AER opens final consultation on Default Market Offer

The Australian Energy Regulator (AER) has today released its draft determination on Default Market Offer (DMO) prices, based on recommendations made by the Australian Competition and Consumer Commission (ACCC).

The AER was asked by the Commonwealth Treasurer and Minister for Energy on 22 October 2018 to develop DMO prices for residential and small business customers in all non-price regulated jurisdictions.

This request was based on recommendations 30, 32, 49 and 50 of the ACCC’s Retail Energy Pricing Inquiry (REPI) Final Report. The recommendations set out that the DMO would also serve as the basis for a reference price allowing consumers to more easily compare market offers.

AER chair Paula Conboy said the AER’s work addresses the ACCC’s findings in the REPI Final Report that standing offer prices are unjustifiably high and comparing market offers is overly confusing.

“The draft determination is consistent with the policy objectives set out by the ACCC and the request made by the Commonwealth Government. This includes aiming to reduce the unjustifiably high standing offer prices for customers who do not or are unable to engage in the market, allowing retailers to recover the efficient costs of providing their services, and maintaining competition, investment and market participation incentives for retailers,” Ms Conboy said.

If implemented the draft determination would deliver annual reductions from the standard standing offer bill for residential customers of approximately:

• Between $122 and  $174 for New South Wales (depending on distribution zone)
• $115 for South-Eastern Queensland
• $169 for South Australia

The draft determination will also reduce prices for small business customers who are on standing offers. For small business customers, annual reductions from the standard standing offer bill will be approximately:

• Between $578 and $937 for New South Wales (depending on distribution zone)
• $453 for South-Eastern Queensland
• $790 for South Australia

“We have had strong interest from stakeholders to this process so far, and encourage all interested parties to take this opportunity to make their voices heard ahead of the final determination,” said Ms. Conboy.

Consultation on the draft determination is open until Wednesday 20 March 2019 and a final determination will issued by 30 April 2019.

Background

The draft determination finds that DMO prices should be set at the mid-point (50th percentile) between the median market offer and median standing offer in each distribution zone.

The Commonwealth Treasurer and Minister for Energy wrote to the AER on 22 October 2018 requesting the AER develop a DMO consistent with the relevant ACCC recommendations.

The Commonwealth has developed a draft industry code under Part IVB of the Competition and Consumer Act that is currently out for consultation by stakeholders. The DMO will be implemented through this code.

The AER must determine DMO prices and reference bill by 30 April 2019, for implementation by retailers from 1 July 2019.

The DMO prices will apply in the non-price regulated jurisdictions of New South Wales, South Australia and South-Eastern Queensland. There are approximately 758 000 residential customers currently on standing offers in these jurisdictions.

The number of affected customer by jurisdiction is below:

*Based on median standing offer for a benchmark consumption level for flat rate tariff
Source: AER Annual Report on Compliance and Performance of the Retail Energy Market 2017-18

*Based on median standing offer for a benchmark consumption level for flat rate tariff
Source: AER Annual Report on Compliance and Performance of the Retail Energy Market 2017-18