Victorian Councils Dodge Bullet: Public Lighting to Remain Regulated

Alexi Lynch

Victorian councils have potentially dodged a massive bullet with the Australian Energy Regulator (AER) announcing that they have abandoned plans to change the structure of street lighting regulation in Victoria. In their Final Framework and Approach Paper from October 2014, the AER had proposed that street lights on dedicated poles (largely in newer estates with underground electricity) would require a negotiated process between councils and Distribution Network Service Providers (DNSPs).

This idea has now been scrapped due to substantial concerns raised by Victorian councils and the potential for unforeseen circumstances that would result in councils being worse-off.

Of course any council that wants to negotiate with their DNSP still can. In Victoria negotiation has lead to energy efficient lights being approved for use on networks and subsequently the first LED bulk changeover of lights in Australia. Negotiation has resulted in energy efficient bulk changes being delivered and contestability at all levels of the process in some jurisdictions. Negotiation has lead to reductions in maintenance charges that will save councils millions of dollars.

However now negotiation can occur within an environment where the Regulator can hold the DNSP to account on pricing issues.

AER Determination

The AER have determined that all public lighting services - including lights on dedicated poles - will remain regulated as an alternative control services in the forthcoming period. They have stated that, "the classification of public lighting in 2011-15 will continue to apply in 2016–20. There would be no distinction between standalone and dedicated public lighting, all of which would be classified as an alternative control service".

The view to allow street lighting to become a negotiated service was proposed by Citelum, the Trans-Tasman Energy Group (via the “Street Lighting Group of Councils”) and United Energy (based on comment provided by TTEG) in 2014 and the AER had initially agreed to this for dedicated street lighting poles (as a first step). 

The AER, Ironbark and other stakeholders held a series of webinars and workshops with councils and DNSPs throughout June and July 2015 to understand council views on these changes and it became quite clear that the vast majority of Victorian councils did not support the proposed change as it would have left councils negotiating prices with monopoly DNSPs without regulatory oversight. 

This could have led to much higher maintenance charges into the future or standoffs between councils and DNSPs. This has been the experience in some Australian jurisdictions where the negotiation processes have failed and led to mediation and arbitration between councils and DNSPs that has lasted for years and even decades. The only organisations who would benefit from this scenario are consultants and lawyers. Councils had the potential to lose and lose big from these changes.

Council Concerns Raised with the AER

Dozens of Victorian councils contacted the AER to express concern about the proposed changes and requested that regulatory oversight continue. The official Local Government Response to the Victorian Electricity Distribution Price Review (EDRP) 2016-2020 included a survey of councils indicated that a clear majority (56%) of councils were opposed to the proposed changes, whilst only 18% were supportive of the move. A further 26% were unsure. Councils were sceptical of the "fairness" of negotiations as there would be no real alternative if negotiations fail. They were also very concerned that the only national example of negotiated street lighting services in South Australia had resulted in a "fundamental dispute" between councils and the DNSP that stalled negotiations on street light maintenance prices for five years.

What Next?

There will still be a regulated process through the Electricity Distribution Price Review (EDPR) however this will now apply to all DNSP assets, including those on dedicated poles. In April 2015 Ironbark was engaged by Victorian councils to undertake this on their behalf and a submission was made on 13th July.

All of the successes that Victorian councils have demonstrated over the last decade have been the result of targeted, collaborative and strategic negotiation with DNSPs and other key stakeholders. There is nothing stopping this continuing and it can now continue to be carried out with the regulatory safety net applying to all street lights - whether on dedicated or shared poles.