The Essential Services Commission (Commission) has released its request for comment paper regarding the 2025-26 Victorian Default Offer (VDO), marking the commencement of stakeholder consultation for the forthcoming regulatory period. The paper outlines key areas for refinement while maintaining the established methodological framework for determining default offer prices in Victoria. You can read the Commission’s paper here.
Regulatory Context
The VDO remains a critical consumer protection mechanism within Victoria’s electricity retail framework, established under section 13 of the Electricity Industry Act 2000. The Commission’s determination, due by 24 May 2025, will establish regulated standing offer prices for both domestic and small business customers for the period 1 July 2025 to 30 June 2026.
Key Consultation Areas
The Commission has identified several crucial areas for stakeholder consideration. Notably, the paper explores potential methodological refinements rather than wholesale changes to the existing framework. Central to this consultation is the proposed separation of retail operating costs between domestic and small business customers, representing a potential alignment with the Australian Energy Regulator’s Default Market Offer methodology.
Operating Cost Considerations
The Commission’s current approach utilises a customer-weighted average of actual operating costs, adjusted for inflation. This methodology, implemented in the 2023-24 determination, replaced the previous benchmark based on the Independent Competition and Regulatory Commission’s findings. The Commission is now examining whether differential cost structures between domestic and small business customers warrant separate retail operating cost determinations.
Retail Operating Margin Analysis
The retail operating margin framework remains under scrutiny, with the current 5.3% margin representing a reduction from the historical 5.7% benchmark. This adjustment reflects observed market dynamics, including declining actual margins and enhanced market competition. The Commission seeks stakeholder views on the appropriateness of this margin within the context of recent regulatory determinations, including the ICRC’s 2024-27 determination setting a 5.2% margin.
Environmental Cost Components
Significant attention is directed towards the methodology for estimating Victorian Energy Efficiency Certificate (VEEC) prices. The current approach, based on 12-month trade-weighted average spot prices, has attracted industry commentary regarding its effectiveness in capturing actual retailer costs. The Commission is gathering additional data to benchmark estimates against actual retailer costs while maintaining transparency and replicability.
Wholesale Cost Methodology
The treatment of solar exports within load profile calculations represents a key technical consideration. The Commission is evaluating whether to maintain its current net position approach or align with the Australian Energy Regulator’s methodology of excluding solar exports from load profile calculations.
Implications for Stakeholders
This consultation process presents significant opportunities for market participants to influence the regulatory framework. Submissions addressing the specified matters must be lodged by 24 December 2024, with the Commission indicating particular interest in evidence-based proposals that advance the VDO’s objectives while maintaining regulatory consistency.
Future Timeline
Following the initial consultation period, the Commission will release its draft decision in March 2025, accompanied by a public forum. This structured approach ensures stakeholders have multiple opportunities to engage with the regulatory process before the final determination in May 2025.
Compliance Considerations
For electricity retailers, this consultation process necessitates careful consideration of internal cost structures and operational methodologies. The potential separation of retail operating costs between customer classes may require enhanced cost allocation and reporting capabilities. Additionally, stakeholders should evaluate their VEEC procurement strategies and load profile methodologies to effectively engage with the consultation process.
