kw; their regulation continued to be based on the provisions of
Directive 101, dated 11 August 1948, and No 5, dated 30 August 1946; however, a
surcharge on energy wac provided for the latter users as well as for private
lighting with a corresponding unit cost of less than 26.50 L/kwh; this surcharge
was intended to finance the electric power rate balance fund instituted in this
directive itself for the purpose of providing an incentive through a mechanism
based on the redistribution, to the electric power companies, of the surcharges
collected so as to develop investments in new plants.
General contributions as a matter of fact were established on energy effectively
produced by plants which went into operation after 1 January 1949, so as to line
up with the electric power companies through the Balance Fund, after 1 February
1953. The idea was to close the gap existing between the cost of energy produced
_ in the new plants and the sales proceeds realized under the rate schedule freeze.
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The Balancing Fund, which took over the previously existing "thermoelectric sur-
charge Balancing Fund," thus taking over its institutional tasks2, furthermore,
according to the provisions of Directive No 348, was to permit appropriations to
- campensate for the reduced earnings of electric power companies deriving from the
implementation of the standardized rate schedules and the reduction cf private
lighting rates folJ.owing the introduction of the "maximum rate."
The initial surcharge increments were progressively increased between 1953 and 1956,
through directives No 413 of March 1954 and No 507 of August 1966, while they were
partly included in the price of energy through Directive No 620, dated 28 December
i956.
, After Z January 1957, permission was given for adding, to the rates frozen in 1942
and raised by a maximum of 2.300 percent, a surcharge increment established in CIP
direr.tives No 348, No 413, and No 5073.
The reduction in the amount of the general contribution on energy from new produc-
tion plants--which was obviously accompanied by the inclusion, in sales prices,
of the surcharge increments--however did not restore the endemic deficit of the
Balance Fut?d which at the end of 1959 came to 13 billion lire.
~ Directive No 620 furthermore established a series of rates constituting the upper
, and lower iimits of the spread allowed for rates applied to power units with
a comrnitted power of between 30 and 500 kw; this was another step toward the com-
_ plete standardization of rates and conditions of light and power supply which, as
- we know, was implemented through Directive No 941 and its successive provisions.
CIP Directive Nu 941, dated 29 August 1961, and the related directives No 949,
dated 11 Novemder 1961, and No 1000, dated 25 May 1962, were the first steps taken
in tr~e standardization field during postwar years in an effort to tackle the pro-
blem of electric energy rate determination in all of its aspects.
The above-mentioned directives k~ere not only aimed at providing a fir.al system
' setup in the minds of che officials responsible for electric energy policy; they
were also supposed to constitute the initial phase of a progressive process of
restructuring the entire electric energy rate system, based on rational evaluations
of the ratio between cost and price.
As a technical foundation for the evaluations connected with the definition of
_ sales prices contemplated in Directive No 941, officials took the consolidated
- balance sheet from a sampl.ing of 45 private electric companies and 11 municipal
n companies, whose contribution to national electric energy generation in 1959--the
year of the balance sheet--was figured at 83.26 percent.
Sales prices, standardized by Directive No 941, were so establisned as to determine,
on the basis of equal energy sold, a yield volume equal to the earnings derived in
~ 1959 for the group of companies considered from sales of energy and contributions
from the Balance Fund. The latter item was included among the commensurate yields
. based on the rate schedule level while, as of 1 September 1961, the Balance Fund
was elimi.nated so that, consequently, along with the surcharges on energy sold,
an end was also put to tt~e general contributions on energy from new production
plants, granted to th~ electric power companies.
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- To compensate the electric power companies that might have suffered losses as a
xesult of the forced introduction of the standard rate schedules, the "electric
~ate schedule standardization compensatio~ fund" was established on that date with
authority to draw appropriations from sales of energy reserved for them on the
basis of increments included in the prices.
The lin~up of rate schedules in force as of 31 August 1961 with the standardized
l.evels--which in some cases was done with a certain degree of gradual implementa-
tion built into the directive itself--led to the standardization of supply con-
- ditions as such and this was followed, through Direct~'.ve No 949, by the standar-
dization of utility connection contributions. ~
Directive No 1000 regulated the supply conditions to be applied to some special
users; it marked the end of a series of directives intended to give the Italian rate
schedule system the direction whicn it still pursues today, in spite of the many
~ amendments introduced thereafter4.
A policy of holding electric energy rates down was launched with the nationalization
of the electric power enterprises in December 1962.
As a matter of fact, starting in 1961 and until the beginning of the decade of the
seventies, there were n.o rate increases, in spite of the ~rowing deficit in the
economic account of the electric power agency.
It must also be noted that, as a result of Decree-Law No 918, dated 30 August 1968,
converted int~ Law No 1089, dated 25 October 1968, rates for industrial, commer-
cial and agricultural uses of up to 30 kw were reduced by 25 percent up to 31 Dec-
ember 1970.
This reduction was then continued through Law No 853, dated 6 October 1971, until
31 December 1980 for areas under the Fund for the South Only.
Both the freeze on electric power rates and the legislative provisions which re-
.~uced electric energy sal:s p~ices to the degree indicated above in our opinion
represent a manifestation of a rate policy which, in harmony with the new public
role assigned to the electric power sector after nationalization, has become an .
instrument of economic policy.
' In particular, the 25-percent reduction could initially have been interpreted as an
. economic measure aimed at reviving the economy, afterward transformed into an ef-
fort of a structural nature in support of the development of the South.
To compensate for the significant losses deriving from the application of the above-
mentioned ra[e schedule reduction as far as the electric power companies were
concerned5, CIP Directive No 1224 was then issued: it instituted a surcharge of
6 L/kwh on private lighting users residing in the communities of Rome, Turin,
Milan, Naples, and Genoa; under the provisions of CIP Directive 941, these com-
munities had until then gotten the benefit of a discount of 6 lire--6 for every
kilowatt-hour consumed, as compared to the nation's electric energy users as a whole.
4
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A further change in the electric energy saleo price setup came f_rom CIP Directive
No 17/1979 which raised the private lightir.~g equivalents provided for in CIP
Directive No 941 by 7 lire per kwh, in line with the aboliti~n--followed liy the
adoption of the VAT--of the community tax on the consumption of electric energy
varying from 10 to 15 L/kwh, depending upon the community involved. The electric
energy price for such supplies consequently declined iur*_her.
The policy of substantial rate schedule stability was maintained until 1974, in
- spite of growing inflation during the seveiities, the international petroleum price
rise, and the subsequen.r_ speedup in the inflationary process--phenomena which caused
components of electric energy costs to grow so as so make the economic and financial
~ situation of ENEL [National Electric Power Agency] quite precarious (see Table 2)6.
\
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After 1973, a rate risc became evidently indispensable.
From 1974 onward, the level of electric energy rates--after 13 years of substan-
tial stability--was raised progressi~~.'_y witfi a series of CIP directives, starting
with No 34, dated 6 July 1974 and ending, as we go to press, with CIP Directive
- No 36/1979.
The gradual rise in prices introduced some standard modifications and a special
- price system into the rate schedule setup.
- ihis pertains particularly to the following:
Standardization of rate schedule (and tax) treatment of ''domestic" users of elec-
tric energy, which eliminated the distinction that was made between the quantity
of energy used in homes for lighting purposes and other uses (CIP Directive No
34/1974);
Institution of heat surcharge (CIP Directive No 34/1974);
Creation of the so-called "social slice" which, for domestic useres with an instal-
led capacity of up to 3 kw, involved payment of reduced rate equivalents within a
limit of 1,800 kwh, per year (CIP Directive No 1/1975);
Production of rate discounts for electric energy supplies to agricultur~l users
and "moving power" users with an installed capacity of up to 30 kw (CIP Directive
No 1/1975).
Abolition of some power steps provided for in the rate "pattern" established at the
time in CIP Directive No 941 (CIP Darective No 34/1974);
Reduction of installed power level from 501 kw to 101 kw beyond which "night-time"
rates and high-use rates become optional (CIP Directive No 11/1978);
Increase in contract-based value of power factor from 0.8U to 0.90 (CIP Directive
No 11/1978);
Standardization of rates for electric energy used for illumination and other pur-
poses in places other than homes (CIP Directive No 36/1979);
"Separation" of general rate schedules into rates for "normal use" and rates for
"high use" (CIP Directive No 36/1979);
Increase in minimtim and maximum values of "tolerance limit" and "maximum available
power" (CIP Directive N~ 36/1979);
~ Etc.~.
