Energy Action : Victorian Electricity Network Tariff Changes

Prior to 2021, Victorian electricity and gas retail prices were adjusted annually on 1 January, when underlying network prices also changed. All other states operate on a financial year basis, with annual network and retail price changes on 1 July.

In April 2019, the Victorian Government announced their intention to make changes to the timing of the Victorian electricity and gas network price resets to operate on a financial year basis. This would allow network and retail price changes to take effect on 1 July and to align Victoria with other states.

On 27 October 2020, the Victorian Government passed the relevant legislation to extend the current regulatory control period for electricity networks of 1 January 2016 - 31 December 2020 by six months. This would be a one-off special extension from 1 January 2021 - 30 June 2021. Thereafter, electricity networks will submit separate pricing proposals for the period 1 July 2021 to 30 June 2022 and each subsequent year.

On 28 October 2020, the Australian Energy Regulator (AER) released its determinations in relation to this six-month extension period. They are also currently progressing on the determination for the next regulatory control period - from 1 July 2021 to 30 June 2026, with the final decision for this period to be released in April 2021.

Why make a change?

While there are some transitional costs, particularly for electricity networks, the Victorian Government considered that there are long term benefits in seeking national alignment of price changes on a financial year basis, for consumers, retailers and the AER.

In reaching this conclusion, the Victorian Government consulted with AER staff, and affected electricity and gas network businesses, and sought legal advice on the approach to implementing the changes.

The expected benefits include:

• Minimising bill shock for customers over the Christmas/New year period, when many customers may be more affected by cost-of-living pressures;
• Prompting customers to engage with the market and consider other offers at a time of year when they are more likely to do so (i.e. end of financial year rather than calendar year); and
• Aligning Victorian price change timings with other States
  

Impacts for business customers

Based on the AER's final decision for the first six months of 2021 the network component of a typical small business customers bill is expected to reduce by between $18 - $160 when compared to the charges for half a year in 2020. Specific price changes vary by network and customer tariff. Further reductions are also expected from 1 July 2021 based on the AER's final decision for network tariffs in the subsequent period. It is important to note that most small business customers will not directly see any network tariff changes but rather will see any benefits or changes via their bundled retail price.

Larger business customers are typically on unbundled rates with a demand charge component and are directly exposed to changes in electricity network charges. They are also on average expected to have reduced network charges, but these are very site-specific based on the demand and consumption profile at the site.

As allowed under regulations, it is prudent for business customers to investigate if they are on the optimal network tariff for their circumstances. Changes in business circumstances impacting electricity consumption and/or changes in electricity network pricing structures can affect total network costs for customers. Regulations allow for customers to request a change via their electricity distributor once every 12 months, which means if a customer requests a change in January 2021, they will have to wait till January 2022 to request a subsequent change and be out of alignment with future changes in network tariffs.

A further consideration is that the data used to inform changes is usually based on the most recent 12 months of consumption history, which may be unrepresentative due to the impacts of COVID-19. However some network tariffs are 'self-calibrating' as they base the demand charges on the maximum demand in the most recent 12 month period, so will self-adjust once the impact of COVID-19 falls outside the 12-month historic window.

Conclusions

Given the impacts of COVID-19 on some customers electricity consumption and also the current transitional change in Victoria with a move to financial year network tariff changes there may be merit in customers considering not to change electricity network tariffs in January 2021. However for other customers it may still be best to request a change in January 2021. Seeking advice from your energy management company on what would best suit your circumstances is strongly advised.

To inform this decision, an independent energy management company, such as Energy Action, will need to analyse the potential savings from changing network tariffs in January 2021. If the savings are not material, or there are other benefits from delaying a change request till July 2021 when new network tariffs will again apply it may be best to wait and better align with the annual cycle and of subsequent electricity network tariffs every 12 months.

If you need advice on optimising your network charges or require further information on network issues please contact your Energy Action account manager. If you are interested in accessing our network optimisation services, contact us today to discuss our Energy Metrics service which covers network tariff cost reviews and a variety of other ongoing benefits.