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Consumer Action welcomes the opportunity to comment on the Essential Services Commission’s (the Commission) consultation paper, Next steps for the Victorian Default Offer (the Consultation Paper). These comments relate to the approach to the 2022 Victorian Default Offer (VDO).

The Consultation Paper notes the objective of the VDO is to provide a simple, trusted and reasonably priced electricity option that safeguards consumers unable or unwilling to engage in the electricity market. This has also been described by the Commission as ‘universal access to a fair priced electricity offer’.

Consumer Action strongly supports the VDO. As we have said previously, we consider that fairness and community expectations demand that the VDO be set at no more than absolutely necessary to ensure bills remain affordable, particularly for those who are unable to effectively engage in the energy market. We believe these expectations should be at the forefront given the impact the COVID-19 pandemic has had on the Victorian community and the ongoing financial disruption on households.

We urge the Commission to pursue measures that will put downward pressure on the VDO price. Efficiency and productivity gains by energy retailers—as well as the fact median market offers are below the VDO—suggest elements of the cost stack including the retail margin and methods used to calculate wholesale costs are overly generous.

The bad debt pass through due to the COVID-19 pandemic sets a poor precedent for what costs are rolled in to the VDO and we urge the Commission to both remove it and undertake a review. If allowances for bad debt in the 2021 VDO were above retailer forecasts then customers should be refunded. We also comment in our submission, on the power imbalance between retailers, customers and the Commission and the risk that voluntary data that drives up costs may continue to be added to the VDO cost stack.

We recommend the Commission revisit its previous comments regarding a ‘productivity factor’ and introduce this in the 2022 VDO.

We also reiterate comments made in the last VDO reset regarding wholesale costs and suggest greater scrutiny should be applied to setting and cross checking these costs. Continuing to rely on a methodology that overestimates wholesale costs while ignoring other approaches used by retailers is in our view inefficient.

Read the full submission (PDF).