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Australian Regulator Issues Draft To Establish "Default Market Offer," De Facto Price Regulation
February 25,2019 The Australian Energy Regulator (AER) has released a draft determination to establish a Default Market Offer (DMO) price in various jurisdictions "Our draft determination position is that the DMO price for each distribution zone will be set at the mid-point (50th percentile) of the range between the median market offer and median standing offer, based on generally available offers in October 2018," the AER draft states The Australian Financial Review described the draft policy as "de facto" price regulation The draft Default Market Offer (DMO) would be set for residential and small business customers in New South Wales, South Australia, and South-East Queensland. AER's Default Market Offer would not apply in jurisdictions that are subject to price regulation by jurisdictional regulators, including Victoria, where the Victorian government is pursuing its own default offer Under the draft, the AER DMO prices would be set as annual price amounts, based on benchmark consumption levels, rather than as fixed and variable charges. Under the draft code retailers must structure prices to not exceed the DMO annual price for the stated benchmark consumption level. The DMO is to take effect July 1 "We consider that presenting the DMO price as an annual price is more comprehensible for customers, and facilitates easier comparison than individual tariff components. It also provides retailers with some flexibility to translate the annual amount into different tariff structures. Different retailers will have different tariff components of supply charges and usage charges," AER said in the draft The draft determination DMO prices for each distribution zone are as follows:
The draft Code gives effect to the reference bill by requiring retailers to calculate their offers in relation to the AER’s total annual price (that is, the DMO price) for a distribution zone AER said that draft determination, if adopted, would lead to reductions in median standing offer prices in all distribution zones ranging between (all $ listed in Australian dollars): • $115 in Energex’s zone and $174 in Endeavour Energy’s zone for residential customers on a flat rate tariff. • $168 in Energex’s zone and $218 in SA Power Network’s (SAPN) zone for residential customers on flat rate tariffs with controlled load. • $453 in Energex’s zone and $937 in Ausgrid’s zone for small business customers on a flat rate tariff. See more details at the links below: Retail supplier Origin Energy Limited said that, if the DMO is adopted as draft, the annual impact of the draft determination, from current tariffs, is estimated to be a $44 million reduction in pre-tax earnings from FY2020. The draft DMO follows proposed regulations from Australia's Liberal government to prohibit retail electric suppliers from providing "conditional" discounts for customers for on-time payments, with the discounts terminated for a late payment, see our prior story here for more
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