Need to know
- When we don't choose one of the overwhelming number of market energy plans out there, we blindly accept the Default Market Offer (DMO)
- The DMO is meant to act as a safety net for the disengaged, especially people who end up on the same overpriced plan indefinitely
- The consumer advocacy group Energy Consumers Australia makes the case that the DMO isn't working as intended and should be significantly revised
Confusion. Deception. Prices continually on the rise. The retail energy market may be the least consumer-friendly sector we have to deal with. Which is probably why so many Australians have given up on trying to find a better deal.
But when we don't choose one of the overwhelming number of plans out there, we blindly accept the Default Market Offer (DMO) from whoever's delivering power to our homes. The DMO applies in New South Wales, south-east Queensland, and South Australia, where the Electricity Retail Code is in effect. About 10% of us are on these default plans, or about 800,000 customers. (In Victoria it's called the Victorian Default Offer.)
It's a passive choice that can be costly, but an understandable one for people who don't have the time or energy to shop around and wade through the fine print.
Even if you have the fortitude to compare market offers, it's close to impossible to know if you're on the best deal available for your circumstances. Energy retailers are renowned for their tricky pricing tactics, and you can still end up being overcharged once the benefits and discounts in your offer expire.
Retailers can change the prices of their customers' plans, requiring consumers to shop around for the best offer regularly
Energy Consumers Australia CEO Dr Brendan French
Energy Consumers Australia CEO Dr Brendan French says their extensive and ongoing research shows customers are not being well served.
"When choosing between plans, consumers are required to navigate dozens of retail offers and make decisions," French says. "And if they do choose the best offer, there is no guarantee it will remain so. Retailers can change the prices of their customers' plans, requiring consumers to shop around for the best offer regularly."
French says ECA research also shows that over a third of households don't even know what kind of pricing structure they're on and that "ever more complex pricing structures can add further confusion to a market that many already struggle to engage with".
In March, the Australian Energy Market Commission (AEMC) proposed that customers on market contracts be charged no more than the DMO when their benefits expire and that price increases in market contracts be restricted to once a year, but it remains to be seen whether these proposals are adopted.
Holes in the safety net
The DMO is the pricing component in standing offer (or default) contracts. It's meant to act as a safety net for the disengaged, especially people who end up on the same overpriced plan indefinitely. Paying a continually increasing loyalty tax is never a good household budget strategy, but many are victimised by this tactic without realising it.
The DMO came into effect as a consumer protection measure in 2019, but doesn't seem to be fulfilling its purpose.
"The DMO exists to protect people, particularly those in vulnerable circumstances, from paying disproportionately high electricity prices. It's not working effectively if it is priced up to 25% above more competitive offers," French says.
Default Market Offer pricing is based on the costs borne by energy retailers, but consumer advocates say they're exaggerating some of these costs.
How does the DMO work?
The DMO is a price set at the beginning of each financial year (1 July) by the Australian Energy Regulator. It's the maximum rate your energy retailer can charge if you don't choose a plan, and it varies according to your energy distributor.
It's meant to act as both a safety net and an incentive to shop around for a better offer, meaning a market offer. Rather than the one-size-fits-all DMO, market offers are energy plans that generally include special benefits and discounts (which eventually expire), and different tariff structures. About 90% of Australians are on one of these plans.
But market offers aren't necessarily cheaper. The Australian Competition and Consumer Commission (ACCC) reported in December 2024 that half of the energy customers on market offer contracts were paying more than those paying the DMO.
The AER announced in March this year that the most competitive market offers are 19–25% cheaper than the DMO
Then again, the other half may be paying significantly less. The AER announced in March this year that the most competitive market offers are 19–25% cheaper than the DMO.
Efforts to protect consumers from high energy prices have a long history. In 2018, the ACCC conducted an inquiry into standing offers without the DMO component. It determined that customers who ended up on one of these were paying too much.
The idea behind the DMO is to ensure that the disengaged get a better deal and, at the same time, establish a baseline by which energy market offers could be measured. This is called a reference price. If you're on a market offer, your electricity bill will show how much below (or above) the DMO your rates are.
Prices going up in 2025–26
The AER released a draft determination of the upcoming DMO settings in March, and the forecast is not particularly rosy. Whether we passively accept the DMO or jump into the deep end and try to find the best offer, we'll likely be paying more.
The DMO is expected to go up in July anywhere from 2.5% to 8.9% – depending on the region – compared to where it is now.
We have given careful scrutiny to every element of the DMO cost stack to ensure prices are a reasonable reflection of the costs of a retailer to supply electricity
AER chair Clare Savage
In fairness, costs have gone up for electricity retailers. They're facing higher wholesale costs from energy producers and network (poles and wires) providers. And they have to factor in the costs of complying with government environmental schemes.
"We've seen cost pressures across nearly every component of the DMO, and we have given careful scrutiny to every element of the DMO cost stack to ensure prices are a reasonable reflection of the costs of a retailer to supply electricity," says AER chair Clare Savage.
But there are serious questions about whether the way the DMO price is determined is fair to energy customers, and about whether it's still an effective safety net.
The complexity of energy pricing poses challenges to both consumers and regulators.
DMO should be more consumer-focused
ECA's Brendan French says the retail energy market has become so complex that the DMO is no longer working as intended. The time has come for an overhaul.
"We believe it is no longer an effective safety net for consumers who are not active in the market, or an appropriate reference price point," French says.
In its recent submission to the AER, ECA calls for the DMO to be significantly revised.
"There are several ways this can be achieved, but the end goal needs to be to ensure consumers have access to fair and reasonable prices," French says.
"The AER can only regulate and monitor performance and compliance with the rules, so we appreciate that there are limitations on them. The DMO is a reflection of the costs retailers are facing, and the AER must set prices high enough to allow retailers to recover their costs. However, we believe some of these costs have been overestimated and there is room for the AER to better centre consumers in its determination."
Retailer costs include network and wholesale costs, environmental schemes and the retail costs of delivering electricity to homes. These are reported to the AER, which takes them into account when setting the DMO each year.
A further component is known as the retail margin, or the profits retailers are allowed to make. This is supposed to be set at a level that both protects consumers and facilitates competition among retailers. In the end, the DMO is meant to allow retailers to cover their costs and make a reasonable profit.
Customers on DMOs are paying for retailers to bombard them with a never-ending variety of plans and pricing options
But the retail costs component includes the costs of acquiring and retaining customers, otherwise known as marketing costs.
In other words, customers on DMOs are paying for retailers to bombard them with a never-ending variety of plans and pricing options within those plans – the very marketing tactics that are causing such widespread disengagement and made the DMO necessary in the first place.
"Retail costs have increased significantly in this determination, and they provide no net benefit to consumers," French says.
Another step toward overhauling the DMO would be to permanently get rid of the so-called 'competition allowance', French says. It's a profit boost to retailers on top of the retail margin that, once again, is supposed to drive competition.
"The AER has left it off for this determination given cost-of-living pressures. We support this decision, but we think it should be permanently removed as there is no justification for it."
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