Getting the VDO right

Joint submission to the Victorian Default Offer Review 2024-2025

Victoria’s Default Offer for electricity, or ‘VDO’, has provided an important safeguard for consumers that are unable or unwilling to engage with the electricity retail market, a key benchmark price for market offers and, since September 2020, a crucial maximum price for embedded network customers.

The VDO has also been successful in eliminating excessively priced standing offers from the market.

As a reference price, the VDO has made it easier for consumers to compare alternative market offers and deterred misleading discounting practices.

However, some changes are required to ensure the method used to calculate the VDO remains fair and fit-for-purpose.

Recommendations:

  • The VDO should be maintained as a crucial safeguard for consumers who cannot engage with the market, and as price cap for those in embedded networks.
  • The ESC should ensure that retailers are fulfilling their regulatory obligations to offer customers the best market offer, and support outreach efforts such as the Energy Assistance Program.
  • The ESC must ensure that any reductions in wholesale electricity prices are reflected in VDO pricing determinations.
  • ‘Customer acquisition and retention costs’ should be kept to a modest amount, and the ESC should advise the Minister to remove this portion of the pricing from the Retail Operating Cost portion of the VDO.
  • The Retail Operating Margin should be reduced in line with other jurisdictions.
  • Whenever there is a range in price estimates for a component of the VDO price stack, the ESC should select the lowest price estimate or have stated reasons for why the lowest price was not selected.
  • Across all essential services, the ESC should work to embed an understanding of the cost of living into all determinations.

It is unfair for customers on the VDO to have the costs passed on to them of acquisition channels (such as third-party comparison websites or telemarketing), retention teams, and marketing costs targeted at driving customer acquisition or retention.

VCOSS is the peak body for Victoria’s social and community sector, and the state’s premier social advocacy body. We work towards a Victoria free from poverty and disadvantage, where every person and community experiences genuine wellbeing. Read more.

We welcome the opportunity to provide this input.

This work is authorised by VCOSS CEO Juanita Pope.

PRIMARY AUTHOR

Rory Anderson

VCOSS acknowledges the Traditional Owners of Country. We pay respect to Elders past and present, and to emerging leaders. Our business is conducted our business on sovereign, unceded Aboriginal land.