Embedded networks in strata

Benefits and considerations of embedded networks

A key element of the shared infrastructure in strata is the distribution of basic utilities like electricity, gas, water, and fibre optic cable to individual units.

In most smaller schemes the shared infrastructure simply connects individual residents to the retail networks enjoyed by most other households. But increasingly, and particularly in newer and larger developments, some of these services are delivered through what are known as embedded networks. They are common in larger apartment developments as well as retirement villages, caravan parks, and shopping centres.

An embedded network is provided through a commercially-operated intermediary business that manages the distribution of energy or water through common property infrastructure – wires or pipes, switchboards or pumps and meters – from the mains to individual apartments.
As well as direct supply to individual apartments, shared gas hot water systems – where individual gas consumption is calculated based on hot water usage – are also common. Similar systems can be found for shared air conditioning and heating systems.

While most cold-water systems are directly connected to the mains, some schemes do use an embedded network operator where, for example, there is a recycled water plant or stormwater capture system onsite.

Benefits

Ideally, an embedded network should benefit everyone. The original developer saves on installation costs by engaging an embedded network operator to set up the supply connections and metering. The developer also saves on administration by avoiding the cost of setting up and operating individual accounts prior to settlement. It can also be an efficient means of sharing power generated by a solar energy system.

In a competitive market at least some of these savings should flow into the purchase price paid for apartments by owners. The operator will also negotiate bulk electricity, gas, and water rates from the network and some of these savings should be reflected in a competitive price to individual end customers.

Risks and issues

In many cases, however, customers of embedded networks customers do not have access to the national consumer protections and support available to those in more traditional energy supply arrangements. These gaps in consumer protection and support can include:

•  Price protections
•  Billing transparency rules
•  Free and independent dispute resolution services
•  Access to the retailer of their choice
•  Access to government emergency financial support.

The NSW Government has an Embedded Network Action Plan to cap prices and improve consumer protections overall.

Billing

Billing can be through a direct retail charge to individual residents from the network operator, or fee-based system where the owners are billed directly by the retail provider and the operator adds their service fee. In some cases, where the network is owned by the building rather than the operator, the charges may be billed through the owners corporation in the same way as levies.

Older buildings

Fewer older buildings have embedded networks but there can be situations where owners might consider introducing one, particularly as an alternative to directly funding major infrastructure renewals such as replacement of shared hot water systems.

Changing providers and renegotiating terms

If your strata scheme does not believe it is receiving a reasonable benefit from its embedded network, in the first instance speak to the operator. They may be willing to negotiate better prices or other terms and conditions. NSW also has an Energy and Water Ombudsman scheme for resolving complaints.

Most embedded networks are based on long term contracts that are initially entered into by developers and the endorsed by owners at the first Annual General Meeting. The term is usually justified on the need to recoup the cost of the initial setup and any consideration of termination prior to their expiry will need specialist legal advice. A new operator may purchase the assets from the current provider, but this is also a specialised area.

As part of a consumer protection package in 2018, the NSW Strata Schemes Management Act was amended to prevent owners corporations from being ‘locked into’ long term utilities supply contracts which would prevent them from obtaining a better deal in the marketplace. These contracts are now limited to a maximum three years if they started after the reform commenced, or 10 years if they started before. However, there was a ‘carve-out’ so that it does not apply to embedded networks for the supply of electricity.

July 2023