Not the brightest bulb

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If people didn't use electricity, we wouldn't have blackouts. We also wouldn't need an Electricity Minister.
If people didn’t use electricity, we wouldn’t have blackouts. We also wouldn’t need an Electricity Minister.

Electricity Minister Jesse Chacón said today that the government would raise electricity rates so that people who use too much electricity begin to pay more.

This is a terrible idea.

On the surface, Chacón’s idea would seem to make sense. The electricity sector is bankrupt, and part of the reason for this is that rates are heavily subsidized. Hence – in theory – raising rates would bring much needed cash to the industry, and this would speed up necessary investments to slowly bring supply in line with demand.

The problem for Chacón is that raising electricity rates is not going to do much in an environment such as Venezuela, with its astronomical inflation rates.

Suppose the rates go up by (gasp!) 30%. After a year, when the price of everything has also gone up by 30%, you will be left with the same undervalued electricity rates we have right now. The rate hike will be useless because all other costs – the cost of the machinery needed to increase production; the cost of labor needed to produce electricity; and even the cost of the paper your electric bill comes in – will have risen. What economists would call the real electricity rate – that will not have budged.

Aside from that, the industry needs investment now. As in yesterday. As in six months ago. Raising rates now will only (marginally) improve the cash flow for the company … six months from now. It does nothing for the pressing cash shortages the industry is facing currently, courtesy of Chávez’s boneheaded electricity policies.

The worst part about this proposal is that the government will pay a heavy political price for the rise. It doesn’t matter that the hike in rates will be a thing of the past in a year’s time – the government will still suffer from it. With Chacón, you get all the minuses, and none of the pluses. It’s all bone and no meat.

The Chacón recipe is drenched in stupidity – then again, this is the same guy who said the problem was a bloated workforce, but that he was not going to fire anyone from the industry. With this new proposal, people will be paying higher rates for the same crappy service they get now – which in Chacón’s dimly-lit mind surely means soaring customer satisfaction.

The solution to the problem of subsidized electricity rates is easy: indexation. Electricity rates should go up alright, but their level should go up with monthly inflation. In fact, many things here in Chile rise with inflation, and their prices are calculated on a daily basis according to the monthly inflation rate from the preceding month. It’s all done automatically.

With the current rate hike proposal, Chacón depletes political capital with very few benefits. It’s a lesson in profound stupidity.

1 COMMENT

      • it’s all the same. these guys take the theoretically correct measure (devaluate, lower subsidies) but do it half-assedly and thus their effect is nill. what happened with the devaluation? the market immediately processed it and the parallel rate went up. jc is right. inflation will eat any price hike.

        they could have devaluated de verdad, verdad (more than 100% probably) and they could have raised electricity prices by more than inflation (and then perhaps tied it to inflation?) but these guys are all chickenshit. the politics just don’t work for them and so they take the economy out back and hit it with a two by four.

        and they call us apatridas? por favor… estos tipos estan jodiendo la vida de las generaciones que vienen, one burrada at a time.

        • I’d say it’s a full ass and ass backwards… Quoting TBBT they “…manage to screw up a screwup”.

  1. Hey, at least they are TRYING to apply economic theory. It makes more sense than trying to increase minimum wage when the unemployment rate is going up…

      • Basic microeconomics. You raise price, the quantity of demand goes down…

        The problem with the approach the government is taking is that in order to lower the quantity of demand, you need to look at “real” prices (adjusted for inflation), which they won’t do….

        To put it in everyday terms, if inflation goes up more than the price of electricity goes up, the amount of electricity used would actually increase (at least theoretically, because it is cheaper relative to everything else)….

        The sad thing about the government’s strategy is that the price of electricity is one of the primary drivers of inflation, so in reality it is a viscous cycle they are getting themselves into…

  2. Juan, I don’t have the exact figures, but some 30% of Venezuelan electricity is simply stolen by barrios ( major cities in Venezuela are on average 60% barrios in population), and another 30% or so is used by/not paid for by Government industries/offices/”privatized” companies. No amount of rate jiggling will fix this problem….

    • Just my thoughts… And I was left wondering, whether privatization or nationalization, or turning it over to the Martians could help in such a lawless land as Venezuela where they are even bound to murder electricity technicians trying to cut the stealing down, or make people pay rates… Mmmh, whoever it might be, they’d better have advanced technology, I mean military technology, not limited to drones and hazardous areas robots.

