State-by-State Update on Councils Retaining Ownership of LED Street Lights and Contestable Maintenance
Australian councils are leading the way when it comes to changing to LED street lights. Indeed, over 18% of all Australian street lights have now been changed over to more energy efficient alternatives, including 26% of all residential (or local) roads. There are parts of Australia outshining most of Europe, South-East Asia and North America.
There is still, of course, a long way to go, with nearly 2 million old inefficient street lights in Australia waiting to come down. This represents a great opportunity, especially in states like South Australia, Western Australia and Queensland, where progress has been slow to date apart from Brisbane City Council's 25,000 light project and Ipswich's 2,600 LED changeover. NSW also has a great opportunity to increase the uptake of LEDs with the Western Sydney Light Years Ahead project (13,000 LEDs), the Sydney City LED program and the inland-NSW Northern Lights project being the only bulk changeovers to LED in the state. Light Years Ahead, the biggest LED street light replacement project in NSW, came to an end with the last light installed in March with LEDs installed in 136 suburbs. For seven councils in the Northern Inland region, the last of 5,000 new LEDs were also installed in March, while in Sydney 6,600 LEDs or 30% of their lights have been changed.
Victoria has had the most success with 94% of all councils having completed an LED changeover or being in the process of completing a project, representing a touch under 270,000 lights. Indeed, there are now only 3 councils in the whole state that have not completed (or are in the process of completing) an LED changeover project.
There have been a plethora of different funding and financing models used for these projects, and various technology and stakeholders involved. However, there is one thing that is common across every project – a professional and collaborative relationship between councils and Distribution Network Service Providers (DNSPs).
We know that collaboration works. We know that arguing doesn’t. Every single successful project in Australia has been the result of cooperative dialogue and relationships between councils, DNSPs and other key stakeholders. This is not to say there are not disagreements along the way but in instances where councils and DNSPs have put down their gloves to work together, we’ve seen real action every time. And councils and DNSPs have benefited. In jurisdictions and projects where key stakeholders are still fighting the only people who benefit are lawyers and consultants.
Which brings us onto the latest instalment of "what's really happening with councils retaining (or gaining) ownership of street lights"!
Can Councils Retain Ownership of New LED Street Lights?
For over a decade, many councils have sought to retain ownership of new LED street lighting assets in residential streets, of which the vast majority of existing lights are owned by DNSPs. The big question is “can they?”. And the answer is a resounding yes.
However. However... to do this requires an agreement between a council and the DNSP. In some states (such as Queensland) this arrangement whereby the new lights can be owned by the Council is integrated within existing arrangements, in others this is not available unless through negotiation.
For existing lights and if installing new LEDs on existing infrastructure this involves the transfer or sale of DNSP-owned assets from the DNSP to the council, so that all street lighting assets (not just the new luminaire but also dedicated street lighting poles, mounting brackets, cabling, control equipment etc.) can be independently owned, operated and maintained by council or by a third-party of council’s choice. A council cannot do this without this agreement or transfer.
So far most examples of councils seeking to gain ownership of existing assets have faced challenges especially in negotiating a good outcome with their DNSP. However, this is shifting and we believe it time to provide a state-by-state update.
In Victoria, a handful of councils have attempted to retain ownership of the new LEDs, most notably Moreland City Council. Ironbark was engaged by Moreland to help develop an alternative maintenance tender in a process that started way back in 2007. 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.
In late 2013 it was announced that the preferred tenderer was Citelum Australia, a subsidiary of European energy, distribution network and nuclear giant EDF (Electricite de France). Citelum began negotiations with DNSP Jemena, to see if an agreement could be made around the transfer or sale of DNSP-owned assets from Jemena to Council, so they could be independently maintained. However, progress stalled with the AER’s Chris Pattas publicly stating why there would have to be a great spirit of cooperation for councils to purchase back street lighting assets and reap the potential benefits:
Unless a distributor agrees to give a third party access to its network for OMR [maintenance] services, it cannot be forced to. They’re not contestable if the distributor provides the services and continues to provide them,” Mr Pattas told The Australian Financial Review.
In the Moreland example the approach taken by Citelum was ultimately unsuccessful and in late October 2015 the final piece of the Moreland puzzle landed with Council undertaking a bulk changeover to LEDs with the assets vesting with Jemena.
While Moreland have taken a few hits it was certainly not a waste of time and they should be commended for their leadership on this issue, as should Citelum for bringing innovative and alternative options to the table. While the actual implementation of the idea has failed this has mainly been due to the approach taken in this instance.
In Queensland there were at least three providers interested in assisting councils to retain assets and engage a third party to manage and maintain their assets. It’s a fertile area because there have been very few energy efficient street lighting changeovers throughout the state so there are great opportunities out there. Over the past few years Sunshine Coast Council has been negotiating closely with DNSP Energex around a valuation and transfer of existing Energex-owned assets. This process has built upon the learnings at Moreland and appeared much closer to a successful resolution. Subsequently the chance of a positive outcome for Sunshine Coast looked very high. Energex had developed guidelines under which the transfer of public lighting assets needs to comply. The next step was to finalise the transfer documentation and develop a “Facilities Access Agreement”.
This is a model that could have been duplicated by other councils in the Energex region that covers South East Queensland (SEQ). Throughout 2016-17 Ironbark were engaged by three councils in SEQ to undertake an independent investigation all of the various models that councils in the Energex area could follow. This involved developing detailed financial and technical analysis and a summary of the risks and rewards under various models and scenarios.
