Victoria bans ‘unfair’ embedded power networks from 2023

Helpful Link – Embedded Networks Review | Engage Victoria

The Victorian Government will ban private electricity networks from being implemented in new apartment builds or similar in Victoria from January 2023, unless the system runs off 100 per cent renewable energy and can be clearly shown to benefit residents.

Embedded networks are often used to supply electricity within multi-residential complexes, such as apartment buildings, retirement homes, social housing or caravan parks. With an embedded network, customers are unable to choose their own electricity provider and must use power from the embedded network at a cost set by the network provider.

The state government’s decision follows recommendations from an expert advisory group’s Embedded Networks Review that found the embedded electricity network market in Victoria was not working in the best interest of energy customers.

The review was initiated in response to long-running concerns that customers living in these kinds of dwellings were paying higher prices for power. There were also concerns that these customers were not as well-protected as other energy consumers.

The new reform will help bring more choice to residents in these dwellings, as well as improve protections for energy customers within these networks, Gerard Brody, the CEO of Consumer Action, a community legal centre that advocates for consumers, said.

“This is a really positive step which will mean more Victorians can access more competitive deals and save on their energy bills,” he said. “The government’s announcement is very welcome as it will ban embedded networks and only allow an apartment/group living arrangement to offer group purchased electricity if they deliver renewable electricity and pass any benefits on to consumers.”

In addition to the ban on embedded networks, regulatory amendments are also anticipated for existing embedded networks, particularly in regard to licensing and authorisation.

While embedded network energy suppliers are currently required to register with their state’s relevant regulator, these companies are eligible for an exemption from registering as a network service provider with the Australian Energy Market Operator (AEMO), which is the group in charge of Australia’s main power network, the National Electricity Market (NEM).

These companies are also eligible for an exemption from registering as an authorised retailer with the Australian Energy Regulator (AER) and Essential Services Commission (ESC), which is Victoria’s independent energy regulator.

Mr Brody, who sat on the panel for the Embedded Networks Review, said the current system had left people living in these dwellings without easy access to affordable energy for far too long.

“The fact is the exemption from licensing for embedded networks should never have been allowed in the first place. It enabled an unfair business model that removed choice and important consumer protections. I hope we’ve learnt our lesson that we should no longer allow specific exemptions from consumer protections.”

Lily D’Ambrosio, Victoria’s State Energy Minister, said that more than 140,000 Victorians living in residential embedded networks would soon have greater access to competitive market offers as a result of the reform.

“We’re banning embedded networks because all Victorians deserve to get the same competitive energy deals and have the same protections, driving down the cost of living when people need it most,” she said.

“We’ve already delivered energy market reforms, banned door-to-door sales and cold calling, and increased penalties for retailers who engage in dodgy behaviour. This is delivering a better deal for all Victorians.”

Existing embedded networks were price-capped during the change of Victorian Default Offer (VDO) in 2020.

Reforms for Victoria’s embedded network market were first pledged during the 2018 state election.

Acknowledged Post by Kelseigh Wrigley 03/08/2022 – Canstar Blue

 EMBEDDED NETWORKS – Electricity and Water

Embedded Networks in areas of Australia had rapidly become an attractive way for shopping centers and residential and commercial buildings to reduce expenditure on electricity, gas and water, and contribute to saving the planet by reducing the carbon footprint. Around 2001 many new apartment towers went up in the CBD of Melbourne harnessing what we believe was the ‘goodwill’ by all to have more efficient energy use. In October 2018 the Victorian Government announced an election commitment to ban embedded networks in new residential apartment buildings with a few ‘microgrid’ exceptions. What went wrong? If you have a legacy embedded system please read on…

Relatively new to Victoria embedded networks may be a part of your development or you or your Owners Corporation Committee had been considering implementing a network as an initiative.

A Word of Caution

From experience it was vital that the Developer of a new project which was implementing an embedded network get it right so that the Owners Corporation was not burdened with issues from such an initiative down the track. Again there were obviously good systems that have been well thought out and there are systems that OC’s will be forever nursing along with system maintenance costs which far exceed any cost benefit. In fact many Owners Corporations are actively trying to have their systems replaced by an external major utilities provider.

This can be an expansive subject and a number of interesting observations will be imparted re systems that have not been well thought out. The subject I believe is vital for consideration for the new buyer of an apartment / lot in a development with an embedded network. The old story of ‘not what it appears’  can be very real.

There are good systems and utilities companies out there providing excellent results in developments. But you may be reading this as you have a system that is not up to scratch and you would not be alone. In fact I have personally dealt with many OC’s that had literally given up on their system and gone to the “default solution”, which is shared energy costs distributed evenly over all lots in a development. That means you all get the same bill whether your lot/apartment is vacant or occupied. The extreme example is where say  the 10 students living next door pay the same as you for water consumption. Given this example of course you want your embedded system to have a working and true user pays billing system up and working. In the worst case, just one lot owner goes to VCAT and proves quite easily that it is not ‘user pays’.

