Residential land lease communities: electricity charging options
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Current method
The option of using the Reckless method (External link)(External link) was not supported
The Reckless method is based on a 2019 Supreme Court decision (External link)(External link) and requires the operator to divide the total bill for the community by the total kilowatt hours used by the land lease community to get a single kilowatt hour (kWh)** price. The single kWh price is then applied to the total kWh used by the resident to obtain the resident’s total bill.
While the Reckless method has locked in lower than average electricity prices for many residents, it has a number of drawbacks for both residents and residential community operators. For this reason, most responses to the statutory review consultation did not support the Reckless method.
View from many residents:
- Reckless does not provide certainty about the kWh price they will be charged from one bill to the next.
- Reckless does not facilitate discounts for low amperage (as it does not use a separate service availability charge) and therefore doesn’t provide for energy prices to reflect the quality of service.
View from many businesses/operators:
- requires a new kWh price to be calculated each billing cycle.
- does not allow for recovery of costs associated with Energy and Water Ombudsman NSW (EWON) membership, billing, or meter reading, all costs that other electricity retailers factor into their bills.
- EWON membership is compulsory for operators of embedded networks and can cost up to several thousand dollars per year.
New options
Single charge method
The proposed option: Median market price - single charge method
The statutory review of the Act sought feedback on three options for electricity charging, including the existing method. Stakeholder feedback identified that none of the three options achieved an appropriate balance between stakeholders. Consultation and further analysis identified that any new method of electricity charging should provide certainty, transparency, simplicity, and fairness to both residents and operators. Two possible options have been identified for feedback.
This option sets the maximum price that a resident could be charged at the median market price for electricity in that distribution area, calculated as a single rate that combines usage and supply charges.
The price would be calculated annually from data supplied by the Independent Pricing and Regulatory Tribunal (IPART) about the median electricity bill for each distribution area for a standard level of consumption.
Typical electricity bills are made up of many charges that fall into two categories:
- Usage charges, which are charged per kilowatt hour (kWh) of electricity used; and
- Supply charges, which are flat daily charges that are charged even if no electricity is used.
To calculate the single charge for electricity in each distribution area, the total amount of the median bill for that distribution area, identified by IPART data, will be divided by the number of kWh. This single charge will then include both usage and supply charges, and will apply to all land lease communities with embedded networks in that distribution area. To calculate the amount each resident should be charged, this single cents per kWh charge will be multiplied by the number of kWh used by the resident.
For example, the estimated median market price for the 2019-2020 financial year as a single charge per kilowatt hour is shown in the table below. These figures have been produced using data collected by IPART, with discounts applied for low supply quality (less than 60amps).
Ausgrid | Endeavour | Essential | |
More than 60 Amps | 34c/kWh | 32c/kWh | 38c/kWh |
Less than 60 Amps | 27c/kWh | 26c/kWh | 30c/kWh |
To check which distribution area you are in, visit https://www.aer.gov.au/consumers/who-is-my-distributor/new-south-wales (External link)(External link)
Low supply quality discount
For prices to reflect the level of amperage received at a residential site, it is proposed that all residents who receive less than 60 amps of electricity supply will get a 20% discount to their total electricity bill.
Based on the median market price for the 2019-2020 financial year, residents who receive less than 60 amps of electricity supply could expect to be charged at the following rates:
Ausgrid | Endeavour | Essential | |
Less than 60 Amps | 27c/kWh | 26c/kWh | 30c/kWh |
Advantages of the single charge method
Residents | Operators |
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Separate charges method
An alternative option: Median market price - separate charges method
Another approach would be to set the maximum amount that a resident could be charged at the median market price, with separate median usage and median supply charges.
Under this option, IPART would advise the government of the median usage charge and the median supply charge, separately, for each distribution network. It is likely that these amounts would not come from the same bill or electricity contract.
A home owner could be charged up to the median usage cost per kilowatt hour of electricity they consume, in addition to the median daily supply charge.
