3 August, Mr Simon Middleton Electricity Market Review Project Office Public Utilities Office Department of Finance

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1 3 August, 2015 Mr Simon Middleton Electricity Market Review Project Office Public Utilities Office Department of Finance By Dear Simon, I wish to thank the Public Utilities Office (PUO) for this opportunity to comment on the Position Paper entitled Proposed Design for the New Rule Change Assessment Panel. ABOUT INTEGRATED MANAGEMENT SERVICES To preface this submission I would like to introduce myself and my company. I have been a member of the Market Advisory Committee (MAC) for the past four and a half years and instrumental in establishing Energy Response (which was acquired by EnerNOC in 2011) as the SWIS leading Demand Side Management (DSM) independent aggregator, since I established Integrated Management Services (IMS) in 1991 as a consulting company and since leaving EnerNOC in March 2013 I have undertaken consulting assignments in Poland, India, Thailand and Australia predominantly in DSM related areas as well as projects involving Energy Efficiency (EE), Renewables, asset management/performance and small scale stand-by generation for various clients. Personally, I have over 35 years of experience working in the electricity industry in various technical, engineering, marketing and management roles. Much of this time has been spent working in the NEM and I draw from this experience, as well as my experience working in WA, on the MAC, and my work and understanding of international electricity markets. COMMENT ON THE REFORM PROCESS THUS FAR Before answering specific questions posed in the Position Paper I believe it is important to comment on its shortcomings which have flawed much of the logic and outcomes. The review has sought little contribution from WA s industry participants in framing its views and direction thus far, other than consideration of submissions. Anecdotally, it also appears that the Review Committee Members, the Minister and staff have been approached by all and sundry pursing particular points of view. This may well account for the skewed outcomes proposed rather than a well balance revolutionary or at least evolutionary increment in proposed market improvements. Regardless of the sources of information the views expressed in Position Paper reflect that the EMR team has preconceived ideas and opinions which are at odds with what the industry in general wants from this review. Integrated Management Services Pty Ltd (ABN ) PO Box 844, Moonee Ponds VIC

2 In short, this process has been wasteful and achieved little other than alienation and polarisation of views by almost all of the WEM s private sector in the electricity industry community. Best practise for change processes dictates a highly participative approach, but unfortunately the approach adopted here has been heavily centralised and dictatorial, which eventually will not deliver the State Government s desired outcomes; namely lower costs to electricity consumers and an improved private investment environment so as to relieve the government from an excessive funding burden. Unfortunately the Government s wholly owned entity, Synergy, has been far closer to and (presumably) more influential with the review process than any other participant. While a premise for the introduction of a Rule Change Assessment Panel has been the perceived conflict of interest posed by the IMO, the PUO poses a far greater conflict of interest because of the substantive link with Synergy and Synergy s involvement in this process. Indeed if the Government is so inclined (to have its own entity to heavily influence the electricity market) then the WEM should be transformed into an administered market. Naturally, such a move would lead to the Government having to fund the development to meet future growth a retrogressive and undoubtedly unpalatable step for the Government. ANSWERS TO SOME OF THE KEY QUESTIONS POSED Comment on the proposed composition of the Rule Change Assessment Panel. While the Rule Change Assessment Panel (RCAP) has been proposed to overcome conflicts interest by the IMO who is the responsible party, this proposed process (including the formation of the RCAP) is flawed and introduces even greater potential for conflict of interest. Further, there is no proof provided that the IMO has been or allowed itself to be conflicted, nor has there ever been an incidence that showed the IMO to be self-serving. From personal observations it is apparent that at all times the IMO has been approachable, open and consultative with all market participants while keeping true to the Market Objectives. That said, there is always room for improvement but that improvement must be measured and in keeping with the desired outcome. For example, it would make far greater sense to maintain the existing Rule Change Process, via the IMO, however ensure that one or more of the IMO Board members attend the MAC so that there is a greater appreciation of discussions behind a suggested Rule Change and that IMO Board is presented with a broader range of views. That would appear to be measured and in keeping with the EMR s desired outcomes. Comment on the proposed Secretariat and the alternative design option Clearly, since IMS is advocating that the existing Rule Change process should be maintained with only minor tweaking (as mentioned above) this negates the need for a standalone Secretariat.

