Auditor-General slams Victorian smart meters

The Victorian Auditor-General's report slamming the roll out of smart meters has sparked a war of words with the State Government.

Auditor-General Des Pearson has criticised Victorian Government [PDF] oversight of the project that planned to put 2.4 million smart meters at a cost to consumers of about $500 million over the next four years. He found that owing to the State's poor risk-management of the project and lack of resources to steer it, consumers would wind up footing the bill if anything went wrong.

"It is possible there will be an inequitable, albeit unintended, transfer of economic benefits from consumers to industry," Pearson found.

Smart meters or "advanced metering infrastructure" are core components of an emerging smart grid that seeks to efficiently balance energy use, cut greenhouse emissions and strengthen the power grid while introducing green alternative energy sources. They send information and receive instructions remotely from the power company.

Victoria was regarded as a world leader in the deployment of such technology. But it is still in its infancy and standards are being hammered out even as the infrastructure is deployed.

Victorian Premier John Brumby lashed out at Pearson, painting him as a climate-change skeptic.

"What the Auditor-General's saying is that governments here across Australia, in the United States and across the world are wrong," Brumby told AAP.

"That's what he's saying, you can make your own judgment about who is right."

Pearson wrote in the report's opening that to tackle "unknown and emerging challenges of climate change", the world must confront energy efficiency. Consumers and industry needed to work together to reduce energy demand, promote efficient household appliances and shift consumption patterns to smooth out spikes in power demand.

The report said that Primary Industries "should focus on the effective transfer of expected benefits to consumers, as consumers are directly funding the costs of implementation of the (smart meter) program".

The Auditor-General was especially scathing of the home interface, the "least mature of the three system components", that enabled consumers to track their energy use in real-time. Pearson's report found that mandating the Zigbee standard was "at odds with the department's approach of leaving the management of technology risk to the industry".

Pearson's key findings:

• The Government failed to insert checks and balances to steer the project.
• There were "significant inadequacies" in advice to Government.
• Testing was inadequate, lacked transparency
• Analysis of the costs and benefits "lacked depth" around economic merits, consumer impacts and risks.
• Project governance "has not been appropriate".
• Victorian consumers were inadequately informed about the project and its likely costs that will be passed on to them.
• The Department of Primary Industries assigned insufficient staff to oversee the project.

The Auditor-General said the cost-benefit study used to justify smart meters was "flawed and failed ... [to make] an economic case for the project".

"The advice to government that led to the [smart meter] decision scarcely considered project risks," the report said. "The regulatory regime does not give the industry enough incentive to manage risks and associated costs that consumers are likely to pay. The project risks are very likely to directly affect consumer prices."

And Pearson found "significant, unexplained discrepencies between the industry's economic estimates and the studies done in Victoria" and nationally that "suggest a high degree of uncertainty about the economic case".

Although Treasury and Finance failed to provide a response to the report, Primary Industries accepted "in principle most of the recommendations" in the report, it said.

Energy Minister Peter Batchelor in receiving the report said the project was "on track" and that 10,000 meters were already installed in areas ranging from emerging suburbs such as Caroline Springs west of Melbourne and established areas including Balwyn in the city's leafy inner-east.

"These smart meters will give families more control over what they pay for electricity and help cut bills," Batchelor said. "The new technology will mean meters can be read remotely and power restored more quickly. As this major project moves from planning to delivery, we will continue to review the process including risks and resourcing."

But speaking to AAP, Batchelor said energy companies would pass on savings to their customers: "Why the auditor-general has failed to acknowledge that, I don't know".

Testing flaws

Pearson also found flaws in the test procedures, which "could not demonstrate whether the trialled technology actually met requirements".

"The trials assessment approach used for AMI did not represent mature practice," he wrote. "It introduced a risk that the trials assessment was not objective and significantly diluted the effectiveness of the trials program."

Trials were inadequate because:

• The Government did not allocate sufficient staff or experts to carry them out.
• Government could not properly participate in the planning and management of the trials, verify results and develop suitable documents.
• The industry strategy group did not adequately consider and approve the trials plan.

Although the Attorney-General said it wasn't unusual for trials to encounter technical problems, he was surprised at the immaturity of the products tested: "All of the technologies that were trialled failed to meet the minimum functionality".

"For six of the 11 technology candidates that actually completed the trials process, all were assessed as requiring further technical development.

"Why the commitment to the roll out continued to be recommended, or at least why the technical vulnerabilities were not explained in any great detail in the advice" to the department, the Attorney-General asked.

For more on smart grids, check out the CRN special: Electrifying ideas for a smart power grid.