Grappling with customer-centricity, the energy sector is recalibrating how it consults with stakeholders. Regulators can facilitate choices efficiently by aligning conflicting interests

By Victoria Draudins

Friday August 9, 2019

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Last week, the who’s who in energy descended on the duel Energy Networks Australia and ACCC/AER Regulatory Conferences in Brisbane. Victoria Draudins, a government specialist in economics and law, currently in the energy sector, and former economic advisor/analyst in the Treasury portfolio, picked up on thematic desires to make customers a whole-of-company focus across the energy sector.

Against a backdrop discussing good regulatory practices, effective incentives, and appropriate returns to investors, it’s still ‘customers’ who dominate many an energy company’s thoughts. While most industries would consider discussion of customer-importance a curious redundancy, in a regulated industry like energy, retailers have been traditionally seen as the sole vehicle for customer relations, with generators, transmission networks, and distributors left to focus on efficient operations.

The energy industry has been turned on its head in recent years in a push to focus on customers at all levels of the supply chain. This has left more than one business grappling to find the optimal level and form of customer engagement.

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From pure economic analysis to a customer service focus

Paula Conboy, who is stepping down as chair of the Australian Energy Regulator in September, reflected on her time in this role, noting that five years ago she set out with a clear objective to establish the Consumer Challenge Panel to promote greater customer engagement.

Conboy highlighted the need to move away from straight-line economic assessments, with “regulators agreeing to what is economically efficient … [This] was fit for purpose when energy was a homogenous product”. Now, she noted, “Consumers’ decisions are driven by more,” as they engage with technology, are concerned with environmental impacts, and seek a greater choice of services. As a result, regulation “needs to move away from engineering the financial characteristics of services to focusing on the services that can be delivered … [To do this] regulators need to focus on how they can facilitate choices efficiently by aligning interests.” This shift in approach, however, still needs to account for “income protection for the vulnerable.”

“…the successful implementation of the Consumer Challenge Panel had meant moving away from a conversation between regulator and regulated, with other stakeholders left aside as interested bystanders.”

Expanding on this message, Conboy turned her focus to investors, stressing that “customer interests should be considered alongside shareholder interests” and that it was not right to treat these two groups as having opposing priorities. After all, “the most successful businesses have the most satisfied customers.” She lauded those companies in NSW and the ACT as well as Charter companies — gas and electricity companies whose CEOs signed up to the Charter to provide energy in line with community expectations — as change agents. “We’re seeing a cultural shift in some businesses. They’re being led from the top, listening to feedback, incorporating it into business processes and reflecting it in proposals.”

However, it wasn’t all good news. Conboy also took her swansong ENA speech to throw out a warning shot to “dogged businesses remaining in a deterministic approach,” who were “sadly… tin-eared” to customer expectations in contrast to their more customer-centric peers.

For its part, she noted, the Australian Energy Regulator “also needs to be flexible in how they consider proposals. Flexible without compromising predictability”.

Lessons from the UK

David Gray, the former Chair of Ofgem, the UK’s gas and electricity regulator, also touched on this theme, as well as others of a more technical variety. The UK is often seen as a bellwether for the Australian energy industry. Indeed, we imported the Consumer Challenge model from them following its establishment there in 2008.

According to Gray, the UK energy sector is facing a number of complex issues, including how to reach zero carbon emissions by 2050 (a parting gift from Theresa May as she exited the PM’s office) and the correction taking place as a result of regulators letting return on equity remain too high over the past decade.

Gray brought the conversation back to the importance of customer engagement. He noted that the successful implementation of the Consumer Challenge Panel had meant “moving away from a conversation between regulator and regulated, with other stakeholders left aside as interested bystanders.” He cited the example of one business that shifted its business-proposals-development approach from ‘inside-out’ to ‘outside in’. Traditionally, the business would brainstorm ideas, develop them, and then put them out for consultation. Even if consulting heavily, it still felt like their proposal at the end of the day. Their recalibrated approach had them consult with stakeholders from the start (outside-in), enabling them to come up with something completely different.

The conferences highlighted an issue the energy industry, and other sectors, are trying to get right in customer engagement: when is the right time to involve your stakeholders?

Too early, without thinking through the key issues on which to consult, you risk returns of little value.

Too late, and you risk being unable to change course in the face of new information.

It’s a fine balance.

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Chris Johnson
Managing Editor

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