Earlier this year I saw Michael Storey present on how Sydney Water was working towards a step change in how they engage with customers and what they do with the engagement feedback. Someone in the audience made a simple yet powerful comment: "This is a load of old tosh, all the water utilities in Australia are monopolies, it’s all a waste of time."
Possibly the worst thing a monopolist can do is act like a monopolist. It has to be the quickest way to precipitate change beyond anyone’s control. Thankfully and rightfully the Productivity Commission back in 2011 couldn’t find any abuse of market power in the natural monopoly sector of urban water, but no-one wants to stands still and subsequently the Water Industry Competition Act in NSW and other regulatory changes around the country have deftly moved that argument on.
The most recent, welcome and revolutionary of the regulatory changes has been articulated by the Essential Services Commission (ESC) in Victoria. Based on the principles of ‘customers, autonomy, performance and simplicity’ the ESC has signalled early to the water businesses in Victoria that the primacy of the customer/utility relationship is paramount, and that as a regulatory agency they will definitely not be inserting themselves in that relationship. It’s a great sign of maturity, that the regulator is not an intrusive umpire and commentator. It’s also a sign of maturity that water businesses in Victoria, particularly their Boards and management teams will have the autonomy to rejoice in success or, let’s hope not, feel the burn of under-performance.
The position paper released by the ESC last week provides much more detail but here are some quotes that leave nothing to the imagination:
- Customers: "there will be no successful regulatory outcomes for the (water) businesses if they do not understand the concerns, priorities and preferences of their customers."
- Autonomy: "the proposed framework leaves no doubt about the autonomy of the water businesses to determine their fates - financial and reputational."
- Performance: "are there really any consequences for water businesses that don’t achieve the standards to which they commit? Right now the answer… is ‘dunno’."
- Simplicity: ’deciding which services to deliver and what prices to charge for those services should not be priestly pseudo-science.’
Many of the concepts – but certainly not all as the ESC have introduced their own original concepts into their new approach – are very similar to the route taken by Ofwat in regulating water utilities in the UK. But they continue to move on in the UK. It’s old news now that non-residential competition starts April 2017, but even more challenging is the spectre of residential competition, possibly by 2020.
Recently Cathryn Ross, CEO of Ofwat, gave a speech that highlighted some trends to watch. Most interesting was the language used: "we see markets – where buyers meet sellers and where transactions take place – as the key to informing, enabling and incentivising… transformational efficiency. Because markets create options, this enable choices and choices reveal information." The context was the whole of the urban water sector: where utilities buy services from the private sector, where customers buy services from utilities and where regulators look to their own transformation. Cathryn also went on to say: "the only way the sector is going to square this ride is by doing more with less. The problem our transformation in the water sector is trying to solve is really clear. It is about becoming more efficient."
In their very recent Water 2020 document, Ofwat outlines a range of new initiatives and improvements on previous ones. For instance, they are looking to specifically stimulate the benefits of reduced carbon emissions through creation of power from waste. But most importantly they are looking to raise the bar on understanding customers' needs and requirements through continual and ongoing customer engagement, through using a robust, balanced and balanced evidence base and most importantly through transparent two way dialogue.
The future is clear: customer-centricity is no buzz word as some might think. It’s fast becoming the absolute focal point for utilities as they transform their businesses. From the UK to Victoria, regulators are restoring the customer/utility business interface, incentivising performance and providing autonomy for Boards. I hope that other regulators look to the lead set by the ESC – and the demystifying the arcane science of WACCs, RABs and whatever other jargon you can think of.