Price reviews, climate change, compliance and bill affordability key topics at water sector roundtable
01 December 2021
Nineteen representatives from 17 of Victoria's water businesses came together this week to discuss how the sector and customers are fairing at the end of another challenging year, as well as price reviews in the coming year.
Discussions started with the upcoming 2023 water price review, including the application of PREMO, and how to deliver customer value. Key contextual issues discussed included the response to climate change, compliance with obligations and bill affordability.
Water businesses shared their thoughts on their engagement with customers, including different consultation methods and how they can hear views from customers experiencing vulnerability.
The sector also reflected on the ongoing, variable impacts of the coronavirus pandemic on their customers and staff across the different regions. Businesses shared how they plan to support their communities through the post-pandemic economic recovery, and shared ideas on how to engage with customers to help manage customer debt levels.
Chairperson's notes
Tuesday 30 November
Please note, this is a summary and not a verbatim transcript.
Good morning everyone and welcome to today’s roundtable.
Acknowledgement of country
To start, I’d like to acknowledge the Traditional Owners on all of the lands we’re meeting on today and pay my respects to Elders past, present and emerging.
I would like to acknowledge the connection that Indigenous Australians hold to country and culture.
The purpose of today is to discuss our expectations for businesses during the 2023 water price review, including our PREMO price submission assessments.
To help shape this discussion we’ll be working off the following agenda.
an overview to how we will assess businesses’ PREMO ratings for their price submissions
our expectations for boards and executive teams for the next price review, and
later Marcus will provide an update on your monthly reporting on coronavirus support, and our views on debt recovery as we progress through the roadmap out of restrictions.
We also want to provide a platform for you to raise any thoughts or queries on our guidance paper and the 2023 water price review process.
We are also interested in any issues you face as we emerge from the lockdowns and restrictions of this year.
For the commissioners and commission staff, we hope to have a better idea on what is impacting your communities and organisations – and how we need to consider that looking ahead to 2022 which obviously includes the next price review but also our next steps on the customer service codes and the role of the national hardship principles applying during the pandemic.
For you, it’s a chance to better understand what we are prioritising as we move towards price submission lodgement next year and the start of our assessment process.
We discussed a number of issues the last time we met in June – and we were appreciative of the open and honest conversation.
Issues included climate change adaptation, managing the expectations of regulators, and how these might impact on affordability for customers.
We also discussed how the pandemic continued to impact businesses in different ways – some not so much – particularly in parts of the community benefiting from strong regional or rural activity – but some more so.
We discussed how businesses had changed their support for customers. We will touch on some of these issues later, including the role of the national coronavirus support principles and our codes, as I mentioned earlier.
PREMO context
Moving on now to PREMO and the 2023 water price review.
As you may already know, we introduced the PREMO mechanism back in 2016 to provide incentives for water businesses to prepare high quality price submissions, both in terms of the proposed value for their customers and the written quality and accuracy of the submission.
The five elements of PREMO are Performance, Risk, Engagement, Management and Outcomes.
Implemented at the 2018 price review, we found PREMO produced better price and service outcomes for customers.
We were really pleased to see all businesses embrace the concept of a customer-focused price submission.
We saw your customer engagement identify the things your customers valued most. You used the insights to then inform your outcomes commitments, which effectively created your social contract with your customers for the regulatory period. These were tailored for each business.
There were a range of pricing outcomes achieved – one business delivered a price cut of around three per cent a year for five years – some others also had declines while a handful had relatively steady prices or slight increases.
The variation in outcome commitments and prices showed us that PREMO was working – with those striving to break from the pack in terms of improving customer value being rewarded reputationally and financially.
The 2023 water price review marks the second round of PREMO for most of you.
For this, we are asking businesses to build on the foundation established at the 2018 review.
I mentioned earlier the great steps made by most in the sector on engagement.
Just to be clear – the importance we place on genuine effort to engage and understand customers’ views has not diminished at all since the 2018 review.
We have heard the changed environment has created challenges for some in terms of engagement, with some pointing to engagement fatigue.
But we are also hearing there are opportunities as well – with online tools providing a chance to tap into previously quiet parts of the community.
As you develop your submissions, we expect a continued sharp focus on engagement to gain a deep understanding of customer priorities, with a new emphasis in our guidance on inclusive engagement, consistent with the getting to fair strategy we released earlier this year.
My message to you is to continue to build on the strong ground you made on engagement at the last review. We would be disappointed to see any reduction in engagement effort.
And of course, the 2023 review will also be the first time we assess the Performance element of PREMO, which holds businesses accountable for delivery of their promised outcomes over the current regulatory period.
Essentially, we want you to assess – did your customers get what they paid for?
Self-assessment of PREMO ratings
A few points on PREMO self-assessments and our assessment process.
If you leave today remembering one key message, remember this one – our base expectation for you is to put forward your best offer to customers.
I’m confident that if you do that, then things like PREMO ratings and whether your submission is fast tracked or not, will take care of themselves.
We have downgraded some business’s PREMO ratings in the past, but these have very much been the exception rather than the norm.
We want to reward businesses that are ambitious in terms of the value they propose to deliver customers.
Businesses that put forward a well justified PREMO rating should have confidence we will agree with their assessment.
In the 2018 price review we only disagreed with two PREMO rating self-assessments out of 17 price submissions.
We consider PREMO downgrades should be relatively rare and are only done when, on balance, we have a robust reason for considering the proposal does not warrant the additional return associated with the higher rating.