Under this option, the existing discounts for low supply quality will continue to apply for residents who receive less than 60 amps. The existing discounts are:
- 30 – 60 amps = 30% discount on the supply charge
- 20 – 30 amps – 50% discount on the supply charge
- Less than 20 amps = 80% discount on the supply charge
The estimated median market price for the 2019-2020 financial year as separate usage and supply charges with the existing tiered discounts is shown in the table below.
Ausgrid | Endeavour | Essential | |
More than 60 Amps | 23c/kWh + $24.60 per month | 23c/kWh + $24.60 per month | 24c/kWh + $41.10 per month |
30–60 amps | 23c/kWh + $17.22 per month | 23c/kWh + $17.22 per month | 24c/kWh + $28.77 per month |
20 – 30 amps | 23c/kWh + $12.30 per month | 23c/kWh + $12.30 per month | 24c/kWh + $20.55 per month |
Less than 20 amps | 23c/kWh + $4.92 per month | 23c/kWh + $4.92 per month | 24c/kWh + $8.22 per month |
Advantages of the separate charges method:
Residents | Operators |
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Other policy options that were considered
Our recent consultation identified that the way electricity is charged in embedded networks should be simple to calculate, transparent, predictable, provide fair pricing and not result in undue financial hardship.
In addition to the initial options outlined in the original discussion paper, we considered a number of other options for electricity charging in land lease communities. We identified that under the other policy options the need of stakeholders would not be sufficiently balanced: either operators would make a loss, or residents would have significant price increases. The other options also did not adequately meet one or more of the above needs of all stakeholders - simple; transparent; predictable; fair pricing and prevents undue financial hardship.
These other options were:
- setting the maximum amount at the lowest bill for the distribution area as a single charge
- using a median usage charge only
- using the lowest supply and lowest usage charges.
Another option that was considered was removing all regulation of electricity charges from the Residential (Land Lease) Communities Act and leaving pricing to the National Energy Regulation. In this situation the maximum a resident could be charged for electricity would be the Standing Offer Price for the relevant local area retailer. The Standing Offer Price is usually the highest tariff charged by a utility company and is the price which a customer goes onto if they do not choose a specific plan. The Standing Offer cannot be higher than the Default Market Offer (DMO), which is set by the Australian Energy Regulator.
The Standing Offer Price for the different distribution areas can be as high as:
Ausgrid | Endeavour | Essential |
38c/kWh | 35c/kWh | 43c/kWh |
In the absence of more robust consumer protections for embedded network customers under the National Energy Regulation, stakeholders indicated that this option is likely to lead to a sharp increase in both residents' energy bills and the possible amount of operator funds available for managing electricity supply.
This option has the potential to be further explored in the future if there are charges relating to embedded networks as part of broader energy regulation.
Case study calculations
These case studies have been provided to show how different charging methods result in different pricing depending on the scenario. These calculations are based on actual bills, but these are not real case studies. You can also view the results of these calculations in table form by visiting the case studies tab. |
Carol
Reckless method (current)
Using the Reckless method based on a commercial bill of a real residential land lease community within the Essential network, Carol would be charged a flat rate of 28c per kilowatt hour.
$0.28 x 200 kilowatt hours = $55.56
Using the Reckless method, Carol’s total monthly bill would be $55.56
For the operator, none of this bill could be used to cover administrative costs and membership fees.
Median single charge method
Under the proposed option, Carol would be charged a flat rate of 38c per kilowatt hour and get 20% off her total bill, because her supply quality is less than 60 amps.
Monthly charges: $0.38 x 200kWh = $76
Monthly discount: 20% of $76 = $15.20
Carol’s total monthly bill using a single charge would be $60.80
For the operator, this would mean up to $5.24 per month would be available from this bill to cover associated administrative costs and membership fees.
Median separate charges method
Under the second option, using separate usage and supply charges and the existing discounts for low amperage, Carol would be charged a flat rate of 24c per kilowatt hour and a discounted (by 30%) service availability charge of $28.77 per month.
Monthly charges:
Usage: $0.24 x 200kWh = $48
Service availability charge: $41.10 - (30% x $41.10) = $28.77 (Monthly supply charge)
Carol’s total monthly bill using separate usage and supply charges is $76.77
For the operator, this would mean up to $21.21 per month would be available from this bill to cover associated administrative costs and membership fees.