4.2. Some Aspects of Rate Schedule Structure and Standards Currently in Force
In the history of the Italian rate schedule system, briefly descrilied above, we
can thus identify three different periods of time, each of which reveals its own
specific aspects.
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~ The first one, wtiich extends from the postwar period until the beginning of the
sixties, is characterized by a process of sysCem development and consolidation of
rate schedule structures which--following the issue of CIP directives No 941/196T,
No 949/1961, and No 1.000/1962--1ed te standardization of electric power rates
throughout national territory.
A second one, beginning in 1962 and ending in .1974, during which, in harmony with
the public role assigned to the electric power sector following nationalization,
we observe a policy of holding electri.c energy grices down for the sake of the
general economic interest.
Between 1962 and 1974, as a matter of fact, we not only had no rate increases but,
in spite of the growing deficit in the economic account of ~NEL, we had, as we s3w,
even a reduction in electric energy sales prices, probably in an effort, in this
way likewise, to support the revival of some sectors of the economy whose growth
- was slowed down by the development of the economic situation and the promotion of
- the south.
The third period, which started raith the energy crisis, is characterized by the
introductic~n, into the rate schedule system, of a series of modifications essential-
ly aimed at the following:
a. Correction of gaps created between the dynamics of cost and the development of
yields, through a rise in the rate level;
b. Modification in rate structure permitting more fle.xible handling of increases
to be made in electric energy sales prices as a funeti6n of the rise in tr.e cost of
fuels derived from petroleum through the creation of the heat surcharge;
c. Satisfaction cf some segments in terms of social policy through the creation
of the "social slice" and the institution of di~counted heat surcharge increments;
d. Containment of electric energy distribution costs; this objective was promoted
for example by the standardization af rates for domestic uses and the increase in
the contract value of the power factor.
The response to the progressive rise in international petroleum prices as a matter
of iact, in terms of rates, was expressed by a series of steps substantially aimed
at restoring the .~lectric power agency's economic management balance. The problem
of a radical revision of the entire ra*_e schedule system--"considered to be easy"
- during earlier phases in ttie energy ind~sstry--was not yet posed, nor is it today
considered as an effective instrument in implementing a demand policy in line with
the demands of the country's current energy situation.
~ The following analysis therefore is designed to develop some critical considerations
on the r~te system in force through ~n examination of specific examples of standar-
dization and rate provisions which can supply useful indications as to the advis-
ability of going into a complete and organic revision af rates and standards govern-
ing the sale of electric energy at this time.
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Analyzing the provisions on standardization, we will in parcicular make reference
to the fo).lowing:
1. Rates confined to night-time hours;
= 2. Conditions governing the sale of electric energy t~i in-nouse producers;
3. lletermination of estimated power connection iees.
The examples considered in th~: matter of rate schedule structures on the othex hand
will pertain to the foli4wing:
4. The "social slice" of do.~e~;.~c power supplies;
5. The heat surcharge "mechanism";
_ 6. The "incentive" for the dissemir.ation of electric heating.
4.2.1. Rates Confined to Night-Time Hours
Rates confined to night-time hcurs, introduced in the regulations govern~'ng the
sale of electric energy throus;h CIP Directive 941/1961, so far has been the only
ins:z~ument for modulating th~_ actual use of electric power covered by the rate
standards.
As a matter of fact, the other modulation instrument, that is to say, the "inter-
ruptability clause"--constituting a"special agree~ent" between ENEL an~ the elec-
tric steel mills--does not show up in the CIP standards.
The significance of rates confined to r.ight-time hours hcwever turned out to be
entirely negligible; here it suffices to realize that the number of industrial
users actually employing this system is less than 30 units.
In our opininn, the low degree of dissemina'.:ion deriving from rates in question
essentially depends not only on the price ].evel, whic:~ characterizes them, but
also on the in~dequacy of provisions in force which confine tfieir application:
a. To users which take electricity only ~luring the hours between 2000 and 0600 of
the next day between Monday and Friday, on Saturday between 1300 and 2400, and. all
the time on Sunday, up to 0600 of the following morning;
- b. And to the supply share consisting of the power increm~nt taken during definite
night-time hours which exceeds the "continuous" power supply in case this option
is chosen by users who already have a"continuous" supplys.
We as a matter of fact note in this respect that, on the one hand, industriai users,
whose production processes are such as to facilitate an electric power demand ex-
clusively concentrated during night-time hours, are very rare; on the other ~iand,
the mechanism for ttie distribution of power use during night-time hours, provided
for users who get a continuous supply and a supply ).imited to night-time hours,
together, dues not substantially reduce the already scant "economic significance"
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of the night-time rate but in some cases makes it less convenient for the users of
- rates provided for the continuous use of electric energy supply.
This can be demonstrated with some examples.
- Let us first of all consider the case o~ a user with an installed capacity of
between 10 and 25 Mw, supplied with a voltage of.more than 100 kv, with a monthly
committed power use of between 150 and 350 hours, who can, as desired, take out
electric energy either during "night-time" hours or during "day-time" hours. The
- discount on the average price of energy taken out of the gr~.d, wTiicli tlie ab~ve-
menti~ned user would get if he where to opt for a supply of power limited to nigbt-
time hours (and who would thus concentrate his 2ntire consumption during tfiat period
of tirne) as compared to power supply during day-time hours, on tfie Faasis of the
rates specified in CIP Directive No 36/1979, would be about between 19 percent and
- 26 percent.
This figure, which is definitely modest compared to the average gap existing
between day-time prices and night-time prices charged by European utilities in
_ general9 evidences the fact that night-time rates charged in Italy are of rather
little help to the user.
Even lower are thc di.scounts for users who, in addition to their standard supply,
- use a supply volume regulated by rates confined to night-time hours.
This can be seen in Figure 1 where we. have indicated the discounts on the average
. price for the total amount of energy which the user could get, with a voltage of
more than 100 kv, an installed capacity of more.than 10 Mw, and a power use between .
400 and 600 hours per month; instead of using a single rate for high utilization,
these users would ask for the application of the rate schedule confined to night-
time hours for certain "slices" of the overall power use process.
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~ __l____
o ~ y ~ .
- E
u
N
N
~ 10 ~
j ' .L.
e
~o
~ 4 - - _ - - - -
0
v
'G 6 - ~3...
.u I 3 `~Jti~ e
- � P
j ;P;~;ti;o~e
y ~ I '
~ 2 - - ~
v
c
0
N
7
Y.1
- ~ ~ ~
1 0 ~0 20 3o ao 5o so%
2 Percento del prelievo complessivo attribuito alla
tornitura limitata aile ore notturne
Figure 1. Note: the "percentage reduction" was calculated with reference to the
rates given in CiP directives No 35 and No 36/19i9. Key: 1--Percentage reduction
of power supply equivalent (or average price); 2--Percentage of total power taken �
and charged on the basis of rates confined to night-time hours; 3--Maximum reduction;
- 4--Minimum reduction.
Finally, there are power supply use situations where the user's decision to re-
duce his power use during peak hours transferring a portion of the load to night-
time hours, could even bring about an increase--rather than an obvious reduction--
in the average price of the total volume of energy taken out.
This happens when the transfer of a pcrtion of the load to nigiit-time hour~ brings
about a reduction in the figure of the c~mmitted power during day-time haurs with
, the "passage" of t}iat power into a rate schedule step which involves a unit equi-
~ val.ent oE the higher kwh.
Let us, for example, examine an industrial user with 30 Mw of committed power and
an annual power utilization volume of 6,000 hours and let us assume that the or-
ganization of this process can be structured so as to bring about the following
two alternate situations:
a. Power use during peak hours amounting to 21 Mw and 9 Mw during night-time hours;
b. Power use of 30 Mw during peak hours.
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Applying the rates currently ii: force (CIP Directive No 36/1979), the average price
of electric energy used as a whole turns out to be higher for case (a) than for
case (b) (specifically, 35.82 L/kwh as against 35.46 1./kwh).
In c~*_:clusion we can therefore say that the current rates, limited to night-time
hours, are not helpful in creating an economically significant incentive to promote
I concentration of electric power use during night-time hours--a concentration which,
technically possible for many enterprises, should be the natural objective of night-
time rates.
