Response to issues paper exempt selling regime madeleine kingston

What scrutiny was applied? What can be done now to restore the enshrined rights of those impacted. Why should these groups suffer detriment simply because inappropriate arrangements impacting on their rights were determined by jurisdictions apparently without due regard to the precepts of contract or common law provisions and rights under existing generic provisions?

This matter has not been clarified in the proposed energy laws and there is insufficient inclusion within the generic laws to cover such a situation. The public expected that the commitment to ensure complementary non-conflicting generic and industry-specific laws to be adopted, eliminating any confusion.

Though Model Terms and Conditions for both Deemed and Standard Contracts are proposed within the NECF these are not consistent with the spirit, intent and letter of drafted provisions within generic laws, which remain the subject of enquiry and report by the responsible Senate Committee.

In addition, the proposed energy laws have decreed that a deemed contract will only exist for the cycle of two billing periods after which a market or standard contract must be adopted.

In the case of dispute as to who the correct contractual party should be (for example OC or end-user of a composite water product – heated water in the absence of any legal traceability or “flow of energy” to the “residential premises” (SCL and NMA term) or “premises (NECF2) term of the presumed deemed customer (NECF2 term) consumer (ACL term) (termed residential customer), this raises instant problems for which urgent clarification is required – but which the MCE has apparently refused to consider covering within its proposed national energy laws.

The term “residential customer” is substituted for consumer in the NECF. That term is defined as “a customer who purchases energy principally for personal household or domestic use at premises.”

I have put forward that failure to distinguish between “residential premises” and “other premises” (such as the common property areas of multi-tenanted dwellings under the control of privately or publically rented multi-tenanted dwellings has resulted in unjust imposition of deemed contractual status on the wrong parties and distortion of rights under proposed revisions to statutory and implied warranty protections under generic laws.

Examples of such distortions of fair and just protections under either standard form of “deemed contracts” are provided in my various submissions to the public arena, most recently discussed in my submission to the Second Exposure Draft of the National Energy Law and Rules (NECF2). I demonstrated in my submission to the NECF2 Package how looseness in the use of terminology, and failure to adequately address the issues of conflict and overlap with other regulatory schemes can cause confusion and detriment.

CAPITAL AND OPERATING EXPENDITURE CONSIDERATONS

I recognize that the AEMC Draft Determination has been made in relation to limited aspects of the operation of metering data services and metrology procedures. In that context the following material regulated to capital and operating expenditure may seem irrelevant.

However, I discuss such matters here, having already brought the issues to the attention of the AER on the basis that decisions taken out of context and possibly without regard as to impacts in order directions may hamper robust consideration of impacts and outcomes. For the particular matters that I wish to raise, where metering data services are not being routinely used in the context of direct supply of either gas or electricity (and regardless of changeover of ownership or operation).

Whichever costs are uncured at the wholesale end considered to be appropriate for cost-recovery processes in relation to end-users, are extremely relevant, especially if such costs including metering data services and the like, and asset bases that are unrelated to the sale and supply of gas or electricity, and not required for either distribution or transmission of gas.

Whilst there are many capital and operational costs that are legitimate, the issues that I especially raise in this response to the AEMC’s Draft Decision is focused on infrastructure, assets, operating costs, including in-house or out-sourced metering data services costs that are being claimed where no sale or supply of gas and energy occurs, and where substitute infrastructure, providing an alternative business building opportunity outside of the distribution and transmission networks and outside the proper definition of sale and supply of commodities that match the description of the goods purported to be sold. I discuss elsewhere in relation to generic laws and how sale and supply of commodities is properly definite and interpreted

These circumstances are where infrastructure entirely unrelated to the distribution or transmission systems (for example water meters, meter reading and billing costs that have nothing to do with sale and supply of gas or electricity, but wherein water meters are effectively posing as such instruments in measuring alleged sale and supply of those commodities to end-users of heated water. No flow of energy occurs in these cases, except to a single gas or electricity meter, where the sale and supply of energy is to the Owners’ Corporation or Developer not to the recipients of the heated water.

