Consumer participation in revenue determinations EUAA ......consumer participation in the AER’s...
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COAG CONSUMER PARTICIPATION SUBMISSION| NOVEMBER 2017 Page 1 of 14 COAG Energy Council Secretariat GPO Box 9839 Canberra ACT 2601 [email protected] 3 rd November 2017 THE EUAA The Energy Users Association of Australia (EUAA) is the peak national body representing major Australian electricity and gas users. Our membership covers a broad cross-section of the Australian economy including significant retail, mining, manufacturing, materials and food processing industries. The EUAA is a strong advocate for energy users and firmly believe that the primary objective of energy markets should be to serve the long-term interests of the consumer as stated in the NEO and NGO. There can be no doubt that energy users, both large and small are experiencing unprecedented increases in both electricity and gas costs while reliability of the system appears to be in some peril. This situation is clearly at odds with both the NGO and NEO. Over the last 10 years Australia has given up its comparative advantage in competitively priced, highly reliable energy that has underpinned significant industrial development and employment for many decades. It is inconceivable to think that a country with resources that are the envy of the world cannot deliver competitively priced energy to its own population. If allowed to continue on this trajectory this comparative advantage will be permanently lost and along with it, a majority of energy intensive industry including many industrial, food processing and manufacturing industries. CONSUMER PARTICIPATION We are at a turning point in consumer participation in revenue determinations and associated regulatory processes. For many years consumer trust that the regulatory process will deliver balanced outcomes has been very low as has consumer trust that the energy industry has the customer as a central focus. We have noticed in recent times a willingness of some industry participants to move toward a more customer oriented focus. A number of important factors are working to facilitate a considerable expansion in this participation: • The general move across all parts of the energy sector to recognise the centrality of the consumer and a genuine re-focus on the National Electricity and Gas Objectives of the long-term interests of consumers. • AER Chair, Paula Conboy’s speech at the July 2017 ENA conference outlining the proposed AER 2.0 approach to move from the highly adversarial approach of the past to build a more constructive working relationship between networks, the AER and consumers • The joint AER/ECA/ENA work on exploring ways to improve sector engagement and to identify opportunities for regulatory innovation. • The genuine desire from an expanding number of networks to improve their consumer engagement following reforms in the AER Better Regulation initiative, Consumer Engagement Guideline and, more recently, the development of the Customer Engagement Handbook as part of the Electricity Transformation Roadmap. • The ending of Limited Merits Review (LMR) appeals so that networks will see the AER network revenue determination process as something real and not simply a step on the way to an appeal. SUBMISSION COAG - CONSUMER PARTICIPATION IN REVENUE DETERMINATIONS | NOVEMBER 2017
Transcript of Consumer participation in revenue determinations EUAA ......consumer participation in the AER’s...
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COAG Energy Council Secretariat GPO Box 9839 Canberra ACT 2601 [email protected] 3rd November 2017 THE EUAA
TheEnergyUsersAssociationofAustralia(EUAA)isthepeaknationalbodyrepresentingmajorAustralianelectricityandgasusers.Ourmembershipcoversabroadcross-sectionoftheAustralianeconomyincludingsignificantretail,mining,manufacturing,materialsandfoodprocessingindustries.
TheEUAAisastrongadvocateforenergyusersandfirmlybelievethattheprimaryobjectiveofenergymarketsshouldbetoservethelong-terminterestsoftheconsumerasstatedintheNEOandNGO.Therecanbenodoubtthatenergyusers,bothlargeandsmallareexperiencingunprecedentedincreasesinbothelectricityandgascostswhilereliabilityofthesystemappearstobeinsomeperil.ThissituationisclearlyatoddswithboththeNGOandNEO.
Overthelast10yearsAustraliahasgivenupitscomparativeadvantageincompetitivelypriced,highlyreliableenergythathasunderpinnedsignificantindustrialdevelopmentandemploymentformanydecades.Itisinconceivabletothinkthatacountrywithresourcesthataretheenvyoftheworldcannotdelivercompetitivelypricedenergytoitsownpopulation.Ifallowedtocontinueonthistrajectorythiscomparativeadvantagewillbepermanentlylostandalongwithit,amajorityofenergyintensiveindustryincludingmanyindustrial,foodprocessingandmanufacturingindustries.
CONSUMER PARTICIPATION
Weareataturningpointinconsumerparticipationinrevenuedeterminationsandassociatedregulatoryprocesses.Formanyyearsconsumertrustthattheregulatoryprocesswilldeliverbalancedoutcomeshasbeenverylowashasconsumertrustthattheenergy industryhasthecustomerasacentral focus. Wehavenoticed inrecenttimesawillingnessofsomeindustryparticipantstomovetowardamorecustomerorientedfocus.Anumberofimportantfactorsareworkingtofacilitateaconsiderableexpansioninthisparticipation:
• Thegeneralmoveacrossallpartsof theenergysector torecognisethecentralityof theconsumerandagenuinere-focusontheNationalElectricityandGasObjectivesofthelong-terminterestsofconsumers.
• AERChair,PaulaConboy’sspeechattheJuly2017ENAconferenceoutliningtheproposedAER2.0approachtomovefromthehighlyadversarialapproachofthepasttobuildamoreconstructiveworkingrelationshipbetweennetworks,theAERandconsumers
• ThejointAER/ECA/ENAworkonexploringwaystoimprovesectorengagementandtoidentifyopportunitiesforregulatoryinnovation.
• Thegenuinedesirefromanexpandingnumberofnetworkstoimprovetheirconsumerengagementfollowingreforms in theAERBetterRegulation initiative,ConsumerEngagementGuidelineand,more recently, thedevelopmentoftheCustomerEngagementHandbookaspartoftheElectricityTransformationRoadmap.
