Understanding the Default Market Offer (DMO)

The "reference price" or - Default Market Offer - in energy is a standard rate used to compare different energy plans. It helps consumers understand if they're getting a fair deal.

Regulators set this price to simplify the market and prevent confusion. By comparing a retailer's price to the reference price, you can make informed decisions and potentially save money on your energy bills.

What is the Default Market Offer?

The energy reference price, known as the Default Market Offer (DMO), is a key benchmark in Australian energy pricing. It's set by the government and varies by location within the National Electricity Market.

Functioning as a price ceiling, the DMO ensures consumers have a clear understanding of energy costs. It replaces the previous Standing Offer, offering greater stability against wholesale price fluctuations.

Set by the Australian Energy Regulator (AER), this price varies based on usage and supply charges in different regions. Therefore, the reference price differs between states and even regions within New South Wales.

Energy retailers are required to offer this price to customers, and it is updated annually in July to reflect the costs of supplying energy. Retailers have to show how their prices compare to the DMO, which gives customers transparency and helps with choosing the right plan.

While the DMO acts as a limit for standard offers, retailers can still offer market deals at higher prices. However, regulators discourage excessive pricing, aiming for fair and competitive energy markets.

What happened before the Default Market Offer?

Before the introduction of the reference price, deregulated energy markets in certain areas allowed retailers to charge customers without a price cap.

This led to competitive markets but also resulted in some consumers being on expensive 'standing offers,' seen as a 'lazy tax' for not switching.

The lack of a benchmark price made the market confusing, as big discounts could still lead to higher prices if applied to high base rates. Conditional discounts further complicated matters.

In response, the Australian Competition and Consumer Commission (ACCC) launched an inquiry to simplify the market. One recommendation was to introduce a 'Default Market Offer' (reference price), replacing standing offers.

Consumers on standing offers would be switched to the reference price, unless their offer was cheaper, which is rare.

Which states use the Default Market Offer?

The Reference Price is found in several regions, including South Australia, South-East Queensland, New South Wales, and the Australian Capital Territory. In Victoria, a similar concept known as the Victorian Default Offer is used.

Before the introduction of the Default Market Offer in July 2019, customers who did not actively compare prices were placed on the Standing Offer, which was often the most expensive plan available.

The Default Market Offer was implemented to address this issue and prevent companies from placing families on high energy tariffs.

How you are affected

The Default Market Offer mainly affects customers on standing offers, not those on market offers.

Firstly, it sets a limit on what you pay. The regulator has capped standing offer prices, ensuring retailers cannot charge more than the reference price for these plans.

While this cap doesn't apply to market offers, these offers often feature discounts, special prices, and lower rates than the Default Market Offer (DMO).

Secondly, it provides a clearer picture of your costs. Previously, retailers could advertise discounts based on different base rates, making it hard to compare.

Now, discounts must be relative to the reference price, making pricing more transparent. For example, if two retailers offer 20% discounts, you can easily compare them because they are based on the same reference price.

What is the Victorian Default Offer (VDO)?

The Victorian Default Offer (VDO) is an electricity price set by the government to establish a fair benchmark for energy prices in Victoria.

Similar to the Default Market Offer (DMO), the VDO serves as a capped price for consumers who prefer not to participate in the energy market or switch to a provider's Market Offer.

It is determined based on the distribution zone of your residence.

How much is the VDO?

Source: https://www.esc.vic.gov.au/media-centre/victorian-default-offer-2023-24-final-decision 

How to tell whether you are on a standing offer or a market offer

To determine your offer type, check your recent electricity bill or contact your energy retailer. Customers who have not changed plans with the same retailer for years are usually on standing offers.

Standing offer vs market offer

In Australia, consumers have the option to choose between standing offers and market offers for their energy plans.

Standing offers are regulated prices set by the government, while market offers are plans offered by retailers that can vary in price and features.

Understanding the differences between these offers can help consumers make informed decisions about their energy plans.

Below is a table comparing standing offers with market offers for energy in Australia:

Can I find plans that are cheaper than the Default Market Offer?

Under regulations, energy providers must clearly outline the differences between their offer and the reference price when presenting their plans.

When comparing energy plans online, you'll be prompted to enter your postal code, address, and recent energy consumption in kilowatt-hours (kWh) from a bill or smart metre. This data helps providers offer accurate quotes.

When reviewing a provider's plan, focus on:

• The percentage discount off the reference price.
• Conditional discounts like pay-on-time or direct debit discounts.
• Additional incentives such as annual credits or rewards programs.
• The plan's lowest expected annual cost with all discounts, based on average usage in your area.
• Supply and usage rates, plus solar feed-in tariffs.
• Other details like benefit periods, extra fees, rate types (fixed or variable), GreenPower options, and billing methods.

To make sure that you are on the best possible electricity plan, why not call our team at Compare Energy? We’ll work with you to get you connected to the best plan for your budget.