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Rewards are only available to the ‘best in show’. Companies can
only earn financial rewards where they are achieving industry-
leading performance on an outcome commitment . This is analogous
to what would happen in competitive markets.
Ensure that the learnings of the best performers are shared
across the sector. There is a desire to increase the average
performance of the sector, and rewards will only be provided
where companies can evidence processes for sharing learnings
on how they have achieved this outperformance. From this
perspective, everyone can benefit.
2. Being more innovative in how to measure efficiency and
Less technical measures of network performance and compliance,
and more that measure customer experiences and preferences, will
mean a move away from quantitative asset data to more qualitative
sur vey data. Examples in the United Kingdom include C-Mex
(the customer measure of experience) and D-Mex (developer
services measure of experience), which are designed to measure
the satisfaction of residential and new connection customers
respectively. Measures of customer experience and value inherently
measure network performance, but only where it directly impacts
the customers. Using these measures allows the company to
prioritise investment decisions – for example, where they will have
the greatest impact on customers’ experience – and avoid spending
where it has little direct benefit to customers, despite asset data
saying there are performance issues. All else being equal, this
improves value for money received by customers.
Considering total expenditure (totex), the separation of opex and
capex can create incentives that mean efficient whole-of-life
solutions are not always pursued. Totex 1 has been a game changer
in the United Kingdom and may provide similar benefits in Australia.
It has resulted in UK companies viewing their investment options
differently, and finding better ways to reduce the total cost of
From a regulatory perspective, the regulator attempts to incentivise
the company to treat actual opex and capex the same by fixing
in advance the ratio between them that it will assume in setting
revenues, either at the upcoming price review for planned
expenditure, or at the following price review for unanticipated
expenditure. For example, it may announce that it will treat
expenditure as 80 per cent opex and 20 per cent capex, whether
the company incurred 100 per cent opex or 100 per cent capex, or
some ratio in between.
Direct procurement for customers is the promotion of innovation
and efficient delivery, by allowing new players to bring new ideas
and approaches to the delivery of key projects. This may help to
keep bills affordable and improve customer experience.
While the outcome of PR19 will be released in early 2019 across
all business plans, companies have offered, on average, a real four
per cent reduction on the average bill in the United Kingdom. This
is significant , and not too dissimilar to results achieved in Victoria,
where the average bill reduction in the 2018 price review (offered
by the water corporations) was approximately $30 per customer.
Both frameworks centre on delivering better customer value.
There are a number of different approaches to price regulation
across the Australian jurisdictions. If regulation does not continue
to evolve and keep pace with good practice, Australian customers
could miss out .
With cost-of-living pressures increasing, the community needs
arrangements that not only protect its interests, but also ensure
that it gets maximum value from the services provided. There is
scope to improve how the provision of services is funded to focus
on performance and delivery, manage risks, and drive innovation
through listening to customers more.
The ever-changing water environment also makes it critically
important to get the regulatory framework right. This includes:
drought and the need for better water management
the uptake of digital metering, which will provide an extensive
source of rich data on customer behaviour.
There is a lot we can learn from the UK experience that can drive
better sector performance, better outcomes for customers and
long-term financial sustainability.
THERE ARE A NUMBER OF DIFFERENT APPROACHES TO
PRICE REGULATION ACROSS THE AUSTRALIAN JURISDICTIONS.
IF REGULATION DOES NOT CONTINUE TO EVOLVE AND KEEP PACE
WITH GOOD PRACTICE, AUSTRALIAN CUSTOMERS COULD MISS OUT.
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