The Australian Energy Regulator’s latest Default Market Offer (DMO) determination for 2026–27 sets the benchmark prices for residential and small business customers across New South Wales, South Australia and Queensland. About 10% of residential customers, and 15% of small business customers remain on the DMO. The vast majority of small customers are on market offers, with prices set by retailers.
Each year, the Australian Energy Regulator (AER) calculates the DMO, considering wholesale, network, environmental and retail costs, along with a retail margin. In setting the DMO, the AER seeks to assess the costs of supplying small customers, to provide a fair, trusted and reasonably priced electricity option.
The AER does not seek to set a DMO that reflects the costs of individual retailers. As such, impacts will vary depending on an individual retailer’s customer load profile, the jurisdiction they are operating in, and its upstream generation and hedging arrangements. For this reason, year-on-year changes to market offer prices will not mirror changes to the DMO.
Shift in how the DMO is structured
A key feature of recent DMO determinations, including the 2026–27 settings, is the ongoing emphasis on how regulated tariffs are structured, not just the overall annual bill outcome.
Historically, the Australian Energy Regulator (AER) set a representative annual benchmark bill, leaving retailers with flexibility to determine how that amount was recovered through different tariff components such as daily supply charges and usage rates.
In 2026-27, the AER defined the structure of those tariffs more explicitly. In practice, this means the regulator not only establishes an annual benchmark but also determines the balance between fixed daily charges and variable usage charges.
The result is a tariff design that typically places greater emphasis on fixed daily supply charges compared to earlier market norms, with comparatively lower usage rates.
This structure has important implications for customers:
- Customers with lower consumption may see less benefit from lower usage rates because fixed charges make up a larger share of their bill.
- Higher-usage customers may benefit more from lower per-kilowatt-hour charges, partially offsetting higher fixed costs.
- Bill outcomes become more sensitive to consumption patterns rather than simply headline price changes.
The policy intent has remained focused on improving transparency and comparability between standing and market offers, although it has also changed how customers experience electricity pricing in practice.
Why market offers continue to evolve
The Default Market Offer (DMO) is a regulated safety net price on electricity bills for customers. It serves as a safeguard, ensuring households and small businesses on default contracts don’t pay more than necessary.
While retailers are not required to replicate the DMO tariff structure in their market offers, the benchmark plays a significant role in shaping product design, pricing presentation and discounting strategies.
In 2026–27, as in previous years, market offers continue to adjust in response to the regulated framework. This includes:
- Shifts in the balance between fixed and variable pricing components
- Changes in how discounts are structured and communicated
- A trend toward more tightly clustered offers in some segments of the market
The practical effect is that customers may see less variation between the highest and lowest priced offers than in earlier periods, even though competition remains active across most retail markets.
What makes up an electricity bill
Understanding recent price movements requires looking beyond retail offers to the underlying cost structure of electricity supply.
A typical electricity bill is made up of several components:
- Wholesale electricity costs
- Network costs (transmission and distribution)
- Environmental and policy scheme costs
- Retail operating costs
- Retail margins
Of these, wholesale and network costs remain the dominant drivers of total bills.
Across the DMO framework, network charges typically represent roughly one-third to just under half of a customer’s bill, while wholesale electricity costs account for a similar share. Together, these two components generally make up the majority of the total bill.
Retail costs and margins are comparatively smaller, but they are the most visible to customers because they are embedded in the structure of retail offers and discounts.
This means that while retail pricing changes often attract attention, the largest influences on bills continue to come from system-level costs associated with generating and delivering electricity.
The broader context
Electricity pricing in 2026–27 continues to reflect a period of structural change in Australia’s energy system.
The gradual retirement of ageing coal-fired generation, coupled with large-scale investment in renewable energy, storage and transmission infrastructure, is reshaping the cost base of the electricity market. At the same time, distribution networks are being expanded and upgraded to accommodate electrification trends and growing volumes of distributed energy resources such as rooftop solar and household batteries.
These investments flow through to network and wholesale cost components of electricity bills and are a key driver of long-term pricing outcomes.
Regulatory and policy reforms are also continuing, with a focus on improving transparency, simplifying energy offers and supporting customer engagement in retail markets. The evolution of the DMO tariff structure is part of this broader reform trajectory.
The role of the Default Market Offer
The DMO is often described as a price cap, but it functions more accurately as a regulated safety-net benchmark.
It is designed to protect customers on standing offers while still allowing room for competition in the retail market. Most customers are on market contracts rather than standing offers, meaning the DMO primarily acts as a reference point rather than a default outcome.
However, changes to the DMO do not occur in isolation. In a competitive market, retailers will set their own market offer prices, but in setting that price, they will consider a range of drivers including network costs, hedging, commercial objectives, competitor behaviour, and the regulated price. Changes to the DMO affects the broader retailer market, and as such, will influence how retailers set prices, structure products and communicate value to customers.
As a result, the 2026–27 DMO continues to shape not only regulated standing offers, but also competitive offers across the market.