The arguments apply equally to both gas and electricity where these practices are engaged, apparently with full policy and regulatory sanction, whilst the original definitions of metering, pipelines and “reference services” in relation to the settlement of the wholesale gas market appear to have become distorted, leaving aside for a moment the comparative law considerations.

Trends in gas and electricity are similar in terms of massive expected increases to operating and capital expenditure. This is in part due to failure to maintain aging infrastructure.

The AER State of the Energy Market publication 2009 (p8) observes as follows:

“Access arrangement revisions for gas distribution networks in New South Wales and ACT encompass significant increases in investment. Jemena has proposed a 63% increase in investment for its New South Wales gas networks and ActewAGL proposed a 227 per cent increase for the ACT network.”

I am not clear how much of this is intended to replace water meters or hot water flow meters with RF heads, but this is a subject of significant concern, given that water infrastructure is not and cannot ever be considered part of either a gas or electricity distribution network.

In addition I can see nothing in the proposed metrology procedures for either gas or electricity that sanction or cover the use of water meters in the context of energy laws. I again stress the trade measurement considerations, the intent to lift remaining utility exemptions under revised provisions and the strict liability penalties that will apply through other regulatory schemes. See also revised generic laws.

It is has been formally declared inappropriate to sanction or require market participants to adopt practices and procedures that will have the effect of requiring breach of other laws or violation of best practice.

The use of water meters effectively to pose as either gas or electricity meters represents worst practice and it either tacitly or explicitly endorsed, with on the one hand market participants required to embrace all applicable laws, and on the other to abide by codes and guidelines (presumably meaning written or unwritten).

The Victorian and Queensland bulk hot water provisions are more explicit, but on closer look at the licences issued by Victorian regulator to the host retailers it seems clear in connection with ownership of water infrastructure that the intent was to hold the Owners’ Corporation responsible as the customer, not the end user. This is contradicted within the Energy Retail Code v7 (February 2010).

I return to the issue of huge increases in CAPEX and OPEX costs, and the absence of any justification for any part of these to be allocated to upgrade of water meters of any description purported to be part of the gas distribution (or electricity) network.

In this context, though referring to gas network capital expenditure forecasts in cost allocation proposals, I refer to those of Jemena Gas Networks (NSW) Pty Ltd, and of ActewAGL Distribution, which in turn is 50% owned by Jemena Ltd.

On page 34 of its Gas Access Proposal for the 2010-2015 regulatory period ActewAGL Distribution makes the following statements in discussing capital redundancy mechanisms. The principles illustrated here, though in relation to gas, are as applicable to electricity where assets for which capital and operating expenditure, including depreciation costs may relate to services that are not associated in any way with the delivery of gas pipeline or electricity network distribution and transmission services, or any associated “metering data services costs.”

That are normally passed on to end-users deemed to be receiving either gas or electricity. I am also concerned about possible looseness in interpretation of the term “tariff meter” if these apply to WATER METERS rather than gas or electricity meters in the proposals and/or determinations for either commodity. I stress that electricity and gas are commodities for the purposes for sale of goods acts and within generic laws current and proposed.

On page 33 of its Additional information document in connection with ActewAGL Distribution’s regulatory proposal to the AER for the 2010-2015 regulatory period, forecast capital base is discussed as follows

3.3 Forecast capital base

3.3.1 AER Draft Decision

The projected capital base was calculated in accordance with Rule 78 as the opening capital base, plus forecast conforming capital expenditure, less forecast depreciation and forecast value of assets to be disposed of in the period.⁶² The AER accepted ActewAGL Distribution’s general method of rolling the forecast capital base forward. However, due to the amendments to the capital expenditures and the inflation forecast, the forecast capital base was updated to incorporate these changes.

In particular, the AER requires the following amendments to the forecast capital base:

• 
  incorporate updated capital expenditure forecasts (AER amendment 3.7);
  
• 
  amend inflation forecast to apply AER preferred methodology (AER amendment 3.6); and update forecast depreciation to reflect changed capital and inflation forecasts (AER amendment 3.6).
  