    • This is so true. One time analyzing CANTV, when still was not completely para el pueblo, the amount of debt of Ministries, institutions , and so on, was Hideous. So extrapolate that to electricity. And counting that the major employer is the Government…If they start paying their debt well something…And ok let’s put high prices for a basic? service? so i would pay I don’t know 50$ for having electricity maybe 4 or 5 days a week? really nice…

  3. Wouldn’t it be fun if EVERYTHING in Venezuela were indexed to inflation? Wages, gasoline, food, medicine, rentals on public housing…..everything! Can you just imagine the chaos? Wow.

  4. Juan raising the price more than bring in extra revenue would reduce demand and help alleviate somewhat the problem

    • Raising the nominal rate accomplishes no decrease in demand because the real rate is left untouched.

      • What annoys us about this post is that the econ teacher in you KNOWS this is wrong.

        Seriously, if one of your students handed in an assignment saying that leaving the real cost of a good does not cause people to demand less of it than they would if its real cost was to fall by 30%, what grade would you give him?

        • “leaving the real cost of a good does not cause people to demand less of it than they would if its real cost was to fall by 30%, what grade would you give him?”

          This makes no sense. It’s missing a word.

          The problem with your argument is that you think decreasing demand, even in the slightest, is the goal. No, the goal is solving the electricity crisis. ¿Tanto te cuesta tener empatía por la gente que sufre los apagones?

          • This makes no sense. It’s missing a word.

            Goebbelsian, perhaps? Maybe with 3 adjectives before it?

          • Yes, this is way too demagogic for me. I would agree that waste is not the whole problem and reducing demand will not fix the whole problem, but that indexation idea is just absurd.

        • With all due respect, Mr. Toro, before you appeared to me as a sincere debater who did not silence his ideas because of political correctness or whatnot -something which I profoundly appreciated. Now, however, seeing how and in which tone you reply to some of Nagel´s posts, I find your attitude a bit like that of a bully. It definitively does not help the image of the blog.

          In any case, I am an economist here. Your question indeed seems to be missing a word. At least in the most benchmark model Nagel is right -it is real rate of electricity, not the nominal rate, which affects demand for electricity ultimately. The only caveat that I can think of that you might be referring to is that consumers tend to be risk averse and as such will prefer less monetary value without volatility than a higher expected value with volatility, which means they would prefer to consume a bit less, if nominal rates go up, out of a natural austerity impulse.

          At the end of the day I also agree with Nagel´s main point: the policy will be futile -it will increase inflation, which has welfare costs, while barely reducing demand.

    • 1. Reducing demand would take pressure off of increasing supply.
      2. Increasing rates would increase revenues that could maybe be used to increase supply, and thereby reduced pressures to increase rates later on.
      3. I’m not clear if rotating blackouts reduce demand or not. I’m sure some of the demand is just delayed. However, increasing rates on large users, i.e. factories, would cause many of them to produce their own electricity by buying generators that operate off of cheap gasoline, if they haven’t done so already. That in effect would increase supply.

      • In the short run a rate hike will reduce demand and increase revenues helping balance the system as people already struck by rising inflation struggle to make ends meet , in the long run inflation (to the extent salaries catch up) will make the rate increase produce diminishing returns until everything is back to where it was before causing new rate hikes to be ennacted, Making factories substitute publicly generated electricity with self generated electricity will increase fuel and diesel consumption ( at subsidised prices) which hurts Venezuelas oil revenue . Not often noted is that Venezuela’s system shows the greatest transmission losses in Latin America, much of the electricity produced is lost in transmission which of course does not help supply,

  5. So according to this new & exciting economic theory he should drop the rates, right? If prices go up, demand falls regardless of whether the call was made by Jesse Chacón or Jesse James. Everyone that lives outside the country and has had visitors from Venezuela knows that you have to follow every single one of them turning air cons and lights off. They are that wasteful…

    As good’ole Joselo would say “critican por criticar”

    • that made me laugh. But it’s just because electricity is so cheap (or free) in Venezuela, I think. Why shut the windows and doors when the air-con is on, if it doesn’t cost anything?

