The 2022-23 Victorian Default Offer review

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Recently we wrote an article about the draft AER 2022-23 Default Market Offer.  A parallel process is taking place in Victoria, and on 15 March 2022 the Essential Services Commission (ESC) released their draft decision about the Victorian Default Offer (VDO).

Submissions are open until 12 April 2022 with the release of the final decision in May, and decision to take effect from 1 July 2022.  The ESC will hold a public (online) forum for those interested on 31 March 2022.

About the VDO

The ESC is responsible for setting the VDO prices, which is a set independent electricity price. While the VDO’s objective is to provide a reasonably priced option, it may not always be the cheapest option.  It is useful as a reference point for consumers but they may be able to get better offers, and in fact the ESC notes that retailers should periodically tell customers if they are on the best energy plan, and the benefits of switching.

Recent changes to regulations about embedded networks in Victoria, mean that the VDO is also the maximum price that embedded networks and other exempt sellers can charge.

The Impact of the 2022-23 VDO

The draft decision proposes a 1% increase the VDO, which would result in an annual bill of $1,361 for residential customers (a $19 increase), and $5,423 for small business customers (a $73 increase).

Why the increase

The primary reason given for the increase was the “forecast for higher wholesale electricity costs (particularly during the early morning and evening), and to a lesser extent, increases in environmental and retail operating costs (the latter due to inflation). These offset a decrease in network costs”.

Regulatory Context

Under the Electricity Industry Act 2000 (Vic), a pricing order is issued that requires the ESC to set prices for standing offers. The previous pricing order was for a 6 month period (1 Jan – 30 Jun 2022), and the current pricing order is for a 12 month period (1 July 2022 – 30 June 2023). 

Various pieces of legislation specify the approach, methodology and various factors the ESC must take into account when calculating the VDO. These are explained in the draft decision in further detail.

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