4.2.2. Conditions Governing Sal~ of Electric Energy to In-House Producers
As we know, the CIP provisions governing rhe sale of electric energy to in--house
producers are confined to prescribing that the energy acquired from the latter must
be governed by the general rate on the basis of the methods and with the exceptions
provided Ior in the standards.
The inadequacy of such standards regarding the regulation of a relationship as
complex as the relationship between the distributor and the i.n-house producer can
be understood immediately if we consider the rather burdensome and expensive situa-
tions to which the rigid application of such standards can lead.
Let us consider the case in which the industrial user--who normally uses purchased
electric energy and in-house-produced electric energy in his production process--
is forced to take from the distributor's network, for a period of time of no more
than 1/4 hour, the entire power which he needs, due to an accidental breakdown of
his own power generating units. By virtue of the standards in force, tfie "added"
power need would have to be regulated through a new supply contract lasting a year
and with a committed power figure equal to the power taken out during the period of
"failure" of the in-house power generating groups.
The cost of each kilowatt of added power taken out would consequently coincide with
the annual equivalent of the committed power.
Thus, if in the case under examination, the power of the group which had "broken
down" were to be equal to 1 Mw, and if the rate applied were the general rate for
- high use and power supply at 130 kv, then the amount which the user would have to
pay to the distributor Eor the reserve service rendered during 1/4 hour of failure
of his own group would come to about 44 million lire, equal to about 175,000 for
kwh used up10, ~
Since we cannot fail to realize that an unexpected increase in the power demand
would lead to higher costs to the supplier (and this would not be otherwise ex-
cept for a greater reserve that would have to be set aside), then the burden
deriving from the standard in question appears evident; this is especially so if
_ we realize that, for the in-house producer, the need for supplementing or replacing
his own electric power availability with purchased power emerges net only in con-
nection with accidental events as indi.cated above but may also be of a system na-
ture in connection with the need for maintaining his own power generating ~lants.
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It is clear as a ma[ter ot Cact that--by virtue of the mechan.ism of the general rate
--wt~ile tt~e maintenance of in-house production plants cannot be gerformed during
periods when the industrial production cycle is closed down, the sser would have to
commit (and pay to the distributor) a power value commensurate not with the unit of
supply normally acquired but with the volume of power actually taken out during the
period of time when his own power generating group was unavailable.
The burden which, in the cases given above by way of example, would spring from a
line of action strictly in keeping with the pr.ovisions of the CIP standards, as wEll
as the need for regulating these aspects of power supp.'.ies with in-house producers
who are not covered by these standards, have persuaded ENEL on its own to draft
regulations that make up for the shortcomings in the official regu'~ations.
The electric poo~er agency as a matter of fact for quite some time has been applying
to its own in-house production users a commercial policy which not only calls for
the substitution of the general rates with "ad-hoc" ratesll in cases beyond ac-
cidental service and special maintenance of user's power generating equipment, but
which also includes a series of equivalents to make up for these special services
to be rendered (special energy supply, parallel service, etc.).
In the above-mentioned case, direct action by the ENEL--although it took place
outside the context of its institutional authorit~i--mustbe considered positive and
= oFfers a point of departure for a consideration of the role which could be assigned
to the electric power agency in the future in the matter of rates.
- In our opinion, greater decision-making autonomy on the part of ENEL in this field
would always be desirable not only to eliminate certain shortcomings and/or delays
encountered in the past regarding the updating of standards12 and price levels but
- also to get the agency itself to assume a more active role in the implementation
of government policy and electric power demand r~gulations.
4.2.3. Power Connection Fee
- The power connection fee represents the share of expenditures for power connection
wt~~ich is charged to the user.
CIP Directive No 949/1961 as we know provides for the following:
Connections to be made without fee: reserved for users with a committed power of
up to 1 kw;
Connections to be made with flat-rate fee: here the user's contribution to the con-
nection expenditure is determined on the basis of the flat-rate figures given by
the CIY ; '
Connections to be made with "estimated" fees: here the fee charged to the user for
power connection is calculated from case to case on the basis of the following:
a. The cost of connection work specifically tied to the type of supply requested;
b. Coefficients predetermined by the CIP, redistributing the above-mentioned cost
among the distributor and user of electric energy.
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_ In the following we will consider some aspects of the standards in question which,
in our opinion, lend themselves to some critical remarks.
In particular, keeping in mind the fact that provisions pertaini~g to flat-rate
fees have already been the subject of some critical observations 3, we will confine
ourselves to considering first of all the provisions in the current standards
relating to connections to be made with estimated fees.
~ It is noted in this connection that these p~ovisions not only do not give us any ~
indications as to how the base cost is made up, i.e., the base cost which must
be assumed to determine the fee~ but which also, by giving a breakdown of the "ex-
penditure" figures, or the "long-term costs" to be borne by the distributor for
putting in the connection as such, give rise to unequal treatment of users. Let
us consider, for example, the case of three users who at the same time request
connection for two types of supply operations which are perfectly homogeneous in
terms of location, supply voltage, "quantitative" characteristics, etc.; one of them
is supplied by the distributor with facilities which have already been in existence
for some time but which until now have been underused while the othex one is
supplied through new facilities put together on an "ad-hoc" basis. .
Since both of them should be paying a fee in line with the nominal value of the
expenditure un3ergone by the distributor, it appears evident that the first user
will pay less than the second one, and he will do so to an increasing degree, the
greater the difference of "age" between the two connection facilities.
It is therefore clear that the standard in question represents a violation of the
general rate principle according to which two users with equal characteristics
_ must be treated in an equal manner.
~ A further "distoition" resulting from the implementation of this standard can be
evidenced by the fullowing example.
Let us assume that a user, connected in 1970 to the certain trunk line in the dis-
tribution network, is afterward supplied in keeping with the supplier's technical
requirements, either through the initial line or, alternately, with facilities
built in 1960.
Let us further assume that the user in 1980 asks for an increase in power. The
estimated connection fee charged to him for each kilowatt of additional power could
obviously--compared to the equivalent unit fee as of the moment the supply was
started (1970)--result in the following:
It could either be nominally equal, although less in real terms, since the power
supply in 1980 was handled through facilities built in 1970;
Or it could turn out to be less, both in "current" and in "constant" money value,
in case power supply is provided to the user through power lines built in 1960.
In this second case likewise, the standard therefore appears inadequate.
~
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Another significant shortcoming in the standards concerning connections consists of
the absence of norms governing connectionG made with a voltage of more ~han 50 kv14,
We can as a matter of fact observe that, although these connections may be ignored
by CIP Directive No 949/1961, since at the time they were issued they were requested
by a very 5ma11 number of "special" users, present?y representing a recurrent fact
in ENEL operations, they should hereafter be made the subject of specific stan-
dardsl5,
A last point of criticism can be raised if we recall that, following the passage of ~
Law No 765, dated 6 August 1967 (the so-called "Ponte Law"), the construction of
electric infrastructure facilities in areas not provided with electricity and in-
terested in having such facilities, until then governed by the provision of CIP
Directive No 949, was made subject to a twin regulation:
a. The construction of electrification works, consisting of the trunk lines in
newly constructed distribution networks, constituting a part of the urban develop-
ment process of the land, was made subject to the standards provided for in the
law itself; �
b. The actual execution of connections for the individual users to the distribu-
tion network on the other hand was returned to the area of CIP regulations.
With the separation between electrification projects and connection projects, the
construction of electric power delivery facilities became the subject of a large
number of Pconomic-legal relationships between distributor, user, public and private
land developers, communities, etc., which interacted in terms of bringing about .
connection "configurati~ns" not covered by the provisions established at the time
~ by the CIP .
The break existing between the "reality" to lie regulated and the content of rate
standards, which have become obsolete to the pr.ovisions of laws passed aft~r. their
establisiiment, once again forced the electric power agency to do what the CIP
- had not done.
The need for clearly and unambiguously dealing with users as a matter of fact
quite some time persuaded the ENEL "autonomously" to settle the setup for electrical
operations necessary for supplying new users witfi power througfi a regulation com-
bining the provisions issued on the topic of connections by the CIP and those
dictated by the urban development laws regarding prtmary urban development pro-
jects.
4.2.4. The "Social Slice" of Domestic Power Supply
- A debate lias developed on the "social slice," introduced in 1975 in the Italian
- rate schedule system, under impetus from political and social groups; involved in
this debate we have, on the one hand, the supporters of the use of rate schedules
also for social purposes and, on the other hand, those who oppose this idea.