3 Should the EMR eventually proceed with the proposed RCAP, then logically it would make sense to use the IMO s own personnel as the Secretariat. Further, a Secretariat independent from the IMO would be difficult to consider as viable, given the IMO s intimate knowledge of the rules and procedures as well as the operational impacts of any such changes. Therefore, an independent Secretariat would only serve to duplicate the existing IMO knowledge and skill base. Comment on the proposed Rule Change Process Moving on from our opposition to the formation of the RCAP, the next most glaring change proposed in the Rule Change Process is to do away with the Concept Paper. All other steps appear intact although some may be via a different route. Historically the Concept Paper was introduced into the Rule Change Process because proponents were not discussing their proposed changes in advance and this was catching participants unawares. Further, the Concept Paper introduced rigor and greater purpose to Rule Changes, meaning that it was less likely to have to revisit the same Rules in the near future because of manifest errors or to address unforeseen consequences. The Concept Paper is therefore a powerful and helpful step. It minimises wasted effort and promotes communication which is highly appreciated by participants, and should therefore be retained. Comment on the role for the Market Advisory Committee The MAC provides an orderly forum that enables a broad range of views and contributions from all types of participants in the market. In the past four and a half years MAC discussions have been frank and open, with members welcome to express their views. While there have been incidents of bias from the part of MAC members from time to time, the IMO has never shown favouritism and members rightly expect to be challenged with objective criticism from both other members and the IMO. The proposed formation of the RCAP, and other entities, while proposing to keep the MAC, can only serve to dilute the MAC s advantages and influence over the market as a peak advisory body. While such diversity of entities as currently proposed makes sense from a governance point of view, ultimately the direction is emanating from a single government and all these diverse entities are representing that Minister s opinion, unlike the NEM where five state Minister and one Territorial Minister have ultimate responsibility for the market. The MAC works well and is very well suited to the market size and framework. While the Position Paper goes to some lengths to stress that there will be no cost or limited cost impost on the market for these new measures, we believe that the reality will be quite different. If not immediately, then progressively introducing new and diverse entities will duplicate effort and create greater waste, delays and market interference.

4 The CEO of the IMO should continue to chair the MAC and the Gas Advisory Board. Logically the IMO is best positioned, most informed and least conflicted party to hold this position. Comment on the Accountability As with most of the suggestions in the Position Paper, the proposed Accountability process superficially appears sensible and workable. However, having had a great deal to do with the NEM, where a disaggregated model of responsibility has been in position for well over a decade, a totally different outcome is observable. In the NEM, the governance model appears to work quite well until something goes wrong; a manifest error in the rules, or a bushfire takes out multiple transmission lines or some other calamity. Then the finger pointing starts it s everyone else s problem but no one is responsible. Comparing this (the NEM model) to the existing situation; in the WEM issues are clearly owned by the IMO or Western Power or System Management. The responsible party can and is held responsible and forced into making public statements. This scheme works extremely well. One of the best examples is the recent Muja transmission outages participants were well informed, the responsible parties accounted well for their actions, alternative strategies were genuinely and openly considered, and suggestions were taken from participants. If the changes proposed in the Position Paper are adopted for the WEM then all that clarity of responsibility will disappear. Worse still, the ultimate person responsible is the Energy Minister and he/she can expect an exponential rise in petitions about aspects dealing with the market because of the lack of holding those responsible to account. In Conclusion Had the WEM been left to its own devices, the previously proposed Lantau changes would have been implemented by now and a saving of about $25,000/MW-yr from capacity credits would have ensued. The review has therefore already imposed a considerable cost on consumers, not only from the weight of the review but also on the price paid for capacity. If cost savings to consumers is therefore not one of the main aims of the reforms, then what is? Consequently we believe there is little value in pursuing the reforms outlined in the Position Paper to electricity consumers and the electricity industry. The changes proposed appear to mask preparations for future changes which will increase the cost and complexity of the market, and ultimately diminishing responsibility and accountability. Such consequences can only serve to benefit the large government owned incumbent (Synergy) but forsake private investment thereby reducing competition which would lead to higher energy costs.

5 If the review team wishes further information on anything contained in this submission, please do not hesitate to contact me. Yours sincerely Michael Zammit Director and Principal Consultant Integrated Management Services