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Many customers find the energy market confusing and have a hard time figuring out how much plans cost and how to choose a retailer.
To make the energy market simpler, the Australian Energy Regulator (AER) implemented a new reference price or Default Market Offer (DMO). It came into effect on 1 July 2019.
The reference price is a maximum price that electricity retailers can charge for standing offer plans. It also helps make electricity pricing more transparent.
Electricity retailers in New South Wales, South East Queensland and South Australia are also required to advertise their plans against this new reference price, which makes it easier for customers to compare plans from different retailers. However, the exact reference price varies depending on where you live.
There are two main elements to the reference price: a price cap and new advertising requirements.
The AER has set a price cap for standing offers. This means retailers can't charge customers more than the reference price for standing offers.
Keep in mind, the price cap doesn't apply to customers on market offers. Market offers often include discounts and special prices and are typically already cheaper than the DMO.
Energy retailers in New South Wales, South East Queensland and South Australia used to be able to advertise discounts that were calculated from different base rates. This made it challenging to compare discounts from different retailers.
With the new reference price, energy retailers must advertise pricing and discounts in relation to the reference price. This makes pricing more transparent to customers and makes it easier to compare pricing between retailers. So if two retailers offer 20% discounts, you know the discounts are equivalent because they are calculated from the same base rate.
The reference price and Default Market Offer (DMO) are used interchangeably, for the most part. Both terms refer to a single price. This price is used for two different purposes, a maximum price for standing offers and a baseline price for advertising energy plans.
The reference price typically refers to both the price cap and the marketing baseline price, while the DMO mostly refers only to the price cap.
The reference price or DMO affects customers in New South Wales, South East Queensland and South Australia.
There are two different types of electricity plans in Australia: standing offers and market offers. The new reference price affects customers on each type of plan differently.
Standing offers
Almost 800,000 residents in New South Wales, South Australia and South East Queensland are on standing offer electricity contracts.
The price cap or DMO is set by the AER and applies to standing offers. If you're on a standing offer, your electricity retailer can't charge you more than this maximum price.
Market offers
If you're on a market offer, the DMO won't apply to you. This is because market offers are typically already less than standard offers.
However, the reference price does apply to market offers. Retailers must calculate their advertised prices from the same base rate. This makes it easier to compare prices from different providers in your area quickly.
Sample plans:
| Plan 1 | Plan 2 | Plan 3 |
|---|---|---|
| 5% less than reference price | 10% less than reference price | 15% less than reference price |
Keep in mind, while the reference price helps you compare plans and providers, you might end up paying more or less than the advertised rate depending on your usage.
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