Electricity and Embedded Networks within Residential Parks in NSW

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The New South Wales Government is currently reviewing laws that apply to residential and land lease communities. The Government notes that more than 35,000 people live in over 500 residential and land lease communities across New South Wales.

The review focuses on the Residential (Land Lease) Communities Act 2013. This Act covers permanent sites in caravan and residential parks and sets out the rights and responsibilities of residents and park operators. A review is conducted every five years that considers how the legislation is working. Various parties have lodged submissions on the consultation paper that the New South Wales Government published.

Embedded networks are specifically considered within the consultation paper. The consultation paper notes that part 7 of the Act regulates how and what an operator can charge for utility costs in connection with the occupation of a residential site.

What are the main requirements under the Act?

Operators are permitted to charge homeowners for utilities such as electricity and water usage, provided that they comply with the Act. The main requirement is that site must be separately metered. Furthermore, an operator is not permitted to charge more than the operator is charged by the utility service provider and an itemised account must be provided with at least 21 days to pay. Receipts must be provided for all payments made in person or upon request. Homeowners are entitled to reasonable access to bills and other documents in relation to utility charges payable.

Section 77 of the Act restricts how much an operator can charge a homeowner for the utilities that they consume. Section 77 was considered by the NSW Supreme Court in the decision of Silva Portfolios Pty Ltd t/as Ballina Waterfront Village & Tourist Park v Reckless [2018] NSWSC 1343 and in subsequent NCAT decisions, including the Appeal Panel decision of Tork v Parklea Operations Pty Limited t/as Gateway Lifestyle Residential Park – Stanhope Gardens [2019] NSWCATAP 299. Our sister business, Law Quarter represented park operators in those cases. Before the Reckless decision, park operators charged residents consistently with the guidance published by the NSW Office of Fair Trading. Ultimately, Reckless found that this guidance was incorrect.

As noted in the discussion paper:

Section 77(3) of the Act provides that an operator must not charge a home owner an amount for the use of a utility that is ‘more than the amount charged by the utility service provide or regulated offer retailer who is providing the service’ for the quantity supplied to, or used at, the site. There have been divergent views on the meaning of section 77(3) and this provision has been the subject of a number of cases in the Tribunal, as well as the Supreme Court. Interpretation has been further complicated by the interactions between the electricity charging provisions and national energy laws, given changes in these laws and terminology since the Act commenced, as well as an evolving electricity market.

In 2018, the Supreme Court of New South Wales clarified how section 77(3) of the Act should operate in the matter of Silva Portfolios Pty Ltd trading as Ballina Waterfront Village & Tourist Park v Reckless. The Supreme Court interpreted section 77(3) to mean that an operator is not entitled to charge a home owner more than the operator has been charged by the energy provider for the electricity consumed by the home owner.

In light of the Supreme Court’s decision, the Tribunal’s Consumer and Commercial Division then considered how to calculate a refund for the home owner in the case, Ms Reckless. In calculating the amount owed to the home owner, the Tribunal determined the overall cost of electricity to the operator, divided that amount by the total kilowatts used in the community. This provides the kilowatt per hour price. The total kilowatts used by each home owner are then multiplied by the kilowatt per hour price. This method of calculation has been referred to as the ‘Reckless method’ and has been applied in many communities following this case.

While the Supreme Court decision and the Tribunal’s identification of the ‘Reckless method’ has provided a way forward on charging, it has also continued to be an area of disagreement, with some stakeholders seeking greater legislative clarity and others seeking other reforms of electricity charging to enable different charging methods in embedded networks, including consideration of how to account for the operator costs of maintaining electricity infrastructure.

Further, in some other cases that have been decided by the Tribunal, methods other than the Reckless method have been used to determine refunds due to home owners.

The Reckless method has meant that a number of park operators are effectively providing the service of electricity (including meter readings, collecting payments, dealing with bad debt, and customer service) for free. This is unsustainable and has been a significant issue within the industry.

Potential reforms

There is broad agreement that changes to section 77 are required to give certainty to both home owners and to park operators.

The NSW Government is considering three potential options for reform, these are:

Option 1: Embed the Reckless method in the Act for both operators and third party retailers;

Option 2: Amend the Act to allow for electricity charging that includes network maintenance cost recovery and administration costs, but does not result in a profit for the operator; or

Option 3: Remove the electricity charging provisions and allow the national rules to apply.

The NSW Government is not restricted to one of these three options and will be guided by the submissions it has received.

The next step in the review process is for the NSW Government to publish its findings. It is unclear if they will be published before the end of this calendar year.

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