The Australian Energy Regulator (AER) has released its final determination for the 2022–23 Default Market Offer (DMO).
The DMO is the safety-net price cap that ensures consumers are protected from unjustifiably high prices.
From 1 July 2022, the DMO prices in New South Wales, south-east Queensland and South Australia will increase for households (between 1.7% and 8.2% above inflation) and small businesses (0.2% and 13.5% above inflation), largely due to significant rises in wholesale electricity costs over the past year.
Since DMO 2021, wholesale costs for retailers have risen by 41.4% in New South Wales, by 49.5% in Queensland, and by 11.8% in South Australia, due to reductions in thermal generation resulting from unplanned outages and higher coal and gas prices, slowing of investment in new capacity, and increasingly ‘peaky’ demand (sharp highs and lows) driving up the cost of wholesale electricity contracts for retailers.
These wholesale market conditions have persisted since the AER’s draft determination in February and have been compounded by the ongoing war in Ukraine, which has led to significant pressure on coal and gas prices globally; extreme weather in NSW and Queensland which has affected coal supplies and electricity demand; and further unplanned outages at multiple generators.
In New South Wales, increases in network costs for Essential Energy and Endeavour Energy have also pushed up retail prices in these distribution areas.
AER Chair Ms Clare Savage said this year’s DMO determination was a particularly difficult decision as the regulator sought to balance the additional cost pressures on consumers with ensuring retailers could recover their rising wholesale and network costs.
“In setting these new DMO prices, we understand the significant impact they will have on some consumers who may already be struggling with cost of living pressures,” Ms Savage said.
“We have given scrutiny to all factors affecting the DMO calculation and have set safety-net prices that reflect the current conditions and underlying costs to retailers.
“Setting the DMO is not about setting the lowest price. We are required to set a price that will allow retailers to recover their costs, earn a reasonable margin and support retailers to compete and offer better deals and products in a competitive retail environment. If a large number of retailers are unable to recover their costs and are forced to exit the market – as we have seen recently in the United Kingdom – that will add more cost to consumers,” she said.
“Our safety net DMO price will continue to protect consumers from unjustifiably high prices and will continue to provide the reference point from which consumers can shop around for a better deal.”
Reach out for support from your retailer
A default energy contract is usually referred to as a ‘standing offer’ contract. It has basic terms and conditions and is generally more expensive than the competitive deals retailers offer, known as a ‘market offer’.
Ms Savage said with cost-of-living pressures increasing, it is especially important that customers engage with their retailers to ensure they are on the best energy plan for their individual circumstances.
The AER’s dedicated price comparison website Energy Made Easy is designed to make it easier for consumers to take control of their power bills. By entering in a few basic details or uploading their bill, the site allows customers to see what other retailers are offering and find the best plan for them.
“Residential customers can currently save around $443 or 24% off their bill, and small businesses can save around $1,308 or 29% by switching,” Ms Savage said.
And she urged any consumers in financial difficulty to reach out for support through payment plans and hardship programs that retailers must provide, and the AER enforces, under national energy retail rules.
“Any Australians struggling with their power bills should contact their energy provider as soon as possible to get help. Don’t ignore the problem and hope it will go away. Contact your retailer to ensure you are getting any concessions or rebates you may be entitled to and agree a payment plan you can afford.”
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| % customers on DMO | Proposed DMO for 2022–23 | % change on previous year (in nominal terms) | % change in real terms (after removing inflation) | |
|---|---|---|---|---|
| New South Wales (depending on distribution zone) | 9.8% | $1,512 to $2,092 | +8.5% to +14.1% ($119 to $227 more than last year) | +2.9% to +8.2% ($42 to $139 more than last year) |
| South-east Queensland | 10.7% | $1,620 | +11.3% ($165 more than last year) | +5.5% ($85 more than last year) |
| South Australia | 7.8% | $1,840 | +7.2% ($124 more than last year) | +1.7% ($30 more than last year) |
| % customers on DMO | Final DMO for 2022–23 (based on new 10,000 kWh usage) | % change based on previous year (using 20,000 kWh usage used in last year’s calculation) | % change based in real terms (using 20,000 kWh usage used in last year’s calculation) | |
|---|---|---|---|---|
| New South Wales (depending on distribution zone) | 17.8% | $3,782 to $4,901 | +10.0% to +19.7% ($690 to $1146 more than last year) | +4.3% to +13.5% ($310 to $815 more than last year) |
| South-east Queensland | 19.8% | $3,446 | +12.8% ($705 more than last year) | +6.9% ($402 more than last year) |
| South Australia | 15.7% | $4,539 | +5.7% ($459 more than last year) | +0.2% ($17 more than last year) |
DMO 2022-23 small business prices are based on a new 10,000 kWh usage benchmark.
Previous DMO prices for small business are based on 20,000 kWh annual usage.
About the DMO
The DMO price cap is set each year by the AER to protect customers from unjustifiably high prices, while allowing retailers a sufficient margin to enable them to recover costs and offer new products and customer innovations to the market.
Households on the DMO make up around 10% of the total market, about 550,000 customers, as set out below in absolute and percentage terms by region:
- New South Wales – 331,070 (9.8%)
- South-east Queensland – 158,113 (10.7%)
- South Australia – 62,198 (7.8%)
Small businesses on the DMO make up around 18%, about 90,000 customers:
- New South Wales – 57,411 (17.8%)
- South-east Queensland – 21,686 (19.8%)
- South Australia – 13,631 (15.7%)
The DMO acts as a reference price on bills so all customers can easily compare plans with other retailers. It is designed to protect those customers who haven’t negotiated a better deal from unjustifiably high prices.