Essential Services Commission Draft Advice on the Victorian Default Offer Methodology

As part of its response to pressure to curb energy prices and address inequality within Victoria’s energy market, the Victorian Government recently introduced the Victorian Default Offer (VDO).  The VDO is designed to provide a fair default energy options for people who have difficulty engaging with the market (or do not wish to engage with it) and provides a reference point for comparing lower or higher priced offers.

Consumer Action has united with the Victorian Council of Social Service (VCOSS), Council on the Ageing (COTA) Victoria, and the Financial & Consumer Rights Council (FCRC) to welcome this important reform in our joint submission to the Essential Services Commission (ESC) on its draft advice on the Victorian Default Offer (VDO) methodology.

That said, this submission asserts that the way in which energy pricing under the VDO is calculated needs to be further examined to ensure fairness for consumers using the scheme.

Not everyone is able to effectively engage with the energy market.  Even with government support, many people will struggle – by lack of time or resources – to search for the best energy deals to meet their needs or understand the complexities of emerging pricing.

The pricing of the VDO should be ‘efficient’, i.e. the cost of delivering electricity should not outweigh the cost of producing it.  However, there is a risk VDO will not represent an efficient price because the ESC benchmarks retail costs against observed market costs (e.g. average Victorian retail operating costs).  This is likely to build in existing retailer inefficiencies and not lead to fairer energy prices in Victoria.

Given this risk, the ESC should choose the lowest figure in any benchmarked range of costs and only accept a higher figure where retailers can show some real increase in customer value.

This submission comments on:

  • considering changes to wholesale, network, environmental and other regulatory costs;
  • better identifying ‘efficient’ retail costs; and
  • maximising access to the VDO.

You can read the full submission here [PDF]

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