Protecting electricity consumers from bill shock

NSA’s fight for better consumer protections takes a positive turn as electricity regulator mulls reforms. But do they go far enough?

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28 November 2024
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Read Time: 6 mins

The Federal Government has proposed an expansion to consumer protections in the electricity market through a change to the Default Market Offer (DMO).

The DMO consultation is being led by agencies including the Department of Climate Change, Energy, the Environment, and Water (DCCEEW) and the Australian Energy Regulator (AER), who have proposed the DMO be applied to complicated demand tariffs.

National Seniors Australia (NSA) has welcomed the moves in its submission to the AER, but has questioned whether the proposed protections go far enough to protect households form bill high prices and shock as set out in our earlier submission to the DCCEEW and Australian Energy Market Operator.

What is the DMO?

The DMO was designed as a “safety net” to protect consumers who, understandably, are confused about the myriad jargon-filled retail offers, and don’t or can’t shop around for a retail offer.

The DMO sets the maximum price retailers can charge consumers on default plans, known as “standing offer contracts”. These are contracts consumers find themselves on when they have not actively shopped around or switched to a new plan.

About 10% of consumers are on a DMO, with 90% on a standing offer contract or tailored plan offered by electricity retailers.

In simple terms, the standing offer is the default plan a customer may end up on, while the DMO is the maximum price that retailer can charge for that plan.

The DMO applies to residential and small business consumers in New South Wales, South Australia, and south-east Queensland. It is not national.

The DMO price also acts as a reference price. When promoting offers, retailers must show the price of their offer in comparison to the DMO. This aims to help customers easily compare different electricity plans in the market (although as NSA pointed out in our submission to the DCCEEW, this is not happening).

The DMO is set by the independent Australian Energy Regulator (AER) annually and takes effect on 1 July each year.

The DMO reforms

On 18 June 2025, the Australian Government announced it was reforming the DMO, with an aim to “improve the DMO framework and its function as a safeguard for disengaged customers”.

The department produced an outcomes paper on 4 November setting out a package of reforms to:

Strengthen the DMO framework

Improve protections for small customers.

The government says the reforms ensure consumers on a standing offer pay a fair price that does not build in additional costs over the efficient cost to electricity retailers for providing an essential service.

The paper recommended that the DMO objectives be expanded to “protect households and small businesses on standing offers and in embedded networks by providing a fair, trusted, and reasonably priced electricity option that reflects the costs of supplying customers with an essential service”.

The way the DMO price is expressed would change to a tariff rate, instead of usage. This would apply to residential flat-rate tariffs and time-of-use tariffs.

Another innovation is that the DMO could be used as a protection for people on demand tariffs, who currently do not enjoy the protection of the DMO.

The regulator is still working out how this will work in practice and it won't apply unitl at least July 2027.

A step forward, but can we avoid the swamp

The details are quite murky and there is a real risk that the AER unintentionally complicates things further for consumers.

The move to cost-reflective tariffs, including time of use and demand tariffs (which charge different rates and different times of the day) poses risks for consumers who cannot manage the higher prices during peak times that smart meters enable.

NSA has been calling for price protections for households and used our submission to the AER to reiterate these calls.

We have argued that households shouldn't be forced onto cost-reflective tariffs without their consent, and further, that a standing offer using a flat tariff DMO should be the default for those who do not choose a market offer - this is consistent with the purpose of the DMO.

If a consumer activley chooses a market offer and their contract expires the following standing offer should be used as default, for a:

flat rate tariff market offer, a flat rate DMO tariff standing offer should be applied
time-of-use or demand tariff market offer, a time-of-use DMO tariff standing offer should be applied

Furthermore, consumers should also be protected if they choose a market offer with a time-of-use or demand tariff by having the fall-back of the time-of-use DMO tariff when recieving their monthly or quarterly bill.

Whichever is cheaper would be the price you pay, allowing consumers a safe way to try to get a cheaper price and reduce peak usage - without the risk of bill shock if they get horribly wrong. This would create a feedback loop to educate consumers as they transition to cost-reflective pricing arrangements and ensure that energy companies recoup the baseline amount to cover the cost of electricity.

Our hope is that DMO reforms will introduce a safety net, not just if people don't choose a market offer or if their market offer expires, but also if they choose a market offer with complicated cost-reflective pricing and they struggle to change their use accordingly.

If the issues around energy resonate for you, then please register for our campaign to show your support and get regular updates. Energy is now part of our new Essential Services campaign, launching soon.

Related reading: DCCEEW