Around 10 per cent of residential customers on the east coast sit on the Default Market Offer, and most of them have no idea they’re paying what amounts to the industry’s sticker price rather than a genuine discount. That’s the bit worth sitting with before anyone gets excited or outraged about the AER’s latest determination. The DMO was never designed to be cheap. It was designed to be a floor underneath the market, a backstop for people who don’t shop around. Over the past few years it has quietly become something else: the price most disengaged households actually pay, year after year, while the market offers around it get more elaborate and harder to compare.
The Australian Energy Regulator sets the Default Market Offer annually for NSW, South-East Queensland and South Australia, with Victoria running its own version, the Victorian Default Offer, through the Essential Services Commission. Each determination resets the maximum a retailer can charge a standing-offer customer. The latest round of determinations pushed typical bills up again, continuing a run that’s now stretched across several consecutive years. Retailers point to wholesale costs, network charges and environmental scheme costs as the drivers. Consumer groups point to the gap between the DMO and the best market offers and ask why that gap exists at all.
What the DMO is actually meant to do #
The Default Market Offer started as a response to a specific failure: electricity retail competition in Australia had produced a confusing thicket of conditional discounts, pay-on-time bonuses and headline rates that bore little relation to what customers actually paid. The 2017 Thwaites review into retail electricity pricing in Victoria, followed by the ACCC’s 2018 retail electricity pricing inquiry, found that genuinely disengaged customers, often older, often on tighter budgets, were paying hundreds of dollars more a year than engaged customers switching between deals. The DMO was the fix: a reference price, set independently, that retailers could not charge above for standing offers, and that market offers had to be expressed against so customers could compare properly.
That’s the theory. The practice has drifted a fair way from it. The DMO is now routinely described, including by the AER itself, as close to the price a meaningfully engaged shopper would reject out of hand. It isn’t a floor for the desperate anymore so much as the default outcome for anyone who’s busy, unwell, overseas, or just tired of comparing ten different percentage-off deals that all expire conditions attached to them.
Why the number keeps climbing #
The AER’s published methodology builds the DMO from a wholesale energy cost component, a network cost component, environmental scheme costs, and a retail cost and margin allowance. Wholesale costs feed in from AEMO’s forward price data and futures markets, and that’s where most of the recent movement has come from. Anyone who’s followed why wholesale electricity prices swing so violently in the NEM knows this isn’t a stable input to build a year-ahead price around; it moves on gas prices, outages, and weather, sometimes all at once.
Network costs are the quieter, steadier driver. Transmission and distribution charges have been rising as the grid pays for the renewable energy zone build-out and new interconnection, and someone has to carry that cost on their bill. The debate over who really pays for the transmission build-out isn’t abstract when you’re looking at a DMO determination; it shows up as a specific line item, indexed and locked in for the year ahead, regardless of how the wholesale market behaves.
The retail margin component gets the least public scrutiny and probably deserves more. The AER allows retailers a margin intended to reflect efficient operating costs plus a reasonable return, benchmarked against notionally efficient retailer costs rather than any single company’s actual accounts. Retailers argue the margin is already thin. Consumer advocates argue the benchmarking process is opaque enough that nobody outside the regulator can really check. Both things can be true at once, which is part of why this argument never quite resolves.
The gap that does the actual damage #
Here’s the number that matters more than the headline DMO increase: the spread between the Default Market Offer and the cheapest available market offer in the same distribution zone. In some zones that gap runs past $300 a year for a typical household. That’s not a rounding error. That’s real money sitting on the table for anyone who doesn’t switch, and the households least likely to switch are disproportionately older, lower-income, or dealing with language barriers that make retailer comparison websites genuinely difficult to use.
Retailers will tell you, not unreasonably, that acquisition costs and churn risk justify sharper pricing for new or switching customers. Fair enough, up to a point. But a regulatory structure that depends on constant customer vigilance to avoid overpaying is a structure that fails by design for a predictable slice of the population, and that’s a policy choice as much as a market outcome. AGL and Origin, the two gentailers with the biggest standing-offer books, have both faced scrutiny over DMO-adjacent complaints to energy ombudsmen, though complaint volumes have to be read against customer numbers in the millions before anyone draws a firm conclusion.
Where this sits against the rest of the bill #
It’s worth putting the DMO argument in context against everything else moving through a power bill right now. Network charges are rising because of transmission investment tied to the renewable build-out. Gas-fired generation still sets the marginal price often enough that what firming means and why gas keeps coming up remains relevant to every household bill, not just industrial users. And the Consumer Energy Resources roadmap explained is slowly changing the equation again, because rooftop solar and batteries are pulling some customers out of the retail market’s gravity altogether, leaving a smaller, more price-sensitive remainder on standard retail tariffs, including the DMO cohort.
That shrinking, ageing pool of DMO customers is a real structural problem for the policy’s future. As more households install solar and batteries, or sign up to virtual power plant arrangements, the customers left paying full retail tariffs skew toward renters, apartment dwellers and those who can’t access rooftop solar at all. The virtual power plants 2026 reality check is relevant here too: VPPs promise bill relief for the engaged, but they do nothing for the customer who’s never going to sign up for one.
The case for scrapping it and the case against #
There’s a genuine policy argument, made periodically by economists and some retailers, that the DMO should be abolished altogether because a price cap dulls competitive pressure and locks in the very price level it was meant to discipline. I don’t buy that argument, and I’ll say why. Remove the cap and you remove the one number a disengaged customer can be told to check their bill against. The DMO isn’t a great outcome. It’s a floor that stops the worst outcome, which in a market this opaque is not nothing. Scrapping it in the name of competitive purity assumes a level of customer engagement that the ACCC’s own 2018 inquiry found doesn’t exist for a meaningful share of the market, and nothing in the past eight years suggests that’s changed.
The better fix, and one the AER has flagged in its own review documents, is tightening the gap rather than abolishing the reference. That means sharper scrutiny of the retail margin allowance, clearer “better offer” prompts on bills, and possibly automatic migration of long-dormant standing-offer customers onto a retailer’s best comparable deal after a set period of inertia, something a few jurisdictions overseas already require. None of that is radical. It’s closer to what UK energy regulator Ofgem has trialled with its own price cap and switching nudges, adapted for a smaller, three-jurisdiction NEM retail market.
What a household should actually do with this #
If you’re on a standing offer and haven’t checked your retailer’s own market offer for your address in the last twelve months, the DMO review period is as good a prompt as any. The AER publishes the new determinations each financial year, typically announced ahead of 1 July start dates, and every major retailer has to publish a comparison against the Victorian Default Offer or Default Market Offer reference for your zone. Running your own numbers through the government’s Energy Made Easy comparison site takes about ten minutes and, going by the typical gaps cited in the AER’s own final determination documents, is worth more per minute spent than almost anything else you’ll do with a Tuesday evening.
None of this solves the underlying tension. A regulated reference price will always lag or lead the market it’s trying to discipline, and the AER’s job of estimating a fair cost stack a year in advance, in a market where wholesale prices can move from near-zero to four figures inside a single trading day, is genuinely difficult. But the DMO’s real failure isn’t the number itself. It’s that too many households still treat it as a safe default rather than the price the market expects them to outgrow.
– Marcus Wren, Editor
Photo by Declan Sun on Unsplash