• The ending of LimitedMerits Review (LMR) appeals so that networkswill see theAER network revenuedeterminationprocessassomethingrealandnotsimplyasteponthewaytoanappeal.
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TheEUAArecognisedthesesignificant“cultural”improvementsandcongratulatethoseindustryparticipantswhohaveshownacommitmenttoincreasedconsumerengagement.TheEUAAwouldwelcomecontinuedimprovementinthisareawiththeobjectiveofnetworkoperatorsmovingalongthespectrumofpublicparticipationasdescribedbelow.
Atpresent,mostnetworkoperatorstendtoworkintheinformandconsultsectorsofthisspectrumwithasmallnumberworkingintheinvolvesector.Ifdeepstakeholderengagementandbuy-inisthedesiredoutcomethennetworkoperatorsmuststrivetomovealongthisspectrumasfarastheycaninasmanyareasaspossible.Assistinggreaterstakeholderparticipationthroughincreasedresources,knowledgeandunderstandingbuildsoveralltrustintheprocessandwillleadtobetteroutcomesforallstakeholdersandparticipants.
Thisconsumerengagementcanbegreatlyenhancedwithaconsiderableexpansioninconsumerresourcesandcapability.Somelimitedincreasesinresourcinginrecentyearshashelpedbuttheincreaseddemandsonconsumersmeansthereisstillahugeresource(financialandphysical)andcapabilityasymmetrybetweentheregulatedentitiesandtheircustomers.
Thiswillnotbeaddressedquickly,irrespectiveofthefundingthatmightbemadeavailableasitcantakealongtimeforsomeonetoacquiretheskillstobeabletoengagewithnetworksortheAERinanymeaningfulwayonnetworkregulation.
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Consumeradvocatesarenowfacedwithabewilderingarrayofopportunitiestoparticipateindevelopmentofenergypolicyandregulationofwhichnetworkregulationisbutonepart.Oftenmultipleorganisationsareinvestigatingthesamematterbuteachwithaslightlydifferentview,approachordesiredoutcome,butallseekconsumerinput.EverydaytheEUAAhastomaketoughdecisionsonwhatitwill/willnotbeinvolvedin.Manyactivitiesofhighvaluetoitsmembers,andconsumersgenerally,havetobepassedby.Wehearthesameexperiencefromotherconsumerorganisations.
Togiveoneexample.TheEUAAadvocatedforyearsabouttheimpactofdevelopingthreeLNGplantsinGladstoneonthepriceandavailabilityofgasfordomesticcustomers.Manyreportsdownplayedtherisks,untiltheACCCEastCoastGas report in April 2016. Thiswas verywelcome and endorsedwhat the EUAAhad been saying. This hasproducedanavalancheofreformonthegasmarket,pipelineregulationanddevelopmentofthespotmarket,whichisverywelcome.
Unfortunately,theEUAAhasonlybeenabletoparticipateinafractionoftheseactivitiesandinthethoseithasnotbeenabletoparticipatein,ithaseffectivelyreliedontheco-ordinatingorganisations(e.g.COAGGMRGandAEMC)toensuretheoutcomesareinthelong-terminterestsofconsumers.
Now we are invited to participate in implementation of the Finkel review recommendations and soon thedevelopmentoftheNationalEnergyGuarantee(NEG).Whilethisiswelcomeditdoesnotleavemuchcapabilityandresourcesforcriticallong-termissuessuchasnetworkregulation.
ItisourfirmviewthatintheabsenceofgreaterresourcesbeingmadeforconsumeradvocatessuchastheEUAA,therewillhavelimitedopportunitytoparticipateinmanycriticalregulatoryprocessesthatareonthehorizon.Thiswillnecessarilyresultintwothings:
• Theorganisation focussingonasmallnumberofhighpriority issues that itbelieveswillhavethebiggestimpact for consumers. Thiswillmean that a large number of important processeswill have little to noconsumerparticipation.
• Inlieuofgreaterparticipationintheprocess,bodiesliketheEUAAwillhavenochoicebuttoraiseissuesviamediaandwithpolicymakersdirectlyasthemostefficientuseofscarceresources.
Neitheroftheseoutcomesaredesirablebutwillbetheonlyrealisticpathavailableinthefaceoflimitedresourcesandopportunity.
SUBMISSION SUMMARY
Theattachment responds insomedetail to thespecificquestionsasked in theConsultationPaperwith themainpointsbeing:
• Current funding resources are only of very limited effectiveness in funding consumer engagement soconsiderablecapabilityandresourcesasymmetryexistsbetweenconsumersandregulatedentities
• Thelimitedfundingandresourceavailabilityisparticularlyacuteforconsumersinregionalandruralareas
• The EUAA strongly supports detailed consideration of the “purpose built” funding model and providescommentaryonscope,amountandsourceandgovernance
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• Thebarrierstoeffectiveconsumerengagementstemfromthelackofcapabilityandresources,thenatureoftheregulatoryprocessandtheattitudeofthenetwork
• Therehas been considerable improvementover the last 12months in theAER’s consumer engagement,particularly around the revamped Consumer Challenge Panel. This should continue to be expanded.WeprovidesomeideasonhowtofurtherimprovetheAER’sconsumerengagement.
