Reports of gas bills to rise by $150 per annum adds unwanted pressure to Victorian household budgets, when inflationary pressures are already biting.*
Over a long period, unfair market tactics have meant Victorians have paid too much for electricity and gas. Helpfully, reforms to the pricing of electricity have been effective, and have led to improvement in consumer sentiment towards electricity suppliers. We need to apply these reforms to the pricing of gas.
In 2019, the State Government legislated the Victorian Default Offer for electricity. This abolished expensive standing offers set by electricity retailers and replaced them with a uniform fair default price set by the regulator, the Essential Services Commission. The default offer also serves as a reference price, against which retailers can and do discount to offer better deals.
There have been significant price reductions in electricity standing prices since the introduction of the Victorian Default Offer, saving Victorians who were on such offers substantial amounts. In 2019, there were some standing prices which equated to an average annual bill of more than $2,000 per year. Today, the Victorian Default Offer equates to an average annual bill of $1,400 to $1,600 depending on the customer’s location. And the good part is that retailers continue to discount from the default offer, with Victorians able to save a few hundred per annum if they switched to the best market offer depending on their area.
While last week the Essential Services Commission indicated that wholesale electricity prices will push up default prices, there is no doubt that the Victorian Default Offer has been a policy success. However, it unfortunately does not apply to gas. And unfair tactics in gas prices remain, impacting the community’s confidence in the market.
Research from St Vincent de Paul demonstrates that Victorians who do not or cannot switch are being exploited through high standing gas prices. Typical consumption for households on a standing offer can be charged between $920 and $1,065 per annum more (depending on their location) than if they were on the best offer. A key problem is that these standing offers are set by retailers, rather than an independent regulator.
Furthermore, in January 2022, households with Origin Energy and AGL experienced price increases of 16 percent (average across all areas) and 7 percent (depending on location) respectively. The regulator is not empowered to do anything about unfair gas price increases. And these retailers continue to misleadingly advertise “discounts” when they are discounting from a price they each set, rather than a reference price that aids comparability.
Hardship data also tells us that many Victorians are struggling with gas bills, and price spikes as well as unfair market tactics will only harm them further. Data from the Essential Services Commission for December 2021 reported more than 207,000 Victorian residential households had arrears on their bills, with an average of $491 outstanding for each affected customer. On top of this, almost 48,000 households were receiving bill assistance from their retailer. Small business customers are also affected, with some 12,000 in arrears, with an average of $1,061 each.
Being unable to pay for gas risks disconnection for non-payment, a harsh collection measure which results in people unable to heat their home or use hot water. There were more than 300 Victorians who were disconnected from their gas supply in January 2022, a frightening statistic for a modern first-world society.
It’s time the Victorian Government set a fair default offer for household gas supply. This is especially important during a time of energy transition. As more and more Victorians opt to shift to electric appliances to both save money and contribute to carbon reduction, those left on the gas grid will inevitably pay more. This is because less people will be covering the cost of the pipes that deliver gas to households. There needs to be a range of policy measures to help customers transition, but a key one to ensure fair pricing is a fair default price for gas, just as we have for electricity.
*An edited version of this opinion piece appeared in the Herald Sun on 4 June, 2022
Mark Pearce, Media and Communications Adviser,
0413 299 567, firstname.lastname@example.org