Electricity bills: Australian Energy Regulator’s default market offer final determination approves price increases of up to 25%

Federal and state Labor have promised $500 of energy bill relief for households and $650 for small businesses. But, under a new decision, price rises will be even bigger for some customers.

Electricity bills for hundreds of thousands of NSW households and businesses will rise by as much as 25 per cent from July, which for some customers will completely consume new rebates from the Albanese and Minns governments.

The Australian Energy Regulator on Thursday revealed its final default market offers (DMOs) for 2023-24 included an estimated $594 a year increase for consumers with electric hot water in the Endeavour distribution area that covers western Sydney, the Blue Mountains, Southern Highlands and south coast down to Ulladulla.

That 24.9 per cent jump will totally absorb the combined $500 of relief recently promised under a recent deal between the NSW and federal Labor parties.

The deal, announced in the Commonwealth budget earlier this month, also included $650 of savings for small businesses.

But the DMO green-lights average increases of $816 a year in the Endeavour zone and $860 in the Essential distribution region, which covers the rest of non-metropolitan NSW.

Chris Minns with Anthony Albanese after winning the March NSW election. Picture: Sam Ruttyn

The DMO is a standard plan currently paid by more than 320,000 NSW households, which is nine per cent of all homes, along with 18 per cent of small businesses (56,000). It is the maximum price that a retailer can charge.

While it is only used by a minority of customers, there is a correlation between movements in the DMO and other tariffs.

Last year, the DMO rose by 9-18 per cent in NSW, depending on location and consumption; other tariffs then rose by 15-20 per cent.

Some households and businesses on the DMO will experience lesser increases than the looming rebates. These include many enterprises in the eastern half of Sydney, Central Coast, Hunter and Newcastle, after the AER approved smaller price hikes in the Ausgrid distribution area.

DMO households with lower consumption should also have a net decrease in their costs, if they are eligible for government bill assistance.

AER chair Clare Savage revealed the regulator had decided to reduce the profit margin it would permit retailers to earn from NSW households, from 10 per cent in its draft decision to 9.3 per cent in its final ruling, saving households up to $25 a year.

Ms Savage said it made the change after receiving feedback from consumer groups and the NSW government.

Australian Energy Regulator chair Clare Savage. Picture: Supplied

But, even after the reduction, retailers will still make more from NSW customers on the DMO in the coming financial year than they are now.

And the permitted profit margin in NSW remains bigger than in South Australia and southeast Queensland, which are the only other areas covered by the AER’s new decision.

Still, Ms Savage told The Daily Telegraph the AER believed it had struck the “right balance”.

The AER said the biggest drivers of the DMO price increases were high fossil fuel costs and reliability issues with older coal-fired generation assets “creating expectations of higher future wholesale energy costs”.

It also said that the increasingly “peaky” nature of energy supply caused by the growing introduction of renewables like solar into the system was partly to blame.

However, the regulator noted that power prices could have jumped higher still were it not for the federal government’s temporary caps on gas and coal prices.

Federal Labor repeatedly promised during last year’s election campaign that power prices would fall by $275 a year on their watch.

But on Thursday it said things could have been much worse.

Treasurer Jim Chalmers said Labor’s plan is helping. Picture: NCA NewsWire’s Martin Ollman

“This data confirms our intervention in the market along with our rebates for families and small businesses are doing exactly what we intended – taking the sting out of price rises,” Treasurer Jim Chalmers said.

AER analysis had found bill increases in NSW could have been as large as 44 per cent, without the caps.

Federal Opposition energy spokesman Ted O’Brien said “every single time (power prices) are raised, we’ll have the Prime Minister or the Energy Minister patting themselves on the back.”

“Only a Labor government would pat itself on the back for delivering the highest electricity prices Australia has ever seen. And that is what is happening.”

Compared to the AER’s draft decision in March, the final DMO increases are slightly smaller in the Ausgrid and Essential patches but bigger in the Endeavour zone, after the regulator received new information on network costs.