• Networkshaveawidelyvaryingapproachtotheconsumerengagement–rangingfromapositiveexperiencethatisembracedandfacilitatedbyconsiderableresources,toanecessaryburdenor,finally,“…awasteoftimeandresources”
• The possibility of new funding for consumer participation on regulatory determinations and associatedregulatoryprocessesisverywelcome.However,itwillbemosteffectiveifitisseenaspartofalong-termstrategytoimproveconsumeradvocacyatalllevels–small,mediumandlargeenergyusers.Itshouldnotfocus solelyonAER revenuedeterminationsbutbeaholistic approach tooverall consumerengagementcapabilityandresourcesacrossurban,regionalandruralareas.
• MuchoftheknowledgerequiredtoeffectivelyengageinAERmatterscanbeappliedtoengagementwiththeAEMC,AEMOandotherorganisations.
Asalways,wewouldwelcometheopportunitytoengagewithyoufurtherontheseissuesofcriticalimportancetoenergyusers.AndrewRichards
ChiefExecutiveOfficerEnergyUsersAssociationofAustralia
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ATTACHEMENT – RESPONSE TO SPECIFIC QUESTIONS
1. Currentfundingsourcesforsupportingconsumerparticipation
Consultationquestions:• How effective is the current resourcing framework for funding consumer engagement in energy regulatory
processes, particularly the AER’s revenue determination and access arrangement processes? How can it beimproved?
• Howcan the current frameworkbetter contribute to increasing the capacityof consumer representatives toengageeffectivelyintheAER’srevenuedeterminationandaccessarrangementprocesses,notingthecomplexandtechnicalnatureofthesubjectmatter?
• Whatotherresources,includingnon-monetarysupportprogramsorfundingsources,arecurrentlyavailabletosupportconsumerengagementintheAER’sprocesses?
• InpreviousconsultationprocessesonthereviewoftheLMRregime,somestakeholderssuggestedtheoptionofintroducing a ‘purpose built’ fund to which all regulated businesses would contribute funding to supportconsumerparticipationintheAER’sdeterminationandaccessarrangementprocess.Ithasbeensuggestedthatcontributionscouldbecalculatedasapercentageoftheregulatedbusinesses’totalannualrevenue.Suchafundmayprovideamorecost-effectiveandsustainableapproachtoresourcingconsumerengagementintheAER’sprocess.o Givenregulatedrevenueamounttobillionsofdollars,isasmallcontributionbyregulatedbusinesstosupport
consumeradvocacyjustifiable?o Whatdostakeholdersconsideraretheadvantagesanddisadvantagesoftheproposal?
EUAAResponse:Thecurrentpublicresourcingframeworkisbetterthanitwasafewyearsagobutstillonlyofverylimitedeffectivenessinfundingtherequiredlevelofconsumerengagement.• WhiletheECAisthemajorsourceoffundingforconsumerengagement,thisislimitedtofundingforresidential
andsmallbusinessconsumeradvocatesasreflectedinitscharterandthetotalfundsavailablearerelativelysmall.
• AstheConsultationPapernotes,thereisalsoStateandTerritoryGovernmentsupportforenergyadvocacye.g.theNSWGovernment’ssupportofPIAC,howeverthisalsoappearsweightedtosmallconsumerrepresentation.
• TheAERprovidesfundingforconsumeradvocacythroughtheConsumerChallengePanel,whichisalsodirectedtoresidentialandsmallbusinessconsumerrepresentation.
• Networkssupportvariousconsumerconsultationforumsfortheirparticularnetwork
Asarepresentativeofmediumtolargeenergyusers,theEUAAhasreceivednoECAfundinginrecentyears.ForanumberofyearspriortotheECA’sestablishment,theEUAAdidreceivearound$200,000peryearfundingfromtheECA’spredecessor,theConsumerAdvocacyPanel(CAP).WeunderstandthatadvocatesforresidentialandsmallerbusinessenergyusersoftenfindtheECAfundingapplicationandprogressreportingverycomplexandtimeconsuming.ThevastmajorityoffundingfortheEUAA’sadvocacy,capabilitybuildingandresearchcomesfrommembercontributions.WhentheEUAAhadaccesstotheCAPfunding,TheEUAAwouldspendbetween$50,000-75,000tomakedetailedsubmissionsoneachelectricitynetworkrevenueresetwithacombinationofCAPandinternalfunding.Thesesubmissionsweresubstantiallyundertakenbytwomainconsultantsusedtoensurecontinuityofknowledge.Even
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withtheCAPfundingsupport,therateswecouldaffordtopaytheseconsultantswerewellbelowtheirmarketratesandwellbelowtherateschargedbytheconsultantsusedbythenetworks.TheseconsultantsdidtheworkfortheEUAAbecausethey“believedinthecause”.
