Australian electricity customers on expensive standing offer plans are set to have their power bills reduced after the Australian Energy Regulator (AER) put forth its final determination of the ‘Default Market Offer’ (DMO) pricing.
The AER has fixed a maximum energy plan price within NSW, SA and SE QLD that will come into effect from July 2019.
Based on current pricing, residential customers on standing offers in these states will save up to $181 per year, and small business customers up to $896. Here are the full savings estimated by the AER:
|State||Residential DMO savings||Small business DMO savings|
|New South Wales||Between $129 and $181||Between $579 and $878|
Source: Australian Energy Regulator. Savings based on DMO compared to median standing offer in each state.
This decision comes following a year of scrutiny of the energy industry and a retail pricing inquiry by the Australian Competition and Consumer Commission (ACCC) which identified the extent to which consumers that aren’t regularly comparing energy plans in search of the cheapest deals are left on the most expensive contracts – the so called ‘loyalty tax’.
AER chair, Paula Conboy, said that the DMO prices have been set at a level that will protect consumers that aren’t engaged in the market.
“Standing offers are no longer working as they were intended and this is causing financial harm to disengaged consumers,” she said.
To put this in perspective, the report estimates that the average household on a single rate tariff in each distribution network won’t pay over these amounts for their energy.
- Ausgrid: $1,467 (3,900 kWh/year)
- Endeavour Energy: $1,720 (4,900 kWh/year)
- Energex: $1,570 (4,600 kWh/year)
- Essential Energy: $1,957 (4,600 kWh/year)
- SA Power Networks: $1,941 (4,000 kWh/year)
The idea is that the DMO will also be used as a reference point from which all energy discounts must be calculated going forward. This is to counteract the confusion about headline discounts, ultimately helping consumers decide upon which plan will deliver the lowest bills.
“Working with our ACCC colleagues, we will monitor the impact of DMO prices, especially changes retailers make to their standing and market offer prices. This work will inform future DMO decisions,” explained Ms Conboy.
Cheaper electricity prices are on the way from the first of July, with the Australian Energy Regulator setting a “default” market price which electricity companies must move you to, if your current offer is higher. @eddy_meyer #9News pic.twitter.com/ZN5zvowLI8
— Nine News Queensland (@9NewsQueensland) April 30, 2019
Will the DMO decision affect me?
Energy customers currently on standard contracts will automatically be switched onto their retailer’s respective Default Market Offer from July 2019. It’s estimated that around 10% of households remain on standard contracts.
Canstar Blue Editor-in-Chief, Simon Downes, said the savings will be welcome relief for these energy customers, but the need to shop around and compare is still great.
“It’s definitely good news for those unfortunate customers who have been paying way more than they could have been for years. It’s some welcome price relief in this regard, but it’s still hugely important that energy customers do not once again set and forget because they could still go on paying too much,” said Mr Downes.
“Not only will the default offer be adjusted every year to reflect market conditions, but based on current pricing, there are still likely to be cheaper market offers available. The gap between the DMO and the cheapest prices could still be hundreds of dollars a year, so the need to compare and shop around continues.
“The concern, however, is that these cheaper deals may become more expensive over time as the retailers adjust to the changing retail framework. I would suspect that we have seen the end of those 40%+ discount offers as the retailers begin to offer more modest discounts, with greater emphasis put on other types of sign-up incentives as a point of difference between offers, such as rewards programs, partnerships with programs like flybuys or Qantas points, for example, and any other value-add incentives.
“It’s important that consumers don’t just bury their heads in the sand because they have heard about a new default offer and assume they are now getting a great deal. The default offer is certainly an improvement for those currently paying the most, but it is not going to be the best deal in town.”
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