Hundreds of thousands of families and businesses across Victoria could soon be paying more for electricity, with a new proposal suggesting the market benchmark will increase across the state on 1 July. It will be the second time the Victorian Default Offer (VDO) changes in 2022, after prices were adjusted on 1 January.*
The Essential Services Commission’s (ESC) draft VDO decision, released on Tuesday, recommends that the average household electricity bill for residential customers on the VDO in Victoria increase by 1% to an average of $1,361 per year. That’s an average annual increase of $19 for families on standing offers compared to the current average annual VDO price, which is $1,342.
Meanwhile, small business customers will also see their prices increase by an average of 1%. This is an average annual increase of $73 to $1,361.
According to the ESC, the proposed increase reflects increased wholesale electricity costs and higher retail operating and environmental costs.
Compare the Market’s Energy researcher, Chris Ford, said while the proposed increase doesn’t seem like a lot, he hoped prices would decrease as the cost of living increases across Victoria.
“We know even a small change in prices can have a big impact on household budgets. But again, we’re seeing the cost of living increase, fuel prices soaring and wages haven’t been keeping pace – it’s quite a concern,” Mr Ford said.
Mr Ford said any changes to the VDO could impact power prices for families on other types of electricity plans.
“When regulators have adjusted the default price in the past, some electricity retailers have been known to change the pricing of their market offers – plans with discounts, perks and other incentives that lower electricity prices,” Mr Ford said. “A higher VDO could mean some electricity retailers increase their market offers.
“This is because the VDO acts as a benchmark for all market offers. Retailers must legally display the percentage difference between their market electricity plan on offer and the VDO. If a retailer’s market offer were priced above the VDO, it wouldn’t be a good look. Keep in mind that for standing offer contracts, the VDO is the maximum price retailers can charge for electricity.”
The VDO was first introduced in 2019 as a cap on the price that retailers charge consumers for electricity on standing offer contracts in Victoria. Around 200,000 Victorian households and 50,000 small businesses are currently on the VDO – meaning they could be paying more than they need to for electricity.
Victorians may be on a standing or default offer contract if they’ve never switched to a market offer or if they switched electricity plans more than a year ago and their discounts have expired.
Mr Ford explained that while VDO plans are a fair price for electricity and have prevented price gouging that was common in the past, they’re rarely the cheapest option available on the market.
“We would encourage all customers, no matter the type of electricity contract they’re on, to regularly compare their options to see whether a better deal is available,” Mr Ford said.
“In the same way that you would compare prices at the supermarket, spending a few minutes comparing energy plans could leave extra cash in your pocket.
“In Victoria, your electricity retailer is required to let you know at least three times a year if you could save by switching to the best electricity plan available with them. This information can be found on your bill, but be aware it may not be the best offer available in the market. This is why it’s important to compare a range of plans from different providers.”
Mr Ford said that when the changes come into effect on 1 July, it’s important for Victorians to do their research to pay as little as possible for the same electricity supply.
“Even if you think you’re on a great deal, it’s a good idea to compare it against others on the market, in case you’re missing out on more potential savings,” Mr Ford said.
The draft VDO prices have come as somewhat of a shock, especially given data from the Australian Energy Market Commission’s recent Residential Electricity Price Trends report predicted that average annual Victorian household electricity bills would fall in the coming years. According to that report, average Victorian household electricity bills will be 7.7% cheaper in the 2023/24 financial year (or $99 cheaper than the average 2020-21 bill).
However, the ESC says that the proposed price of the 2022-23 VDO is still cheaper than it was four years ago.
Public consultation on the draft is open until 12 April and Victorians will know the VDO rates that will apply from 1 July 2022 to 30 June 2023 in late May.
Consumers can use Compare the Market’s free energy comparison tool to compare a range of plans within minutes.
*The VDO was adjusted on January 1 and will again change on 1 July. This is because the Australian Energy Regulator now allows Victorian electricity distribution networks to operate on a financial year basis rather than a calendar year basis as they did in the past and adjust network charges accordingly.
For more information, please contact:
Phillip Portman | 0437 384 471 | [email protected]
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