3.3.2 ActewAGL Distribution response

ActewAGL Distribution has used the opening capital base of $278.0 million derived in section 3.1 above. The capital base has been forecast consistent with Rule 78 using the elements discussed above.

Asset standard lives applied are consistent with the original proposal. However, due to updates to the opening capital base, the remaining lives as at 1 July 2010 have been amended as set out in Table 3.7, replacing Table 7.5 in the original proposal.

Comment MK:

My concerns are regarding the asset infrastructure which forms part of such a forecast, and the ripple effect on other expenditure considerations, including those related to additional or ancillary services that are not in any way part of the distribution or transmission system. Ultimately it is the end user who pays, whilst cost-smearing practices; inclusion of asset-building and depreciation unrelated to and entirely unnecessary for the distribution and transmission of either gas or electricity form an integral part of cost allocation in regulatory decision-making; and contractual arrangements with the wrong parties (end0-users of heated water supplies) for unsolicited “additional services” and “ancillary services” that become the subject of metering data services

On page 34 of the same document, ActewAGL Distribution discusses capital redundancy mechanism along these lines:

“3.4 Capital redundancy mechanism (p34

3.4.1 AER Draft Decision

Rule 85 provides that a service provider may include, and the AER may require it to include, a mechanism to ensure that assets that cease to contribute in any way to the delivery of pipeline services are removed from the capital base.

In the draft decision, the AER requires ActewAGL Distribution to remove the capital redundancy mechanism proposed by ActewAGL Distribution on the grounds that it is inconsistent with Rule 77(2)(e) which provides no discretion to the regulator on whether or not redundant assets are removed from the capital base in the subsequent access arrangement period.”

“This is set out in AER amendment 3.8. The AER also requires ActewAGL Distribution to amend its access arrangement information to reflect this amendment.

3.4.2 ActewAGL Distribution response

ActewAGL Distribution accepts AER amendment 3.8 to delete its proposed capital redundancy mechanism from the access arrangement. ActewAGL Distribution does not propose an alternative capital redundancy mechanism.

In relation to the ActewAGL Distribution Gas Access Proposal, the following capital expenditure considerations were raise on page 51²²⁴

“In requiring ActewAGL Distribution to amend its access arrangement to remove its capitalized regulatory costs in the final years of the earlier access arrangement period, the AER notes that these costs were not forecast as part of the earlier access arrangement and therefore not recovered through tariffs in the earlier access arrangement period.²⁰ In the absence of a forecast amount included in capital expenditure, the AER has determined that costs incurred in the earlier access arrangement period should be judged against the requirements of the NGR for conforming capital expenditure stating:

Capital expenditure is defined in the NGR as costs and expenditure of a capital nature incurred to provide, or in providing, pipeline services. The AER does not consider that the regulatory costs incurred by ActewAGL in the earlier access arrangement period represent expenditure of a capital nature.²¹

ActewAGL Distribution notes that the phrase “of a capital nature” (reflecting the requirement of Rule 69) is not defined in the NGL or NGR. ActewAGL Distribution considers that the essential nature of capital expenditure is that of future economic benefits accruing over time.

Comment MK

In relation to pipeline services, within the NGL and NGR this term surely were intended to refer to gas pipelines not any other form of pipeline reticulating, water, honey, milk not any other substances

Capital costs for assets, and associated costs and depreciation for another form of infrastructure are clearly not part of a gas or electricity law, and appear not to have ever been at the time that the Bill was adopted for the NGL.

As mentioned elsewhere

meter means a device that measures and records quantities of gas by reference to volume, mass or energy content.

metering means measuring and recording the quantity of gas by reference to volume, mass or energy content.

On p 31 under 3.4.1 of the same document, ActewAGL made the following statement:

ActewAGL Distribution reiterates that the forecast capital expenditure should be used to calculate depreciation in establishing the opening capital base for the access arrangement period commencing 1 July 2015. This is consistent with ActewAGL Distribution’s original proposal in June 2009 and the AER’s draft decision.⁶¹

Rule 85 provides that a service provider may include, and the AER may require it to include, a mechanism to ensure that assets that cease to contribute in any way to the delivery of pipeline services are removed from the capital base.

