Victorian Default Offer (VDO) Explained

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With energy prices skyrocketing in recent years, changes have been introduced to make electricity ‘fairer’ for all Victorians. From July 1, customers in Victoria on standing offers – a basic energy plan usually with higher rates – will be rolled over to what’s called the ‘Victorian Default Offer’ or ‘VDO’.

Essentially, this means that bill-paying customers who aren’t actively engaged in the market and are likely paying more than market offers, won’t be left on expensive electricity plans by retailers. You’ve heard of the ‘loyalty tax’? This was it! In this guide, Canstar Blue examines what the Victorian Default Offer is, how it works, and ultimately what it means for you.

What is the Victorian Default Offer?

What is the Victorian Default Offer

The Victorian Default Offer (VDO) acts as a safeguard for customers in Victoria who are on expensive ‘standing offer’ contracts with their current energy provider. As of 1 July 2019, Victorian residential and small business customers on standing offers will be moved to the VDO – what’s described by the state’s energy regulator as a “fair” price for electricity.

Similar to the reference price for energy in other states, the Victorian Default Offer is aimed at providing customers who do not engage in the market with electricity prices that are capped and more competitive. Approximately 130,000 households and 30,000 small businesses in Victoria will switch onto the new VDO from standing offers from July 1.

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How does the Victorian Default Offer work?

The VDO acts as a price cap for customers who do not engage in the energy market, but it also serves as a reference price when comparing plans with discounts. Energy plans with discounts must have the same base pricing as the VDO and show how the discounted plan compares to the estimated annual cost of the VDO, either in monetary or percentage terms. So, you’ll now start to see plans marketed at ‘10% less than the VDO’, or ‘5% more than the VDO’, for example.

Cheaper than the Victorian Default Offer

The Victorian Default Offer is a competitive power price, but you could still save even more by shopping around and switching to one of the cheapest deals in Victoria. To help you find a better eal, the following table lists some of the cheapest plans on our database for the Melbourne area.

Cheap Deals in Victoria

Here are some of the cheapest published deals from the retailers on our database that include a link to the retailer’s website for further details. These are products from referral partners†. These costs are based on the Citipower network in Melbourne but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4000kWh/year. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Why was the Victorian Default Offer introduced?

The VDO was introduced on the back of an independent review from government and industry regulators that found Victorian customers were paying too much for electricity. The Victorian Default Offer is part of a larger government initiative planned to make the retail market easier to navigate, as well as more affordable for households and small businesses.

Will the Victorian Default Offer make energy cheaper?

The price of the VDO will vary depending on which distribution zone you live in. According to the Essential Services Commission of Victoria (ESC), a typical residential customer will save up to $450 a year by switching from a standing offer to the VDO, while small business customers could save up to $2,050 per year.

We’ve taken a look at five energy retailers to compare the differences in price between their cheapest market offer and the Victorian Default Offer. Although the VDO will replace the more expensive standing offer, it isn’t the cheapest energy deal on the market, which is why it’s always good to shop around and compare. Use our comparison tool for a specific comparison. Our database may not cover all deals available in your area, and please check retailer websites for up to date information.

Energy Retailer Cheapest Market Offer Victorian Default Offer
AGL $1,227 (Essentials Plus) $1,334.00
Alinta Energy $1,334 (Real Deal) $1,334.00
EnergyAustralia $1,249 (No Frills) $1,334.00
Origin Energy $1,278 (Max Saver – Online Special) $1,334.00
 Simply Energy $1,183 (Simply RACV) $1,334.00

Price assumes general energy usage of 4000kWh/year. Estimated price includes any conditions discounts that may be available. Pricing based on Citipower network in Melbourne, but prices differ between distribution areas. September 2019.

Victorian Default Offer Prices

To use the VDO as a reference price when comparing plans, you’ll need to understand which energy network you live in, because the annual cost of the VDO differs between areas of Victoria. The below table shows VDO prices across the state’s five distribution areas, based on varying energy usage requirements.

