The Australian Energy Regulator has published its draft Default Market Offer (DMO) 2022 to 2023 determination. Submissions on the draft DMO are open until 17 March 2022. The final decision will be published in May with changes to apply from 1 July 2022.
The draft DMO reflects key structural changes occurring in the energy market with wholesale prices expected to increase in the short to medium term, coming off successive decreases in the DMO, and representative of the risk of the changing market to energy retailers.
Undoubtedly, energy retailers will be looking at the draft DMO closely considering the experience of UK retailers and their own price regulation and market dynamics.
The Impact of the 2022-23 DMO
The draft DMO in New South Wales for residential customers in 2022 -2023 ranges between $1372-$1869. This represents a decrease of up to 2% compared to the previous year. In south-east Queensland and South Australia, the draft residential DMO is $1540 and $1769 respectively. This represents an increase of up to 5.8% on the previous year.
For small business customers the draft DMO in New South Wales is between $3,306 and $4,365 in south-east Queensland is $3,250, and in South Australia is $4,369. The draft DMO small business prices are based on a new 10,000 kWh usage benchmark and are not directly comparable to the prior DMO prices which were based on 20,000 kWh.
Why the increase
The AER, when determining the draft DMO, seeks to reach a balance between the provision of price protection for consumers and setting a realistic price whereby retailers are able to continue to operate.
The key drivers in price changes have included the reduction in costs for both network and environmental schemes alongside rising wholesale costs. Wholesale costs are forecast to rise in all regions.
Commenting on the draft DMO, AER Chair, Clare Savage stated:
“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.”
Regulatory Context
The Competition and Consumer (Industry Code – Electricity Retail) Regulations 2019 (Regulations) is the instrument that sets out the DMO framework.
Within Part 3, the AER is given the power (and obligation) to determine how much electricity is broadly representative small customer of a particular type in a particular distribution region would consume in a year and the pattern of that consumption and a reasonable total annual price for supply such small customers in each relevant region.
The DMO applies to residential and small business customers in NSW, SA and south-east Queensland. The regulations set out required prices for flat or TOU tariffs, customers with controlled load and on a flat rate tariff including those with a solar tariff. The Regulations themselves are also under review and the relevant consultation paper can be reviewed here.