    • No, they are assessing a system that is way beyond screwed up. Controlling inflation and reining in a bloated electrical bureaucracy comes before adjustments, they say so in few words.

      Hikes maybe bring rates up to acceptable levels (for last quarter!). With inflation, you would need then to hike again later, and because the government tends to procrastinate, it would be another substantial hike. This is unpopular (I care about Chadurismo’s popularity, that it goes to hell irreversibly, that is, so this is actually good) for people whose livelihood is strained by inflation. And it is bad on the economic side too.

  6. What Juan means to say is that it’s an incomplete idea. That makes it not the smartest move, but technically still a pass mark (barely) . The message of this post is muddled: criticising the minister for doing something you actually agree with in part, while also criticising the minister for making a costly political move which benefits the opposition. Which side are you rooting for here? You should be applauding his decision in both respects.

    • Excuse me – the Minister should be solving the electricity crisis. Half-baked ideas that don’t really get us anywhere are not the way to go. This is not about “moving in the right direction” it’s about getting the lights to work properly. You can’t have a “half blackout” just like you can’t be “half pregnant.”

      • You can have half as many blackouts though. A step in the right direction is still a step in the right direction even if you do not care to acknowledge it as such. That he should be working on fixing the crisis is not in dispute, but things are not black and white – the crisis is caused by multiple factors and will require a multi-pronged approach to solve. Increasing prices is part of the solution and you’ve admitted as such. I stand by my original comments.

        • The way i look at it is that a one time price increase is worse than nothing. If you’re going to start messing with electrical rates, it needs to be done right the first time: you need to switch to a floating rate. A one time increase will inevitably be presented as a solution, and even if it isn’t, most people will expect that is it. Later stacking further increases on will piss people off even more than the first one, given Venezuela’s history you’ll probably just need to roll them back.

          Think back awhile, I think every Venezuelan agrees the gas price increases preceding the Caracazo were worse than useless. Gas remained too cheap, but addressing the problem got delayed until who knows when.

          • Good point. If nothing else, this makes it easier to apply a real fix, rather than having to do it all at once. Consider this beginning to boil the frog, if you will.

          • Perhaps, it depends on how people react. Will they not notice such a small increase or will it drive people to the streets?

            Agreed its great too see Chavistas try to tackle it.

  7. “Half-baked ideas that don’t really get us anywhere are not the way to go.”

    Chavismo modus operandi = dead end

  8. Something to complete Juan’s point is that at the moment Venezuela’s per capita consumption has slowed down in comparison to our neighbors.

    http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&ctype=l&strail=false&bcs=d&nselm=h&met_y=eg_use_elec_kh_pc&scale_y=lin&ind_y=false&rdim=region&idim=region:LAC&idim=country:ARG:BOL:COL:CHL:VEN:URY:BRA:CUB&ifdim=region&ind=false&icfg&iconSize=0.5

    The question is of course if could the demand be lessen is prices are increased? To what extent? Services that are inherently monopolistic are pretty inelastic. (http://www.climatechange.ca.gov/eaac/comments/2009-10-08_Sacramento_Municipal_Utilities_District-Attachment%202.pdf).

    Interestingly enough a radical increase in electric energy price would lead to people to source their own electric energy from fuel given that gas is basically free. Both natural gas (which is pretty scarce) and petrol.

    Will a sudden increase in price alleviate the demand? I doubt it. Could it help the financial hole? Maybe, if resources are spent efficiently. A friend’s barber is in Corpoelec’s nomina. He doesn’t do anything there. He just goes to cash a check.

    Also, is the big chunk of the demand in regular consumers? How much does PDVSA ows on its electricity bill? Sidor? How much are we loosing on distribution?

    Notice that his first action item is trimming along power lines, which may sound silly but there may be where you get the biggest bang for your buck. Also, our substation systems are extremely outdated. There is where you could find also great opportunities to improve the grid reliability. Another thing is that he is not pursuing the sabotage theory. The problem is their own (I can’t believe that the bar is so low that I give him credit for that).

    The truth is that the problem is not solvable in a 100 days. It will take many experts and it would help a lot to actually have private companies that would handle generation and the state runs the distribution.

    • Also, I am all for increasing the prices tot he point that there aren’t any subsidies. With the current scheme though those prices would be very high due to the inefficiency of the supplier.

