AER releases Default Market Offer

The Australian Energy Regulator (AER) has released its draft determination of the Default Market Offer (DMO) for 2023–24, which serves as an electricity price safety net for households and small businesses on standard retail plans in South Australia, New South Wales, and South East Queensland. 

The draft determination, also known as an electricity price safety net, sets out the approach the AER intends to take to determine the final DMO price which will be released in May 2023. The draft determination is subject to consultation with stakeholder feedback to be factored into the final decision.

At this time, it is estimated that residential customers on standard retail plans could face price increases of around 19.5 per cent to 23.7 per cent depending on their region and whether they have controlled load. Small business customers could face price increases of around 14.7 per cent to 25.4 per cent depending on their region.

The DMO estimates changes in the costs retailers face each year including the cost of generating and transporting electricity. These cost estimates will be further updated in the final decision. The final DMO price changes to apply from 1 July 2023 may differ from this draft determination.

The cost of generating electricity accounts for around 30 to 40 per cent of the total DMO price and it is the largest driver of increases in the DMO in 2023/24. In the period since the AER last set DMO prices, the wholesale market has faced unprecedented supply challenges and volatility.

Most retailers purchase contracts for the cost of generating electricity in advance (known as forward contracts). The cost of these forward contracts is factored into the DMO price.

Forward contract prices for 2023/24 have fallen substantially since governments began discussing possible interventions in gas and coal markets in October 2022, however contract prices for 2023/24 in all regions still remain higher than they were at the start of 2022.

AER Chair, Clare Savage, said that careful consideration had been given to ensuring the policy objectives of the DMO were being met, in particular, protecting consumers from unjustifiably high prices.

“We know many households and businesses are already struggling with cost-of-living pressures. This is certainly a challenging environment for people to hear that further electricity price rises are on the horizon,” Ms Savage said.

“Energy prices are not immune from the significant challenges in the global economy right now; that’s why it’s more important than ever that we strike a balance in setting the DMO to protect consumers as well as allowing retailers to continue to recover their costs and innovate.

“It’s important to understand that the DMO is not the best offer, it is a safety-net.

“We encourage consumers to shop around for the best electricity deal for your circumstances, AER’s free and independent comparison website can help.

“If you’re struggling to pay your bills, contact your retailer as soon as possible because under national energy laws they must assist you.”

The Australian Energy Council’s Chief Executive, Sarah McNamara, said the price changes suggested by the AER are the result of a turbulent period, which saw wholesale market prices rise substantially.

“These draft decisions show that energy regulators are balancing the need to keep consumer prices as low as possible, while ensuring retailers can recover their costs.

“We recognise the proposed increase is difficult news for many people. There is no ideal time for a price rise and we know that it comes on top of other increasing cost of living pressures in the economy.

“Unfortunately, higher wholesale prices have left no room for retailers to absorb costs and these draft decisions reflect those pressures. As flagged by the Australian Competition and Consumer Commission, retail businesses are already dealing with razor-thin margins, and it is critical that the regulated price is set at a level that allows them to recover their costs. Failing retailers would be a worst-case scenario for everyone.”

Ms McNamara said that most retailers have excellent support programs to help their customers get back on their feet.

“There are also a range of government rebates, concessions, and emergency relief available for eligible customers. Over the coming months, our members will be delivering the Federal Government’s bill relief package, which includes direct financial customer support to help pay power bills,” Ms McNamara said.

The AER invites written submissions on the draft DMO determination up to 6 April 2023.

A final decision will be published in May, with changes to apply from 1 July 2023.

* CL: Residential customers with Controlled Load: these are separately metered tariffs used for appliances such as electric hot water storage systems, pool pumps or underfloor heating.

* Figures extrapolated from all QLD by excluding Ergon customers. We note other retailers have customers in regional QLD so the figure is approximate.