Looking at rhe ideological aspects of this debate, it seems to us that we should
note that an objective evaluation of the effects connected with the existence of
the current "social slice"16 is bound to cause confusion as to the attainment of
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- the objectives that were supposed to be attsined with the help of this system. We
must as a matter of fact ask ourselves whether the social slice r~ally is an in-
strument for defending electric energy consumers ~n tiie lowest income level.
We have seen that the rate reduction ~nd the heat surcharge--something now enjoyed
by about 95 percent of the domestic users and leading to an average expenditure
reduction of no more than 2,000 lire per month--on the one hand does not have the
character of preferential treatment confined to low-income consumers ai~ne who
use electric energy to meet their own "essential" consumption needsl~ whereas on
the other hand it has an irrelevant effect on the family budget.
Paradoxically, the maximum be:~Fit deriving from the social slice (about 4,000 lire
per month) is now being enjoyed by users with consumption levels that exceed the
"essential" levels.
If we finally realize that the current domestic rates which are "not discounted"
can make it advisable to use electric energy for environmental heating purposes,
then we cannot fail to show that the social slice is specifically assuming in the
~ rate schedule system also a role in terms of providing further incentives regarding
~ the improper use of electric energy which is already widespread in Italy.
We must therefore not forget, as was disclosed several times, that the use of
electric energy for domestic heating in certain parts of the country is a necessary
thing in view of the lack of alternate energy sources and this therefore should not
as such be considered an improper use of electric energy. .
In reality, looking at the data given in Table 3, concerning the use of electric
and gas stoves in homes, by regions, we could on the other hand maintain that the
use of electric energy for heating purposes is anything but mandatory; the table
shows that, in spite of the fact that 96.4 percent of the houses do have gas,
electric heaters.are useii to the extent of 12.3 percent.
We also note that, although it is true that the problem of holding the use of elec-
tric ener~y down for heating purposes cannot be solved only through adequate rates,
it is quite true that the current rate schedule does not provide an incentive for
further dissemination,. quite in contrast to the otijectives of Italian energy policy.
In summary, in the light of the considerations presented above, we could thus say
that the social rate does, on the one hand, produce "incorrect" information which
provides an incentive for the consumer to make an inefficient choice of energy
sources to be used, but on the other hand has insignificant effects regarding the
goals of a policy of income redistribution.
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-
~I~alilc 3. :~i!'fuJirnu~ ~~~�r~rcnt:~,:/.� u~e11u otur'u Ui::porribiZitd di gas
1 2,./utcri~~,i F~..u~ il rzoenld-~m~nto ~ei 3ncile abitazioni
lucdli
!t.�;~~:ur~~ ~~al~, 5~.,,::,~ ~ltrn Cnn altru ~(x delle abita~io>~il
q S!:~. i 6~ i r~~: .!i 8.7~~ 9Qtn di Cn~ in
. __'..-----i~i.r:�_~!~l~nn.~rita rvir~~.:f,?nnu:r~:~~_ tornle rat.ri --bnm6clr1~
I'i~'IfY)f1LQ IZ lU~H ~l~l~S ~I?~~l i;:~4
v:ill~~ u'nc,,;i.a 'i,- 1,h 5,b ti7,1 4,- F33,1
~~,rt~:~rY1i. 12 �,,G 9~3 97~- b3,~' 3~~,'
- '!':�,�nlino A.A. 1:i,G U,, ~3,3 t!3,� $,7 75,3
v~~t:.~l,u 11,G 1,~;, lo,- ~7,G 3f,~) 60,7
~.'c�iuli V.G. it;~2 1,~, ' 12,6 ~)4,- 16,1 77,3
~.i,:~,ri,, 'J,~ 3,t 6,1 98,- 66,9 31,9
i�.�.ili:i It. 7,1 G,~~ G,7 95,~~ 61,0 34,1
l~~,:~�:u,;t 13 15,- :,9 1~,1 94,- 30,7 63,6
- ~'r. ;~i:i 1,- 10,4 ~15,8 12,3 8~~,h
: i,9 e,�, i3~l~ 97,7 22.5 75,y
�g,6 ~;,7 55,`
,1hru~ �r.i '/,'I 1, S b,4 y7,5 17,~ ~~,5
~'oli::e 9,~~ 1,1 N,; 9'~,1 21,7 '3,~1
C.urn �.:~u 1�':~7 11,.' 3,5 9'I,S 26,1 72,-
1;,9 11,5 2,~i 95,9 9,~ 87,6
i~~t::i]..icrtt:i 9,6 2;1 '1,5 9?~~ 4,4 88,-
;;:~ltibr.:, 19~5 '-5~N 3,"/ , 89,9 10,6 79,7
:;icilin 14 20,4 17,J 2,5 99,2 5,8 93,~
::rinte~r,a 15 i2,- ti,- 6,- 9i,- 2,4 9~I,b "
ln toc:~lc 8 17,3 ;,1 7~2 96,~a 35,9 ~,8
fbnt~~: in~~l, Indu3i>~r. sull'urr.n:;~a dume.:sica, 1975
16' 17
Key: 1--Reg'_on; 2--Percentage distribution of electric heaters for space heating;
3--Availability of ga~ in homes; 4--Total; S--Without any other type of heating;
6--With other types of heating; 7--~% of homes); 8--Total; 9--Gas from network; .
10--Gas in pumps; 11--Piedmont; 12--Lombardy; 13--Tuscany; 14--Sicily; 15--Sardinia.
Source: ENEL, "Indagine sull'utenza domestica" [Survey on Domestic Uses], 1975.
4.2.5. The "Mechanism" of the Heat Surcharge ~
As we know, CIP Directive No 34/1974 estatilished and charged domestic energy users
with a surcharge for every kilowatt-hour consumed in a differentiated manner depend-
_ ing on the type oF power used and the voltage levels; the idea was to reimburse
the distributing enterprises, which produced electric energy us~ng thermoelectric
plants, for the greater expenditures, compared to 1973, for getting supplies of the
= following fuels: fuel oil, gas-oil, foreign coal, methane,gas from coking plants.
17
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'I'he heat surcharbe yteld--which is collected by the utilities--is handled by the
Balance Fund which was assigned the institutional task of determining the volume
of the above-mentioned reimbursements.
The logic behind the introduction of the heat surcharge into the Italian rate
system can be traced to the need for keeping separate the effects on the rates
deriving from the rise in fossil fuel prices from those connected with the increase
in other production costs, so as to permit the automatic adaptation of electric
energy sales prices along with the change in the conditions for the supply of
such fuels.
� The heat surcharge entails undoubted advantages in the sense that:
a. It permits a rapid iucrease in the rate level;
b. Since it gives the consumer a precise "message" as to the causes--beyond the
utilities and generally beyond th~~ country--which influenced the rise in electr~c
energy prices, it makes these pri.ce increases more acceptable to the user.
On the other hand, it does introduce various disadvantages which, on the one hand,
are connected with the specific application standards and, on the other hand,
which are implicit in the logic of the heat surcharge itself.
. Looking at the first aspect here, as we observed earlier, we note for example that
exemption fr~m or reduction of the heat surcharge increment applied to some user
categories (domestic users, agricultural users, moving power users with a committed
power of up to 30 kw, public lighting, aluminum industry, outfits operating under
ENEL, etc.) resulted in a higher heat surch~rge for the other catQgories18.
We also are quite familiar w~th the objections raised by the industrial enterprises
ttiat produce their own electricity regarding the computation of the hei~ reim-
bursement for the purpose of figuring the energy delivered to the ENEL .
- Loking at the second aspect, we must keep in mind that the heat surcharge compensa-
tion mechanism can significantly hinder the process of diversification of primary
sources used in the production of electric energy which, as we know, constitutes
one oE the fundamental objectives of Italy's energy policy20.
The reimbursement system introduced through the heat surcharge--by causing a"freeze"
on the 1973 levels of variable unit costs borne by the electric power companies for
conventional thermoelectric pc+wer production--in this context perpetuated the
economic advisability for these companies to cope with the increase in the electric
power demand by using the same production means which at that time proved to be most
suitable, i~lother words, thermoelectric power plants running on petroleum
derivatives .
The price rises on the various fuels as a matter of fact did not bring about any
change in the ratio existing in 1973 between the company costs deriving from the
various electric energy technologies, although they did bring about a differentiated
increase in the real cost of conventional thermoelectric energy which had not been
reflected in the correlated increase in the expenditures of the utilitie5 since
they were compensated in overall terms with the heat surcharge reimbiirsements.
