In bed with Embedded Networks

Are Embedded Networks the answer to rising utility prices?  

The costs of electricity for households in Australia rose 72% over the ten years preceding 2013. This only slightly outpaced the rising cost of gas, which rose 54% during the period.[1] Prices have only been rising since. This led to the Federal Coalition Party releasing a new energy policy and closer to home, the ACT Government passing the Utilities Legislation Amendment Bill 2017 (the Bill). The Bill aims to remove unnecessary regulation of energy utilities in the ACT. In part, the Bill aims to reduce rising energy costs by promoting the use of Embedded Networks.

What is an Embedded Network? 

An Embedded Network is a distribution system within a building development, typically for water, gas or electricity, connected at a parent connection point to the national or regional grid, where the delivery infrastructure to multiple users is owned, controlled and operated by a person who is not a network provider[2] and is typically not the Owners’ corporation. Operating an Embedded Network within a residential or commercial building allows the Embedded Network operator to control the provision of utility services to each unit or part of the building. The argument runs that this allows the Embedded Network operator to reduce the cost of utility services by negotiating with energy retailers for the provision of utilities to the building in bulk.

How do these amendments affect Embedded Networks in the Territory?

The Bill, scheduled to come into effect on 1 December 2017, creates an exemption for Embedded Networks from the Utilities Act 2000 and the Utilities (Technical Regulation) Act 2014. This means that those operating an Embedded Network will not need to obtain a licence under the Utilities Act 2000 and thus they will be exempt from compliance with the technical codes and regulations of the Utilities (Technical Regulation) Act 2014. By removing these requirements, it is now easier to establish and operate an Embedded Network in the ACT.

Problems with Embedded Networks

Despite the removal of some red tape, there are foreseeable problems for Developers seeking to establish an Embedded Network in new or existing Developments, as well as for Buyers or occupiers within a complex serviced by an Embedded Network. These include:

  1. The commencement of the Scheme coincides with the commencement of the Australian Energy Market Commission “rule determination” on Embedded Networks. This Rule Determination creates an additional level of regulations and obligations for those operating Embedded Networks;
  1. The Electrical Safety Act 1971 continues to apply to Embedded Networks, imposing safety standards for the installation of electrical equipment and wiring work, hence leading to certification and maintenance compliance;
  1. The ability of a Developer of a new Unit Title complex to install an Embedded Network, who must address the ongoing commitment to the Embedded Network operator in accordance with the Developer obligations under the Unit Titles (Management) Act 2011;
  1. The legislative changes do not directly cater for mixed used buildings, where different management groups may have to engage with the operator of the Embedded Network; and
  1. The management (and hence cost) of delivery of the utility through the Embedded Network will be governed through the terms of the contracts that will be offered to the Owners Corporation and to the end user, that represents a cost risk to the buyer and a disclosure risk to the seller.

Conclusion

Ultimately, without further change (in particular to Unit Titles and mixed use development legislation) the current legislative changes do little to resolve a number of key issues  associated with what should be an innovative way for Developers to defray construction costs or to remove the maze of legislation and regulation surrounding the establishment and delivery of Embedded Networks in the ACT. Until further change is brought about, the terms of utility supply will become and remain a critical aspect of “cost”. This highlights the good sense in securing legal advice when looking to install an Embedded Network or when purchasing in a complex with an Embedded Network. Should you require legal advice on these issues, please contact a member of our experienced Property and Real Estate team.

[1]Both figures from: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook44p/EnergyPrices

[2] National Electricity Rules Chapter 10 (Glossary).