Case Study Five

Background

Following changes to the electricity rules, Business A is required to submit a Tariff Structure Statement (TSS) every five years. The current (and inaugural) TSS is for the period 2017-2020.

The rules for the development of network pricing systems (tariffs) have changed. While tariff reform will not increase the amount of revenue collected, it will change the way revenues are collected. Business A is committed to the adoption of cost reflective tariffs and has been gradually introducing tariff reforms for larger customers since the turn of the century. In the local state, costs are dominated by the infrastructure capacity required to cater for the hottest days in summer and cost reflective tariffs are intended to signal these costs to customers. This approach will target customers’ ‘peak demand’ usage which should reduce the need to upgrade the network in the future.

Business A is currently undertaking an engagement program with stakeholders and customers on the TSS to help them understand cost reflective tariff structure options, contribute to the proposed changes, and help consumers understand the impacts of these changes. Business A lodged its initial TSS with the AER in December 2015. Prior to lodging the initial 2017- 2020 TSS, the business undertook six months of engagement with stakeholders and customers. The TSS proposed a range of demand based tariffs for smaller customers and an implementation timeframe for the 2017-2020 period and beyond.

To build on the initial TSS, Business A committed to running a deliberative process with a broad cross-section of the community to refine a set of Customer Impact Principles that can be applied when making decisions around tariff design and implementation. Deliberative engagement is a relatively new process that involves customers and stakeholders actively engaging in a process aimed at developing shared solutions or outcomes. The business had used similar approaches in support of the 2015 revenue determination and the TSS engagement incorporated several enhancements to suit the nature of the problem at hand.

The draft principles submitted as part of the initial TSS acted as an input to this process. The refined principles developed as a result of this process will be submitted to the AER as part of the Revised TSS in September 2016.

Engagement approach

Electricity Advisory Panel

An Electricity Advisory Panel was established to develop the Customer Impact Principles. An independent consultant was engaged to set up the Panel and run the deliberative process. The Panel was recruited from a customer database and randomly selected to ensure that the final twenty customers broadly represented the state population in terms of gender, age group,quarterly electricity bill, location and employment.

The Panel also included twelve key representative stakeholders from the business sector, consumer advocacy groups, non-government organisations representing vulnerable communities, State Government representatives, and primary producers. Many of these stakeholders had already been working with the business on the development of the initial 2017-2020 TSS and so have a good understanding of the TSS and the business.

Engagement brief

The Advisory Panel was given the following brief:

  • The business believes that customer impacts should be considered alongside economic impacts of setting tariffs.
  • The mechanism they have chosen for doing this is through the application/use of Customer Impact Principles.
  • The Customer Impact Principles will complement existing Pricing Principles that the business works with that have an economic focus, and will be designed to ensure that customer impacts are given a similar focus.
  • These Principles (if approved by the Regulator as part of the broader Tariff Structure Statement) will be used by the business as a ‘checklist’, against which it will assess its proposed tariffs and associated policies.
  • They will assist the business in considering customer impacts in order to determine the most appropriate course of action when setting tariffs.
  • The Electricity Advisory Panel is being given the role of developing the Customer Impact Principles.
  • The Principles developed by the Panel will be provided to the Regulator as part of the final Tariff Structure Statement, to be submitted in September 2016.

Deliberative workshops

The deliberative process involved four workshops with customers, community and stakeholders. These included:

  • Workshop 1 - Background information for customer and community members (customer and community only workshop).
  • Workshop 2 - Background briefing session for stakeholders (stakeholder only workshop).
  • Workshop 3 - First deliberative session with both customer and community members and stakeholders. The aim of this session was to develop a draft set of principles. The draft principles were then reviewed by a number of ‘critical friends’ (refer section below).
  • Workshop 4 - Second deliberative session with both customer and community members and stakeholders. In this session the principles were further refined and presented to key internal business staff.

Following completion of the four workshops, a draft report was developed by the engagement facilitators and a writing group comprised of volunteer Advisory Panel members was established to review and finalise the report. A final report was subsequently endorsed by this group and provided to the business.

Critical friends

A number of key stakeholders who could not be involved in the deliberative process acted as critical friends to the Electricity Advisory Panel. The critical friends provided input after workshop 3, following the development of the draft Customer Impact Principles. This feedback was provided to the Electricity Advisory Panel in workshop 4 and was used to further refine and finalise the principles.

Outcomes

The Electricity Advisory Panel was posed the following question: ‘when Business A make decisions about network charges, what are the impacts on customers Business A needs to consider’?

The Panel developed a set of Customer Impact Principles, which will complement the existing Pricing Principles, and have been designed to ensure that customer impacts are given a similar focus to economic considerations when establishing and determining tariffs.

The Principles will be used by the business as guidance or a ‘checklist’, against which it will assess its proposed tariffs and associated policies. They will assist us in ensuring customer impacts are factored into decision making processes related to tariff setting, in order to determine the most appropriate course of action.

The Principles developed are:

  • Principle 1, Empower the consumer - This Principle aims to ensure that the business makes decisions about network tariff setting that empower the consumer. This is based on the premise that the consumer should be allowed to see, understand and manage their own behaviour.
  • Principle 2, Fairness and equity - This Principle requires the system to recognise the diversity of consumers and that some households and businesses are particularly vulnerable to sudden changes. Education, sufficient lead-in times and the provision of complementary measures are seen as having key roles.
  • Principle 3, Simplicity (to inform decision making) - Tariffs have to be understandable if people are going to respond to them. To be understandable, the Panel felt they needed to be simple and transparent. For consumers, this is important because if tariffs are understood, people will be able to make better decisions about their behaviour (usage) and their investments (for home or business).

Key engagement learnings

The deliberative process provided a number of key benefits to the network business. The process:

  • Built understanding in the community of the trade-offs involved in different approaches to distributing costs between the various types of consumers and provided a way forward that is balanced and reasonable.
  • Played a role in building a more positive stakeholder profile and countering negative public perceptions.
  • Provided new ideas, innovations and new approaches to solving the problem and developing options.

Feedback from the Electricity Advisory Panel was overwhelmingly positive and as a result the business has developed some positive community sentiment through the process.

From an internal business perspective, it was the first time the deliberative approach, in this format, has been used in an engagement program and it was found to be valuable and rewarding in terms of delivering a balanced set of Customer Impact Principles. The Principles will help Business A consider customer impacts in setting tariffs. The business has committed to their use as a checklist when finalising its TSS. The deliberative process also provided some valuable insights into customer attitudes and perceptions.