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- Today, as in 1973, thermoelectric power production based on fuel oil constitutes
- the most economical way to meet the growing demand as far as the electric energy
producing and distributing companies are concerned.
In view of this situation, in which there is an obvious rupture between "company"
interests and "collective" interests regarding the choice of electric energy pro-
duction means, we ask ourselves whether the moment has not come to revive t~e
~ current heat surcharge mechanism.
Generally speaking, we note that this rate setup, created under emergency condi-
- tions, should be a short-term instrument available to the rate schedule author~ty,
not a permanent element in the rate structure.
How to get around this is a problem.
Although it is true that lumping together a portion or the entire heat surcharge in
a rate could recreate the economic convenience conditions necessary to promote the
use--today clearly penalized--of primary, nonpetroleum sources (water power, coal,
- nuclear-geothermal energy) it is just as true that this measure would lead to a
series of inconveniences.
First among these is the loss of automatic adjustment of sales prices which we
stressed earlier.
In second place we must emphasize that the partial or total lumping together of the
heat surcharge in a rate could create particularly significant "hydroelectric
yields" for companies under municipal control wnich mostly are involved in hydro-
electric power generation.
Without wishing to go any deeper into this issue, it seems to us that we can say
that this latter problem, which is undoubtedly one (or the) fundamental obstacle
to the adoption of such a measure, could be suitably resolved in the more general
context of public finance management.
4.2.6. The "Incenrive" for the Wide Use of Electric Heating ~ .
In the current situation of relative prices among the various forms of energy that
can be used for heating, the electric source seems to look more convenient for large
groups of domestic and industrial users.
Regarding domestic uses, we can say that the cost of heating with gas-oil, calculated
:in linz with a range of consumption forms reflecting widely different forms of
- ~.~tilization, turns out to be higher than that of electrical heating.
This is shown in the diagram Figure 2, constructed on the assumption of the follow-
ing reference hypotheses.
a. Variable gas-oil consumption between 100 and 1,000 icg per year22;
b. Gas-oil price between 285 and 300 L/kg [lire per kilogram], including VAT;
].9 '
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c. Total yield from gas-~il heating plant between 0.5 and 0.6;
' d. Average electric energy price li~tween 71 and 96 L/kwh resulting from the applica-
tion of the rate for domestic uses witfi a committed power of up to 6 kw, including
VAT and treasury tax;
e. Electric energy consumption between 600 amd 7,2fl0 kwh, per year (these values
_ are equivalent, in terms of useful thermal energy, to those connected with the
quantities of gas-oil mentioned in point a, above);
f. Higher fixed annual cost of gas-oil plant compared to electric plant between
150,000 and 250,000 lire per year23..
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~
10~ Lud~nno
GUO . � -
. ~ _ .
SW -
' r:
i I :l~
aou ~}.r
I �
:j
I ~y
300.~-- - . r y.
I I
I I I .
20U �E:�:�~--
~ '
Y~ d!'~
t00 - ~ -
%
2
- Cunsumo di 0 100 200 300 400 600 600 70Q 800 900 1000 Kq./anno (E
qawha
~'r~ 0 B00 1190 1780 2310 2970 950J 4150 4740 5940 6830 Kwhhnno 5
w~.~ 0 710 1~Y0 2130 Z860 9b10 4270 4030 5700 6400 7120 Kwh/anno rj
_ a
a o
d _
`c Q
H N
A ~
7 U
S ~ 6~ Copo impimw di Nsuld~m~nto + q~wlio
a
ci
~:,E
~ ~
~ 3 7~ Co~to Impl~nto di ~ICUld~mento ubnricm
3
' Fi.bure 2. Comparison of presumed annual cost of gas-oil heating plant and heat- ~
- convector heating plant. Key: 1--Lire per year; 2--Gas-~il consumption; 3--Equi-�.
valent consumption of electric energy with gas-oil plant equal to; 4--Kilograms
per year; S---Kilowatt-hours per year; 6--Cost of gas-oil heating plant; 7--Cost
of electric heating plant.
We can thus say that, in line with a range of consumption forms covering the most
= varied heating requirements arising in the various parts of the country, the use
of electric heating equipment can turn out to be more convenient for the consumer
than the traditional gas-oil system.
Regarding industrial uses, we note that those characterized by an Qlectric power
requirement essentially concentrated during day-time hours constitute a signifi-
cant example of market segments in which--on the current level an.d with the
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current structure of CIP rates--the use of the electric "source" for environmental
heating can appear particularly advantageous.
For the uses in question, there is as a matter of fact the possibility of using
heat systems with night-time accumulation, up to a t~tal capacity of no more than
the normal day-time use level, with an electric energy cost coinciding with the
- kwh unit equivalent provided for in tfie rate governing tfie type of supply request~d
for the "normal" production uses.
Under these conditions, if we keep in mind the volume of kwh unit equivalents
covered by the rates in CIP Directive No 36/1979, for power supply in various
places of housing units, we can say that very raany users, supplied with high and
medium voltage, could use electrical energy for environmental heating, putting up
with "fuel" costs less than those deriving from the traditional gas-oil systems24.
Considering next that the fixed expenditures certainly accentuate the suitability
of electrical heating, apart from considerations relating to the advantages con-
nected with the latter in terms of guaranteed supplies, simplicity of operation,
etc., we cannot fail to note that, so long as the structure and/or levels of
current electric power rates are not properly modified at the right time, the
"industrial" user might come to constitute a market segment highly susceptible to
the wide use of electric heating.
4.3. Report by Electric Rate Reform Study Committee ~
4.3.1. Premise
The incongruencies detected in the standards analyzed in the preceding paragraph
seem to confirm that the amendments in the provisions governing the sale of electric
_ energy did not modify the central backbone of the rate schedule system although they
did make it possible to correct the worst shortcomings in the standards in question,
- sometimes perhaps at the cost of furthar distortions (see, for instance, the case
of the heat surcharge for everybody).
However, there is no doubt that there is an urgent need for a general reform of
electric power rates; this is demonstrated by the fact that, in 1974, a committee,
charged with studying the electric power rate reform, was established under the
Ministry oi Industry.
We will now take up some considerations which spring from a critical re-reading of
the final report put out by that co~nittee.
We note right away that, in view of the heterogeneous makeup of the committee25,
the proposals made in the report constitute a comFromise of the various positions
advanced by 2ach member:
a. On the labor union side, rates are also viewed as an instrument for income re-
distribution;
b. From the ENEL viewpoint, the solution of the rate problem is substantially
conceived from the company angle which stresses tfie objective of an equalized
balance sheet and the need for having a"simple" and easily managed rate schedule
- system;
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c. Confindustria [General Confederation of Italian Industry] was most concerned
wir_h showing that industria.l. users sfiould not have to bear rate expenditures that
should not be charged to them.
d. The other production categories (for example, agriculture), were concerned
with showing the need for maintaining preferential rates.
4.3.2. The Report's Logical Assumptions
~ The assumptions behind the proposals listed in the report can roughly be summar-
ized in the following two points:
a. The yields must make it possible to cover the company cost;
b. The efficient use of electric energy is automatically guaranteed by a rate
structure which will speculatively reflect the production costs.
Assuming that the yields should cover the costs (and hence that the rate level
sliould be in line with the cost level) is an acceptable assunption only so long as
we have ~roperly established the existence of a"minimum cost" situation. As the
report itself says, "the ways through which the organizations responsible for the
production of goods and services must on a priority basis face the increases in
their costs, for the sake of the community as a whole, can only be implemented
through the achievement of higher productivity 1=vels.~~
However, although the ministry study notes that ~NEL cannot and must not avoid the
obligation of keeping costs down through an increase in productivity, the report
does state that "the argument, to the effect that it would take quite some time
to examine the other ~lements, has not been properly developed in depth since it
is completely beyond the tasks assigned to the drafting committee"; it does this
by emphasizing that "the available data enable us to ascertain, especially regarding
the first years after nationalization, that significant improvements were achieved
after the rationalization of production and distribution processes.~~
:a
The total volume of electric energy production, transportation, and distribution
as a matter of fact is simply determined by adding the items in the ENEL balance
sheet, some of which, among other things, include expenses which cannot really be
charged to the agency's electric power operations26.
