Embedded networks – complying with exemption conditions
By Kristy Dorney and Sarah Salesse
Embedded networks are privately owned electricity networks situated within private land. The network receives electricity from the main electricity network and distributes it to consumers within the private property. These can be found in everything from residential apartment buildings to commercial shopping centres.
The generation, supply, and sale of electricity is a highly regulated industry requiring all parties who own or operate an electricity network to secure a licence from the Australian Energy Regulator (AER) and comply with the myriad legislative requirements which govern the terms of supply and sale of electricity to consumers.
However, for embedded networks, there is an opportunity to operate without a licence and outside the main legislative framework provided strict compliance with a set of exemption condition guidelines is adhered to. There are two applicable guidelines published by the AER—the Electricity Network Service Provider Registration Exemption Guideline (Network Exemption Guideline) and the Retail Exempt Selling Guideline (Retail Exemption Guideline). The guidelines outline the exemption classes, the process for registering and applying for exemptions, and the conditions attached to each exemption class.
Exempt owners and sellers must ensure strict compliance with the exemption conditions as failure to do so is a breach of the National Energy Retail Law, attracting civil penalties.
2022 Change to Exemption Conditions
The Retail Exemption Guideline was updated in July 2022 and a draft of an updated version of the Network Exemption Guideline was released for consultation in October 2022. Read our article summarising the key changes to those exemption guidelines.
Which conditions apply to you?
Each guideline contains a set of exemption conditions. However, not all conditions will apply. To determine which conditions apply, exempt owners and operators need to consider the following—
- the activity of the exempt seller
- how many customers the exempt seller has
- whether the customer of the exempt seller is residential or commercial
- whether the customer falls into the category of large customer or small customer.
If you are uncertain as to which exemption conditions apply, we recommend seeking legal or expert advice. The AER can also provide some guidance and further information.
Snapshot of key exemption conditions
Below is a summary of some of the key conditions that may apply.
|Registering your exemption||The guidelines require the owner of a network to register its details on the exemption register. However, it is often overlooked that all other parties involved in the supply and sale of electricity generated from the network are also required to register. This may include custodians, trustees, responsible entities, agents, and embedded network service providers. Penalties of up to $170,000 may apply for not completing this registration.|
|Exemption class||There are three types of exemption classes. The conditions that apply to an exempt seller will depend on the class of exemption and the category within that class.
‘Deemed exemptions’ do not need to be registered and will apply automatically to certain classes of operators and energy sellers.
‘Registrable exemptions’ apply to certain classes of operators and energy sellers as set out in the guidelines. These exemptions must be registered and do not come into effect until they are published on the AER’s public register of exemptions.
‘Individual exemptions’ are required where the supply of energy does not fall into the deemed or registrable exemption categories. This category allows the conditions of exemptions for unusual or one-off arrangements to be tailored to each specific situation.
|Information provision statement||In some cases, an exempt seller may be required to provide its customers with an ‘information provision statement’ at the start of the tenancy or electricity sale agreement (and on demand, if requested by the customer). Information provision statements disclose customers rights, details of the applicable exemption conditions, and details of the tariffs, fees, and charges that apply.|
|Pricing||Passing on of network costs is regulated and certain groups of customers must not be charged tariffs higher than the standing offer price with local retail energy providers.
There are also strict requirements relating to over- and under-charging and recovery or repayment of charge.
|Billing||There is a range of requirements for exempt sellers’ billing practices which differ depending on the registration class the exempt seller falls into and the category of customer the seller is supplying energy to. This includes requirements such as exempt sellers must bill customers every three months, allow customers at least two payment methods, and give customers at least 13 days to pay their bill.|
|Disconnection and reconnection||Where a customer fails to pay a bill on time, exempt sellers must go through a range of steps before they can disconnect a customer’s energy supply. Further, there are strict rules about when a disconnection can occur. For example, in some cases, an exempt seller cannot disconnect a customer’s energy between Friday and Sunday.|
|Financial hardship arrangements||Some exempt sellers are required to assist customers encountering payment difficulties, including by offering customers flexible payment options and directing the customer to resources. Currently, this only applies to certain retail customers. However, the recent review of the guidelines has proposed increased obligations on exempt sellers to have financial hardship policies which extend to all embedded network customers. We will keep you updated on whether these changes are implemented in the new guidelines.|
- Embedded networks present a valuable commercial opportunity for property owners.
- The regulation of embedded networks and obligations imposed on operators and users is complicated and frequently overlooked.
- Updates to both the retail and network guidelines were released last year, so now is a good time to review and update your practices.
How we can help
For assistance in reviewing the guidelines and ensuring compliance with the conditions, get in touch with partner Kristy Dorney, or a member of our Investment Funds team.
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