The Federal Government Introduces DMO to Regulate Electricity Prices

The Australian Federal Government is regularizing electricity prices and dissolving competition between providers.

The introduction of Default Market Offer (DMO) by the government went on the floors on July 1, 2019. This has had a mixed reception by providers. The DMO, gives a price comparison between different services rather than fix on a ceiling cost. Electricity had become dear to Australians after, loyalty tax was levied. The scenario either offered really low-priced service or the very high one. As a result, costumers who didn’t compare prices and stuck to one supplier, were also being subjected to bearing the brunt of high loyalty cost, an attempt to diversify usage.

“Standing offers” were becoming an issue that the federal government had to tackle. If the costumers stayed too long with one electricity retail brand then, they will automatically be pushed to paying the highest.

This price regulation under DMO, may not go down as smoothly as expected with retailers, who will be left to justify price changes if increased, to their customers. “The range of offers from the big four [AGL, Origin, Alinta and Energy Australia] is small. This suggests that the incentive to change providers to another of the big four is actually small,” said one source. In addition, it also suggested, “Invariably the highest-offer prices come from smaller retailers. This was expected, as those without vertical integration typically have higher cost bases”.

However, the second-tier retailers generally also offered the cheapest prices, although they often came with conditions, such as purchasing electricity three months ahead. The regional distribution of the price variation also shows the big fair pricing their service judiciously so as to level competition.