Abstract
This research investigates the implications of residential electricity tariffs with high daily fixed charge or fixed-like components, like ‘all you can eat’ or ‘uncapped’ tariffs which are common for access to internet services. The objective and contributions of the research are: to improve the state of knowledge about household electricity demand in New Zealand; estimate household expenditure systems using methods that are novel in New Zealand; and to provide evidence on tariffs that are likely to be welfare improving. Models of household expenditure are estimated and they show household electricity demand to be highly responsive to changes in average electricity prices, in contradiction of conventional wisdom that electricity demand is price inelastic. A counterfactual price experiment shows a substantial gain in efficiency and an improvement in social welfare from electricity tariffs with high fixed charge components as opposed to the status quo where high variable charges act as a tax on electricity consumption. High fixed charges are shown to be progressive, contradicting concerns that high fixed charges would exacerbate inequality. Smaller households, typically older households, would likely be worse off from high fixed charges, but not substantially or universally so.