When your OC was sold an embedded system was it to a company associated with the developer? Did you realise that you or your OC may be paying for the billing system for the embedded network in your OC Fees (It happens) – this is where your water or electricity looks cheaper but running costs you don’t see are not included in this utility bill, but in your FM or OC Management Budget. You may even find that you don’t own the meters, pipework etc and you can’t change the provider if they are incompetent, ever. I can demonstrate how an OC was paying some $47k in hidden fees and by the time this is spread amongst the lots they were paying 35% more for water than using a local authority. And the big ‘Sell’ of embedded networks that it was a ‘Win Win”. Of course many of the embedded network businesses popped up and so many were about they could not get close to the rates of the large utility companies and started exiting.

The OCguide has a network of OC committees and experts that have dealt with and resolved performance, maintenance, software and billing issues.  Also see our Energy Management page and speak with the helpful staff at Green Wire Consulting that have helped deliver substantial savings via energy contract negotiations on behalf of developments. You may have an embedded network in place when you purchased in your development, but if you are considering a change to such a network for Water or Electricity with your current building I would implore you to have a good look, enough said.

The example below is a case in point and relates to Embedded Network Water Billing.

The building is not identified, but follows a similar history to a number of affected developments in Victoria.

1. The developer opts to set up an embedded network for water billing in a new development. The Owners Corporation will then be responsible for administering the water billing to lot/apartment owners instead of a normal water authority, eg. City West Water.

Often a newly elected Committee of Management gets quite a surprise when they realise that they are now also effectively running a water billing business and have no experience in such matters. The ‘Concept’ is that the OC will save money buy buying it’s water in bulk and even the gas to heat some of that water, which is also delivered to each lot as hot water and cold.  A noble concept.  Normally the contractor engaged to install this system will be cheaper than paying for connection to a normal water billing authority. In short the developer saves money on the installation and your OC gets cheaper cold and hot water. The old ‘Win, win’. Personally this phrase always bothers me. The issue of course is that the OC has become a water billing authority and remember you as the lot owner or committee member are now required to act as a water billing authority unless another outside entity is running this for you. Should another business operate this water billing process for or on behalf of the OC,  there will be a cost.

2. Indeed the lot/apartment owners may see slightly cheaper water bills. But what of the unknown which includes;

  • The costs of an external contractor to run your water billing system if this option is taken. Will this cost be a reflection of true user pays and allocated to a portion of the water bills sent out or will it be allocated to other common budgets?
  • Did you realise that you have twice as much water piping running through your development. As you are now pumping hot and cold water throughout the building.
  • Twice as much piping, often means twice as much maintenance and the hot water also has to go through a meter (two meters for each lot).
  • The meters have to be read on a regular basis and bills that conform to state government guidelines must be sent out.
  • And by the way, do you have an understanding of debt collection if a lot owner doesn’t pay. You may have to give this to your OC Manager to deal with who of course will charge you for this ongoing service as they are entitled to do.
  • Your OC gets their act together and then a lot owner takes you to VCAT because you can not charge more for the water you heated and sent to their apartment than you do for the cold water, and by the way you don’t charge GST on water.

3.  Depending on the set up of the hot water distribution system within the building you may find you have what is called a total loss system. In other words the heated water is sent down the core of the development from a gas boiler/s on the roof to ‘branches like in a tree’ and when you turn your shower on in the morning if you live on the bottom floor at the end of a ‘branch’ you must wait ten minutes for the cold water to flush through before you get some hot water (Not acceptable in todays water conscious world). To combat this, electrically powered ‘Heat Trace’ is normally used on the bottom few floors. This is attached to all the hot water piping lines and acts like an electric blanket, so that you, on the bottom floor at least get some warm water when starting your shower. The catch is the $20,000 to $30,000 hit to your common area electricity bill each year that you don’t see reflected in your water billing. This is an example cost of powering the Heat Trace.

4.  The unknowns I call them which are not reflected in your Embedded Network Water Billing in this example include;

  • Extra ongoing Maintenance
  • Ongoing Meter Failures and replacement
  • Hot water causes quicker failure of water meters
  • Electricity Costs for heat trace
  • Water Billing Software
  • Keeping system a true user pays billing system
  • Debt collection
  • Payment of Someone to administer the Water Billing System

From the three examples I have dealt with in recent years involving water the extra costs to the Owners Corporation which are not reflected in water bills to owners is in the average order of $60,000. This is hidden in maintenance, plumbing, electricity, software and extra cleaning (after pipe joiners burst), let alone insurance claims which normally involve an excess payment.

The above example should spell out one thing to you. Do your homework. Again I have seen systems that work well, and remember if you have an embedded network, whether water, gas or electricity make sure the maintenance is kept up and where necessary get good Independent advice if you have issues.

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