DMO Must Reflect Network Costs: Peak Body

The Australian Energy Council, the peak body for energy retailers and generators, is calling on the Australian Energy Regulator (AER) to ensure the final Default Market Offer (DMO) fully reflects recently announced increases in network costs.

Network costs – the cost of building and maintaining the poles and wires – are a major component of electricity bills and are rising materially following recent regulatory determinations.

Australian Energy Council Chief Executive, Louisa Kinnear, said “The Default Market Offer is a safety net, but it must also reflect reality.

“The final DMO must reflect those increases to avoid potential knock-on effects to retailers’ cheaper market deals that are enjoyed by the vast majority of customers.

“Network costs are rising by around 10 per cent in some regions. If the final DMO doesn’t fully capture that, it risks setting the benchmark price below the efficient cost of supplying electricity.”

The Council said the issue is compounded by a change in methodology proposed by the AER, which seeks to apply the lowest possible network tariff to determine the DMO price, rather than reflecting the actual network tariffs that retailers are charged by network operators.

“The draft approach effectively locks in a lower network allowance at a time when network costs are increasing. This could be seen as an attempt to mask the impact of network tariff increases on customer bills,” Ms Kinnear said.

“That creates a growing gap between the costs retailers actually incur and the DMO price, with retailers expected to absorb costs they can’t control.”

The Council warned the changes would weaken retail competition over time.

“If the DMO is set too low, it reduces retailers’ ability to offer discounts and innovate, which are benchmarked off the DMO and that, ultimately, will mean customers are worse off.

“There is now a real risk of some retailers leaving the market. We have already seen retail market consolidation in the last 12 months as smaller retailers struggle to access the investment needed to operate in an increasingly challenging regulatory environment.

“Competition is what delivers better deals for customers.

“These changes to network tariffs are not happening in isolation. Recent decisions to require retailers to provide three free hours of electricity in the middle of the day place further pressure on retailers, with AEC analysis finding that the Solar Sharer Tariff regulated by the AER will result in a loss for retailers under some circumstances.

“Retailers still incur wholesale and network costs during these free’ hours. While we want to ensure customers are getting the best deals possible, the DMO and the Solar Sharer offer need to reflect the real cost of delivering reliable electricity,” she said.

“We’re calling on the AER to ensure the final DMO fully accounts for realistic network cost and allows the DMO to do what is intended – to provide a fairly priced benchmark for consumers and the market.”

About the Australian Energy Council

The Australian Energy Council (AEC) is the peak body for energy retailers and generators operating in competitive markets.

Our members generate and sell energy to over 10 million homes and businesses and are committed to delivering a reliable, affordable and decarbonised energy system for consumers.

The AEC supports net zero by 2050 and recognises the electricity sector’s role in reducing Australia’s emissions.  Our members are major investors in renewables, firming and storage technologies that are critical to ensuring customers continue to receive reliable and sustainable energy supply as we navigate the energy transition.