Steps required to convert an existing site to an Embedded Network

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Explicit informed consent is one of the most important concepts in the energy industry.

Explicit informed consent is a key protection and it is critical to ensuring that customers are confident engaging in the energy market,”…“The AER takes any failure by retailers to meet this obligation very seriously, and will take enforcement action in appropriate cases.” – AER Board Member Jim Cox. Today we look at EIC in the context of embedded networks.

 Agreement to convert an existing site to an Embedded Network

By Connor James (Senior Lawyer & Founder) and Anne Wardell (Senior Lawyer & Regulatory Expert), Compliance Quarter. 

What is Explicit Informed Consent

Explicit informed consent is evidenced by an informed discussion and agreement from the customer where the customer is given the opportunity to ask questions to engage in discussion and to say no.

The following is taken from the AER’s Compliance Check published in 2015 and explains what is required for EIC:

Brownfield Conversion

When conducting a brownfield conversion, EIC will be required to convert an existing site to an embedded network and to supply customers with electricity. There are two separate ‘layers of consent’ required in this instance.

Below we set out a summary of the network consent required and the process that must be followed before an existing site is converted into an embedded network. This is to be distinguished from a ‘greenfield’ embedded network site which is a site that is made into an embedded network at the same time it is developed and is without occupants.

A network owner who wants to convert an existing electricity distribution system to an embedded network must make an application to the Australian Energy Regulator (AER) for approval. The AER will only grant approval if the network owner can demonstrate that they have followed the steps outlined in condition 4.9 of the Electricity Network Service Provider – Registration Exemption Guideline and obtained a poll of residents which returned consent (EIC) to the conversion of 85% or greater majority of residents.

The AER refers to this type of conversion as a Brownfield conversion.

The basic steps to follow are set out below:

  • Provide evidence that the information set out in 4.9.1 was provided to each tenant.
  • Provide details of the consent obtained from tenants including:
    • records of consultations and meetings held with tenants;
    • identify and record which tenants have not consented and the reasons for non–consent;
    • record of the outcome of any negotiation and/or dispute resolution with tenants.
  • Provide details of any steps taken to mitigate the concerns of any tenants who were opposed to the conversion.
  • Copy of record of consent for each tenant in relation to the conversion
  • Provide details of:
    • the sign–up percentage attained;
    • the views of customers both accepting and refusing to accept the conversion;
    • the steps that were taken to mitigate these concerns and an undertaking to observe conditions 4.9.1 to 4.9.6.
  • Conduct a marketing campaign based on the requirements of condition of 4.9 and provide details of the campaign to the AER.
  • Apply to the AER for approval.

We will break the steps required to convert an existing site to an embedded network and discuss each one in detail.

Information which must be set out in the first notice to residents

Condition 4.9.1 sets out how and what information must be provided to residents in relation to the conversion. The notice must be in the form of a letter to all tenants at the location. This includes owner/occupiers as well.

The notice must include the following information:

  • the tenant’s right to choose their own retailer, even within an embedded network;
  • the tenant’s ability to enter into an energy-only contract with an authorised electricity retailer;
  • the obligations regarding electricity offer matching as set out in conditions 4.9.3 and 4.9.4;
  • the obligations regarding duplication of network fees as set out in condition 4.9.5;
  • the contact details of a representative of the exempt embedded network service provider who can deal with any questions or concerns raised by the notice.

The network operator must also attach to the notice a copy of the electricity sales agreement it intends to offer the tenants.

The notice must be able to be understood by the tenant so regard must be had to the capacity of each tenant to understand the notice. If the tenant is elderly for example it may be advisable to hand deliver the notice and be able to explain the contents in person. If the tenant has English as a second language then you should consider providing the Notice in both English and the tenant’s native language. Also, consider vision or hearing impaired tenants or tenants with some other disability which would impact on their ability to understand the contents of the notice.

Collecting and recording explicit informed consent

Condition 4.9.2 sets out the requirements for collecting and recording the tenant’s explicit informed consent. Such consent must not be sought until after the Notice has been read and understood by the tenant.

The network operator must keep a record of the consent which has been obtained.