_ Having said this, we cannot help but criticize the fact--from the methodological
angle--that, in the report, the rate level was determined on the basis of the
costs resulting from the above-mentioned additions, aliove all keeping in mind the
~ possibility that the assumpt=on of equality between costs ~ind yields can in fact
be expressed in Italian rate schedule procedures as a guarantee requirement which,
by allowing the electric energy supplier to "shift" any cost increases to the rates,
can act as an objective brake upon the assumption of initiative~ of a rate, organ-
izational, and other nature designed to improve the economical operation of the
electric power service27.
The latter concern appears quite real to us since it seems to be confirmed both
in the ways in which electric energy price increases have been instituted until now
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and in the fact that the cost determination criteria followed in the study we are
examining here seem to boil down not so ~uch to a"simplification of inethod" but
rather to a concept which calls for considering costs as an independent variable to
be assumed as a parameter commensurate with the yield.
' Beyond this logic, we could not explain the proposal for the automatic rise in rates
as a f unction of the changes in predetermined cost indexes repeatedly indicated in
~ the report,itself, in clear contradiction to the references for the need to hold
cost increases down through an increase in productivity.
But beyond the considerations regarding *_he effects which an equilibrium in the
~ economic account automatically assured by a systematic adjustment between cost ac-
. counting items and sales prices could have on the efficiency of the ENEL, it seems
_ to us that we must say, looking at it from a more substantial angle, that the rate
level should be established not so much as a function of an equalized balance
(which in fact does represent "political" objective) but rather in relation to the
attainment of a situation of financial equilibrium which can enable the electric
~ power agency economically to deal with the development of investments.
Cansidering the second of the two fundamental assumptions~guiding the draft of the
Electric Rate Reform Committee--that is to say, that the efficient use of electric
energy is automatically assured by a rate structure which will reflect the pro-
duct.ion costs in a speculative manner--we can observe that the determination of
cost configurations, wnich can be used as objective base for the determination of
sales prices for each of the classes in which electric power users are usually
broken down, will necessarily be arbitrary in view of the character of the combined
.product represented by electric energy.
It follows from this that the guarantee of efficiency, which should give the rate
system correspondence between costs and price~, in practice turns out to be entirel~y
fictitious.
There is another observation, of a more general nature, which we can make on the
ministry study; it deals with the criteria used in determining the costs relative
~ to the various classes of users.
The method of sharing in peak-time output, adopted in the document we are examining
h~re to distribute the costs among the various classes of users, as a matter of
fact ignores the relatior_ships existing between the various methods of power use
and the dynamics of costs; this consequently give us a price system whicln shows
how rates are still essenti311y conceived as a patternfor yields and not also as
; an instrument for regulating the demand. .
4.3.3. Some Observations as to the Method
We have summarized the objections to the assumptions used in the committee report
and we also want to introduce some ideas which will enable us to evaluate the
characteristics and the limitations of the rate methodology employed in the ana~.ysis
in question; we also want to be able to comment in greater detai.l on the puints
discussed earlier. We will therefore try to do the following:
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a. To emphasis the relationships which still exist, both Qn the level of the
electric power system and on the level of user classes, between the demand for
electric power and energy, and the cost of the latter's production, transportation,
and distribution;
b. To evidence the approximations which inevitably result from any effort to sub-
- divide the costs of electric service into fixed costs and variable costs;
c. To show how the distribution of fixed costs among the classes of users, based
on the adoption of one or the other possible method, can lead to different re-
- sults .
Electric energy supply is marked by a zero "standby time" in the sense that, a.t any
instant, the generation of electric energy can become quantitatively equal to the
demand expressed by all users taken together; consequently, the dimensioning of the
production, transportation, and distribution plants must be such as to permiti not
~ only the satisfaction of the total energy demand arising in terms of time in the
electric power sy:;tem but must also guarantee the coverage af maximum instantaneous
power demanded in the grid.
As a function of the above-mentioned circumstances, the total electric energy pro-
duction cost seems to be divisible into two fundamenta~ components: the "fixed
_ component" which, being essentially dependent on the capacity of the plants, can be
~ considered proportional to the value of the maximum power taken out and the "variable
component" which instead can be directly tied to the quantity of e~ergy produced.
~
The breakdown of the total cost of electric energy supply into the "fixed" part and
- the "variable" part however is an extremely simplified representation of the total
electric energy cost structure. There are as a matter of fact certain cost classes
which, although they are extremely rigid, while the energy produced varies (that is,
energy consumed or sold), do not seem to depend on the value of the maximum capacity.
Examples of this are the general expenditures, the billing costs, the administra-
tive and commercial management costs of the electric utility, etc.
A more rational subdivision of the electric energy cost can therefore be provided
by referring to the cost breakdown as follows28:
a. The energy costs, comprising the costs directly chargeable to the quantities
of energy produced (and hence made up mustly of fuel costs);
b. The power costs: more directly connected with the power produced and used in
the electric system (financing expenditures, amortization of plants, portion of
expenditure for personnel, etc.);
c. User costs: identi�-iable in the complex of billing expenditures, administrative
~ and commercial management expenses, consultation, etc.) which are part of the "user
service" factor.
Overall, the use and power costs constitute the class of fixed costs while the
- energy costs are identified as a matter of fact with the variable costs.
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The subdivision of electric service costs into two parts or three parts among the
classes indicaCed above raises some problems of charging which it seems a good idea
to point up here. In the study prepared by the Committee for Electric Rate Reform,
for example, the fuel cost was considered entirely as a variable.cost.
- In reality, keeping in mind the decreasing ratio between specific fuel consumption
and power taken out by a thermoelectric unit29, we can say that, more correctly,
- the expenditures in question should have been partly charg~d to fixed costs. We
observe, for example, that the British production agency~(the CEGB) charges the
latter with a share of the cost of fuels used in each power piant on the basis of
the formula 100/(100+12.8 L).where Z is the load factor for the power actually
taken from the power plant. Considerations of similar logic could be entertained
regarding a more "preci~e""Jistribution among fixed costs and variable costs, on
the one hand, and expenditures for personnel, r~aintenance, hydro-geo-nuclear-
thermoelectric production, lubricants, etc.,. as well as a series of expenditures
not directly tied to the physical process of electric energy production, trans-
portation, and distribution but nevertheless connected with the operation of the
electric power service which, in the study, are si~ply lumped together in one or
~ the other. of the three classes considered. .
~What we have said so far thus boiJs down to the fact that the fixed and variable
- costs can assume different values, as a function of the charging criteria chosen30,
The process of distribut'ing the total electric service cost among the various user
categories furthermore involves "approximations" which are considerably more
significant than those we have mentioned so far.
The subdivisions of power costs among the various user classes, in particular,
implies asaumptions which--because of the broad degree of sub~ectivity character-
izing them--lead to results that cannot be clearly spelled out.
This is confirmed by the variety and plurality of ineth4ds which, since the beginning
of the century, were proposed to solve the problem of assigning the costs of power
to the various classes of consumers3l.
The basic assumption behind all of the methods for the distribution of power costs
is that the previously mentioned fixed costs essentially depend on the total maxi-
mum load of the system.
The agreement among "positions" which turned out to exist regarding the identifica-
tion of the main element that generates the fixed (power) costs however does not
spring from the fundamental objectives of these distribution procedures: that is,
the determination of the total fixed costs which must be charged to each con-
sumer category.
Although there is unanimity in the conviction that each class of user influences
the volume of power costs in a manner proportional to the "weight" with which it
participates in the formation of the system's "peak," opinions regarding the share
of fixed expenditures to be charged to each of them do diverge profoundly.
This basic divergence on the "charging philosophy" has led to the def inition of a
series of power cost distribution criteria which can be arranged in the followin~
two categories:
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a. Criteria on whose basis the assignment of the above-mentioned costs to the
cor.sumer classes is made exclusively with reference to the power parameter (.for
example, the power taken out when the system is at its peak, the maximum power,
etc.) ;
b. Criteria on whose basis each user class is charged with the costs in question
- keeping in mind not only the power taken out of the grid but also the time factor
involved in this power use. ,
We note that the differentiation between the two categories of inethods is not tied
so much to the diversity of distribution "instruments" used (only the "power"
parameter or the "power" parameter combined with the "timE." parameter) but rather
the diverse "ob~ects" for which the fixed costs are "cha.rged": using the cri-
teria under (a), it is the class of users which is taken as the reference point
for the charging process; using the method under (b), it is the commodity furnished
to the user (the kilowatt-hour).
