Pouring chilled water on the govt ‘gift’ to strata

It’s starting to feel like strata in NSW is one big marginal electoral constituency – except the government can’t give apartment dwellers sports stadia and railway stations.

What they can do, however, is address strata owners and residents’ problems, but not without people asking “why now and not before?”

A couple of weeks ago, we were informed that it would be made easier for strata owners to insist on being able to install electric vehicle charging in their block (although how the mechanics of that differed from what’s already in place was hard to see).

The latest example of what’s not so much pork-barrelling as flat-pandering is that residents of apartment blocks, retirement villages and caravan parks are said to be among 150,000 energy customers who will benefit from a crackdown on embedded networks.

“Tough new rules” will lower energy bills and increase consumer protections for people living with embedded networks, say the NSW Liberals and Nationals. Okay, but what are embedded networks to begin with?

In their most common iteration, they comprise infrastructure that has been installed for free or cheaply by a service provider in exchange for an exclusive contract that gives them a monopoly on the service provision.

Usually, to get all that wiring, piping, cabling and equipment installed for free, the developer only has to persuade the purchasers of units in their block to approve the service provision contract.

The savings go straight into the developers’ coffers with the apartment owners and, ultimately, renters paying for services at a premium to cover the cost of their installation.

Since those contracts are among a welter of agreements – including by-laws – on which brand new owners have to vote at their first AGM, they are often approved on the nod, especially when the developers’ representatives, building managers and strata managers tell neophphyte owners that this is “standard practice.”

That it may well be, but it’s shady stuff and possibly for not for much longer. The NSW Government last week today announced its Embedded Network Action Plan to cut energy bills, which includes:

• Introducing a maximum, IPART (Independent Pricing and Regulatory Tribunal) determined price for gas and for hot and chilled water supplied through embedded networks.
• Initiating an IPART review into electricity prices in embedded networks, to recommend whether the maximum price within embedded networks should be set below the Commonwealth’s default market offer.
• Initiating an IPART review on whether the NSW Government should ban the establishment of new hot and chilled water embedded networks.

The NSW Government says it will also write to the Australian Energy Regulator requesting that it only approve new electricity and gas embedded networks that are in the interests of consumers, and offering to initiate changes to the National Electricity and Gas Rules if necessary in order to achieve that outcome.

According to a press release issued last week, Treasurer and Minister for Energy Matt Kean said that embedded networks have failed to deliver for many energy consumers, adding complexity and holding back customers from getting the best deals the market has to offer.

“Whether you’re living in a free-standing home, or in an apartment block, caravan park or retirement village, every family should be able to access essential services at a fair price,” Mr Kean said.

“These reforms will help ensure that embedded network customers are no longer disadvantaged simply because of where they choose to live.”

The Energy and Water Ombudsman estimates 95,400 households lived in residences with electricity embedded networks and there are a further 64,000 hot water embedded network customers.

The number of embedded networks in Australia has increased recently due to a new business model where developers outsource the ownership of the energy infrastructure beyond the connection point with the electricity or gas distributor.

But hot and chilled water are only a small part of the embedded network picture. As well as energy supply, embedded networks can cover electric vehicle charging, essential infrastructure maintenance and internet access.

In some cases, embedded networks provide essential services at a reduced cost because of collective billing, which is a good thing. If individual owners want to opt out, to find alternative suppliers, they can. For maintenance contracts, they come up for renewal periodically.

However, some embedded networks are simply a rort by developers to pass the costs of essential services to owners via contracts with inflated terms and punitive conditions.

If the government wanted to do something about all embedded networks regardless of the service they provide, it could copy the element of Northern Territory strata law that says developers and bodies corporate can’t accept payments or services in exchange for signing contracts.

And, in the early stages of schemes, developers can’t sign contracts that are significantly to the detriment of the eventual apartment owners.

A law change like that would deal with most one-sided, feather-bedded, dodgy service contracts and skip past a decision to investigate rather than a decision to act.