The records must:

  • include copies of the information provided to tenants;
  • include records of consultations and meetings held with tenants;
  • identify and record which tenants have not consented and the reasons for non– consent;
  • record the outcome of any negotiation and/or dispute resolution with tenants;
  • be kept for a period of two years; and
  • be provided to the AER on request.

If a tenant indicates that they are opposed to the conversion, then the exempt embedded network provider is required to engage with the tenant and seek to mitigate their concerns. You are not permitted to simply record the objection without speaking with that tenant and identifying and recording their concerns. You should also record your response to their concerns and any steps you have suggested to mitigate the concern.

It is important to note that the written consent of the tenant to the conversion must be evidenced in a separate document to the tenant consenting to enter into an energy contract with the embedded network provider. They are two separate issues for the purposes of obtaining approval from the AER for the conversion.

Offer matching

Large customers

Condition 4.9.3 sets out the requirements which must be met in relation to offer matching for large customers. The condition will only apply if the large customer was a tenant or resident at the time of the creation of the embedded network or otherwise if the large customer is a member of an eligible community.

This condition will apply if the large customer tenant indicates that they will not be consenting to become part of the embedded network. In that circumstance, the embedded network service provider must:

  • arrange for the continuation of the tenants existing electricity contract; or
  • facilitate the direct connection to a registered distributor; or
  • offer to price match any genuine offer.

The requirement to offer match will continue for 12 months after a previous request has been made. It also terminates upon termination or renewal of the tenant’s lease.

Small customers

Offer matching requirements for small customers who were a tenant or resident at the time of the creation of the embedded network or if the small customer is a member of an eligible community are contained in condition 4.9.4.

Similar to the large customer the embedded network service provider must:

  • arrange for the continuation of the tenants existing electricity contract; or
  • offer to price match any genuine offer.

The requirement to offer match will continue for 12 months after a previous request has been made. It also terminates upon termination or renewal of the tenant’s lease.

Duplication of network charges and metering

Condition 4.9.5. provides as follows:

  • The exempt embedded network service provider must take steps to remedy any duplication of network charges experienced by tenants who have entered into an energy supply contract with an authorised
  • The exempt embedded network service provider must not charge a connection charge to any tenant who enters into an energy supply contract with an authorised retailer as provided for in condition 4.9.1.

The condition will only apply if the customer was a tenant or resident at the time of creation of the network.

The exempt embedded network service provider must also bear the costs of any changes to the meter and ensure that the meters allow customers to access retail competition. Refer to condition 4.9.6.

Marketing campaign

Evidence of the marketing campaign conducted must be included in the application to the AER. The campaign must provide the information required by condition 4.9 and follow the steps outlined.

At the conclusion of the campaign, the tenants must indicate whether they will consent to the conversion or not. If they do consent then they will be required to provide written consent.

In order to make application to the AER, there must be 85% or greater of the tenants in favour of the conversion and who have provided written consent. For example, in a development with 85 tenants you will need 72 of the tenants to have consented. There is provision for the AER to allow a lesser percentage in some circumstances, however, the general rule of thumb is that an 85% consent rate will be required.

The application

As mentioned above, the application to the AER must provide details of the marketing campaign which demonstrate that it complied with the requirements of condition 4.9. This can be done by attaching copies of material used which sets out the residents rights in relation to the matters discussed above.

It must also contain the following additional information:

  • details of the sign–up percentage attained,
  • the views of customers both accepting and refusing to accept the conversion
  • the steps that were taken to mitigate these concerns and an undertaking to observe conditions 4.9.1 to 4.9.6.

The AER has the discretion to reject the application or require the applicant to rectify any defect which is identified in the application. The AER also has the option to publicly consult on the application.

The Guidelines indicate that the AER may require the following steps to be taken prior to approval:

  • that the marketing campaign is modified or extended;
  • that the application or any supporting material provided to consumers or the AER be revised; or
  • that an undertaking is

Once the AER is satisfied with the application it will issue a notice of acceptance which may specify an effective date of commencement. If such a date is specified then the network must not be converted until after that date.

Contact us

If you would like to discuss the steps required to convert an existing site to an embedded network or would like to see us run a webinar on this important topic, please click here to contact us or leave a comment below.

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