Embedded Network Conversion- Retail Exemption Requirements

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Requirements relating to retail exemptions for the sale of electricity within embedded networks are set out in the AER Exempt Seller Guideline. Under the National Energy Retail Law any person or business who sells energy to another person for use at a premises must have either obtained a retail authorisation or operate under a retail exemption.

The AER notes that where energy selling is your main business, you are selling to a number of customers or selling in a number of states or territories, you will probably need a retail authorisation. The exempt seller regime was designed for small-scale selling activities i.e. between related entities or at a specific site.

The AER notes that energy sales do not necessarily have to be for-profit in that even passing energy on at cost to another person is a sale.

Network conversions are dealt with in section 4.4 of the Exempt Seller Guideline. A network conversion is the conversion of an existing site’s electrical wiring into an embedded network that allows the owner or operator of the site to sell electricity directly to residents or tenants of that site. Section 4.4 and the other relevant provisions of the exempt seller guideline should be read alongside the AER Network Exemption Guideline. One of the main concerns in the AER’s assessment of a retrofit is the detriment that may result to customers i.e. the loss of power of choice.

Who Holds the Retail Exemption

In terms of who should hold a retail exemption, the person or business that is selling the energy should hold the retail exemption whereas a network exemption should be held by any party that owns controls or operates the embedded network infrastructure. The AER notes that the party that should hold the retail exemption is generally the party who buys energy at the gate meter and then sells it on to the customers at the site.

In the Retail Exemption Guideline, the AER talks about agents or service providers. The AER notes that they do not generally consider that exemptions are appropriate for agents or service providers as selling energy is their core business and therefore a retail authorisation would be required.

Seeking EIC

The AER notes that the consent that you obtain to complete the network conversion under the network guideline is separate from the consent that you obtain from occupants to sell them electricity. A tenant or resident can agree to the network conversion but make separate arrangements for the purchase of energy from a third party.

In seeking informed consent from occupants, it is necessary to ensure that you have clearly, fully and adequately disclosed all matters relevant to the conversion. You must ensure that you consider a customer’s capacity to provide consent. You must also ensure that you collect evidence of consent provided including the information that you disclosed, the discussions you had, and your assessment of a customer’s capacity to consent.

If the proposed embedded network consists of wholly commercial customers and you have the consent of all affected tenants or customers, then you do not need to apply for an individual exemption and can rely on a relevant class exemption. If, however the site that you propose to make into an embedded network consists of residential customers then you must apply for an individual exemption irrespective of whether or not you have the consent of all tenants and customers.

Section 7.2.1 sets out the matters that the AER will consider in the review of an application for an individual exemption with respect to an embedded network. It is imperative that this section be read in full. This includes the following:

Mitigation of detriment regarding retail contestability and competitive offers. Customers in an embedded network can experience practical difficulties in accessing market retailers and application for an exemption involving a retrofit must attempt to remove barriers to customers purchasing energy from a retailer of their choice. The successful applicant must also limit customer detriment that may result from it potentially being a monopoly supplier. By offering an attractive product to customers as if in a more competitive market. As part of this assessment, the AER will consider whether you have sought advice from the relevant distributor on whether and how nonconsenting energy customers could be left out of the network conversion.

Customer dispute resolution services. There are a number of requirements for exempt sellers to be members of jurisdictional ombudsman schemes. Exemption sellers should examine whether they need to become a member of a jurisdictional ombudsman scheme and explain this in the application for an individual exemption. In addition, exempt sellers must have dispute resolution processes that are consistent with the Australian standard for complaints management in organisations.

Efforts to obtain explicit informed consent. Applicants must demonstrate that they have explained to potential customers implications of being in embedded network. This includes information about the benefits as well is potential detriments.

Conclusion

In conclusion, where an exempt entity is seeking to retrofit an existing building into an embedded network, it will need to consider both the network and retail exemption guidelines issued by the AER. It is important to note that there are a number of steps in the process and that the general objective is to ensure that occupants are fully aware of the consequences of the embedded network conversion.

There may be two separate approvals required from the AER. The first may relate to the network conversion itself i.e. following the provision of information in section 4.9.1 of the network guideline. Secondly, an individual exemption may be required where an embedded network consists of residential customers or where less than 100% of commercial customers have provided explicit informed consent under the retail guideline. We commonly see confusion as parties fail to understand that there are two guidelines issued by the AER, that explicit informed consent requires the disclosure of a range of matters, and that different parties may require a network exemption.

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