AER opens final consultation on default market offer

energy regulator, dmo, default offer, standing offer, energy retailers

The Australian Energy Regulator (AER) has released its Default Market Offer (DMO) draft Determination for consultation, which will cap prices for standing offers.

The DMO figure will also act as a reference price, requiring energy retailers to advertise their standing and market offers against a common price benchmark.

Energy Minister Angus Taylor and Treasurer Josh Frydenberg said the AER’s draft determination will deliver real savings to customers on standing offers:

  • up to $174 for customers on a flat-rate tariff,
  • up to $218 for residential customers on a controlled load tariff, and
  • up to $937 for small business customers on a flat-rate tariff.

The Government has also released for public consultation the draft Electricity Retail Code to implement the DMO and reference price.

The Code will provide the AER with the power to set the DMO and reference price for households and small businesses in New South Wales, South Australia and South East Queensland.

The DMO will not apply in Victoria as Victoria has announced it will implement its own default market offer.

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The Morrison Government has warned the Victorian Government if Victorian consumers aren’t better off under Victoria’s default price, “the Commonwealth with take further action to ensure Victorian electricity customers are put first”.

The Australian Energy Council (AEC) says the Government’s proposal to re-regulate electricity prices is rushed and does not have the support of the industry, affected States and Territories, nor the Australian Energy Market Commission (AEMC).

The AEC’s chief executive Sarah McNamara said the draft decision released by the Australian Energy Regulator highlighted that, even amongst the 14 per cent of the market currently on standing offer tariffs, the benefits will vary greatly. Some customers may pay more than they do at the moment, others will see their prices hold.

For the 86 per cent of customers who are already on a cheaper market deal, today’s announcement will not lower prices. However, the Government’s own adviser, the AEMC, has warned of a likely increase in the price of some of the cheap deals in the market in the future.

“When governments choose to set prices in any market, serious consequences can occur,” Ms McNamara said.

“Federally imposed price regulation also flies in the face of the agreement reached at the last COAG Energy Council meeting.

Related article: AER releases final decision on rate of return

“Price regulation is usually a decision made at a state level. In a complex market, we need to be careful that the majority of customers will benefit from a reform and that vulnerable customers are protected. That work has not been done.

“We also know why energy prices are high. They are high because of cost pressures across the supply chain, and because we are an industry without a guiding policy framework. Price regulation cannot overcome those challenges.

“If the Government is keen to regulate prices in the energy market, we encourage it to take the time to do it properly, and with the cooperation of the States so customers do not suffer detriment.

“We need time to prepare for this change and educate customers. This is a rushed and sub-optimal response which does not address the cost issues in the energy market.”

Origin Energy released a statement saying if the final DMO determination is consistent with the draft determination, then the company expects the introduction of a DMO will deliver the following savings to customers:

  • approximately 230,000 residential customers saving on average $105 per annum
  • approximately 55,000 small business customers saving on average $355 per annum.

The annual impact of this draft determination for Origin, from current tariffs, is estimated to be a $44 million reduction in pre-tax earnings from FY2020.