      On the question on who demands the most, in page 44 there is a pretty chart:

      http://159.90.80.55/tesis/000155089.pdf

      It shows that if you really want to tackle electricity demand, then talk to the metal mills first.

    • Lowered consumption rates may be due to the draconian cuts imposed on the guayana industries ( the coutries heaviest consumers) crippling them operationally and financially. Something which the regime does to atempt to sattisfy the demands at big population centres at great sacrifice to the countrys economy.

  9. Juan, I’m not sure but I think you are addressing a different goal than they are. The point of their rate increase is not to get cash, but to A) scale the rate increase to stimulate lower demand, while B) taking a greater percentage from the rich, which they assume can be generalized by those who use more electricity.

    I’m against their proposal but for different reasons than you provide, and also against your counter suggestion of indexing the rate to inflation.

    I’m against their trying to use price to change behavior. Temperature is to thermometer what price should be to value. Consumers should then decide whether the price is worth the what they get in return. Any policy that distances price from a true measure of what is provided in exchange should be an automatic no no.

    I’m also against their attempting to use the rate of electricity as if it were a taxation, with a greater bracket for those with more money. Again, this is ideological, and messes with the price as a measure of value. It would make sense to charge more based on time, because increasing the electricity capacity of the total system is contingent on the amount of electricity demand at peak times, not at other times. But not to charge those who use more, because perhaps they are wasting it less, for instance, refrigerators for food distribution businesses, even low end ones.

    The premise of your example regarding a 30% increase of electricity followed by a 30% increase in inflation is flawed in that the 30% increase of electricity *is* already part of the increase in inflation. The inflation of 30% is not independent to the increase in the utility. If I suggested a 50% increase in electricity, inflation would be more than 30%, because inflation would include the additional increase in electricity.

    The indexing makes things even worse, because electricity leans more on the inelastic side, while being a cost for almost anything else produced, thus affecting costs throughout the market chain in a non linear fashion.

    The key word for any successful proposal has to be efficiency. Any solution has to be based on maximizing production while minimizing costs. Price is supposed to *reflect* changes in production or cost structures; it does not *change* production, nor the cost; it only makes it more or less competitive to a consumer. So I do agree with you that they need cash to invest in either increasing production or reducing costs, and that increasing their rates will do little in getting that investment cash in time to make a difference before inflation catches up with them, but I would emphasize the root of the issue more: Efficiency.

    I think Chacón will quickly start feeling his hands tied in achieving efficiency the way all private industry is feeling the same when he sees he cannot fire anyone, that he has to increase salaries, that any purchases have government policy cost and time constraints imposed by the very government he represents. etc.. It’s too bad that running the government is the way these guys get to learn their econ 101 lessons, instead of hiring people who already know this stuff.

    • Extorres,

      I agree with you in every point. One thing I would like to comment is on is price as a measure of value. I agree with the statement out of principle but in practice, price tends to represent values in efficient markets (lots of participants, blah blah). Pricing electricity is quite a challenge since there is no technical possibility (to the end consumer) to choose between different utilities based on their value proposition.

      The most effective systems that I have seen are those where generation and distribution are two different entities, Electrons are treated like a commodity (and they are) and an array of companies sell their electrons (and electron availability) in a marketplace in which price fluctuates during the day. The distribution companies buys the electrons starting from those that are cheaper and as the cheap offer disappears, goes to the more expensive producers. This is then translated to the consumer by a state run or state regulated distribution company who exerts a monopoly on the electrons to the final consumer.

      Electric pricing and regulation is an extremely complex. I think it is fascinating. But free market theories don’t function as you think. Distribution also is very expensive with very low returns in capital investment. Specially for rural areas. It is almost impossible without government intervention.

      • Rodrigo Linares, I think we agree but express with different words intending to mean the same thing. Price is limited not only by what you describe (i.e., a non competitive, or non free market) but also in this case by the lack of elasticity, which tends to get suppliers to raise prices whenever they need money.

        We disagree, however, as to the possibility of creating a competitive environment for electricity. Governments just don’t promote the various methods. I think that promoting competition (as opposed to the usual: subsidized energy) in the energy sector would be a game changer in energy consumption and production, therefore pricing.

