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August 09 Edition Cover

Owners’ Corporation Law - Dec 19 - Jan 20

04 Dec 2019

Embedded electricity networks are ripping off consumers

By Tom Bacon,

A new study by the Victoria Energy Policy Centre has found that customers in apartment buildings in Victoria on embedded networks are paying up to $439 a year more than the best deal they could get if they were able to access the free market.

Put another way, the study, which was commissioned by the state government, found that a typical customer on an embedded network was paying 36 per cent more than the best publicly-advertised deal.

In an embedded network, an owners’ corporation (OC) buys its electricity in bulk and on-sells the electricity to residents.

In theory, residents on embedded networks should get a better deal, thanks to bulk buying their electricity.

However, this study has found that this is not always occurring, and in fact, residents end up paying more.

The developer often decides at the time of construction of a building as to whether to enter into an embedded network with a private company that operates embedded networks. If they do, the embedded network company will usually install the meters and connections on behalf of the developer, in return for the developer agreeing to a five- to 20-year embedded network agreement.

The developer gets to save money because it doesn’t have to pay the costs of installing the meters and connections and having this infrastructure classified as common property. The embedded network company gets to save money because it has the guarantee of a long-term service agreement and can buy the electricity in bulk at a cheaper rate while on-selling the electricity to the residents for a profit.

Some embedded network companies offer a lower cost for electricity for the common property areas and for owner-occupiers, and charge a higher rate for tenants, meaning the tenants are effectively paying too much and subsidise the owners and the OC.

I have seen some agreements from embedded network companies that also restrict and restrain the OC from installing solar panels on the rooftop because the developer has made the embedded network company responsible to provide all electricity generation for the building and its residents.

Sarah McNamara, the chief executive of the Australian Energy Council said in an interview to the ABC: “We are aware that there has been some frustrations experienced by customers who feel that the embedded network framework doesn’t allow them enough flexibility. We simply encourage them to ring their retailer, or ask their strata committee to ring their retailer, and talk to them about whether an embedded network is the best available deal.”

These comments aren’t particularly helpful when considering that the embedded network companies use contracts that are so one-sided that it is impossible to break the contract before the five- to 20-year term expires.

The state government has not sought to regulate or otherwise restrict the operation of these embedded networks in its new draft OC Bill that is currently before parliament. That is a great shame and a missed opportunity for residents and OCs. In New South Wales, an amendment to the strata legislation was inserted last month to regulate the embedded networks.

When this matter next comes before parliament, and now that the state government has received this study by the Victoria Energy Policy Centre, it will be interesting to see whether the government seeks to take a stronger position on this for the benefit of the community.

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