Essential Services Commission consultation paper on variation to the 2021 default offer

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On 14 May 2021, the Essential Services Commission of Victoria announced that it had kicked off its next review into the Victorian Default Offer (VDO) and that it was seeking feedback from consumers and the energy industry before issuing a decision later in the year.

The Essential Services Commission has released its consultation paper on variation to the 2021 default offer. The Essential Services Commission notes that the variation is required to account for changes to network tariffs applying from 1 July 2021.

The consultation paper itself notes that the VDO was introduced by the Victorian government to regulate standing offer prices for electricity in Victoria commencing on 1 July 2019. Standing offers are contracts that electricity retailers are obliged to make available to domestic and small business customers and apply where:

  • A customer has never signed up for an electricity account;
  • A customer has not entered into an electricity contract, cancelled a contract within the cooling-off period, and continues to use electricity without entering into a further contract;
  • A customer has moved into a new address and uses electricity without entering into a contract;
  • A customer has specifically asked for the standing offer.

The VDO applies to standing offers with tariffs that do not vary by time or usage and standing offers with tariffs that do vary by time or usage. The VDO also operates as a maximum price for most consumers in embedded networks. For embedded network providers wishing to understand the application of the VDO to their businesses, refer to the Essential Services Commission 2020 publication Maximum Prices For Embedded Networks And Other Exempt Sellers Final Decision 22 July.

The Essential Services Commission notes that only 5% of households and 15% of small business customers are on standing offers. Electricity retailers may offer customer terms and conditions that vary from the VDO and for most customers the VDO will not be the best offer available to them.

The Essential Services Commission is seeking feedback on how the current VDO price determination should take into account network tariffs applying from 1 July 2021 and the Essential Services Commission’s approach for the next determination to apply from 1 January 2022. The current VDO price determination was based on assumptions at the time about certain costs including the level and structure of network tariffs paid by Victorian electricity retailers. Network costs account for around one-third of the costs reflected in the VDO and they are treated as a pass-through in the Essential Services Commission’s VDO methodology.

The Essential Services Commission is proposing to vary the current VDO price determination to reflect the Australian Energy Regulator’s final decision on network tariffs and structures. The Essential Services Commission proposes to vary the VDO price determination to update the flat VDO tariff to reflect the new AER approved rates for flat network tariffs, to introduce two new time of use tariff VDOs calculated on the basis of the new default time of use network tariff structures and prices approved by the AER, and to update the compliant maximum annual bill to reflect the new default time of use network tariffs approved by the AER.

The Essential Services Commission is proposing that the variation to the VDO take effect from 1 August 2021. Submissions on the consultation paper in relation to the approach to variation close on 25 May 2021.

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