The Australian Energy Regulator (AER) has revealed a draft 20-22% electricity price increase for the default market offer (DMO) for 2023-24, despite energy minister Chris Bowen saying earlier this week he expected wholesale electricity prices for the coming year to be “significantly lower” thanks to the Albanese government’s gas and coal price caps.
Also known as an electricity price safety net, the DMO protects households and small business customers, on standard retail plans, from unjustifiably high prices in South Australia, New South Wales and South-East Queensland.
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The draft determination sets out the approach the AER intends to take to determine the final DMO price which will be released in May. The draft determination is subject to consultation with stakeholder feedback to be factored into the final decision.
“At this time, it is estimated that residential customers on standard retail plans could face price increases of around 19.5% to 23.7% depending on their region and whether they have controlled load. Small business customers could face price increases of around 14.7% to 25.4% depending on their region,” the regulator said in a statement.
“The DMO estimates changes in the costs retailers face each year including the cost of generating and transporting electricity. These cost estimates will be further updated in the final decision. The final DMO price changes to apply from 1 July 2023 may differ from this draft determination.
“The cost of generating electricity accounts for around 30-40% of the total DMO price and it is the largest driver of increases in the DMO in 2023-24. In the period since we last set DMO prices, the wholesale market has faced unprecedented supply challenges and volatility.
“Forward contract prices for 2023-24 have fallen substantially since governments began discussing possible interventions in gas and coal markets in October 2022, however, contract prices for 2023-24 in all regions still remain higher than they were at the start of 2022.”
AER chair Clare Savage said careful consideration had been given to ensuring the policy objectives of the DMO were being met, in particular, protecting consumers from unjustifiably high prices.
“We know many households and businesses are already struggling with cost-of-living pressures. This is certainly a challenging environment for people to hear that further electricity price rises are on the horizon,” she said.
“Energy prices are not immune from the significant challenges in the global economy right now; that’s why it’s more important than ever that we strike a balance in setting the DMO to protect consumers as well as allowing retailers to continue to recover their costs and innovate.
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“It’s important to understand that the DMO is not the best offer—it is a safety-net.”
The regulator invites written submissions on the draft DMO determination up to 6 April 2023. A final decision will be published in May, with changes to apply from 1 July 2023.
