Victorian Default Offer price review 2023-24

We are responsible for setting and annually reviewing the Victorian Default Offer prices. The default offer is designed to be a simple, trusted and reasonably priced electricity option that safeguards customers that are unwilling or unable to engage in the market.

In December 2022 we commenced our consultation on the Victorian Default Offer prices to apply from 1 July 2023 to 30 June 2024.

We published our draft decision in March 2023. Our draft decision proposes to keep our approach to setting the Victorian Default Offer prices largely unchanged. The key change in our draft decision is that we propose to set the retail operating cost benchmark using the customer weighted average of retailers' actual costs. We have also proposed minor changes to the benchmarks for wholesale costs and other costs.

While the draft decision was based on largely the same methodology, we updated our cost benchmarks with the most recent data available when making our decision. We will update the inputs for our cost benchmarks again when we make our final decision.

Feedback on our draft decision paper closes on 11 April 2023 and we will hold a public forum on 30 March 2023.

We plan to release our final decision by 24 May 2023.

Have your say

Have your say on our draft decision via our Engage Victoria page until Tuesday 11 April 2023.

Public forum – Thursday 30 March 2023

We are holding an online public forum at 11am on Thursday 30 March 2023, for stakeholders to hear about our draft decision. 

This forum will be recorded to ensure access for those unable to attend. Any statement or comment made, or question asked, will be included in the recording, which we plan to upload to YouTube and our website.

Register to attend the forum.

How cost benchmarks and annual bills would change under our draft decision

Change in average Victorian Default Offer annual bill by cost component, domestic customers with annual usage of 4,000kWh, $ nominal

Change in average Victorian Default Offer annual bill by cost component, small business customers with annual usage of 10,000kWh, $ nominal

Change in average Victorian Default Offer annual bill by cost component, small business customers with annual usage of 20,000kWh, $ nominal

How we calculate the Victorian Default offer

We are required to base the Victorian Default Offer on the efficient costs of the sale of electricity by a retailer. In doing so, we take into account:

• wholesale electricity costs – based on the price of electricity costs in the futures market
• network costs – taken directly from tariffs approved by the Australian Energy Regulator
• environmental costs – taken from public information on the costs of environmental initiatives
• retail costs – based on historical cost data
• other costs – taken directly from published reports from industry bodies
• network losses – taken from the Australian Energy Market Operator and electricity distributors
• retail operating margin – based on a benchmark from comparable regulatory decisions.

In our draft decision we have proposed several changes, relative to past decisions, on how we calculate the Victorian Default Offer prices.

Retail operating costs

In our consultation paper we sought feedback on different approaches to setting the retail operating cost benchmark.

After considering submissions from stakeholders our draft decision is that the retail operating cost benchmark be set using the customer weighted average of retailers' historical costs. We consider this will lead to a more accurate estimate than our previous approach.

Impact of the Australian Energy Market Operator’s June 2022 market intervention

In June 2022, the Australian Energy Market Operator took steps to stabilise wholesale electricity prices. Market participants incurred costs as a result. In our consultation we sought stakeholders' views on whether and how these costs should be reflected in the Victorian Default Offer.

Our draft decision is that these market intervention costs are efficient costs of the sale of electricity by a retailer. As a result, we propose that market intervention costs should be passed through in the 2023-24 Victorian Default Offer.

Wholesale costs

In our consultation paper we proposed to keep using the same approach to wholesale costs as we had in previous decisions. In response to the consultation paper, some retailers indicated that not accounting for options contracts might make our estimate of retailers' wholesale costs inaccurate.

In response, in our draft decision, we propose to remove ASX Energy contracts traded as part of options contracts from our wholesale cost benchmark. For 2023-24 this will slightly decrease our wholesale cost forecast (relative to what it would have been if we used our previous approach).

Next steps

We will review feedback on our draft decision and plan to release our final decision by 24 May 2023.

We will hold a public forum (online) on 30 March 2023. We will update this page with more information on the forum including how to register, closer to the event.