Briefing Note | April 2021

Default Market Offer and Victorian Default Offer

Key Points

The Default Market Offer (DMO) and the Victorian Default Offer (VDO) both commenced on 1 July 2019. They represent the partial re-regulation of retail energy prices for small customers.
In slightly different ways they both cap the maximum price for electricity that can be charged by retailers. These interventions were the result of recommendations made by two separate reviews of retail energy markets released in 2017 (Thwaites Review in Victoria) and the ACCC in 2018.
The DMO is designed to effectively cap the cost of the “standing offer” made to consumers. The VDO replaces it entirely with a regulated maximum price.
The standing offer is the default arrangement between a retailer and a consumer when no contract or deal has been negotiated (like when a consumer recently occupies a building or has been with the same retailer for a very long time).
The DMO applies in South Australia, NSW and south-east Queensland.
The practical effect of capping or reducing the standing offer price is to reduce the price dispersion within the retail energy market. That means discounted deals are likely to be less lucrative, as a market response to higher priced standing offers being regulated or forced down.
The ACCC’s own analysis indicated that the major underlying drivers of higher energy prices since 2010 were not the result of retailer behaviour. Rather, they were caused by a range of factors including higher network costs, subsidies for renewables, changes to the generation mix and switching to higher cost unconventional gas supplies.

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