'Default market offer' and 'reference price' explained

You may have recently heard the terms 'default market offer' or 'reference price' in the media in relation to electricity offers. They relate to new rules for retailers operating in New South Wales, South Australia and South East Queensland. If you live in these regions, what does this all mean for you?

A mandatory Electricity Retail Code began on 1 July 2019. It has new rules for retailers in states or regions where there is no regulated price for electricity.

The new rules:

• set a pricecap on what retailers can charge electricity consumers on standing offers (the default contract you might be on if you haven't switched to a retailer's market offer)
• help consumers to more easily compare market offers, as retailers must now compare all their offers against the same base rate (which is called the 'reference price' or 'reference bill').

Standing offer price cap

The Code sets an annual price cap in each region – this cap is called the default market offer (DMO) price. It protects consumers on standing offers from paying excessive prices by ensuring retailers cannot charge customers more than this price.

The annual DMO price is based on a set amount of electricity usage. Retailers can set different rates, as long as they don't exceed the annual price for that consumption level.

While the annual price is a cap on what retailers can charge, it is not a cap on customers' bills. Individuals' bills will depend on how much electricity they use, where they live and their retailer.

The Australian Energy Regulator (AER) will set the annual DMO price each year.

What does this mean for me?

If you're a residential or a small business customer in New South Wales, South Australia or South East Queensland and you're on a standing offer that was more expensive than the annual DMO price for 2019–20, the cost of your electricity will have automatically reduced on 1 July.

To see the approximate annual reductions the default market offers will deliver during 2019–20 on standard standing offer bills, go to the AER website.

Comparing market offers

The Code says that retailers in these regions must compare all their offers to the same base rate (the 'reference price') whenever they advertise or market their offers. The reference price is set at the same price as the DMO price cap.

What does this mean for me?

In the past, retailers set discounts in a range of different ways, so it was difficult to compare like-with-like based on the advertised discount. Big discounts weren't always the best deals too.

This change will allow you to more easily compare market offers because when you see '15 per cent below the reference price' advertised with one retailer you will know it is cheaper than another offer that is '10 per cent below the reference price'.

What should I do now?

While retailers reduced standing offer prices to the DMO price cap level from 1 July 2019, the default market offer is designed to be a fall-back protection, rather than a 'cheap' offer.

Most market offers are cheaper than the annual DMO price cap so you should still shop around if possible to try to find a better deal.

Energy Made Easy is free and searches all generally available offers in your area. And you don't need to provide us with any of your personal details to search for plans. Just head straight to our homepage to begin your search.

You can also call your current electricity retailer and ask for their best plan for your household or small business.

More information

The Australian Government's energy.gov.au website has resources that explain the introduction of the default market offer and reference price, and include a glossary of key terms, case studies and frequently asked questions.