FollowingtheendofCAPfunding,theEUAAstoppedprovidingsubmissionstoindividualresets.ThiswasnotjustbecauseofthelackoffundsbutduetoourexperiencethatourindividualnetworksubmissionswerehavinglittleornoimpactontheAER’sfinaldecision,becausenetworksconsideredtheAERprocesssimplyasteppingstonetoaLMRappeal.Becauseofthesefactors,theEUAA’sfocushasmovedto“networkwide”matterssuchasLMRandCOAGGasReformofpipelineregulation.Theseareworthwhileprocessestobeinvolvedinbutstillconsumeconsiderableresources.WiththerecentannouncementsregardingtheNationalEnergyGuarantee,thereisalreadyasignificantcallontimeandexpertisefromconsumeradvocateswhowillneedtodrawonasmallpoolofresourcesandbynecessity,disengagefromotherimportantprocesses.Inourexperience,thetotalleveloffundingavailabletoallconsumersgroupsfromvariousfundingsources(Governments,organisations,members)isasmallpercentageofthefundingthatseemstobeavailabletoregulatednetworksandwhichispaidforbyconsumersintheirnetworkcharges.Therevealedcostsapproachtoopexregulationmeansthereisnotransparentwaytounderstandwhatthatleveloffundingmightbe.WhatwedoknowisthatnetworkshavespentsignificantfundingonLMRandFederalCourtappealsinrecentyears.Consumershavehadnoinvolvementinthisaspectofnetworkregulation,leavingittotheAERtorepresentconsumerinterests.Someyearsago,theEUAAdidconsiderinterveninginanACTappealbutquicklyfoundwecouldnotmatchtheresourcesavailablefromthenetworks.WhiletheabolitionoftheLimitedMeritsReview(LMR)willimprovethissituationmarginally(asfundingforthoseappealsisnowavailableforadvocacyduringtherevenuedeterminationprocess),theresourceandknowledgeasymmetrywillstillbelarge.IfnetworksturntomoreFederalCourtadministrativelawappealsintheabsenceofLMR,thenthebenefitsoftheimprovedfundingavailabilityfromtheabolitionofLMRwillquicklydisappear.Wewouldwarnhowever,itisnotsimplyamatterofquicklyincreasingthefundingandgettingresults.Historicallylowlevelsofconsumerfundinghavemeantthattherearenowveryfewpeoplewiththerequisiteskillstoengagewiththenetworksintheregulatoryprocess.Thesignificantexpansionindemandforconsumerengagementmeansthatthesamepeoplearecontinuallycalleduponandareoftenpulledinalldirections.WhilethisconsultationisfocussedonconsumeradvocacyrelatedtotheAER’snetworkregulation,consumeradvocatesareconstantlycalledupontoparticipateinavastrangeofenergyrelatedprocessbytheAEMC,AEMO,FederalandStateGovernments,COAGinitiativesandindependentreviewssuchastheFinkelandVertiganreviews.EverydaytheEUAAmakesdecisionsaboutwhichmattersitwillbeinvolvedingivenitcanonlyparticipateinafractionofthemattersitisinvitedto.Ittakestime,aswellasfunding,toequippeoplewiththenecessaryskills.Thelackoflong-termfundingcertaintycanmeanpeoplewhogainthecapabilityhaveknowledgethatismarketableatapricemuchhigherthantheconsumergroupcanpay.Thelackoflong-termfundingalsopreventsthetrainingofsufficientpeopletocreateasuccessionplanwhenexperiencedadvocatesmoveon.Thereneedstobealong-termstrategytoimproveconsumeradvocacyatalllevels–small,mediumandlargeenergyusers.ItshouldnotfocussolelyonAERrevenuedeterminationsbutbeaholisticapproachtooverallconsumerengagementcapabilityandresources.MuchoftheknowledgerequiredtoeffectivelyengageinAERmatterscanbeappliedtoengagementwiththeAEMC,AEMOandotherorganisations.Itshouldalsoensure
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appropriatecoverageofconsumerinterestsacrossurban,regionalandruralareas.TheEUAAhearsmanyconcernsfromregionalandruralenergyadvocatesthattheyareforgottenaboutintheenergydebates.Notonlydotheyhavelimitedfundstocapacitybuild,theydonothavethefundstoparticipateinmanyAER/AEMCforumswhicharetraditionallyheldinSydneyorMelbournewithrareopportunitiesforvideo-conferencingorteleconferencing.Theseadvocatesalsoarguethat,whilethefocusonvulnerableresidentialconsumersinurbanandregionalcentresisappropriate,thisisoftenmeanslittlefocusonvulnerablesmallandmediumbusinessesinregionalandruralareas.TheEUAA’sexperienceisthatanincreasingnumberofsmallandlargebusinessesarenowvulnerableconsumerswiththelargerisesinenergycosts.Aquickwaytocreatealargenumberofvulnerableresidentialconsumersisforavulnerablemediumtolargeenergyuserstogooutofbusinessbecauseofenergycosts.Commentsona“purposebuilt”fundingmodelTheEUAAwasinvolvedindiscussionsearlierthisyeararounda“purposebuilt”fundtowhichallregulatedbusinesseswouldcontributetofundingsupportforconsumerparticipationinAER’sdeterminationandaccessarrangements.Westronglysupportfurtherdiscussionanddevelopmentofthisproposal.Herearesomeinitialthoughtsforconsideration:Scope• Fundsshouldbeavailableforthebroadrangeofelectricityandgasnetworkregulationissuessuchas:
o Theregular5yearAERrevenuecapprocesseso COAGworksuchastheGasMarketsReformGroupo AEMCreviewsandrulechangesthatimpactonnetworkso RepresentationatvariousinquiriessuchasParliamentaryinquiresonnetworkregulationorspecial
purposeinquiriesthathaverelevancetonetworkmatterssuchastheFinkelReview
• Fundsshouldbeavailableto:o Increasecapabilitywithinconsumerorganisationso Employconsultantstoprovidespecialistadviceandreportsonparticulartopics–thiscanbereports