        Just to be funny, I’d like to point out that with alternate electricity, the electrons are not a commodity because they are not travelling, they just shake back and forth. 🙂

        I disagree in what I think about how free markets function. That free market theory does not apply to electricity is the crux here, with which I do agree, but the industry can be changed to make free market apply as much as possible, even if not at the consumer level, the suppliers of energy still have to make decisions regarding the kinds of technologies in which they invest to provide the mix for maximal energy production at minimal costs. Many problems arise even at that level because of governments butting in with subsidy policies rather free market incentives. For example, if private toll roads work for transportation, so could toll wiring for electricity distribution, which would then allow the alternate energies to compete at those rural locations. Or, the same way that the government does not charge for the use of rural roads that it builds, it could not charge for the use of wires that it installs to those same places, all while allowing several suppliers to share the wires, letting the users decide which supplier they wish to have as their provider (e.g., the way people with excess solar power production feed electricity back into the grid).

        It’s just a matter of paradigms, not of impossibilities.

    • “I’m against their trying to use price to change behavior.”

      You are against Economics then. The way value gets expressed in prices is through behavior. I understand what you mean, but you need a different metaphor. I disagree, I think increasing rates is a good first step, but it alone won’t work.

      • el_inmigrante,

        I don’t see how you reach such a conclusion. For example, price controls are a typical goverment policy in attempts to counter the natural direction of prices in a market. Yet, it is the study of economics which tells us that governmental price controls usually end up messing negatively with the information contained in the price of a good or service as they pertain to the measure of value by their consumers in a free, competitive market. Subsidies are a similar messing with prices that end up, more often than not, biting governments in the rear. The way I see it, I am so pro economics that I want governments to stop messing up the economics of the nation.

        In Venezuela’s particular case, the oil money has such an overpowering effect in the economy that I can only see it as an analogy to the Ring of Power of Lord of the Rings: too powerful for any one person or subgroup of persons to wield, the current economic situation serving as evidence.

        • Yes, we agree about everything, I only wanted to point out that the way prices work to harmonize the interests of sellers and buyers is through affecting behavior. But I understand now you referred to government’s intervention through controls or subsidies. In unregulated markets prices are not set by anyone, they arise spontaneously. We agree.

          Do note however that utilities are a special case where the competitive market model does not work because of economies of scale. It is cheaper to have only one supplier instead of many, each with its own distribution grid. In this setting things are trickier. Economic efficiency requires some type of intervention like the government subsidizing prices for example. The unregulated equilibrium entails a loss in efficiency (as it does with any monopoly). There are other pricing schemes, none of which is perfect.

          • el inmigrante , your point that even in market economies there are public service activities which are naturally monopolistic is absolutely correct , what is done then is that the activity is regulated so that a competitively selected private service provider gets a license from the govt to perform the service at a set rate which allows the company to recover its costs and obtain a regulated profit ( smaller than in other areas because having a captive clientele means less risk and more security) with an incentive mechanism so that the better it is at lowering its costs the more profit it makes . This model works fine in the US and in Europe and other OECED countries .

          • el_inmigrante, I would add to Bill Bass’s reply that perhaps there is also a set of false premises. Firstly, the economies of scale do not justify the stance of creating policy that reduces whatever market rules apply to them. If a new company developed a cheaper, more efficient wire for distributing electricity, a government should not prevent them from installing it and offering a lower distribution price to end users. It is precisely a governmental deterrent to have multiple providers that also deters the development of competing technologies, say wireless transmission of energy. Secondly, just because no one has thought of ways to have competitive electricity providers in the same area, doesn’t mean that someone else won’t come up with one. For example, could the government allow different providers to charge “toll” for use of their wiring systems to cover their costs of installing and maintaining the distribution system? Can you see how this could possibly result in a free, competitve market of distribution, and therefore a reason for the government to stop messing so much with the economy?

            Don’t get me wrong, I agree that not all goods and services are equally easily set up as free market systems. Clearly, factors such as the one you mentioned as well as others (e.g., inelasticity) limit the market rules. The point is that governments should be headstrong in not be a deterrent in letting market rules apply, and should only butt in as little as necessary in protecting consumers from market flaws, not meddling as much as their graft of power allows them.

  10. So correct me if I’m wrong, it’s OK for you to raise the prices of a heavily subsidized product such as gasoline, but not another heavily subsidized service like electricity? La luz es muy barata en este país, especialmente en el interior, comparado con precios en otros países. Some could even say they’re just giving it away..

