Victoria’s electricity pricing safety net is set to deliver modest savings for households and small businesses, with the state’s independent regulator proposing a reduction in the Victorian Default Offer (VDO) for 2026-27.

The draft determination from the Essential Services Commission (ESC) indicates that average residential customers on the VDO will see electricity prices fall by around 3 per cent – the equivalent to approximately $46 per year from 1 July 2026.

Small business customers are expected to benefit from a larger reduction of around 5 per cent, or $172 annually.

The VDO, which applies across Victoria’s five electricity distribution zones, acts as a regulated price that retailers must offer. It is designed to provide a fair and transparent benchmark for customers who are unable or unwilling to engage actively in the retail energy market.

Approximately 510,000 residential customers (around 17 per cent) and 61,000 small businesses (21 per cent) are currently on the VDO, alongside a further 190,000 customers in embedded networks, such as apartment buildings and commercial sites, where it serves as a maximum charge.

Despite the proposed reduction, the VDO remains a pricing safety net rather than the lowest-cost option available. Data from 2025-26 shows that the average residential market offer is around $286 (17 per cent) cheaper than the current VDO, and about $240 (15 per cent) below the draft 2026-27 level. Customers switching from the highest to lowest market offers could save up to $941 per year, highlighting the continued value of retail competition.

The ESC reiterated that the VDO plays a critical role in protecting consumers, while maintaining competitive pressure on retailers.

Gerard Brody, Chairperson at ESC, shared that the mechanism ensures access for all Victorians to a fair baseline price.

“The Victorian Default Offer is set independently of energy retailers, which ensures all Victorian households and small businesses have access to a fair and reasonable price,” Brody said.

The proposed price reductions are primarily driven by a significant decline in environmental cost components, which have fallen by around 41 per cent for the average residential customer. This reflects lower certificate prices and reduced compliance costs across schemes, including the Large-scale Renewable Energy Target, Small-scale Renewable Energy Scheme and the Victorian Energy Upgrades program.

Other cost components, including wholesale electricity, network and retail operating costs, have remained relatively stable compared to the current pricing period.

The ESC noted that its draft determination is based on wholesale electricity contract prices up to 6 February 2026. However, recent global energy market volatility (particularly movements in oil and gas prices) may influence final pricing outcomes, given the considerable role gas-fired generation plays in setting electricity market prices.

An updated assessment of wholesale market conditions will be undertaken ahead of the final VDO determination in May 2026.

The new pricing will apply from 1 July 2026 to 30 June 2027.