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All Victorians now have access to a fairer electricity deal with the Victorian Default Offer being set as the new maximum price for electricity sold to embedded network customers.

In July 2020, the Essential Services Commission (ESC) made a final decision on the maximum prices exempt sellers may charge customers in embedded electricity networks.

Exempt sellers include owners and operators of caravan parks, retirement villages, shopping centres, apartment buildings, rooming houses and others who sell electricity to customers through an embedded network. Generally, an exempt seller buys electricity at a ‘gate’ meter and on-sells it to individual customers within the embedded network.

Previously, the maximum price exempt sellers could charge their customers was the local area retailer’s standing offer prices that were in place on or immediately prior to 27 May 2019. This maximum price was significantly higher than the maximum price licensed sellers must comply with under the Victorian Default Offer.

The ESC determined that embedded network customers should have access to price protections that are as consistent as possible with those applying to customers able to access market offers.

The maximum price for residential and small business customers (those consuming no more than 40 megawatt hours of electricity per year) within embedded networks is now set at the level of the Victorian Default Offer.

The Victorian Default Offer, introduced in 2019 as part of reforms introduced by the Victorian Government to make energy more affordable for households, reflects the independent regulator’s view of the efficient price of supplying electricity in Victoria.

The new pricing for embedded networks commenced on 1 September 2020, and embedded network operators can still offer customers deals below the maximum price.

Energy affordability under scrutiny

In February 2020, the ESC released its consultation paper on the maximum prices that embedded networks and other exempt sellers could charge customers.

In response, the ESC received 34 submissions which informed the proposal set out in its draft decision. The ESC consulted on its draft decision between May and June 2020.

Interested parties could post a question and receive a public response from the project team. Stakeholders could also provide a general comment or make a formal submission on the draft decision.

The ESC held an online public forum on 28 May 2020 which was attended by more than 50 stakeholders, who provided feedback and submitted questions on the draft decision.

The ESC released its final decision on 28 July 2020. The ESC’s Pricing Director, Marcus Crudden, said the change gives additional protections to Victorians living in embedded networks.

“Embedded network customers have not been fully covered by the same price protections as other Victorians. This ensures they now have access to a fair deal with significant savings for some,” Mr Crudden said.

“From 1 September, residential embedded network customers could save between $180 to $360 while small businesses could save $900 to $2,200 annually, based on the current default offer.”

Maximum prices for exempt sellers will automatically update to align with pricing resets for the Victorian Default Offer, which expired at the end of 2020.

At the time of going to print, the ESC had undertaken engagement on a new default offer price that would apply from 1 January 2021. In a draft decision released on 15 September 2020, the Victorian Default Offer would fall by nine per cent or around $575 a year on average for small business, and seven per cent or around $105 per year for households.

Mr Crudden said the proposed reduction to the default offer was based on falling wholesale electricity prices.

“Our analysis shows the cost of purchasing wholesale electricity has fallen and we believe this should be passed onto consumers to save on their energy bills,” Mr Crudden said.

“A number of submissions noted uncertainties about the impact of the Coronavirus pandemic on Victorian consumers and retailers, and we are seeking updated information from stakeholders to inform our final decision.

“We are mindful of the risks facing retailers at the moment and at the same time, we need to set a reasonable price that reflects the efficient costs of delivering retail electricity to customers.”

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Charlotte Pordage is Editor of Utility magazine, a position she has held since November 2018. She joined the team as an Associate Editor in October 2017, after sharpening her writing and editing skills across a range of print and digital publications. Charlotte graduated from Royal Holloway, University of London, in 2011 with joint honours in English and Latin. When she's not putting together Australia's only dedicated utility magazine, she can usually be found riding her horse or curled up with a good book.

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