    The problem I see is that, as you said, it will take a political toll for the government, so I’m willing to bet that if this gets the green light, Caracas will be immediately exempted from the measure to reduce said political hit, leaving all of us in the interior to take the blow alone.

    • Like so many things this government does, if Capriles got into power and did precisely the same things, they would be roundly applauded and encouraged on this blog.

        • I am for an increase in petrol prices, but understandably not at the cost of political support.

          Electricity price increases will not affect the poor, and unlike the oil sector which has a huge surplus for export, the electricity sector is not growing fast enough.

          • How do you measure who is poor, Yoyo? What is the percentage of “poor” for you?
            I notice that the same people use different percentages to define what poverty in Venezuela is depending on whether they want to stress they have reduced poverty or that the poor support them. This has implications for political costs and price increases.

            Higher petrol prices needn’t affect the poor, at least if the one implementing the increase could plan a thing or two. The cost of transportation on a regular way – what a worker has to do to go to work and back – tends to be higher in Venezuela than in Europe, which is absolutely mental.

            But then I see that car prices (and repair parts) are obnoxiously higher in Venezuela than anywhere else. For you as a Chavista it is because Venezuelan non-Chavistas are particularly evil, I suppose. Am I right?

            The car of Maduro’s secretary
            http://www.eluniversal.com/sucesos/130430/secuestran-al-secretario-de-nicolas-maduro-para-robarle-su-camioneta
            costs in Revolutionary Venezuela apparently over three times what it costs in the USA…
            http://www.toyota.com.ve/cars/new_cars/fortuner/pricelist.asp
            the secretary of Prime Minister Di Rupo probably has a FIAT…but then he is just a social democrat, not a real socialist like Maduro.

            Talking about the poor…

          • The only reason petrol prices haven’t risen is because they would disproportionately affect the poor. You can’t avoid that. If you think you have the answer, please enlighten us.

            Electricity is billed to your address, so only businesses and wealthy families will pay more.

          • Yoyo, I asked you a concrete question and I haven’t got a reply from you. What is the percentage of “poor” in Venezuela? I’ll give you an example with my region, which I know pretty well: the province of Valencia (aka Carabobo since the XIX century).
            Just a few streets from Plaza Bolívar you have Santa Rosa, Urbanización San Blas, further South Fundación Mendoza, Las Ferias…all those people have “addresses”
            and post should theoretically reach them (even if IPOSTEL has almost completely collapsed since Chavismo is in power). These are not wealthy people but they don’t leave in shanty towns. So: what about those people? What do you define as “wealthy”?

          • As for petrol prices: it’s simple. Nationalize the public transport. Aren’t you socialist? If someone wants to work privately, no subsidy.
            Transport of goods? Set up a computer program for those who want – for a transitional period – to get subsidized petrol. They need to explain how many kilometres they do a day. That can be automated, with the proper IT support.
            Everyone else needs to pay higher petrol prices.

          • “If you think you have the answer, please enlighten us.” Cash distribution would compensate the poor for the increases in prices.

          • I suspect that while the poor don’t pay for their electricity directly to the government, most pay for it indirectly, through the highly capricious and discretionary “tribute” systems in their communities (i.e. mafias), and as Rodrigo points out, through the opportunity costs of a large across the board subsidy.

          • You are missing a few words in your last sentence.

            Electricity price increases will not affect the poor, and unlike the oil sector which has a huge surplus for export, the DISTRIBUTION & GENERATION of THE electricity sector is not growing fast enough BECAUSE EVEN HAVING A DETAILED REPORT 12 YEARS AGO THAT PREDICTED WHERE WE’D BE ON THIS, CHAVEZ THREW IT IN A DRAWER AND WENT HIS OWN WAY WHILE ALLOWING MASSIVE CORRUPTION TO DRAIN PRECIOUS STATE RESOURCES.

      • He, or rather his administration would not do the exact same things.

        But they would be applauded, mostly, because they would rid Venezuela of Giordani and Jaua’s and their marxist economic crackpotry.

  11. Rodrigo Linares got it right by pointing out the key economic driver:
    electricity has a very inelastic steeply sloping demand curve, somewhat offset by the inflation / wage spiral and when electricity becomes a larger piece of a family’s budget. I doubt that high usage users, many being middle class and up and of course government entities, will reduce consumption because of increased prices and it seems to me that Chacon’s priority is decreasing demand, not so much increasing revenues.

