Big changes have been announced for South Australian street lighting with the Australian Energy Regulator (AER) confirming that public lighting services in the state will now be classified as Alternative Control Services (ACS). This is a change from the current classification where public lighting is classified as a Negotiated Distribution Service (or NDS) and brings SA in line with the rest of Australia.
The change was mooted at SA Power Networks (SAPN) facilitated workshop on the 17th of April and confirmed by the AER in late July with the release of the SAPN 2020-25 Final Framework and Approach documents.
A Win for SA Councils
The AER has essentially made the call that street lighting has monopoly characteristics. They state that, "while SA Power Networks does not have a legislative monopoly over these services, a monopoly position exists to some extent. This is because SA Power Networks extensive network of poles is integral in the provision of public lighting services. That is, other parties would need access to poles and easements for instance to hang their own public lighting assets. Therefore, similar to network services, ownership of network assets restricts the operation, maintenance, alteration or relocation of public lighting services to SA Power Networks. Based on the above analysis, our preliminary position is to classify public lighting services, including emerging technology, as direct control services".
This is consistent with what the AER has said for over a decade now.
This a good outcome and will provide a lot more certainty for SA councils, who have clearly suffered through a lack of bargaining power and less control over tariff increase. The ACS model has led to demonstrably better outcomes for Australian councils in other states than the NDS model has for South Australian councils and the change should assist in seeing lower tariff increases and provide a safety net in a market that clearly has monopoly characteristics.
What's the Difference?
Negotiated Distribution Service
Under the current NDS model, DNSPs and customers (councils) have been required to negotiate around street lighting services and maintenance. While there are frameworks for negotiation, theoretically negotiation can take place several different ways - for example on a council-by-council basis, through a representative body or third party on behalf of every council in the state. If negotiating parties can’t come to an agreement then there is a framework to move to mediation, arbitration and then a “determination” (or decision) from the AER, with many steps in between.
This is what has happened in South Australia, with parties unable to negotiate an agreeable outcome for the maintenance pricing during the 2011 to 2015 period. Unfortunately, this meant that pricing was not exposed to regulatory review by the AER during this period, meaning customers did not have the ability for the umpire to ensure fair pricing from SAPN. These issues are now with the AER and we are hopeful resolution will occur soon, with the process of mediation and arbitration between councils and SAPN last for many years.
Alternative Control Services
ACS is currently how street lighting is treated in every other state (apart from WA and NT which are not regulated by the AER, although there are moves afoot in WA to change this). Under this model, lighting maintenance costs are automatically regulated by the AER. These costs are based on submissions from relevant stakeholders including DNSPs, councils, consultants and other interested parties. Everyone gets a say and the AER (the “umpire”) then makes a decision.
While not perfect, it has clearly served councils better than the NDS model in South Australia. Other states are well ahead in terms of LED changeovers and lower maintenance or tariff charges. While there are varying reasons for this – and it is not solely due to the “ACS versus NDS” model – in our view the lack of regulatory oversight and the inability of key stakeholders to successfully negotiate in council’s best interest has been a critical factor.
The ACS model is far from perfect. The AER’s regulation of street lighting pricing does not always work in favour of councils, but this does not mean that less regulatory oversight is better. Councils will now have the opportunity to ensure a process where there is access to transparent information and data from SAPN through the regulated framework. SA councils can learn from what has worked and hasn't worked in other states over the last decade and ensure better outcomes.
Can we still negotiate with SAPN independently under the ACS model?
Yes. The ACS model does not prevent a council from negotiating a service level agreement with a DNSP. It is not a matter of simply being a price taker and having no say or recourse. Negotiation has happened before and will again and again. To get an idea of how negotiation under this model has worked see the example of what happened a few years ago, where a group of Victorian councils negotiated with DNSP Ausnet Services (under the ACS framework) to save up $6 million in savings over the life of the new efficient lights, on top of the 77% energy savings.
Will we be able to incorporate new technology or will we be “locked In” for 5 years?
Yes, you will be able to incorporate new technology. LEDs were first approved by an Australian DNSP in Powercor/Citipower with Warrnambool City Council being the first Australian council to use LEDs for a bulk changeover of street lights. This occurred in June 2014, totally independent of the regulatory process. New services can also be introduced within the regulatory period, as is discussed in the Framework and Approach documents. It provides a degree of flexibility while offering price certainty.
Is this the end of the process?
No! SAPN will put forward further information in January and there will be more opportunities for councils and other stakeholders to get involved. These processes are always moving feasts. The AER recommends getting involved and having your say as opportunities progress - we whole-heartedly agree.
Does this mean we won't be able to own and operate our own lights through a Facilities Access Agreement (FAA?)
No. ACS or NDS is not the determining factor in whether a council can own operate it's own lights. The only way you can "take back control" of the lights and retain ownership is if you can negotiate with the asset owner (SAPN) or if the state government compulsorily aquires the assets. Whether or not it's ACS or NDS is irrelevant. The state in which councils are closest to owning and operating their lights is Tasmania*, where Ironbark is currently working with the Local Government Association of Tasmania (LGAT) negotiating with the DNSP, TasNetworks. In Tasmania, lighting falls under ACS.
Does street lighting have monopoly characteristics?
Should we question whether SAPN actually own the assets in the first place?
No. Some stakeholders have argued that DNSPs don't actually own un-metered street lighting assets in the first place. The AER has responded many times that they do. Let's move on.
Got any more questions? Contact us any time and we'll answer them and add them to this page.
* With the notable exception of ACT, where street lights were always publicly owned and managed.