In the Ergon Energy area (everywhere except SEQ) there had been no specific projects working to replicate the model being explored by Sunshine Coast and others. However, Energex and Ergon are in the process of merging certain roles and tasks so it will be interesting to see if there are any ramifications for the different models.
In a blow to Queensland councils seeking greater control over their streetlights, and the hard work undertaken by numerous councils in SEQ, the Local Government Association of Queensland (LGAQ) received a letter in May 2017 from Energy Queensland CEO David Smales stating that street lighting assets will remain with the distribution businesses. According to LGAQ, this, "in a nutshell, is a refusal of the LGAQ’s formal bid to purchase or lease the State’s street light network and with it the hope of providing every Queensland street with LED lights and a fast track to connectivity within five years".
In South Australia the DNSP SA Power Networks (SAPN), offers an "Energy Only" tariff where councils can retain ownership of the assets on council-owned infrastructure. However, for street lighting assets currently owned and operated by SAPN (i.e. the majority of lights in the state) it’s a bit more complicated. The situation is further clouded because the dialogue between councils and SAPN has traditionally been combative, with much of the external advice given to councils over the last few decades encouraging an antagonistic approach. South Australian Councils first sought a service level agreement with SAPN (then ETSA) in 1998 but still lack an agreement 18 years later.
Thankfully the situation is changing and over the last year a group of 9 leading councils from across South Australia have been having regular, open and collaborative discussions with SAPN and the LGA. This group has been able to facilitate discussions around SAPN approving LED technologies for use on the network and in improving the transparency of street lighting management. The group has been influential in developing a larger range of tariffs and undertaking negotiations that has led to downward revision of the tariffs for LEDs that are now being offered by SAPN. In 2016 the LGA developed a business case to investigate the establishment of a public lighting company to own, operate and manage street lighting. However in April 2018 the LGA resolved not to proceed as the risk was considered too great. There have been independent discussions around "access agreements" that could allow councils to retain ownership of new LEDs. Again, collaboration would be the key to this successful outcome, however after the LGA's April 2018 decision it seems likely most councils will not seek to retain ownership.
The finalisation of an access agreement will also be a key in Tasmania. Hobart and Glenorchy Councils retained ownership of the street lights after a change to LED lighting in 2017. They are currently negotiating an access agreement for councils to manage and maintain the newly installed LEDs. The relationship between councils and TasNetworks is collaborative and aimed at seeking mutually agreeable outcomes, with other councils (including Launceston in the North) and the LGA of Tasmania playing a key role in ensuring these relationships are smooth and productive. Ironbark has been engaged by LGAT to carry out these negotiations. If, as expected, these negotiations are successful, then Hobart and Glenorchy will be able to engage third parties to manage and maintain the new LEDs, or indeed deliver these services in-house. This is a model that many others in the Apple Isle are watching closely.
In Western Australia there has been no meaningful attempt to retain ownership of lights, bearing in mind that WA (and the NT) are not part of the National Electricity Market and not regulated by the AER. In the Northern Territory, most street lighting assets will slated to be transferred from NT Power and Water Corporation to councils on 1st January 2018. This is for 22,000 lights across the territory and the negotiations for this transfer has been in motion for years. Negotiation has been in good faith and there are good existing relationship between all parties, noting that NT Power and Water Corporation are a government-owned corporation compared with the privately-owned SAPN.
Finally, in the ACT, where street lights are currently publicly owned and managed, the government planned on selling their street lights in 2015, however a tender process in November of that year was unsuccessful. In April 2018 it was announced that management of 80,000 street lights in the ACT moved to a new contract with Electrix. Under a seven-year agreement Electrix will be responsible not just for the maintenance but also for the upgrade of the lighting to LEDs with smart controls. The new lights and associated communications infrastructure are also expected to support a range of smart city technologies in the ACT.
Ironbark was involved in the ACT project in project planning (audits, condition reports), business case reporting (including alternative maintenance) and assistance in evaluating the new maintenance and operation EPC contract.
So Should we Seek to Retain Ownership of New LED Street Lights?
It’s up to each individual council or region to seek to retain ownership of new LEDs or to continue with the DNSP-owned regulated model. For some councils, ownership and management will be the preferred approach. For others it may be considered too much of a risk or not something that is likely to occur in their DNSP region. We’re comfortable reiterating our advice of 2013 and 2014 which can be summarized as:
- Maintain a measured approach looking at all of the potential risks and rewards. Time and time again we find the more extreme approaches lead to no action on the ground and decades of inaction. This includes isolating the "retention of ownership" approach if it is continually risking the successful implementation of other projects.
- Focus on outcomes. Don’t jump in with a pre-conceived idea on what model works better or is of higher or lower risk but instead start by looking at what outcomes your council is seeking – for example “safe, energy efficient and smart street lighting”.
- Undertake in-depth financial, technical analysis and risk modelling of all possible options and approaches, not one or the other. Don’t assume a position before you’ve completed independent analysis.
- Be professional with DNSPs. Regardless of the approach, 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 the DNSPs and negotiate at some stage because like it or not, they currently own most of the street lighting assets.
- 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 billions of dollars or widely inaccurate threats about projects that involve vesting of assets. Ignore those with a vested interest.
After you’ve undertaken careful and expert independent analysis you’ll be a perfect position to make an informed decision and then start down the path – be that negotiations with DNSPs to transfer asset ownership, or the installation of LEDs that continue to be maintained by the DNSP. Through nearly 100 successfully implemented energy efficient street lighting bulk changeovers over the last few years in Australia we have seen that a professional and collaborative relationship between councils, DNSPs and key stakeholders still remains the key to success.