    Ideally, he wants both, to stabilize demand and get additional revenue for investments to increase productivity of the present systems and be able to put in more production capacity. Good luck in a 30% inflation environment. As correctly stated, price increases of end consumer commodities carry a high political price in Venezuela, because of the entitlement mentality of consumers.

    Solution: privatize, at least partially, get foreign investment and let REAL experts run the show. Will not happen with the government’s mindset of “Made by Socialism”.

    • But that’s the thing. I also mentioned that there is a misperception on who are the biggest consumers. Residential is a tiny chunk of the demand and middle and upper class residential even less. Do you want to reduce demand start turning the AC down in government offices, invest in the industrial park and make laws and regulations that push for consumer efficiency. A good example of it, is that the electric motors that you can sell and use in the US have to follow a NEMA efficiency standard.

      But you are absolutely right about your final statement.

  12. I’d trust Chacon with no more than that expertise required to gun down unarmed TV Broadcast Company employees, not with applied macroeconomics 101, or professional organization administration. Just surprised he wasn’t working with Maria De Los Angeles on brokering projects. But then, el Carnicero is an “energy expert,” as well. There is a theme here!

  13. Isn’t Chacon a militarucho who killed people on Venezolana de Television some years ago on that coup Chavistas like to gloat over it? What does an ass knows about toothpaste? Hello?

  14. As a retired electrician I’ve always been fascinated by the creative wiring techniques in Venezuela.
    Everywhere, A/C units, pool pumps, refrigerators and “security” circuits hard wired into the overhead distribution, sometimes with a half-hearted attempt to insulate and hide it with some tape.
    Rarely fused…
    Before they can get any kind of pricing structure to work they have to plug the leaks.
    I snickered when the guy came around to read the electrical meter right next to a cluster of rogue feeder wires bypassing the meter and connected to the distribution lines two metres above his head.
    Rooftop laundry rooms seem to be springing up with all those the cheap appliances that need to plug in somewhere…

  15. BTW, I found out today that days before his press conference Jesse Chacon exchanged ideas about the efficient use of electricity with former baseball player Sammy Sosa.

    http://www.mppee.gob.ve/inicio/noticias/energiaelectrica/jesse-chacn-y-sammy-sosa-intercambian-experiencias-para-la-promocin-del-uso-racional-y-eficiente-de-la-energa#dBOhg0YzVkX4hWHNorgJKw

    Are you kidding me, Jesse? Instead of a true expert, you chose Sammy Sosa instead.

    What’s next, calling Lenny Dykstra to give you business advise? Well, maybe after he leaves jail.

  16. What it upsets me is the fact that around 80% of people in the shanties don’t pay electricity. Now with a corpoelec socialista I wonder how many meters they have put in La Silsa.
    So subsidized means middle class families paying the bill of their mirror barrios and on top of that les vamos a subir el recibo porque consumen mucha luz!

    Con lumbreras como esta a fin de año estaré tragando humo de mi generador diesel todos los días…

  17. The laws of supply and demand apparently don’t apply to electricity in Venezuela and Venezuelans won’t use less electricity even if the price goes up. Thank god this blog pointed that out. Otherwise I’d never have guessed it.

  18. Some really damning stats there too – the number of homes with A/C has gone from 14% to over 40% between 1998 and 2012.
    The whole darn country is just falling apart.

  19. The role of government isnt just to shower oil money from higher prices money on its political clientele so that they can buy more goodies, ( thats the old populist model) its to raise the standard of living of people by making them economically productive and to execute plans which allow their future needs for services and other staples to be sattisfied using the plans to foster internal economic growth rather than a greater dependency on high priced imports (which only benefit foreign traders) . The problem is not in higher consumption but in the regimes neglect at planning for the future needs which such comsumption would bring . If the regime had only carried out the plans that were in the books when they took over govenrment we would probably never have experienced the current crisis in electricity supplies , whatever the rise in demand !!

  20. indexation is no panacea either. that could potentially cause real hyperinflation. the truth is that there is not one solution. they need a global approach to the whole economy, which they will not do. so, expect the problem to get worse. . .

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