On 1 July 2019, the Federal Government introduced the Default Market Offer (DMO) to replace standing offers from energy retailers to small business and residential consumers. On the same day the Victorian Government also introduced the Victorian Default Offer (VDO) which is highly similar to the DMO although the rates mandated under it are different. These moves were recommended by the ACCC to increase energy pricing transparency and set a reference price so that consumers can compare energy plans.
Since the Default Offers were formally launched, the focus has been on rolling out the reference pricing for residential customers and as such, there have been some delays in Default Offer pricing becoming available for small-to-medium enterprises. In some cases, SME pricing has only been offered in the past few weeks.
Prior to the Default Offers coming into effect, it was standard practice for retailers to offer significant discounts to their published rates ranging from 18% for a single site small-to-medium enterprise (SME) up to 40% for a multi-site SME user.
The introduction of the regulatory change was widely publicised and formed part of the Morrison government’s election campaign platform and promise to provide price relief to energy customers.
With pricing only just becoming available, it is too early to determine the full impact of the Default Offers on the market and SME pricing. However, there are several factors that we are considering as part of our ongoing discussions with clients that have the potential to impact the landscape for pricing more broadly.
The first is that as the Default Offers are a flat reference price, it stands to erode the time-of-use signals that both retailers and network operators use to influence consumer behaviour.
The Default Offers also stand to have an impact on the competition among retailers. Specifically, the Default Offers could lead to a rationalisation of boutique retailers that have entered the market over the past 4 years.
It’s worth noting that the Default Offers only apply to non-contracted customers and is not extended to the larger commercial and industrial users of energy – typically those that consumer more than 100 MWh per annum. The Default Offers also don’t apply to embedded networks.
So, for SME’s that are coming off existing energy contracts with retailers, the Default Offers will act as a price ceiling. Despite this providing protection against the higher priced standing rates of the past, there is still potential for businesses to secure prices that are lower than the Default Offers through negotiating with retailers.