In the ministry study we are looking at here, as we know, the fixed power costs
were "distributed" among the various classes of users in proportion to the power
taken out by each one of them in ~.etermining the system's peak output (method of
peak output participation).
Regarding thechoice of the above-mentioned criterion, we can note tWO points. First
of all it is assumed that the method--although it may look easy to apply--can lead
to a distribution of fixed costs which is rather debatable when the values of the
coefficients of participation in the peak power used are not constant in terms of
time but reflect the structure of the load curve at the particular moment of
maximum power in the system. Keeping in mind that the maximum peak of the ENEL
system can materialize with similar probabilities both in the morning and in the
afternoons,so as to present a di�ferent structure, we cannot rule out the possi-
bility that the adoption of the criterion in question32 may have led to a sub-
division of the fixed costs among the various classes ~f~ users which is not "in
line" with the normal characteristics of power as such --in spite of the use af
an average value for the peak-time participation coefficients.
It seems to us that we must observe, second, that, due to the use of the method
of peak-time participation, in the analysis developed by the Electric Power Rate
Reform Committee, no consideration was given to the fact that any energy taken out
of the system, even if this is done during "off-peak" periods or even if it is
marked by a power value less than the power figure taken during peak hours, since
it nevertheless involves the use of power generating, transportation, and dis-
tribution facilities, should be "charged" for an albeit minimum share of the fixed
cost.
A rigorous application of this method on the other hand would mean that we would
- not be charging any fixed cost to user classes with zero power taken out when the
- system is at its peak although the volume used would be significant during other
periods of time which are also close to the peak time. This is the case, for
- example, with public lighting which is practically nothing during winter-time
- peak-hours in the morning but which is at a maximum in the evening during the
winter-time peak.
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In recalling that the use of distribution criterion ~ased on the combined utiliza-
tion of the two parameters of "time" and "power" would have made it possilile to
give the above-mentioned circumstance a precise economic significance, to consider
it useful to conclude these brief observations, evidencing, through the examplea
given in Appendix 2, how and to what degree the total fixed costs,"chargeable" to
the individual user classes, can vary as a function of the distribution method
adopted.
The distribution of energy costs and the distribution of user costs looks less
~ problematical than the distribution of power costs.
- Regarding e~iergy costs, we note in particular that, although the assignment of
energy and power losses to each of the stages constituting the segments of the
plant structure of the electric energy production and distribution enterprises
and/or the individual classes of users also raises a problem of subdividing the
_ "common" process costs, the usual distribution methods (which are specif ically
illustrated by way of example in the report) involve levels of approximation rather
than acceptable levels.
Sut that does not mean that the cost configuratians, deriving from the application
of the above-mentioned methods, can be considered "exact" figures for tfie actual
variable costs. In addition to what we already observed on the method of charging
the three classes of costs considered in terms of fuel, maintenance, personnel,
ete., as well as regarding the lo~ses, we can as a matter of fact reveal that the
distribution of variable costs as the function of an average value determined on
the overall level and properly corrected to take into account the different ef-
fect of tt~e losses, in fact signifies ignoring the fluctuations to which the propor-
tional energy cost is subjected due to the changes which take place, in terms of
time, in the mix of the generating units in operation.
4.3.4. Some Concluding Considerations
The analysis made so far enables us to draw some conclusions regarding the opera-
tio~t:il signfiCiance which, in a rate reorganization project, may be assumed by the
"sectur" costs that can be charged to the individual user categories as well as the
- parameters in relation r.o which the rationality of a rate system shapes up.
It seems a good idea to point out that what we tried to show in the preceding pages
is not so much the character of "constitutional unsuitability" of "sector" costs
when it comes to represen~ing the different economic content associated with the
elementary demand coming from the individual use categories, but rather the close
dependence existing between the value of such costs and the criterion for the dis-
tribution of common costs actually adopted.
- It seems to us as a matter of fact that while, on the one hand, it is correct to
s~ay that, in spite of the intrinsic artificial nature~ the above-mentioned cost
c.onfigurations constitute a by no mzans inacurate measure of the differentiations .
~:aused by the various ways in which the technical parameters that distinguish each
,supply form "work," it must on the other hand be quite evident that the indi cations
furnished by them have a meaning only if they are understood with reference to the
logic implied in the methods of distribution of electric utility Gosts among the
uscr categories.
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- '!'liis logic is devoid of any intrinsic objectivity but does find justification in the
objectives which we seek to attain througfi the distribution of cou~on costs; this
logic as a matter of fact is subordinated to the ultimate goals which we intend
- to pursue with our price policy.
The rationality or irrationality of a rate system thus should not be evaluated so
much as a function of the existence of a"formal" coincidence between the costs and
the prices of electric energy supplied to the individual user categories but rather
in relation to the suitability or nonsuitability which the rate system itself pre-
sents in terms of satisfying the needs in relation to which it was designed.
, If, for example, we assume--as seems to have been done in the electric rate reform
study--that the rate system should essentially bE functional in terms of attaining
_ certain objectives within the economy of the electric energy producing and dis-
tributing enterprises, tliat is to say, that it should make it possible to cover the
enterprise balance, to guarantee smooth commercial management of the particular
utility, to guarantee flexible commercial management of the user's operation, etc.,
then it is clear that the price system currently in force, properly updated on the
' basis of the conclusions arrived at by the Electric Power Rate Reform Study
Committee, can be considered rational.
IE on the other rand we say ~hat electric energy price policy should be aimed not
only at attaining the above-mentioned goals but also at making the demand turn out
to be more compatible with the urgent requirements dictated by the country's energy
situation, then there is no doubt that the proposal for electric power rate reform,
submitted at the end of 1974 by the above-mentioned committee, would have to be
subjected to revision.
Ttie need for a change in ttie operational functian "traditionally" performed by the
rate system emerges in relation to the prospects which shape up in the energy field
f~r ?r~ly in short-ranQe and medium-range terms.
It is realistic to think--as was brought out in a recent analysis by the IEFE~4
and as demonstrated by the preparation, by the ENEL, of an electric service back-
up plan--that there would have to be, in short-range terms, a critical condition
in the electrical system marked by shortages during "peak hours." This critical
situation could be further accentuated through the manifestation of a form of energy
shortage during the middle years of the decade of tfi e eighties.
In lociger-range terms, tlie situation could improve and the supply could turn out
to be suitably commensurate to the demand; this is so even though the estimates of
= the changes that could develop in medium-range terms in the electric energy produc-
tion system might be more chancy tfian the earlier ones, essentially because of the
- uncertainties that still hover over the strategic choices concerning the way to
pr.oduce electric energy.
It seems ho~oever that we can say that, very probably, petroleum derivatives will
continue to represent the dominant energy source throughout the entire span of time
to which these conisderations pertain; this is so because of the unknowns inherent
in the implementation oF nuclear electric power development plans, tfie complexity
of probl_ems connected with the use of coal to the degree recently hypothesized by
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the 1?NEL, and the marginal nature of additional contributions from water power and
geothermal sources which have not yet been exploited.
Looking at these prospects it appears evident that a government policy of electric
- pow2r demand regulation, centering around price controls, aimed at reducing the
demand during peak hours and the discouragement of "improper" uses of electric
energy, can constitute an important strategic instrument for the following purposes:
a. Yrevention or "containment" of presumable peak-time power shortages;
b. Acli~evement of energy s.zvings during the utilization phase;
c. Containment of average electric energy production costs35.
It must however be kept in mind that the modulation of loads and the discouragement
of improper uses of electric energy constitute two objectives of rate policq which
may turn out to be in conflict with each other.
We can observe as a matter of fact that, for example, a strong differentiation
~ between the prices of electric energy taken during peak hours and those during other
periuds of time in the course of the day, could on the one hand promote a signifi-
cant reduction in the peak-time nower demand--thus helping in the attainment of
the objectives spelled out under (a) anc: (c), whereas on the other hand this might
also give rise to a further and undesirable increase in improper (heat) uses of
electric energy.
This contradiction however can be straightened out in our opinion by implementing
a rate maneuver designed to take into account both the prices of the other energy
- sources and of the peculiar characteristics of the various segments of electric
power demand, and to resort to suitable measures of a normative character.
- It was therefore considered advisable to develop some summary considerations on
the limitations, on the operational possibility, and on the tie-in of the rate
maneuver as an instrument for regulating the demand in the various segments of the
electric power market.