Distribution Zone 2,000 kWh 4,000 kWh 8,000 kWh
AusNet Services $968 $1,520 $2,763
Citipower $869 $1,334 $2,264
Jemena $876 $1,385 $2,404
Powercor $931 $1,411 $2,372
 United Energy $857 $1,381 $2,428

Source: Victorian Essential Services Commission, June 2019.

Victorian Default Offer Supply & Usage rates

Below are the electricity rates an eligible residential customer will pay on the Victorian Default Offer, depending on where they live.

Distribution Zone Supply charge (daily) Usage charge (per kWh) Usage charge – Controlled load (per kWh)
AusNet Services $1.1368 $0.2763 (Block 1)

$0.3113 (Block 2)

$0.2024
Citipower $1.1055 $0.2325 $0.1809
Jemena $1.0037 $0.2547 $0.19175
Powercor $1.2333 $0.2403 $0.18315
United Energy $0.9115 $0.2620 $0.1873

Source: Victoria State Government, Victorian Default Offer – Final Orders.

What are the pros and cons of the VDO?

For customers on uncompetitive standing offers, there are obvious benefits that’ll likely translate to savings on annual power bills when switched to the VDO. However, if you’re looking for more than just the ‘default’ price, you may find more value in market offers, most of which include competitive rates, incentives and rewards.

While households on standing offers will automatically roll over to the Victorian Default Offer – and those on market contracts will also be able to request a switch on to the VDO – there are a few pros and cons to think about.

Pros

  • Fairer electricity prices for customers on standing offers.
  • Energy retailers can’t charge more than the default price set by the Victorian Government.
  • Most residential and small business customers have access to the VDO.

Cons

  • Customers living on embedded networks (i.e. caravan parks or retirement homes) don’t have access to the VDO.
  • Automatic rollover to VDO only applies to customers on standing offers with a single rate tariff Those on a time of use tariff will need to contact their energy retailer to switch to the VDO.
  • While the VDO does offer a fairer energy plan for Victorians, there may be cheaper market offers available with lower usage and supply rates.

How do I know if I’m on a standing offer?

Standing Offer Explained

If you’ve lived at the same address for a while now and you can’t remember the last time you compared energy plans, chances are you’ll be on a standing offer. The easiest way to find out if you’re on a standing offer is to look at your latest energy bill, which should have your contract type listed.

It may be tucked away in the fine print so make sure you scan the breakdown of charges on your bill. Keep in mind, it may not be labelled as ‘standing offer’ on your power bill, instead it could be called something like a ‘standard retail contract’ or along those lines.

Can I switch to the Victorian Default Offer?

If you’re a residential or small business customer on a standing offer with a single rate tariff, you will be automatically switched on to the Victorian Default Offer from 1 July 2019, provided you don’t live on an embedded network. For customers on a different tariff (i.e. time of use), you will need to contact your energy retailer to change to the VDO.

Victorian Default Offer: Key Points

Here’s a summary of what the Victorian Default Offer means for you:

  • Customers on standing offer contracts will be switched to the new default offer (VDO)
  • The VDO is the maximum price a customer will pay if they don’t want to engage in the energy market and switch to a market contract
  • In some cases, the VDO may be cheaper than some retailer’s market offers
  • The price of the VDO will vary between different distribution zones in Victoria
  • Retailers that advertise discounts must use the VDO as a ‘reference price’ when marketing their energy plans
  • Energy retailers must notify customers how they can access the VDO on their bill from 1 October 2019

How to find a great energy deal

The Victorian Default Offer will surely have a significant impact on energy prices, but don’t assume you’ll automatically be on the best deal post-July 1. You’ll also want to double check that you’re getting a deal suitable to your needs, not just your budget.

What do we mean by this? Well, given that competition is fierce in the Victorian energy market, retailers will fight tooth and nail for your business, meaning you could take advantage of other value-add incentives, like customer rewards or sign-up credits. Canstar Blue gives you the power to compare the features in a range of plans from some of Australia’s biggest energy providers. Hit the link below to get started.

Image credits: Boyloso/Shutterstock.com, Iassedesignen/Shutterstock.com, tommaso79/Shutterstock.com

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