“By eliminating the ability of electricity retailers to achieve a basic level of profit, the VDO will drive some retailers out of the market and prevent others from entering it in the future,” Dr Emerson wrote.
This would have the perverse effect of forcing up power prices for the most engaged consumers in the market.
“Customers on offers currently cheaper than the VDO can only lose from the introduction of the VDO; they cannot win,” he wrote.
Dr Emerson, a former minister for trade and small business who now works as an economic consultant, recommended Victoria abandon its plan and instead adopt the Morrison government’s default offer, which is due to kick in on July 1.
The Victorian default offer for electricity bills is also set to start on July 1, shifting about 150,000 households and 45,000 small businesses onto a cheaper deal.
From that date, energy retailers will be legally required to transfer customers on the worst standing offers onto the government’s cheaper default offer.
The Victorian regulator, the Essential Services Commission, has calculated that households that use an average amount of energy and who are on the most expensive default offers, will save between $390 and $520 a year.
Average-sized businesses on standing offers will save about $2500 a year, according to the commission’s analysis.
It is due to hand the Andrews government its final recommendation by May 3.
Energy Minister Lily D’Ambrosio said the government had no intention of reconsidering its policy and would push ahead with introducing the offer as planned.
“We make no apologies for putting power back in the hands of everyday Victorians, by setting a fair price on energy that has been assessed by experts,” Ms D’Ambrosio said.
“Ever since the Liberals privatised our electricity, big corporations have tried to rip off consumers – enough is enough.”
State Political Correspondent for The Age
Noel Towell is State Political Editor for The Age