Analysis of the Moreland Alternative Street Lighting Maintenance Announcement
Councils in Victoria are excited at the news that Moreland City Council have announced their preferred contractor for a Public Lighting Services tender that was released in 2011. Having worked with the team at Moreland for the best part of a decade they continue to push the boundaries and implement innovative approaches to energy efficiency, asset management and sustainability. In another string to their bow, Council signed a contract with a third party to negotiate the bulk replacement, and more importantly, an operation and maintenance agreement for over 6,600 street lights.
This preferred tenderer is Citelum Australia, a subsidiary of European energy, distribution network and nuclear giant EDF (Electricite de France). Citelum have now begun negotiations with Distribution Network Service Provider (DNSP) Jemena, to see if an agreement can be made around the transfer or sale of DNSP-owned assets from Jemena to Council, so they can be independently maintained.
For the rest of the bulk changeover the same rules apply as to any council
- Lights must be approved by Jemena
- There will be some non-contestable project management costs and on-going costs to pay to Jemena which may trigger the relevant Local Government Act (S186 threshold).
If Moreland are one of the 91% of Victorian councils that are party to the MAV standing panel for lighting supplies, they will also be able to purchase lights from the panel at heavily discounted prices – or alternatively they can seek a Ministerial Exemption to join the panel.
All of this is good news, and is the next step in a journey that started a long, long time ago!
There have been many stakeholders along the way, but congratulations should chiefly go to the team at Moreland who worked painstakingly through this process over the last few years.
Ironbark were involved in the project from the early days in developing the business case, tender and the tender evaluation that led to Citelum's appointment. Understanding that this was potentially going to be the first of many similar tenders we made a lot of notes along the way and our fingers are crossed that the negotiations are successful and Moreland can share their learnings with other councils. From our point of view we've certainly notes many things that we – and councils – should do differently next time, especially considering that there are now a handful of organisations interested in providing alternative maintenance services and watching very carefully.
In 2007, Moreland City Council endorsed a bulk change of streetlights in residential streets from old, inefficient technology (mainly 80W Mercury Vapours) to modern energy efficient technology (2x14WT5s). Since that time, significant efforts have been made to navigate the complexities of public lighting, including requests for Ministerial Exemptions, discussions with relevant authorities and stakeholders.
In early 2009, Moreland put out a request for quote for a public lighting expert to work with Council to manage their energy efficiency bulk changeover of public lighting with both Jemena and Citipower.
Ironbark were engaged by Moreland to provide this support for all of the changeover preparations, including liaison with CitiPower and Jemena, the development of procedures for procurement of various services, and the development of a business case into an alternative street lighting maintenance regime – i.e., stepping outside of the regulated framework and investigating alternative maintenance providers.
The business case demonstrated a few potential outcomes – including a best-case scenario where an alternative maintenance program was financially viable. Essentially under this scenario Council could get a better deal for its Operation, Maintenance and Replacement (OMR, known as SLUOS in other states) costs from a tender to the market. Importantly this scenario also included costs associated with thorough and independent review of the performance of the contractor.
The tender that we developed considered two options for the market:
- Services for the bulk replacement of the lights. After which the management, operation and maintenance of the lights will revert to Jemena; or,
- An Energy Performance and Management Contract. This included an assessment, consultation, redesign and bulk replacement of the lights as well as a maintenance agreement for a 5-year period (with a further 5 year option).
As with all things this complicated and innovative, it can take a while and Council says that it’s been an "arduous evaluation process". Hats off to the crew at Moreland for their courage in pushing through these challenges and getting the project to its current stage.
From our point of view it has been fascinating to step-back and review the process of the last few years – from the development of the initial business case and feasibility study, to the tender evaluation panel and interviews with preferred applicant(s).
So... What does the contract-signing mean?
Now that Council and Citelum have signed a contract this means that Citelum can now negotiate with Jemena for the bulk changeover and ongoing maintenance of the street lights.
Most of the negotiations will involve discussions around ownership of new energy efficient lights (to be retained by Council instead of “vested” or “gifted” to the DNSP) and the transfer of other street lighting assets from Jemena to Council (i.e., the other parts of the existing street lighting system that are covered by standard OMR – including mounting brackets, poles, supply cables, control equipment, other lights not being replaced in the energy efficiency program etc.) These discussions will also include any relevant costs that Jemena will still be able to charge Council for access or co-operation during the project.
Having spoken to Council and the DNSP, it’s clear that for the project to be successful, all parties will have to approach negotiations with the spirit of cooperation. If it’s combative then chances are it will fail.
Should our Council investigate alternative maintenance?
