Peter Batchelor,
Victoria's Energy &
Resources Minister
 
Melbourne, Australia --- (METERING.COM) --- November 12, 2009 - Victoria’s AMI project has not used the checks and balances that would ordinarily apply to a major investment directly funded by the state, highlighting a gap in the project’s accountability framework, according to the state’s auditor-general, Des Pearson, in a new report.

Moreover, there have been significant inadequacies in the recommendations on the rollout of the AMI, with the advice and supporting analysis lacking depth and presenting an incomplete picture of the project in relation to economic merits, consumer impact and project risks.

The report, which examines the soundness of the advice and recommendations provided to government on the project, says that the cost-benefit study behind the AMI decision was flawed and failed to offer a comprehensive view of the economic case for the project.

There are significant unexplained discrepancies between the industry’s economic estimates and the studies done in Victoria and at the national level. Moreover the cost-benefit analysis is unclear about how stakeholders, particularly consumers, will benefit and who should bear which costs, and there is little evidence to show that when the project was designed, the resultant benefits and costs were adequately considered. The regulator recently determined that “‘on average, customers will pay $67.97 more in 2010 for metering services than in 2009, with a further increase of $8.42 in 2011,” while the Department of Primary Industries (DPI) estimated that consumers would pay $40–50 a year for meter costs. Retailers could also pass their costs on to consumers, with one retailer recently indicating in a public statement that consumers may have to pay an extra $100–150 each year. In another public report, a consumer advocacy group has estimated that the average annual cost of electricity may rise by $120–170 due to the implementation of AMI.

It is therefore possible that there will be an inequitable, albeit unintended, transfer of economic benefits from consumers to industry, said the auditor-general. Moreover, if the project’s emerging risks delay the installation of smart meters it is likely that consumers will face further cost increases and gain fewer benefits.

The DPI has administered the project since late-2006, after it was transferred from the former Department of Infrastructure (DOI).

The auditor-general also said that the implementation risks relating to technology and relationships with national systems and processes have been underestimated in advice to government. Project risks were scarcely considered and sufficient resources were not allocated to manage the equipment trials, so the trials did not offer reasonable assurance that the proposed technologies were viable.

However, the DPI, which is blamed for not assigning enough staff to adequately engage with such a large scale and complex project, persisted in advising government to proceed, the auditor-general said.

Responding to the report energy and resources minister, Peter Batchelor, said the recommendations in the report had been accepted and many, such as an additional cost-benefit study, were already underway before the report was complete.

“Three major cost-benefit studies have already been conducted through the development of this project and all have demonstrated benefits in rolling out the project,” said Batchelor. “The study currently underway uses the most up-to-date information around the project and is expected to show higher benefits than previously predicted.”

Batchelor added that the rollout, which will see 2.5 million smart meters installed over the next four years in the state’s homes and small businesses, is on track, with about 10,000 meters already installed. The installation of meters started in September.

“We want Victorians to be able to access the full potential of smart meters, so we will continue to work with consumers to ensure they are fully informed about the benefits of the new technology.”