designedtoeducateconsumeradvocatesonparticularissuesorreportsthatformthesubstantivebasisofaconsumersubmissiontoaparticularconsultationprocess
o Enablecontinuityintheemploymentofbothin-houseandconsultantresources
• Capabilitybuildingincrucial:o Itshouldprovideon-goinginternalexpertisetoassisttheconsumerorganisationinunderstandingnot
justindividualissuesbutalsotheirlinkages;tounderstandhowaparticularissuemightimpactontheconsumerorganisation’sstakeholders,tounderstandhowtobriefandsuperviseanexpertconsultant
o Akeyrequirementforaconsultant’sappointmentistheirabilitytoincreasethecommissioningconsumerorganisation’scapability
Amountandsource• Whiletheleveloffundingavailabletoconsumerswillnevermatchthefundingavailabletothenetworksthe
fundsavailableshouldensureconsumerscanprovideacompetitiveandprofessionalresponsetonetworkso Wewouldsuggestthat25%ofthefundsspentbynetworkswouldbeareasonablestarto Thismeansthereshouldbemoretransparencyaroundthefundsusedbynetworksinregulatory
matters• Therearetwopotentialsources:
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o IncreaseintheexistingAEMOlevythatfinancestheECAo AsmentionedintheCOAGEnergyMinistersCommuniqueinDecember2016–thenetworks
themselvesfundthecostofAERnetworkreviews1• TheEUAAisnotopposedtoanyfundingbeingprovidedbythenetworksbeingallowablecostsfortheirrevenue
cap.• Considerathree-yearrollingfundingmodelwithperhapsamechanismforadditionalfundingtoparticulatein
FederalCourtappeals.Governance• ThegovernancestructureshouldinvolveaBoardthatisrepresentativeofallconsumergroups–residential,
commercialandindustrial;small,mediumandlarge;urban,regionalandrural.• Thereshouldbetwobroadcategoriesoffundingbeing;
o Forparticularreviews,resetsetc,involvingspecificfundingforaspecifictimeperiodo Forbroadercapabilitybuilding,involvingfundingtosupportastaffmemberforaperiodoftimee.g.2-3
yearsthatislongenoughforthepersontobuildthatcapabilityandpotentiallypassontheknowledgetoanysuccessor
• Thereshouldbeastrongbiasinfavouroftheconsumerresponsebeingco-ordinatedwherepossiblesuchasoneforaparticularnetworkrevenueresetthatcombinesalltheconsumergroupsinthatnetwork’sarea;oneforconsumerparticipationinmajorreviewse.g.theforthcomingAERworkonabindingWACCguideline
• Withaco-ordinatedconsumerresponse,thereisanimportantrolefortheBoardandtheappointedconsultanttoensurewideengagementwithrelevantconsumergroupsinpreparinganysubmissionaswellasindisseminatingtheoutcomesoftheparticularreviewprocess
2. TheadequacyofcurrentresourcingforfacilitatingeffectiveconsumerparticipationConsultationquestions:• Whatarethebarriers toeffectiveconsumerengagement inrevenuedeterminationsandaccessarrangement
processes?• Whatarethepriorityenergyissuesonwhichconsumerengagementisrequiredacrossthesector?• Is the key issue the amount of resources or the quality of resources for providing effective consumer
engagement?o Whatareappropriatemethodsofmeasuringtheimpactofconsumerengagement?o Howcanimprovementstoengagementbemeasuredtoensuresuccess?
• Is it feasible to build/maintain the complex technical knowledge required for effective participation in therevenue/accessarrangementprocesseswithinconsumergroupstaffing,orisitlikelytobemorecost-effectiveandmorepracticaltooutsourcethisexpertiseasrequired?
Response:Thebarriersstemfromthelackofcapabilityandresources,thenatureoftheregulatoryprocessandtheattitudeofsomenetworkoperators.Thissectionfocussesonthefirsttwo,Section4belowonthethird.Thepriorityissuesarearoundconsumers’abilitytoparticipateinthestakeholderengagementprocessesof:• boththenetworksandtheAERduringthenow3yearrevenuesettingdeterminationprocess
1http://www.coagenergycouncil.gov.au/sites/prod.energycouncil/files/publications/documents/Energy%20Council%20Communique%20-%2014%20December%202016%20Version%201.0.pdf
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• theAERasitconsidersspecificissuese.g.bindingrateofreturnguideline• theAEMCasitreviewsrulechangesonhowtheAERistoconducttherevenuedeterminationand• COAGprocessesthatmayimpactonnetworkregulatione.g.GMRGEffectiveconsumerengagementislimitedbyalackofboththelevelandqualityofresources.ThemosteffectivecurrentwayofmeasuringtheimpactofconsumerengagementonAERrevenuedeterminationsarethereportsoftheConsumerChallengePanel.There iscurrentlynoobjectivewayofmeasuringthe impactofconsumerengagementinrespectoftheotherarease.g.AEMCrulechangesimpactingonAERregulation.TheEUAAhasaviewontheprocessesithasbeeninvolvedin–buttheseareonlyasmallsampleofalltheworkthatisunderway.TheEUAAstronglyfavoursthedevelopmentofanappropriatebalanceofin-houseandconsultantexpertise,withemphasisontheformer,ratherthanoneortheother.In-houseexpertiseisrequiredtoensurecontinuity,trainotherstaffforsuccessionplanningandunderstandtheinter-relationshipsbetweenvariousadvocacyissuesconcurrentlybeingconsideredbytheorganisation.Consultantexpertiseisneededtomeetspecialistneeds,helpoutinpeaktimesand assist in the development of in-house expertise. In-house staff also need to develop expertise inmanagingconsultants.