You and your executive team – and your boards – will have a key role in shaping the price submission.
We expect you to challenge your business to consider what should and should not be delivered over the next regulatory period, because ultimately, these are the costs you will recover through customer prices.
Expenditure forecasts that look to be ‘cost plus’ will raise flags for us during our assessment.
We also note that financial measures – the cost of debt and equity returns – and energy prices will be lower than last time. So not everything is going up.
You are in the unique position of being able to see the trade-offs that may arise across the business’s different operating areas.
And given the high degree of uncertainty we all currently face, we ask you to consider how you could better manage the associated risk on behalf of your customers.
There is scope for many businesses to improve on the PREMO Risk element this time, and we expect this will be a key focus of your price submissions.
In terms of the Performance element of PREMO, we are looking for an honest account of whether you delivered what you said you would in 2018, or where things have turned out different, show us how this has delivered equivalent or better value for customers.
For many I expect this would include how you have supported customers during the pandemic, but there may be other things too.
We’ve heard from the sector that there are pressures on a number of compliance fronts including health and environmental expectations.
This came up at our last roundtable and I want to assure you that we are in close contact with our counterparts and the Department of Health and the EPA on their expectations.
What I would encourage you to do is to keep in touch with both agencies to clarify any areas where you think their expectations are unclear.
Similarly with your ministers expectations.
We heard you last time about expectations for bills and we know this is still an area of active discussion for you.
I want to emphasise that we support the strong role of your shareholder to drive customer value.
The building block model is premised on the regulator and owner putting pressure on management to achieve efficiencies.
I see this as being consistent with my message earlier – for you, the focus needs to be on putting forward your best offer for customers.
And where this may challenge expectations, to encourage an open and no surprises approach with stakeholders.
The commission is available to support you
I want to highlight that although businesses are responsible for their own price submissions, the commission team is available to discuss any queries or concerns right up until you lodge your price submissions.
Ideally there’ll be no major surprises in your submissions, and similarly you’ll see no surprises in our draft decisions! At least we can work to minimising the chances of this.
I know the water team is working with your regulatory teams on the next round of discussions for the 2023 price review.
I also have a couple of board visits booked in now your new directors have been inducted.
Update on meetings and events planned – Dean Wickenton
We’ve been working with your regulatory managers to organise meetings with you and your executive teams.
So far we’ve met with eight businesses and have the rest scheduled over December.
This is only the first of many opportunities to meet with us. Same as the last price review, we expect to meet one-on-one with your price submission teams on a regular basis.
The purpose is to try and minimise any surprises for both of us when submissions land in late September next year.
We’re also planning further workshops during the first half of 2022 to support your interpretation of our guidance paper.
We prioritised an engagement workshop on deliberative processes earlier this month because we heard that many businesses are well underway with their customer engagement plans.
Please don’t hesitate to get in touch with Marcus or me. We’ve also said this to your regulatory teams. Commission staff are also available by phone or email anytime.
Update from our coronavirus reporting – Marcus Crudden
I’d like to reiterate our thanks for your participation in the ongoing weekly data reporting on hardship support.
I hope your reporting teams have had some relief since we moved from weekly to monthly data submissions. The commission and government have found the reporting extremely valuable.
In October we completed our fifth round of interviews with the water businesses on customer support during the pandemic. Soon, we’ll send the sector a summary of what we heard from you around improvements to customer support.
We heard that businesses have been using more varied methods to proactively contact customers, including outbound calls and SMS messages.
Businesses have also continued to change their communication and engagement style with their customers to have more focus on individual customer circumstances and the assistance that can be offered.
Businesses are also focusing on ensuring customers are aware of their concession entitlements and more businesses are devoting greater effort to helping customers apply for the government’s Utility Relief Grant.
The weekly coronavirus data you report continues to show your support for customers experiencing hardship is well above pre-pandemic levels.
We’re pleased with the help you’re providing customers to complete their Utility Relief Grant applications, with most applications being submitted. The vast majority of those are also being approved.
So, I’d just like to reiterate what Kate said earlier – well done to the sector on supporting the community through the past almost two years now.
National principles continue to apply for debt recovery – Kate Symons
As we look ahead to 2022, we’re now actively considering how to move forward with the National Principles.
We all agreed these would be temporary and inform future updates to the Customer Service Codes.
Given the ongoing uncertainty, we expect businesses to continue providing their range of bill support to their customers.
We will not be rolling back the national principles from our customer service codes in the short term.
Similarly our understanding from our counterparts at DELWP is that they also want national principles to continue to apply, and would like businesses to be cautious with any approaches for seeking debt recovery or initiating new supply restrictions. I note businesses can still issue reminder notices and use ‘nudge’ techniques in their bills to prompt customer contact.
During the interviews, we heard that the period January to June 2022 is a good time to engage with you on the review, and any updates to the Codes will provide further clarity for you ahead of your price submissions.
We’ve also heard feedback on how your approaches to customer support have evolved since the beginning of the pandemic and the positive effects of these on customers, for example proactive communication with customers, and small business support.
So, we’ll be in touch soon on the next steps for the Codes and your involvement in our consultation.
Thank you and close
On behalf of my fellow commissioners and other commission staff, I’d like to extend my sincere thanks to you all for joining us today.
It has been valuable to hear your thoughts on the emerging opportunities and challenges for the coming year.
I know the team is looking forward to continuing the open and honest discussions about the emerging challenges for your business and the sector, and supporting you as you develop your price submissions.
