Energy regulator urged to reconsider massive price rises

Victoria’s energy sector regulator is being urged not to go ahead with a change that could drive up power bills across the state, which social service groups fear could plunge thousands of people into poverty.

The Essential Services Commission (ESC) is consulting on its proposal to raise something called the Victorian Default Offer – an independently set power price that acts as a benchmark for the rest of the market – by about 30 per cent in the next financial year.

If approved, typical annual household bills could rise by about $426 a year, according to the commission. Small businesses would need to find another $1738 to keep the lights on.

It would mean even more belt tightening for households – such as Shahabuddin Ahmmad’s in Melbourne’s south-east – struggling to meet the rising cost of household goods, bills and raising a child on a single income.

A man sitting at a desk.
Shahabuddin Ahmmad often uses a portable heater in his house to keep his family warm. (ABC News: Simon Tucci)

Dr Ahmmad, a research scientist, said he already makes whatever compromises he can to save energy while staying warm in his Springvale townhouse, which he said was susceptible to temperature drops because of its wooden flooring.

As well as layering up with extra clothing, he and his partner have swapped a large electric heater for a smaller one they rely on to keep their young daughter warm.

“We can compromise but she can’t, so that’s the reason we have bought another heater, a small heater, so that she can keep warm herself,” he said.

“Sometimes it’s cold – it’s very, very cold.”

Like many others, he’s fearful that any further rise in costs could break his ability to make ends meet.

Changes likely to impact broader retail market

Only a few hundred thousand Victorian households are on the Victorian Default Offer.

However, because of its role as a market reference point, any increase finalised by the commission at the end of its consultations is widely expected to affect the vast majority of customers, such as Dr Ahmmad, who are on other deals offered by their energy retailers.

The proposed increase of just over 30 per cent is broadly in line with the 20 to 24 per cent increases proposed by the Australian Energy Regulator for customers on its Default Market Offer in other parts of Australia.

However, it would lift the Victorian Default Offer to what is believed to be its highest price since it was introduced by the Victorian government in a bid to make energy more affordable in 2019.

Victorian Council of Social Service’s Emma King the said many vulnerable Victorians simply wouldn’t cope with any price hike, due to take effect in July, because of rising costs elsewhere.

“It’s a perfect storm. There’s no other way to put it,” she said.

“Winter’s going to look really tough for Victorian households.”

A woman
Emma King from the Victorian Council of Social Service says a price rise would affect vulnerable people. (ABC News: Simon Tucci)

More than 43,000 homes across the state have asked their energy retailer for help paying bills in the three months to the end of December 2022, according to data from the ESC.

The average person seeking help was more than $700 in arrears, but some debts reach well into the thousands.

Ms King said her office had heard stories of pensioners staying in bed beneath doonas all day, and people relying on public facilities to shower, in a bid to keep their bills down.

Retailer profits could grow, expert says

The ESC said rising wholesale electricity costs – driven by last year’s market volatility, due to factors like the war in Ukraine – have left it with little choice but to increase its pricing offer.

It hopes setting higher prices in the short term will help bring them down in the medium- and long-term.

However, its reasoning has come under fire from one prominent energy expert.

A man at a desk.
Professor Bruce Mountain from the Victoria Energy Policy Centre at Victoria University is urging against a rise in the benchmark energy price. (ABC News: Simon Tucci)

While acknowledging the complexity of the commission’s task, the Victoria Energy Policy Centre’s Professor Bruce Mountain has argued that its calculations have overestimated the production costs facing many of the state’s retailers.

“The vast bulk of our electricity comes from mine mouth brown coal and that brown coal is purchased on long-term contracts,” he said.

“The price in those contracts has not changed with the war in Ukraine, and has not changed as a consequence of black coal-fired power station failures in in other parts of Australia.

“With costs unchanged, but allowed wholesale prices twice as high as before, that translates into very much higher [profit] margins for the retailers at the expense of customers – and unnecessarily so.”

VCOSS and Prof. Mountain will urge the commission to reconsider its draft pricing at a stakeholder forum on Thursday, with the peak body separately lobbying the Victorian government to consider targeted support measures in its upcoming budget.

Caps on the price of coal and gas – announced by the federal government late last year – have been credited with stopping the price of default offers from rising even further.

Nearly two million Victorian households have received power bill assistance under the government’s Power Saving Bonus scheme since July.

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