4.4. Some Aspects of Electric Power Load Control in the Various Segments of
Demand Through Rates
4.4.1. Electric L'nergy Supply for Public Illumination
As far as the use of electric energy for public illumination is concerned, it is
believed that--in view of the distinguishing characteristics here--it would be
quite difficult to produce significant effects in terms of consumption rationaliza-
tion through rates alone.
~ As we know, public illumination is a service which is not only linlced to the use
of e.lectric energy but which is also characterized by rigid service hours, strictly
depending on natural lighting conditions.
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It follows from this that, while, on the one hand, we cannot really suggest replacing
electric energy with other sources, on the other hand, there is no real specific
possibility of making any shifts in the power load actually taken out of the system.
It is noted in this connection that taking electric energy for public lighting pux-
poses is something which as a whole figures in the makeup of the winter-time 2veit-
ing peak load while, during the summer, its effect on the maximum load is zero.
In spite of the above-mentioned characteristics, public illumination still repre-
sents a sector where the rationalization of electric power demand can have a cer-
~ain significance.
Recent surveys36 as a matter of fact demonstrated that, by. replacing incandescent
bulbs with [high-intensity] flood lights, it would be possible, without changing
the "quality of service," to reduce the quantity of energy and power actually
taken out by the user facilities in question by about 18 percent. Although they
are not conspicuous in relation to the overall dimension of the electric power
demand, these savings, it seems to us, nevertheless make it advisable to launch
promotianal initiatives in support of the introduction of the technique indicated
above.
- The following could be instruments far such initiatives, rather than manipulating
the prices of electric energy sold:
a. A timely change in the standards currently asked by the ENEL--as a counterpart
to the maintenance operations performed by the agency itself--of the community
administrations regarding illumination equipment;
b. .A selective grant of preferential loans which the laws currently in force
provide in support of local administrations to put up public illumination facili-
ties.
While it is undoubtedly a fact that a rise in electric energy sales prices can
get users to hold consumption down through the adoption of equipment with a higher
lighting efficiency, it is just as indubitable that, in this sense, a much more
effective stimulus might be provided by either increasing the cost of maintenance
_ of facilities equipped with incandescent bulbs as far as the community administra-
tions are concerned, or by handling the above-mentioned financing support in such
a way as to get *_hem to contribute toward the improvement of the energy yield of
the public illumination grid.
4.4.2. Llectric Energy Supply for pomestic Uses
- The situation on the domes3~c market for electric energy, essentially, as it emerges
from available information is characterized by a complex of circumstances among
which the following are of particular importance in our opinion:
a. The current dimension of the social slice is such as to permit--as was under-
scored earlier--"improper" uses of electric energy at preferential prices;
b. ~lectric energy consumption for "heat use" turn out to be growing rapidly abuve
all in the country's south-central areas; in this connection it is important to
consider the rapid spread of electric hot-water heaters in the above-uzentioned
ares (see Table 4);
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c. The sensitivity demonstrated by domestic power demand regarding price fluctua-
tions is such as to make us assume that conditions of necessary "elasticity" exist
fox the development of initiatives, including rate initiatives, aimed at rational-
izing cansumption.
Table 4. Use of Electric Water Heater in the Various Italian Regions in Percent
of Domestic Users -
19GJ 1971 t 9'T',
1 Fiemonte :?,7 ` l13,G
V,ill~! I)'An~L~ ~I(1,! !I~;,F~ 4G,4 �
2 I~>na,ut'.li~i ll~,? :'~I,~ 23,:' ,
7'n~nLi.no Alto A.ligc 23,6 24,1 2t1,4
venet~~ 15,4 15,5 16,9
I~riuli Vrnczia Giulia 12,4 9,8 11,5
t.i�iri.~ 19,2 23,9 ~ 18,i)
Pmilia Ruini~~:~ 1A,0 ~ 14,F ~1?,"l.
3 Toscana 46,3 47,8 ~:o,o
, Umbria 23,3 43,5 .',9,0
Nrlrche ~ 23,A 27,7 z3~~~ .
- ' ~ Iazio 51,9 65~4 ~7~7
Abruz::i 1G,7 28,0 U3,2
_ Ma:ise ?3,4 2?,~ 33,;'
C.~ur~ania 3F,~ 45,E 59,b
[~i~;lia 27,? 3i,4 5(~,`~
r~.~siliclr:. 17,? ~5,~ 31,~~
Ctilabri
is also commander of the Foreign Legion) comprises two regiments of professionals:
the legionaries of the 2nd foreign infantry reg3ment (RET) and the infantry
soldiers of the 21st infantry regiment of the navy (RT-Ma). To support it, some-
thing really big: a squadro n of ANI~C 30 tanks of the 501~t comhat tank regiment of
Rambouillet. In all, less than 3,000 men.
This brigade, an outgrowth of the pro~ects of Genera]. Lagarde (former general
- chief of staff of the land army) is an addition to the other two ma~or interven~
tion forces: the llth paratroopers division based in 7.bulouse (12,500 men, a
do zen reg3ments, 55 percent professionals), ~hich is under the co ~nand of General
Jean Schmitt; the 9th infantry division of the navy (8,500 men, 50 percent pro~
fessiA nals, half a dozen regiments), under the orders of General Raoul Brediche
in Saint-Mala.
Capacity. Backed by squadrons of the tactical air Porce and naval aviation, sup~
ported by three squadm ns of helicopters of the 2nd regiment of combat helicopters,
the 31st brigade succeeded perfectly well in its air-land~sea exercise: the dis~
embarking oii Corsican beaches of 2,000 men, 14 AN~C 30 tanks and 250 vehicles,
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thanks to the transport ships supplied hy the navy, itself represented by the air- ;
craft carrier, "Clemenceau," and two dispatch vessels. The brigade's working
principal had been identified in its instructions: "musc~.e up" the intervent3~on ,
forces thanks to an armored and amphibious comprehensive unit "capable of bei.ng ;
involved in foreign action, especially in the Mediterranean." ~
~ 'Two recent Etxperiences have emphasized the efforts to be made. In Lebanon, the ,
units of the French blue helmets were overtaken by the arming of the Palestinian
_ militias. In Chad our paratroopers had nothing to put up against the multiple ,
rocket launchers of the rebels, army by the Libyans; their light automatic machine .
guns (AML) with a 90 barrel could not penetrate the armo r of the T 54 tanks; they
were almost unprotected against the MTG 23 of Soviet manufacture. ,
Weaknesses. Operatin nal on land, the 31st brigade lacks the indispensable means o~ ~
transportation. The navy, for landing in Corsica, could supply it only with three ~
available ships for landing. WYth t-oo times that many ships, it still would have E
taken 10 days to land the entire lat of the briga3e's armored vehicles. Thus there I
is m connectio n between the navy's transportation capacity and this single unit. ~
- ' i
For airborne troops the weakness is identical. ~Only the Leopard element (400 men, '
two co mbat co mpanies) can be carried off by air withi~i 6 hours by the three DC8s
or the military air transport Transalls. The latter has a c.arrying capacity of
300 tons in 24 hours to a distance of 5,000 kilometers. (Soviet capacity .20,000 ,
tons, i. e. , a division. ) ~
This transportation undercapacity leads the military men to call for the requisi-
tioning of civilian means in times of peace: airline companies, merchant marine, ;
SNCF (French Natin nal Railroad). Not forgetting the risks which that can involve: ~
potential blockades, union resistance, control dy the Communist minister of t~ans-
portation, Mr Charles Fiterman.
Equipment weaknesses also. The 21st RIMa is awaiting deliveXy of the Ai~( 10
- armpred vehicles to replace its AML90s, now outm.~ded. The AN.IX lOs with wheels
are arcned with a 105 gun, clearly more powerful and having a greater range than that
of the AML. The 21st RIMa will also wait for the 120 milimeter iro rtars, the
battery of 155 guns, etc. Similarly, the 2nd foreign infantry regiment has mt
redeived for stock the entire number of its front-armored vehicles CVab), troop
carriers mounted on w::sels: it is still equipped with "tactical delivery vans."
The foreign asaistance forces' problems is equipment and in heavy transportation
by sea or air (despite the productiD n of 24 new Transalls which henceforth can be
_ provisioned in flight) will come up again in th~ next military glanning exercise.
nao yeara hence.
COPYRIGHT: 1981 "Val eurs actuelles"
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