After the recent instability in Australian energy markets, it is perhaps not surprising that the Essential Services Commission in Victoria has released a draft decision proposing price increases from 1 July 2023. The price increases would affect all residential and small business customers on the Victorian Default Offer.
What does this mean for someone who is on the Victorian Default Offer?
In short, it means electricity bills will be substantially increasing.
- The ESC’s draft decision proposes to increase the Victorian Default Offer by around $426 for residential customers, with prices increasing from $1,403 to about $1,829 per year. This equates to an increase of just over 30% on this ‘fair and reasonably priced’ offer (as the ESC describe the VDO).
- Prices for small business customers would increase by around $1,738, from $5,620 to about $7,358 per year.
- For anyone not on the Victorian Default Offer, it will still mean more expensive electricity, as it is highly likely that retailers will increase rates for their market offers too.
What are the main reasons for such an increase?
The primary reason for the proposed increase is because of energy market volatility and the subsequent significant increases in wholesale electricity costs that we experienced last year. This impacted the prices energy retailers paid in their futures contract arrangements to purchase electricity from the wholesale market to supply Victorian consumers. Futures contract prices are used to calculate the Victorian Default Offer.
The Victorian Default Offer also reflects costs paid by electricity retailers to the distribution businesses. The ESC has included an allowance for this in its draft decision ahead of the Australian Energy Regulator’s annual network tariff decision due in May 2023.
How many Victorian customers will be affected by the increase in the VDO?
- Around 400,000 Victorian residential customers and 55,000 small businesses are currently on the Victorian Default Offer. This represents around 15% of households and 19% of small businesses.
- The default offer is also the maximum price that can be charged to the approximately 150,000 Victorian consumers in embedded networks, such as apartment buildings or shopping centres.
What can electricity customers do to help themselves before the price increases take effect in July?
Our advice is to regularly check your electricity bills by sending them to Joulius each month or quarter. We’ll analyse your current plan and let you know how it ranks against all publicly available offers of the same tariff type as your current plan, from all retailers in Victoria.
- If you are already on a good plan that’s close to the best in market, our advice is to wait until you receive a price increase notice from your retailer. They are required to provide you written notice at least 5 business days prior to raising your prices.
- Regulations in Victoria mean that your electricity retailer can only increase your rates once every 12 months. When you receive a price change notice advising you of an increase, it’s time to check the market. We advise switching to a more competitive offer, if there is one.
- If you are not currently on a competitive rate (this often includes the VDO) let Joulius do the work to find you savings. If we can find you savings of over $100 over the next 12 months, then switch now to ensure you don’t pay more than you need for the energy you use.
Remember, the days of ‘lock-in’ contracts are gone, and you are free to change providers whenever you wish. If you haven’t switched for more than a year, then its likely you can save money on your electricity rates. On average, Joulius finds customers over $280 over the next year in savings vs. their current plan. Get started here – it will take you less than 5 minutes and it’s completely free to use.
