Wholesale prices drive price rise in Victorian electricity default offer
24 May 2022
Changing market conditions are behind the state energy regulator’s decision to increase the Victorian Default Offer by about five percent from 1 July 2022.
Around seven per cent of households and 16 per cent of small businesses are on the Victorian Default Offer. On average, annual bills for households on the default electricity offer will increase by $61 (or around five per cent), with a rise of around $270 for small business customers (also around five per cent).
The default offer also applies to the estimated 140,000 customers in embedded networks, such as apartment buildings and caravan parks, where it is the maximum that can be charged.
Essential Services Commission pricing director, Marcus Crudden, said the decision to increase the default offer follows a careful assessment of the costs involved in supplying electricity to customers.
“Forecast wholesale electricity prices are driving an underlying increase. Rising wholesale prices for electricity account for almost two thirds of the increase in the default offer for households,” he said.
Mr Crudden said the default offer increase is generally around the current rate of inflation, so prices remain relatively steady in real terms. And 2022-23 standing offer prices will remain well below where they were prior to the introduction of the default offer in 2019.
“We want to make sure that those on standing offers pay prices more closely aligned to competitive market deals. Compared to 2019 and prior to the introduction of the Victorian Default Offer, 2022-23 standing offer prices come in at around $450 lower for residential customers and $2,400 lower for small business customers.”
Movements in the Victorian Default Offer largely reflect changes in the market. However, they don't reflect changes in costs facing specific retailers, which help to determine the prices they charge for market offers.
Mr Crudden added that while the default offer provides a safety net for those who don’t want to or are unable to engage in the market, there are better electricity deals available to Victorians.
“We encourage consumers to contact their energy retailer regularly to check if they are on the best deal,” he said.
“There’s also the Victorian Government’s $250 power saving bonus* payment for households who use the free and independent energy price comparison website, Victorian Energy Compare, to seek out a better price.”
Figure 1: Change in Victorian Default Offer annual bills for domestic customers
Figure 2: Change in Victorian Default Offer annual bills for small business customers
* Victorian distribution network tariffs are set separately by the Australian Energy Regulator.
Background
The Victorian Default Offer is a simple and trusted electricity price that is set by the Essential Services Commission, not energy companies.
It provides Victorian consumers access to a fair electricity deal even if they are unable or unwilling to engage in the retail market.
We set the default offer each year after assessing the efficient costs retailers need to recover to provide electricity to Victorian customers. The default offer will not necessarily be the lowest price available to consumers.
Most Victorian households and small businesses can ask for a default offer. Small business customers that use less than 40 megawatt hours of electricity per year can also ask to be put on the default offer. The default offer is also a price cap that applies to most customers that have their electricity supplied by an embedded network.
Electricity retailers must make the Victorian Default Offer available to customers who request it but can continue to offer customers contracts that differ from the default offer, through market offers.
The default offer also acts as a reference price that retailers must use to advertise the discounts on their market offers. This can help customers find the market offer that will give them the best value for money on their electricity use.
We are an independent regulator that promotes the long-term interests of Victorian consumers with respect to the price, quality and reliability of essential services.
We regulate Victoria’s energy, water and transport sectors, and administer the rate-capping system for the local government sector. We also regulate the Victorian Energy Upgrades program, which aims to reduce greenhouse gases by making energy efficiency improvements more affordable for consumers. We also occasionally review other sectors at the request of the Victorian Government.
*Please note, the Victorian Government Power Saving Bonus closed on 31 August 2023.
