NSW embedded networks inquiry closing soon

Embedded networks

Private electricity and gas networks, known as embedded networks, supply many NSW residents and business with energy and hot water – typically in apartment blocks, retirement villages, caravan parks and shopping centres. The owner of a site with an embedded network commonly purchases energy from an energy retailer and then on-sells the energy to the different consumers at the site.

Regulatory context

The Australian Energy Regulator (AER) regulates embedded networks under the National Electricity Law and National Electricity Rules, applying Guidelines which exempt them from certain obligations under energy laws but place conditions on their operations (including pricing).

Generally, where energy is on-sold to consumers in embedded networks, the consumer pays for the sale of energy and network charges (both external network charges and a charge for using the embedded network). Additionally, consumers who rely on the embedded network for hot and chilled water usually incur additional charges, above the cost of the electricity used to heat or cool their water. In 2021, the AER reviewed these arrangements and concluded that it did not have the power to regulate hot and chilled water delivered to consumers on the embedded network because the sale of bulk chilled or hot water was not a "sale of energy" under the National Energy Retail Law and the National Energy Retail Rules.

Issues

Consumer advocates have engaged with the NSW and Commonwealth Governments and regulators to extend consumer protections for customers living in embedded networks, separate from any protections afforded to them under the Australian Consumer Law.

Other questions arising for consumers in embedded networks include:

• the amount which embedded network operators can charge to customers on the embedded network to recover network charges paid to the external distributor, and whether this can be calculated as a shadow tariff (what the customer would pay if directly connected to the external network), or must it be a proportion of the network charges at the connection point;
• where customers are to pay a proportion of network charges, on what basis is this calculated (particularly if the network charges include peak demand and time of use charges) and how are they calculated if the customer at the parent meter pays a bundled charge that covers both energy and external network charges?;
• can an embedded network operator require such independent customers to enter a use of system agreement for use of the embedded network (with network charges regulated by the AER's exemption conditions)?; and
• what happens to customers on an embedded network where the embedded network seller loses its retailer authorisation or retailer exemption? Can they be allocated to a Retailer of Last Resort? Or do the customers have to apply for appointment of an embedded network manager, then registration of a child meter and NMI, and then apply to purchase from an independent retailer? What happens to their power supply until this is completed?

Previous regulatory reviews

There have been a number of regulatory reviews regarding embedded networks, particularly, its impact on consumers, including:

• as noted above, a review by the AER in 2021, which sought stakeholder input on revisions to network and retail exemption guidelines including regarding customer hardship protections and the disconnection of customers, to the regulation of chilled water in embedded networks; and
• the Australian Energy Market Commission (AEMC) in 2019, which proposed a significant package of regulatory reform to the embedded electricity network framework including a proposed regime to cover certain existing (or "legacy") embedded electricity networks.

Current inquiry

In the context of concern regarding rising energy costs, a NSW Parliamentary Committee is currently considering:

• the current legal framework regulating embedded networks;
• the changes to the legal framework proposed by the AEMC in its 2019 review on updating the regulatory frameworks for embedded networks; and
• the effect of embedded networks on NSW residents and businesses, including any health or safety concerns.