Engaging with consumers: How do the energy distributors stack up?

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September 18, 2018

Essential Energy has come out on top in PIAC’s first formal evaluation of the consumer engagement practices for the three electricity distribution businesses in NSW.

Essential Energy, who received a 4 star rating, was closely followed by Endeavour on 3.5 stars. Ausgrid demonstrated the least effective engagement of the three, receiving 2.8 stars.

In determining their prices, which have a significant impact on electricity bills, the electricity distributors have to make a assumtions about consumer preferences. This includes deciding if consumers are willing to pay a premium for a gold-plated system that never fails, or whether they would pefer to tolerate occasional outages in the intrests of keeping prices down. In addition, as they are monopolies, they rely on formal processes rather than market forces to respond to consumers, so it’s important that these processes are up to scratch.

In recent years there has been a move to a more engagement-focussed, less combative approach to regulation of energy distributors, requiring them to consult with the organisations that represent consumers and communities in developing their revenue and tariff proposals to the Australian Energy Regulator.

To give the businesses, the Australian Energy Regulator and the community feedback on how well the businesses were performing in the transition to the new regulatory model, PIAC performed a structured evaluation of the NSW DNSPs’ consumer engagement, assessing each business on a five-star rating scale. Overall, there was a significant improvement in consumer engagement by the NSW DNSPs compared with that done in the past.

‘PIAC welcomes the improvements we’ve seen in consumer engagement’, said PIAC Policy Officer, Tim Harrison. ‘There are teams and individuals in each of the distributors who have stepped up into some very challenging new territory to work closely and transparently with stakeholders, and they have produced some great examples of engagement process.’

‘Essential Energy stood out because their regulatory proposal reflected a clear commitment to shaping their proposal with the feedback they received direct from the community.

‘Across the board there is still room for improvement, and in future, more will need to be done to ensure that consumers can have confidence that the Boards and executives of these businesses are committed to engagement programs that make a measurable difference to their business plans. Engagement is important, but it’s not for it’s own sake – engagement needs to lead to visible outcomes.

‘We thank all of the businesses for working supportively with PIAC on this project and will continue to work with them to ensure the interests of consumers are represented,’ added Tim Harrison.

How they performed

Ausgrid – 2.8 stars

Ausgrid has improved since the last regulatory period and undertook some promising new engagement prior to PIAC’s evaluation. However Ausgrid has still not shown board or executive level commitment to the values of good consumer engagement, and their engagement program in 2017/18 was characterised by tardiness, an over-reliance on online surveys and corporate communications lacking depth. However, PIAC is encouraged by signs that Ausgrid has sought to develop a better culture of, and approach to, engagement over the period, and has an opportunity to build on this as they refine their tariff design in 2018.

Endeavour Energy – 3.5 stars

Some aspects of Endeavour Energy’s engagement program, such as forums with consumers were excellent. These were interspersed by periods of inactivity. With the prospect of more willingness to compromise with consumers and communities on outcomes, Endeavour Energy is well-placed to build on the positive aspects of its 2017-18 engagement program and be rated higher in the future.

Essential Energy – 4.0 stars

Essential Energy’s consumer engagement was the best of the three NSW DNSPs. Through 2017, Essential Energy demonstrated a commitment to consulting in good faith, deliberative engagement approaches and acting transparently. Notably, Essential Energy responded to consumer concern about energy affordability by proposing to significantly reduce its capital and operating expenditure in the 2019-24 RCP. In PIAC’s view, Essential Energy could improve its consumer engagement even further by starting earlier, allowing more time for engagement with consumer representatives.

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