3. Thequalityofconsumerparticipationprocesses
Consultationquestions:• WhatsupportdoestheAERcurrentlyprovidetoassistconsumerparticipationinregulatoryprocesses?• HowcantheAERfacilitateimprovedconsumerengagementinregulatoryprocesses?• How can the AER help build consumers’ knowledge skills and capacity to better participate in regulatory
processes?• Is the key issue the amount of resources or the quality of resources for providing effective consumer
engagement?• HowsuccessfulhastheAER’sCCPbeenincontributingtoimprovedoutcomesforconsumers?• WhathavebeentheadvantagesanddisadvantagesoftheCCPprocess?Response:CurrentlythemajorformsofassistancetheAERprovidesare:• FundingoftheConsumerChallengePanel(CCP)toprovideadvicetotheAERontheeffectivenessofanetwork’s
consumerengagementandwhetherthenetwork’sproposalisinthelong-terminterestsofconsumers• TheStakeholderEngagementFrameworktoguidetheAER’sengagementprocess• PreparationofIssuesPaperstoassistconsumersunderstandingofsometimesquitecomplexmatters• Opportunitiesforattendingvariousforumsandprovidesubmissions,and• FormationofConsumerReferenceGroupsformajorreviewsTheCCPisnowinitssecondincarnationfollowingareviewofitsfirst.Theresourcesavailablehavebeenexpandedconsiderably for network reviews, additional sub-panels have been appointed on specific issues e.g. expectedinflation and rate of return, and specificmembers expertise has been drawn on to provide further insights intoparticular issuese.g.contingentprojects.ThesedevelopmentsareverywelcomeandtheEUAAbelievestheywillmakeasignificantcontributiontoimprovingthePanel’seffectiveness.Thisexpansioninscopeandresourcesshouldcontinue.
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TherecentrevisedStakeholderEngagementFramework2setsoutthefourkeyprinciplesthattheEUAAsupports:Principle1–Communicatinginaclear,accurateandtimelywayPrinciple2–Beingaccessible,proactiveandinclusivePrinciple3–TransparentandAccountablePrinciple4–MeasuringandevaluatingtheeffectivenessofourengagementIntermsoftheInternationalAssociationforPublicParticipation's(IAP2)publicparticipationspectrum3of‘Inform’,‘Consult',‘Involve’,'Collaborate’and'Empower’,theFrameworkdoesnotreferto“empower”giventheAERretainsaccountabilityforregulatorydecisionmaking.ThecurrentAER/ECA/ENAcollaborationwillinvolvegreaterconsumerengagementandmayleadtotheinclusionofsomeformof“empower”i.e.influenceontheregulatoryoutcome,inafutureAERguideline.ThekeyissuefortheAERishowtodeveloptheskillsandcapacityofconsumeradvocatesoutsidetheCCP–itisboththeamountandqualityofresources.Herearesomesuggestionsforfurtherconsideration:
Developinternal/purchaseexternalexpertiseinconsumerengagementtoimprovethevariousforumstheAERrunsonnetworkmatters
OurexperienceistheAERisverygoodatcontentbutcouldimproveprocess.Forexample,thecurrentAEMOconsultationondevelopingthehighleveldesignofaelectricitysecuritymechanism(implementingaFinkelrecommendation) has benefitted greatly from having an external facilitator runs the process; while themembershipof theWorkingGroupdeveloping thedesignprincipleswasheavilyweighted to supply siderepresentatives,theconsumerrepresentativesfeelthattheprocessensuresaverycollaborativeoutcomethatreflectsthelongterminterestsofconsumers.TheAER’sconsumerengagementactivitieswouldbenefitfromhavingaccesstogreaterinternalconsumerengagementexpertise.
Providemorefundingsupportforparticipationofconsumerrepresentativesfromregionalandruralareas
AER consultation forums are rarely held outside of capital cities. Video conferencing or teleconferencingfacilitiesarerarelyavailableduetologisticaldifficulties.ThebestwayfortheserepresentativestoincreasetheirabilitytoproductivelyparticipateintheAERprocessesistoactuallystartparticipatinginthemfacetoface.Yes,travelexpenseswouldbewelcomebutthisassumetherepresentativehasanindependentfundingsourcetopayfortheirtime.ThelimitsonECAandotherfundingsourcesdiscussedabovemeanthatthisisrarelythecase.
ExpandtheuseofConsumerReferenceGroupsandresourcethemappropriately
CRGshavebeenusedinthepastandarenowre-appearing.Itisfairtosaythattheyarea“workinprogress”.ThefirstoneformedforthecurrentInflationreviewdidnotreallyfunctionasintended.
TherecentformationoftheCRGforthedevelopmentofthebindingWACCguidelineseekstolearnfromthatexperience. It is encouraging to see the stated willingness of the AER to devote resources to assistingmemberstounderstandtheissuesunderconsideration.ThematterstobeconsideredareverycomplexanditremainstobeseenhowdetailedtheCRG’s involvementwillbe.Thewillingnesstopaytravelcostsandsittingfeesforfacetofacemeetingsiswelcome.However,nomatterhowmanyresourcestheAERprovidestoassistmembersunderstandissues,therewillbealimitontheabilityofmemberstodevotetimetotheCRGintheabsenceofasittingfeepayment.
2https://www.aer.gov.au/system/files/AER%20-%20final%20decision%20-%20Stakeholder%20Engagement%20Framework.pdf3https://www.iap2.org.au/Home
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Consideration of additional AER funding for travel and sitting fees should be considered in the context on the“purposebuilt” funddiscussedabove.Consumersare less concernedaboutwhether the funding toenable theiractiveparticipationcomesfrom–justthatitisavailable.On amoremedium-term perspective, itwill be interesting to see how the AER/ECA/ENA Regulatory InnovationProjectdevelops.ThisoffersthepotentialforafasttracknetworkrevenuedeterminationwithmuchmoredirectconsumerinvolvementthroughanEarlyEngagementProcess.Weawaittoseehowtheproposedtrialprogresses.Theoutcomeofthiscurrentprocesswillneedtotakeaccountofthepotentialdevelopmentofmuchmore“consumerintensive”regulatoryprocessesthatmayflowfromtheRIP.