In the draft decision, the AER requires ActewAGL Distribution to remove the capital redundancy mechanism proposed by ActewAGL Distribution on the grounds that it is inconsistent with Rule 77(2)(e) which provides no discretion to the regulator on whether or not redundant assets are removed from the capital base in the subsequent access arrangement period. This is set out in AER amendment 3.8. The AER also requires ActewAGL Distribution to amend its access arrangement information to reflect this amendment.

3.4.2 ActewAGL Distribution response

ActewAGL Distribution accepts AER amendment 3.8 to delete its proposed capital redundancy mechanism from the access arrangement. ActewAGL Distribution does not propose an alternative capital redundancy mechanism

In their Gas Access Proposal Jemena Gas Networks (NSW) Ltd (JGN) a subsidiary of Jemena Limited, in turn owned by the Singapore Power Consortium, has spoken of rodent activity and safety risks, whilst discussing both capital expenditure and operating costs in relation to water meters that do not form part of the gas distribution system

In their operating costs rodent activity and safety risks, whilst discussing both capital expenditure and operating costs in relation to water meters that do not form part of the gas distribution system. Those focusing on gas, similar practices appear to be part of the norm when considering electricity

JGN proposes to replace RF heads in order to facilitate remote communication and readings and have left the door open regarding how costs may blow out, referring to “conservative estimates” and using other disclaimers.

I discuss shortly the implications of proceeding with sunk costs for such purposes. Importantly water meters and other water infrastructure that are non-network items and their associated costs in terms of maintenance, replacement, and other costs are entirely irrelevant to measuring gas consumption. The necessity for incurring any costs for maintaining water meters on behalf of Owners Corporations (Body Corporate entities) or Landlords/Lessors when energy consumption is the reason behind the non-network charges must be questioned as a flawed policy in the first place. It is only necessary to read a single gas meter (or electricity) meter in cases where water is centrally heated in multi-tenanted dwellings.

Both CAPEX and OPEX considerations are discussed within my original submission of April 2010 already published and highlighted again below briefly, arms-length and non-arm’s length arrangements as they apply to the bulk hot water arrangements – employing water meters to effectively and unjustifiably pose as gas (or electricity meters).

This is a particularly pertinent issue in principle given that the AEMC is already advanced with its Rule Change Proposal under the NER (Project ERC0092, Draft Decision 6 May 2010), which may at a future stage also be extrapolated to the National Gas Rules (NGR).

I have already raised with the AEMC current anomalies and implications in relation to the use of water meters and associated costs, especially when additional costs are incurred through data metering services and metrology procedures that are outsourced to third parties or in-house to related bodies dedicated to such procedures and to be named Metering Data Service Providers (MDS).

JGN does have some in-house MDS entities under its umbrella as illustrated in one of the slides recently presented public meetings associated with the current AER Gas Access Dispute Determination. See for example Public Meeting on 17 December 2009 and PowerPoint presentation by JGN and others as available on the AER website.

The use of water meters and additional pass-on costs associated with metering data processes and metrology procedures either tacitly or explicitly sanctioned, is entirely unnecessary and irrelevant to the measurement the gas supplied to a single gas meter by arrangement between Body Corporate entities (OCs) either public or private and gas providers, normally made at the request of Developers or subsequent Body Corporate Controllers of Premises.

JGN has proposed a water meter replace program and has projected high CAPEX and OPEX costs, based on what they claim to be “conservative” estimates.

I leave aside momentarily the issue of the type of meter (water or hot water flow meter as opposed to gas or electricity) should be covered under energy laws, but also that these instruments despite best practice considerations and the spirit and proposed letter of national measurement laws, pending the lifting of remaining utility exemptions.

