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The Reference Price: The Default Market Offer and The Victorian Default Offer

The Reference Price

If you’ve ever shopped around the energy market in Australia, you’ve probably noticed the phrase “the reference price” mentioned. But what is this “reference price” and how does it affect you, the consumer? By understanding what the reference price is, and how it affects you, you can take control of your energy and find the best plan and provider within your state and start saving more on your energy bills.

What is the reference price?

In the National Electricity Market, the reference price is the government-set electricity price within a distribution zone which helps protect and inform consumers. There are two main functions of the reference price (also known as the Default Market Offer or the Victorian Default Offer):

 To protect consumers who do not wish to engage in the energy market, by putting them on the government’s Default Market Offer. This helps to keep consumers from paying exorbitant rates for energy, even if they don’t wish to shop around and compare offers to find the best deal. All energy consumers within the NEM are allowed to be on the government’s Market Offer, even if they don’t qualify for a provider’s discounted energy plan. This Default Market Offer replaces the old Standing Offer from the government, and acts as a cap on energy prices for these consumers.

 To inform consumers who do wish to engage with the energy market, allowing them to see how much they will save by switching to a specific plan or provider, often shown as “X% off the reference price”. It should be noted that while consumers who are on the Default Market Offer are protected from paying more than the Market Offer, electricity providers are well within their right to make their own plans more than the DMO if they wish. While this doesn’t happen frequently, you may see this if providers offer other value-added incentives such as yearly credits or a very high feed-in-tariff.

The Default Market Offer was first set in July of 2019 and, as stated, it replaces the old standing offer that consumers were originally put on if they did not engage with the electricity market, which often resulted in these consumers paying the highest prices for energy (and what coined the term “lazy tax”.

Now, while the reference price does not offer the cheapest rates available and you can certainly find cheaper on a provider’s plan, it does act as a cap for electricity prices for those who don’t want to shop around and switch providers.

When was the reference price set?

Prior to July 2019, customers who chose not to engage with the energy market were placed on the government’s Standing Offer. However, the Standing Offer was often the most expensive plan available, and consumers found themselves paying exorbitant rates for energy. This is where the term “lazy tax” came from, where consumers found themselves punished with these high prices for not comparing and switching to cheaper plans.

As well, consumers who did choose to compare and switch plans found there was no easy way to be sure they were getting the best deals. There were no benchmarks to make sure the plan they were on was actually cheaper than what they were paying before.

Due to this, the Australian government stepped in and created the Default Market Offer, switching customers over from the Standing Offer. The Default Market Offer first launched in July of 2019, and was recently revisited in July of 2020 with newly updated rates. Now, customers can be sure that if they are on the DMO or VDO, they are still paying fair prices (though not necessarily the cheapest), and customers who want to switch can easily see how provider plans compare to the reference price.

Where is the reference price used?

The reference price is used within the National Electricity Market, in the following states:

In Victoria, however, the Victorian Government uses what is known as the Victorian Default Offer which is more or less the same as the Default Market Offer.

How do I know if I am on the Default Offer?

Most customers who were originally on the Standing Offer, before July 2019, were automatically switched to the government reference price once they came into effect. If you have lived at the same address for a while and haven’t shopped around and switched providers then you’re probably on the reference price. While you are well within your right to remain on this offer, knowing the prices won’t increase exponentially, switching to a provider’s market offer could potentially save you $200 or more per year.

The Default Market Offer (DMO)

As mentioned, the Default Market Offer is the reference price used across most of the National Electricity Market in South Australia, New South Wales, and South-East Queensland. The DMO is set by distribution zone, and is affected by a number of factors including the usage and supply charges within each zone, meaning even within the same state the DMO could be different in different distribution networks.

Default Market Offer*
Distribution Network Annual estimated usage DMO on a Flat-Rate tariff
Ausgrid (NSW) 3,900kWh / year $1,393 / year
Endeavour (NSW) 4,900kWh / year $1,609 / year
Essential (NSW) 4,600kWh / year $1,907 / year
Energex (QLD) 4,6000kWh / year $1,455 / year
SA Power Networks (SA) 4,000kWh / year $1,716 / year

*Source: AER - Default Market Offer - Price determination April 2021 Final Determination

The Victorian Default Offer (VDO)

Like the Default Market Offer, the Victorian Default Offer is set by each distribution zone within Victoria and is affected by a number of factors such as usage and supply charges. Like the DMO, the VDO is the capped energy price for consumers who don’t wish to engage with the energy market and switch to a provider’s Market Offer, and acts as a reference price for those who want to shop around and compare energy rates. While some providers might offer plans that are more expensive than the VDO, there are also plenty that offer lower rates and high discounts when compared to it.

Victorian Default Offer*
Distribution Network VDO on a Flat-Rate tariff*
AusNet Services $1,507 / year
Citipower $1,270 / year
Jemena $1,328 / year
Powercor $1,368 / year
United Energy $1,319 / year

*Source: Victorian Essential Services Commission, January 2021. Prices based on average annual usage of 4,000kWh/year

How to compare plans using the reference price

Legally, providers need to state how much less (or more) their Market Offer is compared to the reference price when showing their plans. When comparing energy plans, you’ll need to put in your postal code, or even your home address, so the provider can show you exactly how much less their plan is when compared to the reference price.

In addition, when looking at a provider’s plan, you’ll also see the following:

  1. How much less the provider’s plan is when compared to the reference price (often shown as X% off the reference price)
  2. Any conditional discounts, shown separately from the percentage off the reference price, such as pay-on-time or direct debit discounts
  3. Any other incentives such as annual credits or rewards program points
  4. The lowest annual cost you can expect to pay for your electricity, with all discounts applied, based on the average usage for the distribution zone
  5. Supply and usage rates for the plan, as well as solar feed-in-tariff
  6. Other plan details such as benefit period, additional fees, type of rates (fixed or variable), GreenPower or carbon-neutral options, and billing and payment options available
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