The final 2023-24 Victorian Default Offer prices have been announced, representing an annual increase of 25 per cent.
Typical bills for residential customers will increase from $1,403 to $1,755 next financial year, and for small business customers, this means an increase from $3,039 to $3,791.
The new prices will apply to all Victorian Default Offer customers from 1 July 2023 to 30 June 2024. Around 15 per cent of households are currently on the Victorian Default Offer.
This change to the default offer price is primarily the result of high wholesale energy market prices, driven by energy market volatility in 2022. This increased the prices energy retailers paid in their futures (forward) contracts to buy electricity from the wholesale market to supply consumers.
The final offer is $74 lower for residential customers and $126 lower for small business customers than prices proposed in the draft decision. This is due to changes to our wholesale electricity allowance following further analysis of retailer futures contracts arrangements, the final network tariffs from the Australian Energy Regulator, and a reduced retail margin. Prices across the state will vary due to the different network tariffs in each of Victoria’s five distribution zones.
Essential Services Commissioner and chairperson, Kate Symons, said the 2023-24 Victorian Default Offer reflects the commission’s careful assessment of the costs involved in supplying electricity to consumers in an environment of higher wholesale energy prices.
“The Victorian Default Offer was created to support consumers who don’t want to or are unable to engage in the market to find a competitive market offer. It is a simple and transparent standing offer based on the commission’s independent assessment of the efficient costs to supply electricity to consumers,” Ms Symons said.
Ms Symons thanked industry and community groups who participated in the consultation process on the 2023-24 Victorian Default Offer.
“We value your input, knowledge and perspectives to help to inform our work and we thank you for your important contribution,” Ms Symons said.
“We heard from stakeholders that cost-of-living pressures are making it challenging for many in our community. We want to make sure Victorians are aware of their energy consumer rights and protections, and state and federal government energy bill relief packages, as higher wholesale energy prices start to flow through to retail markets and consumer bills.”
Eligible residential customers can access up to $500 in State and Federal Government electricity bill relief to offset electricity prices.
Victorian households can apply for the State Government’s $250 Power Saving Bonus cash payment through the Victorian Energy Compare website.
The Federal Government has also announced an additional $250 in energy bill relief for people who receive Centrelink payments, including pensioners, health care card holders, Family Tax Benefit Part A or B recipients and others. Eligible small businesses will be able to access a $325 rebate.
Retailers must also communicate their best offer to their customers every three or four months via their energy bill statement to help customers make informed decisions about their energy contract.
Ms Symons said the regulator would continue to focus on consumer safeguards to protect Victorians.
“In our consultation, consumer groups suggested non-price measures to further protect Victorian Default Offer customers and reduce the effect of higher retail electricity prices on consumers in general. While these fall outside what the commission can consider in determining default offer prices, we will consider these through our future reviews and consultation on relevant codes.
“Victoria has among the strongest safeguards for energy consumers, and the commission will continue to use its full suite of regulatory tools to review and enforce these critical consumer protections,” she said.
Currently 400,000 residential customers and 55,000 small businesses are on the Victorian Default Offer. It is also the maximum amount that can be charged to the approximately 150,000 Victorian consumers in embedded networks, such as apartment buildings and shopping centres.
Tables detailing the cost breakdowns are included below:
Finance and energy analyst at Clean Energy Finance, Tim Buckley said, “We expect that this could well be the peak in absolute electricity and gas prices at the retail level. There is a massive lag in the system in passing through the 2022 hyperinflation of fossil fuel commodity prices, which in turn squeezed up electricity prices to record Australian highs. Even with slow rises in grid transmission and distribution costs per capita, retail prices should decline from July 2024 onwards.
“It is really important for Australian consumers to understand that unlike inflationary fossil fuels, renewables are progressively deflationary, even including firming costs. For example, we expect solar module prices to decline by ten per cent per year over the rest of this decade, re-engaging the decade long trend seen since 2010.”
The Australian Energy Council said Victorian electricity retailers will be operating under ongoing financial pressure and greater market risks as a result of the Victorian regulated price cap.
The Australian Energy Council Chief Executive, Sarah McNamara, said, “Victoria’s energy regulator, the Essential Services Commission (ESC), has amended its wholesale pricing methodology midstream – between its draft and final decision – without proper consultation.
“While we understand the pressure to keep consumer prices as low as possible, it is also incumbent on the regulator to enable retailers, who are exposed to all market risks, to cover their costs. By changing the rules of play so abruptly, rather than in a phased and transparent way, the ESC has just made that a lot harder.
“The Victorian Default Offer (VDO) announced will hamper the ability of retailers to offer competitive market deals enjoyed by the majority of their customers. Yet at the same time the ESC urges customers to shop around for market offers through the $250 Power Saving Bonus.
“We know that Victorian energy consumers are best served by the delivery of a range of cheap market deals that result from a competitive market. If retailers are less able to compete on price, then that’s bad news for customers.”
Ms McNamara also said that the allowed retail operating margin had been further reduced.
“As with the wholesale changes, we can understand the ESC’s interest in reducing the retail operating margin given cost-of-living pressures, but it is disappointing that the VDO does not reflect the higher costs of operating in Victoria compared to other jurisdictions.”