The Australian Energy Regulator (AER) has released its draft determination for the Default Market Offer (DMO) prices for 2025–26 (DMO 7), covering the period from 1 July 2025 to 30 June 2026. The DMO serves as a price safety net for consumers in New South Wales (NSW), South East Queensland (SE QLD), and South Australia (SA), ensuring they are not subject to excessively high electricity prices while allowing retailers to recover reasonable costs.
Key Market Drivers of DMO 7 Prices
- Wholesale market and network costs, which form the largest components of DMO prices, increased between 2% and 12%.
- Wholesale energy costsrose across all customer segments due to:
- Higher electricity spot prices in 2024.
- Increased contract prices (11%–26% rise in base futures contracts up to February 2025).
- Coal generator and network outages, low solar and wind output, and high demand.
- Network costs increased across most regions, except for some Queensland and South Australian customers.
- Retail costs saw significant increases of 20%–41%, attributed to:
- Rising bad and doubtful debts.
- Implementation of smart meters.
- Increased spending by small and medium retailers on customer acquisition and retention.
Methodology and Regulatory Approach
- AER aims to maintain stability in methodology while adapting to market changes.
- Wholesale cost methodology:
- Uses a blended dataset of interval meter data to reflect evolving consumption patterns.
- Excludes solar exports from demand profiles, but introduces a solar hedging adjustment.
- Retains single load profiles for residential and small business customers.
- Retailer margin and competition allowance:
- Retail margin set at 6% for residential and 11% for small business customers.
- No competition allowance included in DMO 7 due to inflationary conditions.
Draft DMO 7 Prices and Impacts
- Residential customers without controlled load will see price increases of 5.1%–8.8% (varies by region).
- Small business customers will experience price increases ranging from 4.2% to 8.2%.
- DMO prices exceed forecast inflation in all regions, with real price increases between 0.1% and 6.5%.
Table 2.1 DMO 2025-26 Draft determination prices, including changes from DMO 6 (nominal and real terms)
Note: Real comparisons with DMO 6 are based on RBA 2024-25 inflation forecast of 2.4% in its February 2025 Statement on Monetary Policy.
Next Steps and Consultation
Public submissions on the draft determination are open until 3 April 2025.
Final determination will incorporate updated market conditions and final network tariff approvals by April 2025.