Cost blow-out risks

One can only hope that should unwarranted expenditure on water meter upgrades and associated metering data costs whether not outsourced based on such conservative estimates by JGN (or others submitting similar proposals for either gas or electricity) do not blow out in the way that costs blew out in relation to the ill-fated and ill-considered Victorian smart meter mandated roll-out which was criticized so strongly by the Victorian Auditor-General in his damning November 2009 Report.²²⁵ I will return to this topic shortly.

JGN has referred to the installation of RF heads for WATER METERS noting that associated CAPEX costs projected are conservative.

Since a third category of provider that of Metering Data Provider is expected to replace Metering Data Agents there are further implications for adequate monitoring, service responsibilities and liabilities, issues that this submission only skims over.

The issues raised suggest the possibility of re-examination of Corporations Law provisions by both ASIC and ACCC to identify and close loopholes that may exist in relation to how arms’length and non-arms’ length relationships are views; the impacts of horizontal and vertical integration; and the inter-relationships between generators, distributors and retailers, many united by single ownership by bodies such as the Singapore Power Consortium or the China Lighting and Power Consortium.

It becomes confusing when retailers, who purchase gas from the generators asset management to distributors or vice versa.

In any case under the tripartite model of contractual governance proposed by the national Retail Energy Laws and Rules (NECF2 Package) sale and supply of gas become a single exercise for which both the and distributor and retailer (and impliedly also any servants contractors and/or agents, in-house or externally outsourced) are deemed to have a contractual relationship with those who directly receive gas or electricity through flow of gas.

Whilst many efficiencies may be achievable through vertical and horizontal integration, so too do these measures raise competition issues that may lead to consumer detriment. Enhanced vigilance is needed.

I have discussed aspects of JGN’s structure in my earlier submission of April 2010.

Business customers such as OCs or Landlords receiving gas to a single meter used to power a single communal boiler tank are the proper contractual parties tenanted dwellings; whilst if direct supply is effected through flow of energy to residential premises for either the heating of water or for domestic heating, cooling, lighting or cooking, are the proper contractual parties where separate meters exist and flow of energy can be demonstrated.

I share concerns of others about JGN’s capital expenditure proposal. EUAA said on 10 November 2009:

“The proposal by JGN shows a significant increase in revenue required for the access arrangement period in question of 18% driven mostly by an increase in forecast of capital expenditure of 34.6%. These are significant increases and of major concern to gas users in New South Wales.

The proposal noted that these increases would result in average price increases of 14.5% in the first year and a compounded increase of 32% over the 5-year period.”

The increase in capital expenditure is shown in figure E1 and the resulting increase in revenue requirements is shown in figure E2.

EUAA also said – and I applaud the way in which this is expressed:

“Jemena Gas Networks has cited customer number growth and asset renewal and replacement as the primary drivers for capital expenditure. The customer numbers are forecast to grow 17% over the period of the proposal but this comes entirely from the residential and small business section. The number of Demand Tariff users is actually forecast to go down slightly.”

Given that the JGN CAPEX proposal includes upgrading of water meters which is likely to include upgrade to water meters in multi-tenanted dwellings where either cold water meters or hot water flow meters in multi-tenanted dwellings with a single gas meter, are posing effectively as gas meters under the sanction of existing and proposed energy policy. This is explained later and in my multiple submissions to energy and other arenas.

That report found that neither the economic nor the technical case had been made out for, and also criticized the quality of consultation on the issue of the roll-out. This is discussed further elsewhere and was included in my original published submission of April 2010.

On 19 May 2010 Sarah Collins report in The Age²²⁶ that

“Last year an Auditor-General's report said the cost of smart meters could blow out to $2.25 billion, and criticized the government's handling of the issue, saying it had failed to secure value for consumers.”

The rollout of smart energy meters to 2.5 million Victorian homes and businesses - dubbed the ''myki of metering'' by the state opposition - will cost half a billion dollars more than the government first thought.

Energy Minister Peter Batchelor told an estimates committee yesterday smart meters would cost about $1.6 billion over 20 years, $500 million more than the starting estimate of $1.1 billion.”

