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.

Our consultation paper proposed to keep our approach to setting the Victorian Default Offer prices largely unchanged. While we proposed to use largely the same methodology, we will update our cost benchmarks with the most recent data available when making our draft and final decision.

Feedback on our consultation paper closed on 30 January 2023.

We plan to release our draft decision in March 2023 and our final decision in May 2023.

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 benchmarks from previous regulatory decisions
• 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.

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. These steps were effective, however, market participants incurred costs as a result. As the tariffs we determine are based on the efficient costs of the sale of electricity by a retailer, we must decide whether the costs related to the market operator’s interventions should be passed through in the 2023-24 Victorian Default Offer.

Retail operating costs

We are also required to include a benchmark for retail operating costs. These costs include:

billing and revenue collection systems

• information technology systems
• call centre costs
• corporate overheads
• energy trading costs
• provisions for bad and doubtful debts and
• regulatory compliance costs.

Our current benchmark for retail operating costs per customer is based on a benchmark set by the Independent Competition and Regulatory Commission for retail electricity prices in the Australian Capital Territory. We increase this benchmark in line with changes in the consumer price index each year and add some costs to reflect regulatory costs not included in the original benchmark. Our final decision on the 2022-23 Victorian Default Offer provides further detail.

Given recent levels of high inflation, we are seeking feedback on whether this approach remains appropriately.

Customer acquisition and retention costs

We are also required to include a modest allowance for customer acquisition and retention costs. This includes:

• the cost of acquisition channels (such as third-party comparison websites or telemarketing)
• the cost of retention teams
• marketing costs targeted at driving customer acquisition or retention.

In all past determinations for the Victorian Default Offer, we have used a benchmark to estimate modest customer acquisition and retention costs.  Our final decision on the 2022-23 Victorian Default Offer provides an explanation of our approach to calculating the benchmark.

Given this benchmark is also adjusted for inflation we seek feedback on potential alternatives to setting the customer acquisition and retention cost benchmark.

Next steps

We will review feedback on our consultation paper and plan to release a draft decision in March 2023.

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