Predicted 20% regulated power price hike could send bills above $2K a year

Households in New South Wales, south-east Queensland and South Australia on market offer plans could see the average electricity bill jump close to or above $2,000 a year, if a predicted 20% increase goes ahead with the regulator.

The 20% price hike prediction, which has been speculated on by the likes of retail powerhouse, Origin Energy, the ABC and AGL’s Chief Executive on Sky News, comes in lieu of the Australian Energy Regulator’s (AER) draft determination for the Default Market Offer (DMO) which is expected later this week.

The DMO, also known as the Reference Price, is essentially the maximum price a retailer can charge customers in a certain area. It acts as a ‘price cap’ for customers who do not wish to or cannot actively participate in the energy market.

The AER’s draft decision will impact households and small businesses across the various distribution networks in NSW, SEQ and SA for 2023-24 and come into effect on July 1, 2023.

The change itself, whether it be the predicted 20% or otherwise, will only directly impact those customers still on a standing or default electricity offer in these states – about 10% of customers currently.

However, according to new Canstar Blue data, if retailers also passed the predicted 20% price increase onto market offers, households in NSW, SEQ and SA on these plans could see average electricity bills jump close to or above $2,000 a year.

Households in SA would be dealt the biggest blow, with prices jumping to an estimated $2,189 per year on average for electricity market offers, followed by those in NSW with a predicted $2,177 per year on average (please note, this is a collective average based on the average of all three of NSW’s distribution zones). SEQ household power bills could reach a slightly lower $1,993 a year.

Even a smaller 10% increase could see the average annual costs of a single-rate, market offer increase by hundreds of dollars across the various states.

Average Annual Household Market Offer Electricity Costs by Increase

Source:www.canstarblue.com.au – 09/03/2023. Based on single-rate market offer electricity plans on Canstar Blue’s database; excluding solar-only plans. Annual costs calculated based on the estimated lowest possible price a representative customer would be charged in a year, assuming all conditions of discount offered (if any) have been met. Representative customer based on the reference usage per AER. Please note, the average cost for New South Wales has been calculated based on the average annual cost of market-offer plans across all three of the state’s electricity distribution networks.

Canstar Blue Utilities Editor, Tara Donnelly said retailers often used the default price as a guide for their own pricing.

“While it is not required for energy retailers to adjust their cheaper market offers off the bat of default power price changes, you’ll often find that as the DMO changes, so too will market offers,” she said. “This is because some providers may use this as sort of a pricing guideline for their cheaper offers.

“That’s not to say that all market offers will necessarily be re-calculated to the same magnitude as what the default price is though – there are several factors that impact how prices are determined for customers, from network transmission costs to the retailer’s current wholesale contracts in place. But it does serve as an opportunity for providers to reassess pricing and products for customers.”

The draft determination for the 2023-2024 DMO is expected to be revealed sometime this week. The final determination will be announced on May 26, 2023, with prices coming into effect as of July 1, 2023.

Victoria’s independent energy regulator, the Essential Services Commission (ESC), is also anticipated to reveal the draft determination for its DMO equivalent – the Victorian Default Offer (VDO) – over the coming weeks.

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How did electricity prices change in 2022?

In 2022, Canstar Blue found that the average market-offer electricity price for customers across NSW, SEQ and SA had increased between $397 and $501.

During this period the DMO also saw a significant increase of between 7.2% and 14.1% across the various distribution networks in NSW, SEQ and SA on July 1, 2022.

Change in Average Annual Market Offer Electricity Costs over 2022

Source:www.canstarblue.com.au – 09/03/2023. Based on single-rate market offer electricity plans on Canstar Blue’s database; excluding solar-only plans. Annual costs calculated based on the estimated lowest possible price a representative customer would be charged in a year, assuming all conditions of discount offered (if any) have been met. Representative customer based on the reference usage per AER. Please note, the average cost for New South Wales has been calculated based on the average annual cost of market-offer plans across all three of the state’s electricity distribution networks.

The 2022 price changes and fluctuations for both market offers and default prices were attributed to skyrocketing wholesale costs for providers, which saw as much as a 141% jump year on year, at the time.

The tumultuous wholesale electricity market has led to the Federal Government intervening by implementing a price cap for wholesale gas and coal prices at the end of 2022. However, with most retailers having already entered hedging contracts for their pricing for the year, it is unlikely that savings would yet trickle through to consumers’ energy bills.

As Origin Energy CEO, Frank Calabria told the Australia Financial Review Business Summit last week, the 20% increase prediction reflected the continued financial recovery of last year’s wholesale market mayhem.

“I would just reiterate that [the price increase] is in fact recovering costs that were incurred by the industry, which if we cast our mind back to May and June, certainly put the energy system under pressure,” he said. “Nevertheless, it’s going to be a contributor to cost of living, which we’re acutely aware of in terms of our customer base and supporting those that are less able to pay.”

What about natural gas prices? Are these expected to increase too?

Canstar Blue data found that residential market-offer natural gas prices also experienced a significant increase in 2022 across Sydney, Brisbane and Adelaide.

From January 1, 2022 to December 31, 2022, the average market-offer gas price was found to have increased by as much as $193 across the three cities. Sydneysiders were found to be most impacted by these changes.

Change in Average Annual Market Offer Natural Gas Costs over 2022

Source: www.canstarblue.com.au – 09/03/2023. Annual costs calculated based on the estimated lowest possible price a representative customer would be charged in a year, assuming all conditions of discount offered (if any) have been met. Based on market offer gas plans, Representative customer based on the reference usage for a three-person household with no gas heater per AER electricity and gas bill benchmarks for residential customers.

Much like electricity prices, natural gas prices are also expected to continue seeing increases through 2023, particularly in states like Victoria and NSW which tend to rely on natural gas usage more than other states especially during the cooler months.

This is also due to the ongoing wholesale market issues, but also supply issues as a result of the Ukraine war and extreme weather events experienced in 2022.

While gas prices are not held to the same regulation as electricity prices, in that there is no Reference Price or DMO to ‘cap’ prices, most providers also use the July 1 DMO change as an opportunity to update this pricing.

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