4. Consumerengagementbyenergynetworkbusinesses
Consultationquestions• Whatsupportdonetworkbusinessescurrentlyprovidetoassistconsumerparticipationinrevenuedetermination
andaccessarrangementprocesses?• Howcannetworkbusinessesfacilitateimprovedconsumerengagementinrevenuedeterminationsandaccess
arrangementdecisionsprocesses?• Howcannetworkbusinesseshelpbuildconsumers’knowledgeskillsandcapacitytobetterparticipateinrevenue
determinationandaccessarrangementprocesses?• Howcannetworksdemonstratethatconsumerengagementtheyundertakeisincorporatedintotheregulatory
determinationandaccessarrangementdecisionprocesses?• Under the existing framework, are there sufficient incentives for network businesses to invest in consumer
engagement?ResponseNetworksupporttoconsumerstakesanumberofforms,e.g.• Theirattitudeandapproachtoconsumerengagemente.g.dotheyseeitasapositiveexperience,anecessary
burdenorawasteoftime?• Howearlytheystarttheprocessforthenextrevenuedetermination?• Howtheysupportconsumerparticipation-witheducation/capacitybuildingandfunding?Networks’StakeholderEngagementPlansincludeavarietyofmeanse.g.:• Formalstakeholderengagementprocessese.g.CustomerCouncils/Forumswhichmeetregularlyandare
informedandconsulted–theseexistinanongoingbasisandcoverallformsofengagementincludingtherevenueresetprocess
• Specificpurposegroupslookingatparticulartopicse.g.apricingcommitteeformedtoengagewithanetworkastheydeveloptheirTariffStructureStatementforaregulatoryreset
• One-offdeliberativeforumsexaminingaparticularusergrouporissue
Whiletherehasbeenasignificantchangeinapproachofmanynetworksinrecentyearstoimprovethequalityoftheirconsumerengagement,thereisstillawidevarietyofapproaches.IntermsoftheInternationalAssociationfor
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Public Participation's (IAP2) public participation spectrum4 of ‘Inform’, ‘Consult', ‘Involve’, 'Collaborate’ and'Empower’,mostareattheinvolvestage,someatcollaborateandasmallnumberareonlyatinform.ThisvariedapproachcanbeseeninrecentConsumerChallengePanelreports.CCP11madethefollowingcommentsontheAustralianGasNetworksrevenuereset/accessarrangementsfor2018-2022:
“AGNpreparedandexecutedacomprehensiveStakeholderEngagementStrategytoinformthedevelopmentofitsVictoriaandAlburyAccessArrangement(AA)2018-2022proposal.EngagementactivitiescommencedinNovember2015andincludedtheestablishmentoftwodedicatedreferencegroups,andtheconductofaseriesofcustomerandstakeholderworkshops.CCP11welcomedthecaretakenbyAGNintheFinalPlantolayoutveryclearlywithineachsectionof itsproposal document how stakeholders had been engaged on that topic and how the engagement hadinformedtheirapproach.AhighlightofAGN’s stakeholderengagementprogramwas the releaseof aDraft Planon5 July2016, 6months in advance of the date for lodgement of AGN’s AA proposal. This was the first time that a gasdistributorhasreleasedadraftoftheirentireproposal.WecommendAGNforthisimportantinitiative.AGNhasstatedthat‘Ouroverarchingobjectiveistosubmitaplanthatdeliversforcustomers,isunderpinnedbyeffectivestakeholderengagementandiscapableofbeingacceptedbytheAER.’Overall,CCP11considersthatAGNhasclearlymetitsobjectiveofpresentinganAccessArrangementProposalwhichisunderpinnedbyeffectivestakeholderengagement.AGNhasnowestablishedasolidfoundationandtrackrecordforeffectivestakeholderengagement.”5
Bycontrast,CCP11madethefollowingcommentsontheAusnetandMultinetrevenuedeterminationandaccessarrangementsfor2018-2022:
CCP11isoftheviewthatAusNethasnoteffectivelyengagedwithstakeholderstodiscussandseekfeedbackonthoseplans.Apart from participation in the AER Public Forum, Multinet elected not to undertake any stakeholderengagementontheAERDraftDecisionoritsrevisedaccessarrangement.ThiswasexplainedtobebecauseofMultinet’s intention to accept theAER’s decision in largepart, anticipatingonlyminor changes in theRevisedProposal.CCP11considersMultinet’s stakeholderengagementduring thisphaseof theaccessarrangement reviewprocesstobeineffective.6
4https://www.iap2.org.au/Home5https://www.aer.gov.au/system/files/Consumer%20Challenge%20Panel%20%28CCP%2011%29%20-%20Response%20to%20proposals%20from%20AGN%2C%20AusNet%20and%20Multinet%20for%20the%202018-2022%20Access%20Arrangements%20-%203%20March%202017.PDFp.56https://www.aer.gov.au/system/files/CCP%2011_Distribution_Final%20Advice%20to%20AER%20following%20Draft%20Decisions%20and%20Re..._1.pdfp.5-6
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ThefinalexamplecomesfromthecurrentreviewofaccessarrangementsforAPA’sVictoriangastransmissionsystem.ThedraftAERdecisioncriticisedthelackofAPAengagement.7APA’s submission in response8 argues that the AER’s push for greater stakeholder engagement is driven by thesituationforgasandelectricitydistributionwherealargenumberofcustomershavetraditionallybeendisengagedwith their customers. By contrast, gas transmission has a small number of large shipper with long term directcontracts with APA. APA argued that this means there are close long-term relationships between APA and itscustomersindependentlyoftherevenueresetprocess–someofthesecustomershavecontractualrelationshipwithAPAforpipelineservicesonpipelinesnotunderregulatoryreview–andthisdrivesacontinualcustomerengagementprocess.APAarguedthatitwasnotnecessarytoengagewithendusegascustomersbecausetheimpactofitsproposalontransmissioncostswouldresultinanincreaseofonly~$3/yr.inendusecustomers’bills:
