Households in embedded networks are often in effective monopoly situations with little regulatory oversight. For this reason, they need the same or better protections than their peers with conventional arrangements. We support the Essential Service Commission’s initial proposal to apply the Victorian Default Offer (VDO) as the maximum price that exempt sellers may charge embedded network customers from 1 July 2020. This is a practical way forward with significant immediate benefits to households who are being price gouged by embedded networks providers.
However, the alignment of embedded network price caps with the VDO price protection should be understood as a first step towards addressing outstanding issues with embedded networks. The ESC paper highlights that the bottom up methodology used to formulate the VDO does not factor in further efficiencies that may exist in embedded networks. Therefore, the ESC should work towards understanding whether the cap should be lower than the VDO in the future with a view to ensure the price cap is fair. The ESC should also ensure that other protections that have been implemented through reforms since the Independent Review of the Electricity and Gas Retail Markets in Victoria (Thwaites review) are applied along with the VDO.