New Rules for Embedded Electricity Networks

The Australian Energy Market Commission (AEMC) has made a final rule that will reduce the barriers to embedded network customers accessing offers from electricity retailers. It follows a rule change request proposed by the Australian Energy Market Operator (AEMO) stemming from recommendations in the AEMC’s Power of Choice review.

What are embedded electricity networks?
Embedded networks are private electricity networks, which serve multiple customers and are located within, and connected to, a distribution or transmission system through a parent connection point in the National Electricity Market.

Common examples of embedded networks include shopping centres, retirement villages, caravan parks, apartment blocks and office buildings.

Within an embedded network, the embedded network operator (for example, a shopping centre owner) provides embedded network customers with network services. Many embedded network operators also sell electricity to embedded network customers (for example, a business leasing space in a shopping centre). The final rule determination makes it easier for embedded network customers to choose an alternative electricity supplier, while remaining part of the embedded network.

Why is access to the competitive retail market important?
Allowing embedded network customers access to the competitive retail market is likely to allow embedded network customers to:

  1. choose the price and price structure of their electricity service that suits them best, which may result in lower bills;
  2. choose from a wider variety of products and services; and
  3. gain easier access to government schemes and consumer protections.

This rule change does not prevent embedded network operators from continuing to sell embedded network customers electricity. Instead, it will provide them with a greater incentive to compete with retailers.

How does the final rule address these problems?
The changes to the National Electricity Rules set out in the final rule will create a new accredited provider role – Embedded Network Manager – to perform the market interface functions that link embedded network customers to the National Electricity Market systems. The changes to the National Electricity Rules will also trigger changes in the relevant AEMO procedures and the Australian Energy Regulator’s (AER) network exemption guideline. Together, these amendments will:

  1. Set out the detailed functions, responsibilities, and governance arrangements for embedded network managers; and
  2. Specify which embedded network operators are required to appoint an Embedded Network Manager.

Implementation
The final rule specifies that the new version of the National Electricity Rules would start on 1 December 2017.

What does this mean for Property Owners and Managers
Up until recently, it has been very difficult for customers who purchase their electricity through an embedded network to purchase their electricity elsewhere.  In simple terms, this is what the upcoming rules changes are addressing.  Under this new regime, if the building owner and/or manager is not offering a competitive rate for electricity purchased through the embedded network, customers will now be free to move elsewhere to purchase their electricity.  The embedded network owner will therefore need to be competitive in their pricing, which has not been the case until now with most embedded network operators charging the maximum amount allowed.  It is clear that the large organisations with multiple premises supplied with power through an EPN will become more sophisticated and will seek lowest cost options.

It will still be possible for embedded network owners to profit from embedded networks, however, their pricing will need to be competitive with the market.  In addition, they will continue to receive income for network charges (the cost of the transportation of the electricity to the site) even if the actual electricity used is purchased from a different retailer.  In particular, owners of office buildings and shopping centres should be expecting that the tenants will be actively marketed through by other electricity retailers, and therefore the profits derived from embedded networks by property owners will reduce.

The changes to the metering arrangements for embedded networks will also bring a reviewed focus upon the overall operations of embedded networks by property owners.  We are aware of numerous embedded networks that are not operated in accordance with the AER Rules and the changes discussed above will bring these compliance failures into the spotlight.  It is illegal under the energy law for a building owner to sell electricity to tenants unless they hold the appropriate authorisation by the AER .  In recent times, the regulator has been issuing fines of $25,000 per embedded network to those operators who are in breach of the law.  We will therefore recommend that if you are unclear about the authorisation requirements for the embedded network that you receive advice in this regard.