There have been far too many discussions behind locked doors. I refer again to the damning November 2009 report of the Victorian Auditor General concerning the ill-conceived Victorian smart meter roll out in course of implementation, intending to represent the template provisions upon which other jurisdictions could build. This would in my opinion be the worst possible scenario.

That mandated roll-out and the distributor roll-outs elsewhere were endorsed by the Ministerial Council on Energy.

To my way of thinking neither the MCE nor its advisers, or the State entities involved had a clear idea of what the implications were of such decisions, the economic, technical, nor consumer implications and impacts. It is no use blaming one Government or another. The institutions involved have been in existence across Governments.

For example the Council of Australian Government (COAG) was first met in 1992 following agreement between the then Prime Minister, Premiers and Chief Ministers. Chaired by the Prime Minister, it consists of three tiers of government, it meets to debate and co-ordinate government activities at all three tiers.

A related organization is the Loan Council, which coordinates borrowing by the federal and state and territorial governments of Australia.

David Adams holds that CoAG is a creature of Governments for Governments. Elsewhere and in other submissions I cite his views further, taken from his award-winning essay Poverty – a Precarious Public Policy (not that the focus of this submission is about poverty).

The Ministerial Council on Energy²²⁷ established the Australian Energy Market Commission in 2005 under the Australian Energy Market Commission Establishment Act 2004. The AEMC has two roles in relation to national energy markets - as Rule maker and as a provider of advice to Ministers on how best to develop energy markets over time. The AEMC actively considers market development when it considers Rule change proposals and energy market Reviews.

The Australian Energy Regulator enforces these rules that the Australian energy market is to abide by.

Already the Victorian Auditor-General has condemned the hastily and ill-considered mandated Victorian roll out of smart meters. His damning November 2009 report, which examines the role played by Victoria’s Department of Primary Industries in the Victorian smart meter roll-out, being the guinea pig State to trial cursorily and then proceed with implementation of the roll-out

Des Pearson as Victorian Auditor-General said in his 2009 November Report²²⁸

The AMI is a:

“large and complex project aiming to record and measure electricity use in more detail than current meters allow. The decision taken by the Government aimed to install between 2009 and 2013 all accumulation meters in 2.4 million homes and small businesses with smart meters. The report examines whether the advice and recommendations provided to the Government are sound,”

Des Pearson’s findings were (Intro 2.1):

“DPI’s approach to project governance has been inconsistent with the nature and scale of the significant market intervention made by the project. DPI did not allocate adequate or sufficient resources to provide appropriate review mechanisms for the economic and technical assessment of the project, stakeholder consultation and risk management.”

Under the provisions of section 16AB of the Audit Act 1994 Des Pearson, the Victorian Auditor-General’s damning November 2009 Report was tabled in Parliament after discussions with the Department of Primary Industries.

The Audit Summary (pvii) explains the Government’s decision to approve the AMI project in February 2006 as attempting to achieve energy efficiency and a corresponding reduction in carbon emissions by reducing energy waste and demand; promoting efficient use of household appliances whilst promoting inefficient use of others; and shifting consumptions of consumers (a rationale does not consider the inelasticity of demand for electricity amongst consumers⁾ with the aim of maximizing the efficient use of power generating assets and smooth out peak consumption periods which cause spikes in the cost of electricity and rate inefficiencies in the allocation of capital to new generation capacity.”

Auditor-General Des Pearson’s findings were (Intro 2.1):

“DPI’s approach to project governance has been inconsistent with the nature and scale of the significant market intervention made by the project. DPI did not allocate adequate or sufficient resources to provide appropriate review mechanisms for the economic and technical assessment of the project, stakeholder consultation and risk management.”

“There has been insufficient analysis to fully understand potential perverse outcomes, risks, and unintended consequences for consumers. This means that there is no clarity whether the distribution of costs and benefits between electricity businesses and consumers will be consistent with the intended outcomes of the program, and equitably allocated through the mandated cost recovery regime.”

“These inadequacies can be attributed to DPI’s misapprehension of the extent of its fundamental governance accountability in a non-state-funded project.”

