Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 10: Costing the Universal Service: Evaluating the Demand Response
* Isabelle Carslake†, George Houpis‡ and Christian Strobel§ 1 INTRODUCTION This chapter follows on from our previous contribution (Houpis et al., 2009) and seeks to evaluate the demand response to a change in service specification. We seek to evaluate customers’ potential responses to a universal service provider (USP) reducing the scope of its services. This task will be part of an evaluation of the net cost of the universal service obligations (USOs) by policy makers or other stakeholders adopting the profitability cost approach and/or of any USP considering changing their service specification.1 As there is limited direct information on actual demand responses to the re-specification of the USO, the use of a combination of sources will typically be required to reach a conclusion on the demand response (PricewaterhouseCoopers, 2009). Our chapter presents a highlevel approach, using pre-existing evidence on the drivers of demand, to make an initial assessment of the potential demand response to changes to a USP service specification. The structure of the chapter is as follows. In Section 2 we present our approach to estimate customers’ responses to a change in service level with a discussion of the types of research available for its application. In Section 3 we illustrate the approach with existing data, and we conclude in Section 4. 2 APPROACH Our approach seeks to use existing research on the topic to reach a conclusion on the possible demand response following a re-specification of the USO. USO costs are generally related to three areas: reducing the frequency...
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