No regulation
If there was no price regulation, Carol would be charged a flat rate of 43c per kilowatt hour.
$0.43 x 200 = $86
Carol’s total bill would be $86
For the operator, this would mean up to $30.44 per month would be available from this bill to cover associated administrative costs and membership fees.
Rashid and Glenda
Rashid and Glenda live together in a residential land lease community in Katoomba and are serviced by the Endeavour network. Rashid and Glenda use about 325 kilowatt hours of energy per month and have a supply quality of 25 amps.
Summary Rashid and Glenda’s monthly bill and operator funds
Reckless method (current)
Using the Reckless method based on a commercial bill of a real residential land lease community within the Endeavour network, Rashid and Glenda would be charged a flat rate of 23c per kilowatt hour.
$0.23 x 325 kilowatt hours = $74.71
Using the Reckless method, Rashid and Glenda’s total monthly bill would be $74.71
For the operator, none of this bill could be used to cover administrative costs and membership fees.
Median single charge method
Under the proposed option, Rashid and Glenda would be charged a flat rate of 32c per kilowatt hour and get 20% off their total bill, because their supply quality is less than 60 amps.
Monthly charges: $0.32 x 325kWh = $104
Monthly discount: 20% of $104 = $20.80
Rashid and Glenda’s total monthly bill using a single charge would be $83.20
For the operator, this would mean up to $8.49 per month would be available from this bill to cover associated administrative costs and membership fees.
Median separate charges method
Under the second option, using separate usage and supply charges and the existing discounts for low amperage, Rashid and Glenda would be charged a flat rate of 23c per kilowatt hour and a discounted (by 50%) service availability charge of $12.30 per month.
Monthly usage: $0.23 x 325 = $74.75
Discounted monthly service availability charge: $24.60 – (50% of $24.60) = $12.30 (Monthly supply charge)
Rashid and Glenda’s monthly bill using separate usage and supply charges is $87.05
For the operator, this would mean up to $12.34 per month would be available from this bill to cover associated administrative costs and membership fees.
No regulation
If there was no price regulation, Rashid and Glenda would be charged a flat rate of 35c per kilowatt hour.
$0.35 x 325 = $113.75
Rashid and Glenda’s total monthly bill would be $113.75
For the operator, this would mean up to $39.04 per month would be available from this bill to cover associated administrative costs and membership fees.
Key terms
Median
The middle number (50th percentile) in a list of numbers that have been sorted from lowest to highest. For example, the median of the numbers 1, 2, 3, 4, 5 is 3.
Retail customer
Retail customers are customers who are connected to the main electricity grid and are supplied and billed directly by a licensed electricity company. Retail customers are not connected to an embedded electricity network.
Embedded network
Embedded networks are private electricity networks that serve multiple premises in land lease communities and are connected to the main electricity grid through one connection point. The owner of the connection point can buy electricity from an electricity company and on-sell the energy to the community.
Distribution area
There are three electricity distributors in NSW and they own and maintain the infrastructure, like the poles and powerlines, that supplies electricity to defined geographic regions in the state. These regions are called the distribution areas.
Low supply quality discount
The amount of amperage that can be provided to a resident depends on the quality of the infrastructure of the embedded network. Some residents receive low amperage and can only use a limited amount of electricity at one time (for example, the resident may not be able to run a toaster, microwave and air conditioning unit all at the same time). Residents who receive less than 60 amps are entitled to a discount on their service availability (supply) charge which is applied by the operator.
Amps
Amperage is the strength of an electric current, measured in units called amperes (or amps for short). Electrical devices require different levels of amperage. For example, hair dryers and toasters require about 20 amps, whereas dishwashers and air conditioners require about 30-50 amps.
kWH (kilowatt-hour)
A kilowatt-hour (kWH) is a measure of how much energy you are using. It does not mean the number of kilowatts you’re using per hour, it is a measurement that equals the amount of energy you would use if you kept a 1,000 watt appliance running for an hour. For example, a 100-watt light bulb would take 10 hours to consume 1kwh of energy.
