Default market offer (DMO): what the new energy reference price means for you
If there’s one thing that’s tricky to keep up with, it’s the energy market. And on July 1 2019, Aussies around the country were introduced to a brand new set of changes to help them better compare energy prices.
One thing many Australians have struggled with when it comes to comparing energy plans is the ability to have a like for like comparison, as every retailer markets their products differently and offers varying discounts. For instance, some retailers will offer discounts off a household’s usage, while others will provide discounts for paying on time.
So to make the market a more transparent playing field, the Australian Energy Retailer (AER) has introduced a new default market offer and a reference price.
But what do these new terms mean and what difference will they make to your annual electricity bill? Read on to find out.
What is the default market offer (DMO)?
The Default Market Offer (DMO) is a price cap imposed by the AER that energy retailers must abide by.
The DMO also replaced standing offers. These were offers that many customers were placed on if they chose to not shop around on energy plans, however, these often came with excessively high prices. In order to protect these customers from being stung with high energy bills, they will now be rolled onto the default market offer.
The DMO is cheaper than standing offers, with some households in NSW set to save up to $181 on their annual bills, while households in South-East Queensland and South Australia will save $118 and 171, respectively.
One other purpose of the DMO is to make energy plans easier to compare. In this case, the DMO acts as a reference point to other plans in the market, which brings us to the next question.
What is the reference price?
The energy reference price acts as a figure consumers can constantly refer to when comparing energy plans, to see how good the plan is compared to others. Again, this price is set by the AER, not retailers. It essentially replaces the old 'standing offers' which is the price you might wind up with if you don't shop around on deals.
Retailers are now able to alter their market offers, which can be higher or lower than the reference price. While retailers can charge more than the reference price, it's not encouraged by regulators. Most of the time, you'll compare plans based on how much less you'll pay than the reference price.
How will these new changes affect me?
One thing to keep in mind is that the new DMO will not affect everyone, only those who were previously on standing offers. If you were on a standing offer, then your retailer may have already contacted you or will contact you soon about your move onto the DMO.
How much will I save with the DMO?
The amount you’ll save on your annual bill will depend on your state. Just keep in mind that the following prices are based off an average usage for low, medium and high users, so it might not accurately reflect the amount you’ll save.
|State||Distribution Zone||Default Market Offer (Single Load)||Median Standing Offer Price||Total Annual Savings|
|NSW||Ausgrid||$1,467 (3900 kWh)||$1,596||$129|
|NSW||Endeavour||$1,720 (4900 kWh)||$1,596||$175|
|NSW||Essential||$1,957 (4600 kWh)||$2,138||$181|
|SA||SAPN||$1,941 (4000 kWh)||$2,112||$171|
|SE QLD||Energex||$1,570 (4900 kWh)||$2,112||$118|
How will the reference price be used by retailers?
When a retailer wishes to use the reference price to advertise their market offer, they need to use a percentage that displays the difference in annual cost between their product and the reference price.
Below is an example used by energy retailer, Energy Locals and its Online Saver 2020 plan, which after punching in the postcode 2000, is 9% less than the reference price.
What about Victoria?
Although the DMO is available to Aussies in NSW, SA and SE QLD, electricity in Victoria is regulated differently. But that doesn’t mean Victorian customers on standing offers will miss out on a better deal, as the Victorian State Government introduced its own version of the DMO, called the Victorian Default Offer (VDO).
Like the DMO, customers on standing offers will be moved onto the VDO. But unlike the DMO, which is exclusively for customers who were on standing offers, anyone in Victoria can sign up to the VDO.
And as for the Northern Territory, Western Australia, Tasmania and the ACT, there has been no move to introduce a similar offer as of yet.
So is the DMO the cheapest offer on the market?
Not necessarily. While the purpose of the DMO is to make energy more affordable for Aussies previously on standing offers, it doesn’t mean it’s the cheapest offer available. The DMO is based off an average usage calculation, so your household’s usage could be under or over this amount.
In this case, you might be better off sticking with the energy plan you’re already on or shopping around to see if you could be on a better deal.
One easy way to find out is to start comparing different energy plans in the market by heading over to our energy comparison tool.