Absolutely. You should investigate all of your options. However, we recommend to do so with care as your options will likely depend on a thorough understanding of all of the possible rewards and risks and for those with any key deadlines (including CEEP funding) be careful in mixing competitive maintenance with other projects (such as energy efficient bulk changes). As mentioned above, this process can take some time with uncertain timeframes and outcomes.
We know that contestable maintenance may be possible in theory. Whether it works in practice is another thing altogether. We don’t know if it can be successfully implemented anywhere in Australia yet however we’re getting closer to finding it out for the Jemena DNSP area.
The big issue for councils is time. All this takes time, as the tables above demonstrate. And it may take longer than Federal CEEP milestones allow, which simply means some councils will not be able to combine contestable maintenance with current energy efficiency bulk changeovers. However you can always look into replicating the Moreland process after your lights have been installed, taking in the many learnings we’ve been tracking through this test-case over the last 5-6 years.
A key learning for us has been to separate the bulk change program from the contestable maintenance program. The financial and environmental savings from an energy efficient bulk change project are guaranteed and the project can be implemented immediately. The financial savings from the energy efficiency bulk changeover project dwarf those of the alternative maintenance project, which would represent an additional 3% to 8% savings under optimistic scenarios.
Under pessimistic scenarios there are no savings at all with costs outweighing any potential savings. So make sure you receive detailed independent advice because if it doesn't stack up the project could be very costly.
Right now, the conventional wisdom and demonstrated action on-the-ground is that it is simply too risky to combine the projects because the alternative maintenance project will take years to prepare for and implement and there is no guarantee of success. A bulk changeover can be implemented right now, and this is what over 60 councils around Australia are doing, without the alternative maintenance component.
Can we seek alternative maintenance providers if we vest the new lights?
We thought we’d put this in bold as it’s own sub-heading in case anyone misses it and because there's so much confusion around this issue.
The answer is yes.
If you do vest assets to the distributor this does not rule out implementing a contestable maintenance program in the future. Likewise if you do not vest assets this does not mean you can automatically carry out a contestable program. This has now been confirmed on numerous occasions.
If you're one of the 20 or so Victorian councils that has already completed an energy efficiency bulk change and you vested the lights (as every council so far has done) then of course you can still investigate a contestable maintenance program. What is very interesting is that despite the noise around this issue creating some confusion, most stakeholders are actually in total agreement about this point. Some alternative maintenance providers have recently made it very clear on public occasions that councils that have already completed bulk changeovers and vested their lights may be able to get their assets back based on sections of the National Electricity Rules.
6 Hints For Contestable Maintenance
We’ve had dozens of councils ask us for advice about the replication of this project over the last few years. Given the complexity of street lighting maintenance and ownership it’s hard to keep it concise, but here goes:
- Turn up your bulls**t detector! When it comes to lighting maintenance there are a lot of lies, damn lies and statistics flying around. So make sure you have your bulls**t detector on high when hearing or reading the latest innovative framework that is supposedly going to save you millions of dollars or widely inaccurate threats about projects that involve vesting of assets. Ignore those with a vested interest.
- A measured approach looking at all of the potential risks and rewards is always recommended. Time and time again we find the more extreme approaches lead to no action on the ground and decades of inaction. This includes making sure to isolate the maintenance approach so you don’t risk any other projects (such as street lighting energy efficiency).
- Considerundertaking in-depth financial analysis and risk modelling (especially for maintenance contestability). For example using independent Monte Carlo Analysis or simulations, a statistical method that can be applied in street lighting replacement projects to assess risk and certainty.
- Be professional with your DNSPs. You need their agreement, so don’t take flawed advice that involves continually “taking on” the DNSPs with no results. Take the emotion out of it - you will have to work with them and negotiate at some stage because like it or not, they currently own the street lighting network.
- Take a breath. This could take a while, and ultimately may not make sense or be achievable. Then again it may make sense and be achievable! But don’t assume an outcome before your process is completed, history shows it takes time.
- Start small. We often provide a quick summary report and presentation to councils seeking to understand this opportunity more. We recommend contacting us and we can come and give you a simple overview of the outcomes and learnings so far to you and senior management.
Alternatively you can always contact us and we can run you through the latest developments or come out and run a workshop to help you think through how you can investigate alternative maintenance. This is a rapidly changing space and since this article was originally published we’ve had workshops with councils and DNSPs both in attendance (as recent as July 2014) where DNSPs have made it clear that they are open to more contestability and a variety of alternative maintenance models.
Finally, please note that Ironbark are not street lighting maintenance providers ourselves. We do not want to maintain your lights and we certainly do not want to own your lights. As an independent NATA Accredited Inspection Body for Street Light Luminaires, we only ever work for and on behalf of councils and in the best interests of councils. Not what is in the best interests of distributors, lighting manufacturers or alternative maintenance providers. So we can provide councils with impartial advice on the issue of alternative maintenance and we're only a phone call away.