“APAVTSunderstandsthatconsumergroupshave limitedresourcesand, inthecontextofthesignificantenergypricerisesthatarecurrentlyoccurringthataredrivenbychangingcostsinotherpartsoftheenergysupply chain, this access arrangement revisionprocess is not one that theyhave indicated that they areinterestedinengagingwith.”9
Leadingtotheirconclusionthat:
“APAVTSisfirmlyoftheviewthattheAER’s(andconsumerpanel’s)expectationofpublicconsultationongastransmissionbusinessproposalsisunrealisticandwouldultimatelybeawasteoftimeandresources.ItwouldbeaverypooroutcomeifitreplacedactualengagementthatoccursbetweenAPAVTSandvariousshippersonanalmostdailybasis.”10
So,APAseemstobearguingthat theyshouldnotengagewithconsumergroupsbecauseconsumergroupshaveinsufficientresourcestoengage.Thisisastarkillustrationoftheproblemconsumergroupsfaceinengagementinregulatorymattersandwhytheyneedadditionalfunding.CCP11 challengedAPA’s assertion. TheCCP argued that it (and theAER) expectAPAwill develop and execute aStakeholderEngagementPlanandundertakestakeholderengagementasanon-goingbusiness-as-usualactivity.Thisinvolvesrespondingtothelargenumberofresidential,smallbusinessandindustrialcustomers.Astheynote:
“Ultimately,itisthesecustomerswhoprovideasignificantproportionofAPA’srevenue.ItisimportantthatAPAunderstandsandrespondstotheneedsof thesecustomers,aswellas totheneedsof the25directcustomersofthebusiness.ThisistheintentoftheAER’sConsumerEngagementGuideline.”11
A proposed small change in transmission costs is not a reason for no engagement. Consumer groups wantedtransparencyandconsideredthattheyhadbeenrebuffedbyAPA.Electricitytransmissioncompaniessimilarlyhave7https://www.aer.gov.au/networks-pipelines/determinations-access-arrangements/apa-victorian-transmission-system-access-arrangement-2018-22/draft-decision6July20178APA“Victoriantransmissionsystemaccessarrangementrevisedproposal–submissionresponsetodraftdecision”14August2017https://www.aer.gov.au/networks-pipelines/determinations-access-arrangements/apa-victorian-transmission-system-access-arrangement-2018-22/revised-proposal9Ibidp.810Ibid11https://www.aer.gov.au/system/files/CCP11_Transmission_Final%20Advice%20to%20AER%20following%20Draft%20Decision%20and%20Revi....pdfp.9
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arelativelylownumberofcustomers,buttheyhavedevelopedeffectiveconsumerengagementprograms.TheCCPalsofoundevidencethattherewasnotacloseengagementbetweenAPAanditsdirectcustomers.TheCCPconcluded:
“Overall,CCP11considersthatAPA’sengagementwithitsVictorianend-useconsumershasbeeninadequateandineffective.”12
The EUAA’s experience is that thewillingness of networks to expand their consumer engagement has increasedsignificantly in the last 1-2 years because they see it as good business practice. Some are now starting thisengagement 12-18months prior to their submission of their Framework andApproachwhich is the first formalmilestoneforelectricitynetworksintheirrevenueresetprocess.Theearlystartiswelcomebutforittobeeffectiveconsumersneedresourcesandcapabilitytoeffectivelyparticipate.NetworkConsumerCommitteescanbeinvolvedinarevueproposalfor2-3years.Thissignificanttimecommitmentis impossible unless the member’s organisation has the financial ability to support participation. Most do not.Sometimesmembers from outside the capital city of the network receive travel costs, but this stillmeans theirorganisationhastofundtheirworkingtime.Thefinalconsiderationiswhetherthereshouldbereal(i.e.financial)consequencesfromthefailureofanetworktomeetatleastaminimumstandardofconsumerengagement.Thisisamatterthatdeservesfurtherconsideration.
5. Coordinatedstakeholderengagementacrossthesector
Consultationquestions• Whatsupportcanotherstakeholdersprovidetoconsumergroupstobuildcapacityinenergymarketissues?• Howcanotherstakeholdershelpbuildconsumers’knowledge,skillsandcapacitytoparticipatemoreeffectively
inrevenuedeterminationandaccessarrangementprocesses?ResponseItwasnotedabovethatthesupportforconsumerengagementshouldalsoincludetheAEMCrulechangeprocessesassociatedwith theAER regulatoryprocess.Consumer involvement in the considerationof these rule changes isusuallyverylowwithsubmissionsanddiscussionforumattendancedominatedbythesupplysidestakeholders.HistoricallyretailershavetakenlittleifanyroleintheAERrevenuedeterminationprocess.Networkcostsweresimplyregardedasapassthroughoverwhichtheretailerhadnocontrol.NowthemovetowardscostreflectivenetworkpricesandTariffStructureStatements,meansthattheretailerhasacentralroletoplay.Theyarethepartythatgetstodecidehowthecostreflectivenetworkpricesprovidedbynetworksarepassedontoconsumers.Thishighlights theneed to takeaholisticapproach to consumerengagement.Consumersneed to increase theirresources and capability across the whole energy supply chain. The AER, networks, AEMC, AEMO, retailers,Governmentsetc.allhavearoletoplayinacoordinatedapproach.
12Opcitp.10
