Regulatory safety nets not fit for purpose as energy consumers fall victim to rapacious utilities

Energy consumer advocates have raised concerns that market rules intended to protect vulnerable consumers from disproportionately high electricity prices are “not working,” as regulators propose setting so-called safety net electricity prices up to 25 per cent higher than competing retail offers.

Draft determinations on the Default Market Offer (DMO) – which caps the price electricity retailers can charge the small proportion of household and small businesses on standing offers – were released on Thursday by both the Australian Energy Regulator and the Essential Services Commission, which covers Victoria.

The annual setting of DMO prices – which also act as a sort of benchmark for all retail offers – has become one of the most closely watched events on the energy market calendar and, in a year where the draft and final determinations fall on either side of a cost-of-living election, this time it will be no different.

At the last election, back in 2022, the Morrison Coalition government changed the rules at the last minute to push out the timing of the final determination on the DMO to after that year’s federal poll.

That decision that avoided any pre-election reckoning on what were soaring electricity prices and, as it turned out, handed the problem to the incoming Labor government.

This year, the determinations suggest that, on some parts of the national grid, the DMO could jump by nearly 9 per cent for households not bothered or not able to seek better offers, and more than 8 per cent for businesses in 2025-26, as regulators factor in the impact of rising network costs and a volatile wholesale market.

The AER – which determines the DMO for New South Wales, South East Queensland and South Australia – is proposing an increase in 2025-26 DMO prices for residential customers of between 2.5% and 8.9% compared to last year, and by between 4.2% and 8.2% for business.

The price increases vary across different states and networks, but in dollar terms the biggest jump could see households on the NSW Essential Energy network paying up to $200 more a year for electricity, or up to $243 if they’re on a controlled load.

In Victoria, where the default retail offer is determined separately by the state’s Essential Services Commission, the news is a little more upbeat, with the ESC proposing to keep the Default Offer prices in 2025-26 “relatively flat” compared to 2024-25.

For domestic customers on a flat tariff, the Victorian Default Offer will be $12 (or less than one per cent) higher than in 2024–25, the draft determination says, with the changes in domestic Victorian Default Offer customer bills ranging from $19 lower in AusNet and Powercor areas, to $68 higher in CitiPower.

For small business customers, the draft decision forecasts changes in small business Victorian Default Offer customer bills ranging from $77 higher in the AusNet area, to $128 higher in CitiPower.

On the face of it, the news sounds like a fresh blow to consumers at what is undoubtedly a tough time for some, and the Coalition will no doubt run with this message at every chance they get over next few days.

But before we get too carried away, it’s worth noting a few important points of context about the Default Market Offer.

The first point to note is that this is not a final decision. Thanks to the Coalition tweak in 2022, the final determinations will once again be delivered post poll (May 27 for the AER, May 24 for the ESC) and, last year, the AER’s final determination delivered slightly lower DMOs than were first proposed.

The next point to note is the vast majority of electricity customers on the NEM are not on standing offers and are not directly affected by DMO prices.

In Victoria around 337,000 (or 13 per cent of) households and 56,000 (or 20 per cent of) small businesses are on standing offers. In NSW, the numbers are 8% (households) and 18% (businesses). In South Australia, it’s 7.3% and 16.5% respectively and in south-east Queensland, 8.8% and 18%.

For those not on standing offers, as AER chair Clare Savage put it on Thursday, “there are better offers available,” with some of the more competitive retailer offers generally falling in price since the last DMO came into effect in July 2024.

“By early February 2025 we had seen median market offers fall between 2% and 5% compared with July 2024, and the most competitive offers are now 19% to 25% below the current DMO price,” Savage says.

“It’s important that consumers regularly shop around to compare available deals and ensure they’re on the best plan for their individual circumstances.”

Of course, this is not to say that the proposed increase in the DMO is not at all reflective of current electricity market conditions and complexities – some of them unique to this period of transition, moving from a coal dominated grid to a mix of firmed renewables.

The regulator says increases in average wholesale market spot prices have been driven by high demand, coal plant and network outages, and periods of low solar and wind output.

It might have also noted the habit of “rebidding” and market power that has helped led to a handful of high price events that have affected the price of wholesale electricity contracts for 2025–26.

But serious questions are being raised over whether the DMO remains fit for purpose in an increasingly complex energy market – a question the AER itself has been trying to address.

In a statement on Thursday, the Energy Consumers Association acknowledges that the AER is “in a difficult spot,” having to account for continued wholesale volatility and network costs still marching up, but says it is now more important than ever to protect vulnerable customers.

“The DMO exists to protect people, particularly those in vulnerable circumstances, from paying disproportionately high electricity prices. It’s not working effectively if it is priced up to 25% above more competitive offers,” says ECA chief Brendan French.

“Nor is it effective if, as the ACCC found in its December report, more than half of all consumers on a market contract are paying a price even higher than the DMO.

“It is increasingly important to protect consumers in such a complex market, while also providing tools to help those who are interested in a more active relationship with the energy system, including owning Consumer Energy Resources and having a choice of tariffs.”

For its part, federal Labor says the draft DMO determinations confirm the need for more renewable energy in Australia’s electricity system, to continue to push down consumer bills.

Federal energy minister Chris Bowen says the Coalition left Australians with an energy policy mess, when the Morrison government changed the law to hide a 20% energy price hike before the 2022 election.

“While today’s news is mixed it does show energy retailers are responding to competition – with energy plans that are 25% cheaper than the DMO it’s worth shopping around.

“It’s clear energy bills for Australians remain too high, and we’re providing help for people doing it tough as we deliver longer term reform.

“The Albanese government’s plan is the only one which is providing bill relief now and supported by experts to deliver a clean, cheap, reliable and resilient energy system into the future.”

The Smart Energy Council says forecast DMO electricity price rise is another sign that the federal government should subsidise home battery storage.

“Solar panels on the rooftops of four million Australian homes are generating the cheapest form of power during the day, but they need batteries so they can avoid expensive periods like at night,” SEC CEO John Grimes said on Thursday.

“We need a national Battery Booster program to help Australian homes avoid paying for coal and gas generated electricity, which costs 75 per cent more than renewables.

“Just to be clear, when Peter Dutton says he’ll sweat coal and pour bucket loads more gas into the market, whilst we all wait for the nuclear mirage, he’s saying he wants to increase the cost of energy and people’s power bills,” Grimes said.

“Power bills will double under Dutton, whose energy plan will switch off household solar for two thirds of the time to make way for nuclear power.”

“Renewable energy is the only thing saving us from higher energy bills.”