Understanding Embedded Networks in Retail Leasing: Power Reseller Agreements and the Role of ACCC

Embedded networks have become a powerful tool for retail landlords in Australia, allowing them to purchase electricity in bulk and resell it to tenants within their shopping centres. This setup offers significant benefits yet also presents unique challenges, including concerns over monopolistic pricing, as highlighted by the Australian Competition and Consumer Commission (ACCC). This blog explores how embedded networks operate, their advantages, the role of the Retail Leases Act, and relevant state-specific legislation in Queensland (QLD) and the Australian Capital Territory (ACT).

What are Embedded Networks?

An embedded network is a private power distribution network within a shopping centre, where the landlord purchases power wholesale and resells it to tenants. This arrangement is typical in large shopping centres, where landlords leverage their purchasing power to secure competitive energy rates. Examples of shopping centres with embedded networks include Westfield Centres, Chadstone Shopping Centre, and Stockland Green Hills.

Benefits of Embedded Networks for Landlords and Tenants

1. Cost Savings for Tenants: Bulk purchasing allows landlords to secure competitive energy rates, translating to lower tenant’ costs.
   
   
2. New Revenue Stream for Landlords: By reselling power with a margin, landlords can create an additional revenue stream that supports centre maintenance and investment.
   
   
3. Increased Sustainability: Embedded networks enable easy integration of solar panels and other renewable technologies, optimising power use across the centre.

Shopping centres with embedded networks, such as Stockland Green Hills, often invest in sustainable energy sources like rooftop solar to support green energy distribution within the network and enhance ESG (Environmental, Social, and Governance) commitments.

ACCC Concerns on Monopolistic Pricing

The ACCC has raised concerns over embedded networks potentially fostering monopolistic pricing due to limited competition. Key issues include:

• Higher Prices: Tenants within embedded networks may face higher energy costs due to limited provider options.
  
  
• Limited Choice: The lack of flexibility in choosing providers can make tenants reliant on landlord pricing.

In its June 2024 National Electricity Market report, the ACCC recommended reforms to improve transparency and give tenants more competitive energy options. These measures would protect tenants from unfair pricing and monopolistic practices within embedded networks.

Embedded Network Clauses in Retail Leases: Take Westfield as an example. A typical lease clause from Westfield in Queensland sheds light on how embedded networks are structured in retail leases and demonstrates protections in place for tenants:

• Pricing Control: The lease states that if the landlord supplies electricity, they must charge no more than the standing offer price of a competitor (the Local Area Retailer). This provision protects tenants by ensuring that their electricity rates are comparable to those available in the general market.
  
  
• Billing Transparency: The lease requires the tenant to pay for energy, water, and other utilities, including meter fees for emissions and renewable energy. It also states that tenants are billed either at competitive rates or based on agreed-upon terms with the landlord.
  
  
• Access and Choice: If the landlord is not supplying electricity, tenants can obtain power from a licensed retailer. In cases where tenants choose an external retailer, the landlord provides access to their network but charges the tenant network and metering fees related to the landlord’s network. This setup enables flexibility while ensuring tenants contribute fairly to shared infrastructure costs.

This Westfield clause highlights safeguards for tenants, including pricing controls and options to seek alternative providers when suitable. It also includes detailed provisions around metering and network charges, reflecting embedded networks’ complex but structured nature in retail leasing.

State-Specific Legislation in Queensland and the ACT

Both Queensland and the ACT have enacted legislation to regulate embedded networks, protecting consumers from potential monopolistic practices and promoting fairness.

Queensland (QLD)
In Queensland, The National Energy Retail Law (NERL) governs embedded networks, and entities within these networks operate under exemptions managed by the Australian Energy Regulator (AER). Embedded networks in Queensland are subject to oversight to ensure fair billing and transparency, providing safeguards for tenants.

Australian Capital Territory (ACT) 
In the ACT, the Utilities Act 2000 regulates embedded networks. The ACT Government has been reviewing embedded network regulations to enhance consumer protections, noting that tenants in embedded networks may face higher electricity bills than if they had access to competitive market offerings. In October 2022, the ACT Legislative Assembly initiated a review addressing these consumer concerns, including the lack of choice and transparency. This review aims to align embedded network regulations with consumer protection standards across the territory.

The Role of the Retail Leases Act

The Retail Leases Act plays an essential role in protecting tenants within embedded networks:

• Billing Transparency: The Act mandates fair, transparent billing, to prevent overcharging tenants
  
  
• Dispute Resolution: It provides a framework for addressing disputes over electricity charges.
  
  
• Right to Choose: In some states, tenants within embedded networks have the right to seek alternative providers if they find better rates, depending on local regulations.
  

Examples of Australian Shopping Centres Using Embedded Networks

• Westfield Centres: These centres implement embedded networks across multiple sites to deliver power at negotiated rates.
  
  
• Chadstone Shopping Centre: Utilises an embedded network to balance power costs and sustainability practices.
  
  
• Stockland Green Hills: Invests in solar energy to power its embedded network, promoting green initiatives.
  

Conclusion

Embedded networks offer landlords and tenants opportunities for cost savings, sustainability, and revenue growth but also pose risks of monopolistic pricing. ACCC oversight, the Retail Leases Act, and the state regulations in Queensland and the ACT, help ensure fair treatment. Provisions in retail leases, such as those in Westfield’s agreements, enforce pricing limits and provide tenants the flexibility to explore other options. As embedded networks expand across Australian shopping centres, these combined legislative and contractual protections are essential in fostering fair, sustainable retail environments.