The Australian Energy Regulator (AER) has released its draft determination for the default market offer (DMO) 2022-23, known as DMO 4.
The AER invites written submissions up to 17 March 2022. A final decision will be published in May, with changes to apply from 1 July 2022.
The DMO is the maximum price a retailer can charge a standing offer customer in south-east Queensland, New South Wales and South Australia.
For most customers, the proposed draft price changes are either comparable to or below forecast inflation.
Since it was introduced three years ago, the DMO has saved some 580,000 households almost $240 million and 100,000 small businesses $110 million in their electricity bills.
Drivers of change
Key drivers of price changes in this draft determination include falling costs for both networks and environment schemes along with rising wholesale costs. Wholesale costs are forecast to rise in all regions due to the slowing of investment in new capacity, a reduction in thermal generation and higher coal and gas costs.
The AER has also adjusted the methodology for calculating the DMO 4, allowing for more transparency and consistency between states. This involves clear calculation of retail costs and a less conservative approach to wholesale cost forecasting.
Overall standing offer prices remain well below the high price standing offers that existed before the DMO. In real terms, residential DMO 4 prices are around 16%–24% lower and small business DMO 4 prices are 17%–25% lower than the median standing offer before the introduction of the DMO.
| % 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) | 10.4% | $1,372 to $1,869 | -0.6% to -2.0% ($10 to $38 less than last year) | -4.2% to -5.6% ($70 to $110 less than last year) |
| South-east Queensland | 11.5% | $1,540 | +5.8% ($85 more than last year) | +2% ($30 more than last year) |
| South Australia | 8.2% | $1,769 | +3.1% ($53 more than last year) | -0.6% ($11 less than last year) |
In addition to the wholesale pressures noted above, for south-east Queensland, factors contributing to the determination include the impact of the unplanned outages of generation as well as additional costs to maintain system frequency. In South Australia, system security interventions have contributed additional pressure to costs.
This year, the AER set about rebalancing how retail allowances (which includes profit margins) are applied across each state to take a more consistent approach to DMO calculations over the next three years and ensure the DMO policy objectives can continue to be met.
This methodology is more transparent and tracks retail costs more closely. The combined impact of the changes to the methodology means standing offer prices will be lower for most consumers under this new methodology than if we applied the methodology used in the three previous DMO calculations.
| % customers on DMO | Proposed DMO for 2022-23 | |
|---|---|---|
| New South Wales (depending on distribution zone) | 19.2% | $3,306 to $4,365 |
| South-east Queensland | 21.7% | $3,250 |
| South Australia | 15.6% | $4,369 |
DMO 4 small business prices are based on a new 10,000 kWh usage benchmark and are not directly comparable with DMO 3 prices which are based on 20,000 kWh.
Quotes attributable to AER Chair, Clare Savage
“The Default Market Offer is a safety net price for the 680,000 household and small business customers on standing offer contracts in New South Wales, South-East Queensland and South Australia who haven’t (or haven’t been able to) shop around for a better deal.
“A standing offer contract is a default energy contract. It has basic terms and conditions and is generally more expensive than the competitive deals retailers offer.
“Customers have saved hundreds of dollars on their electricity bills since the DMO was introduced in 2019.
“Energy markets around the world are going through monumental change and our job is to ensure that the DMO prices are set at a level that both protects consumers but also ensures retailers can recover their costs, and competition and innovation are supported.
“We have seen an increase in wholesale prices over the last year in Queensland, South Australia and New South Wales in response to unplanned outages and reduced generation capacity. This underlines the importance of having sufficient, flexible, dispatchable capacity available during peak periods.
“Our more transparent method of calculating the DMO will continue to protect customers from excessive prices and, in fact, means most customers will be better off than if we applied the methodology used in the three previous DMO calculations.
“The DMO is a safety net. There are many cheaper deals available in the market and we encourage all customers to talk to their retailer about their best deal or to shop around.
“Many customers have already done so, with around 90 percent of residential customers across the three DMO regions now on better offers than the DMO.
“Customers can visit our free and independent website at energymadeeasy.gov.au to compare offers from other retailers.
“Our data shows that residential customers can save up to $544 or 24% of their bill, and small businesses can save up to $1282 or 33% by moving from a default market offer.”
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 580,000 customers, as set out below in absolute and percentage terms by region:
- New South Wales – 347,483 (10%)
- South-east Queensland – 167,520 (11.5%)
- South Australia – 65,516 (8.2%)
Small businesses on the DMO make up around 20%, about 100,000 customers:
- New South Wales – 64,211 (19.2%)
- South-east Queensland – 23,234 (21.7%)
- South Australia – 13,701 (15.6%)
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.
Consultation
Public forum
The AER invites you to register for an online forum on Wednesday 9 March 2022, 3 to 5 pm AEDT. At the forum we will outline key aspects of our draft decision and respond to stakeholder questions.
Invitation for submissions
Interested parties are invited to make a submission on the draft determination by close of business 17 March 2022. Submissions should be emailed to DMO
aer [dot] gov [dot] au (DMO[at]aer[dot]gov[dot]au) or alternatively submissions can be posted to:
Ms Stephanie Jolly
General Manager, Market Performance
Australian Energy Regulator
GPO Box 3131, Canberra ACT 2601
The AER prefers that all submissions be sent in an electronic format (Microsoft Word) and will be made publicly available to facilitate an informed, transparent and robust consultation process. Submissions will be treated as public documents and posted on the AER's website unless prior arrangements are made with the AER to treat the submission, or portions of it, as confidential. Those wishing to submit confidential information are requested to:
- clearly identify the information that is the subject of the confidentiality claim
- provide a non-confidential version of the submission.