Do you have an embedded electricity network in your strata scheme? New rules are coming!

The Australian Energy Market Commission (AEMC) recently finalised a range of proposals that will change the way in which electricity can be supplied in ‘embedded networks’ – an electricity supply arrangement that is common in strata properties also known as bulk electricity purchase. In this article we set out the key proposed changes, timeframes, transition provisions and what this means for strata.

1. What is an embedded network?

Most Australians are supplied energy in what has been called a ‘standard supply arrangement’. Each electricity customer is connected directly to the poles and wires of the interconnected electricity grid and sold electricity by an authorised retailer of their choice. The organisation that is responsible for the poles and wires in a local area is called a ‘Distribution Network Service Provider’ (DNSP).

An ‘embedded network’, by contrast, is a private electricity network that connects many premises to the grid at just one point. Electricity in the embedded network may be sold by a retailer, or it may be sold by an independent third party who operates under an exemption from the requirement to be authorised as a retailer (a ‘retail exemption’). The organisation that is responsible for the wires, metering and other physical infrastructure operates must also operate under a separate exemption (a ‘network exemption’) and is often known as an ‘Embedded Network Operator’.
Many exemptions must be registered with the Australian Energy Regulator (registrable exemptions) but others apply automatically (deemed exemptions) or require an application (individual exemptions).

Embedded network arrangements are common in strata developments, but also in retirement villages, shopping malls, and caravan parks.
There has been concern from some quarters that the customers in embedded networks do not have access to the same customer protections as standard supply customers and have less choice when it comes to selecting an energy offer.

2. The Proposed Changes

Most new embedded networks will no longer be permitted to operate under network or retail exemptions. Embedded Network Operators will need to register with the Australian Energy Market Operator as an ‘Embedded Network Service Provider’ (ENSP). Exemptions will still exist but they will be much more limited in application.

Most organisations that sell in new embedded networks will need to apply to the Australian Energy Regulator as an ‘off-market retailer’.

These changes will mean that customers in embedded networks have the same consumer protections as standard supply customers and better access to competitive retail offers.
Before these changes will pass into law, amendments need to be made to a range of laws, regulations and rules. We cannot say exactly when this will happen, but it is possible that this could be complete by July 2020. The changes will then come fully into effect from one year after that date. This is known as the ‘effective date’.

3. What about embedded networks that already exist?

A transition framework for existing embedded networks is proposed as follows:

• Those currently operating under ‘deemed’ or ‘individual’ exemptions will not be required to comply with the new changes;
• Existing embedded networks, operating under a registrable exemption, established prior to 1 December 2017, will be subject to a ‘partial transition’. Retailer authorisation will be required, within two years of the ‘effective date’, but registration as an ENSP will not;
• Embedded networks, operating under a registrable exemption, established on or after 1 December 2017 up to 31 December 2019 will be subject to a ‘full transition’ and will need to fully comply with the new requirements within 2 years of the effective date of the new framework;
• Embedded Networks established between 1 January 2020 and the effective date, will need to fully comply with the new requirements within 9 months of the effective date.

4. What do you need to do?

Any strata site that has an embedded network in place, or plans to do so in future, needs to start getting prepared for the proposed new customer protections. Many of the new consumer protections that must apply in embedded networks such as customer hardship, billing and minimum contractual requirements could already be implemented in embedded networks if exemption holders choose to do so.

For more information on the reforms go to https://www.aemc.gov.au/sites/default/files/content//Infographic-ERC0179-power-of-choice.pdf

This article was contributed by Dr Drew Donnelly – Compliance Consultant and Adam Ford – General Manager, ARC Utilities Management