The Commonwealth Government has just directed that the Australian Energy Regulator (AER) begin work on developing a mechanism for introducing a default price for electricity.

What we know

The Commonwealth Government has asked that a default market offer and associated default market price be introduced for National Energy Customer Framework (NECF) jurisdictions, which means:

  • the default price will replace the standing offer price in NECF areas that currently do not have price regulation;
  • the price will be set by the AER on the basis of the costs incurred by the retailer as well as allowance for a reasonable margin.

The default price would come into effect on 1 July 2019 with publicly released by 30 April 2019.

In addition, the Commonwealth Government has requested that the AER begin work implementing:

  • A reference bill, based on benchmarks from which advertised discounts must be calculated (including win-back and retention offers), using the default price set by AER. This would apply to generally available offers marketed at both residential and small and medium enterprise (SME) customers.

Comment

The proposed default price will not apply in areas where there is currently price regulation, which covers ACT, regional Queensland and Tasmania.

The Commonwealth Government has also announced that, after introducing the default price changes, the Government intends updating consumer protections and abolishing  Standard Retail Contracts. It is not clear yet which of the protections current contained in Standard Retail Contracts will be carried through to default market offers.

It is unknown, whether and when a default market offer would be extended to Victoria. Note, however, that it was a recommendation of the ACCC Retail Pricing Inquiry that the Victorian regulatory framework be unified with the NECF.

For more information see https://www.aer.gov.au/system/files/Letter%20to%20the%20AER%20Chair%20-%20dafault%20pricing.pdf.

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