The Victorian Auditor-General’s Main Findings (pvii) were:

The department’s project governance has not been appropriate for the nature and scale of the market intervention the project poses. In particular:

Its advice to government on risk assessment has been inadequate.

The level of community engagement has been inadequate, given the significant effect on consumers.

DPI has engaged with the project in only a limited way as an ‘observer’ during its implementation phrase.

As there were not enough staff assigned by the DPI to the project, it has not been able to adequate engage with such a large scale and complex project. This highlights a cap in the department’s understanding of its governance and accountability role in a “non-budget funded project”

The Auditor-General has also commented on flawed assessment of the economic case for the project, noting:

“significant unexplained discrepancies between the industry’s economic estimates and the studies done in Victoria and at the national leave. These discrepancies suggest a high degree of uncertainty about the economic case for the project.”

The apparent lack of effective decision-making and transparency in the smart meter roll out has implications for the entire economy.

The Centurian Metering Technologies solution may have delivered a workable solution for a fifth to a third of the price paid for arrangements sanctioned under an Order in Council process where $2.4 billion was spent.

Nonetheless there have been cautions about immature technology. Much further work would have been of benefit – but the egg cannot now be unscrambled at least in relation to the mandated Victorian roll-out, for which cost-recovery will take many years.

The same pitfalls need to be avoid with other telecommunications technology.

Behind-the-scenes workshops between distributors appear to have been the norm without at least adequate governance accountability and oversight evident. The people involved in making these decisions need to be made much more accountable more so in a situation where Victoria is seen to be taking a lead with national energy reform measures.

What would have happened if a competitive outcome formed the basis of final outcome rather than an imposed monopoly decision? The egg cannot be unscrambled.

In relation to smart meters, it is not that there are not compelling reasons to move metering into the 21^st Century.

In his 2007 PowerPoint Presentation Metering “Allocating Risks in a Gross Pool Market,” John Dick President of Energy Action Group commented on how disappointing nit was to see “lack of concrete information on the table”; “lack of real time customer load and behavioural data, (thus) making modeling difficult. He has long held that “cost smearing does absolutely nothing for the user/causer pay principle under pinning the market.” John Dick has also said:

“We appearing to be grasping at a number of straws based on estimated values in the analysis of Advanced Meter Roll Out without adequately thinking through the issues.

“It is a risky strategy to compare the NEM with other countries given the disparate Australian climatic conditions, opportunistic generator bidding behavior, the various idiosyncrasies and massive asymmetric risks of our unique merit order dispatch gross pool energy market and Ancillary Service Payment markets, along with the very weakly interconnected transmission system and radially based distribution systems.”

Professor Robin Eckerman, who has been repeatedly quoted by me since 2007 in various energy-related and consumer policy public submissions (e.g. AEMC, MCE, Productivity Commission).

See Prof Eckermann’s submission to the Chair MCE 1 November 2007 re National Smart Meter Roll Out as cited below and also his submission to the Fuel and Energy Senate Select Committee

“…a complete assessment of the AMI business case in Australia needs to take account of the risk that moving prematurely will either:

• 
  deny Australia the benefits that Smart Grids can offer for the next 15 years or so; or
  
• 
  inflict the burden of another costly meter upgrade program in a 5-10 year timeframe if those benefits are to be harnessed.
  

I believe that factoring these risks into the modelling work would yield significantly different results than those that have been presented to date.

I appreciate the pressure to meet tight deadlines – and recognize the possibility that this submission will be set aside because it does not conform to the relatively specific guidelines within which feedback has been invited.

However, in the words of Lord Chesterfield “Whoever is in a hurry shows that the thing he is about is too big for him.” There is no better time than right now to pause and check that nationally we are setting our sights on the right goals.

The health of the planet that we will leave to our children and to our grandchildren depends on seizing every opportunity – especially the big ones such as are on offer through the overhaul of ageing electricity supply networks.”²²⁹

I raise the smart meter issues here to illustrate how easily blow out of costs could occur, and how much caution should be exercised when a sunk cost forecast is predicted in advance to be little more than a guestimate.