We are passionate about helping utility corporations engage with all their stakeholder groups to increase performance.
It is easy to say that all organisations have the same issues; and to an extent that's true. However, most utilities share a number of characteristics that make them different:
We appreciate how these differences make utilities uniquely challenging to manage.
For many years we have helped utility corporations engage with customers, stakeholders and staff with services including:
Insync is a credible and passionate provider. We help make electricity companies, gas companies, water authorities and the waste industry more effective, by combining industry knowledge with research skills. Here are some of our thoughts about current issues in the sector.
Customer Consultative Committees are a widely used feedback technique in the utilities industries; with varying success. We thought it might be a good idea to contemplate the attributes of useful and not very useful CCCs around the country.
Without naming names, selection process seems to make a big difference. Some CCCs are drawn from the ranks of customers who have written angry letters to the MD. These letters are often about a single issue - recycled water, desalination, leaks, waste, dams, sustainability and outsourcing are some of the issues we've seen. While these people are highly engaged, they're not necessarily representative, which makes it difficult to generalise from their perspectives to the community more generally.
The second big difference is around renewal and tenure. We've seen examples of people being on CCCs for over a decade. Are these people part of the community, or part of the organisation? When we do customer satisfaction surveys that include the customer panel as well as the general community, the panel usually rates the utility more highly. CCC membership should be time bound.
The third attribute is clarity of purpose. Many talented people leave a CCC because the officers of the utility present a topic so as to Inform the panel; but the CCC thinks they are being Collaborated with, or even empowered to make a decision. They respond by providing advice to the utility, which frustrates the co-ordinator of the panel. Clarifying whether you are Informing or Involving or Empowering (IAP2) the CCC avoids frustration on both sides.
Finally, the sense of "agency" really matters. CCCs which are genuinely relied upon have members who turn up and engage meaningfully. Those who are dealt with in an off-hand or tokensitic fashion lose their most talented members pretty quickly.
How does your CCC stack up?
Many utilities employ blue collar workers, and almost all of them express frustration in how to engage those workers. We performed a random study of 797 workers to find out whether they were primarily engaged by their work, their workmates or their organisation. It found that regardless of whether a person is a blue, white or even "pink" collar worker, around one in eight is primarily motivated by the organisation they work for. The more interesting result came in comparing how many people are motivated by their work, and how many by their workmates. Sixty-three percent of blue collar workers are motivated primarily by the work they do, and only 27% by their workmates. For white collar workers those statistics rise to 50%/37%, and for "pink" collar workers the numbers are 38%/50%.
A challenge for organisations with blue collar workers is finding a vision that resonates - one that is sincere and relevant to the work being done. This runs contra to the notion held by some that blue collar workers are motivated by their "mates" but white collar workers are motivated by the intellectually stimulating work they do.
We recommend reading http://www.vox.com/2014/10/17/6994811/map-household-water-use-american-west-drought
It is a great article. Anyone who has been through the millennium drought in Australian water industry will find themselves nodding (and shaking) their head at various times. Themes such as inefficient pricing, lack of the ability to trade water to higher value uses, regulators tying themselves in knots over whether to use economic or behavioural means to reduce usage.
There are a lot of data about comparative water bills in Australia, but this page shows the same sort of league table for the USA. The disparity must surely be explained by cross subsidies or different fixed:variable charge ratios. http://www.vox.com/2014/10/17/6994811/map-household-water-use-american-west-drought
If you're in the mood, this article is also great http://ensia.com/features/hey-america-its-time-to-talk-about-the-price-of-water/
Reliability of electricity costs. In fact, according to the Productivity Commission the peak 40 hours of usage in SE Australia costs every household $300. Ouch. Reliability has an increasing marginal cost to the distributors and each distributor and each system have sophisticated calculations to understand this. Does the community want to pay for it? Well, interruptions have a number of characteristics: when they happen, how often, and for how long. The AER has determined that length of interruption is a major driver of dissatisfaction, finding that, for example, a two hour interruption is more than twice as bad as a one hour interruption.
The problem is that the customer understands one curve but the distributor understands the other one, and the regulator has to try to match both curves to set prices that maximise reliability, affordability and satisfaction all at the same time.
We've spent a bit of time talking about OLV on this blog, but here's its core business starting to connect with the road. Melbourne's Water Future is a document that starts to tell planners how they'll be working and what their priorities need to be. Released in late August, the consultation closes in early October. All the principles are good and worthy, but as we know, it's easy to choose between a good and a bad, but much harder to choose between a good and another good.
What happens, for example, when "maintaining Melbourne's liveability status" means reducing "affordability", or when "intergenerational equity" hurts the current generation? What happens when the community want something that is inefficient? For example, water tanks are economically inefficient, but encouraged under these principles. Most importantly, what will happen after the State election in November 2014?
Over the last two years, energy use has increased 3% while the economy has grown 5% and the population grew 3%. Electricty consumption was 9,064 PJ. In the year to June 2014 electricity demand dropped by 3.8%. There are a lot of numbers thrown around in this debate, but to put it simply, there was enough electricity in the previous year, so we have a generation oversupply by AT LEAST 3.8% now. Not only that, but manufacturing, our most electricity dependant industry, is in serious decline. In that scenario, with or without a RET, would you build a new power station?
We're talking about blue collar, pink collar and white collar engagement. Recently we ran a survey to a random sample of 797 people asking what they were most engaged with: their job, their workmates or their employer.
Our hypothesis was that blue collar workers would be engaged with their workmates and their work, but less so with their employer. Further, that pink collar workers would be engaged with their workmates but less so with their work; and that white collar workers would be engaged with their work and their employer, but less so with their workmates.
The results are in, and not all the hypotheses were supported. The group most engaged with their work were actually the blue collar cohort, and we were right in thinking that they would be least engaged with their employer - only one in nine respondents were primarily engaged with the organisation they worked for.
For pink collar workers we were right, half are primarily engaged with/by their co-workers. However, we were surprised that almost one in four are primarily engaged by the work they do. There are good lessons here for job design.
Finally, more white collar workers are engaged with their co-workers than they are with their organisation. In fact, white collar workers are not much more likely to be engaged with their employer than either of the other two groups.
More to come on blue collar engagement.
Sometimes it is good to work across the electricity and water industries. They aren't the same but they have many parallels. What we want to talk about today is resistance to changing the way people, and organisations think; and it might apply equally to both industries.
One afternoon recently the price of power on the Australian national electricity market went negative. Really. You could get paid for using it. Of course, out in consumer land everyone kept on paying to use it because we don't have time of use charging....but that's for another day.
There is a glut of generation capacity in Australia for 99% of the time, but the reason why the price of power was negative was that it was a sunny weekday afternoon in winter, and whole suburbs of our northern cities effectively became power stations, due to rooftop PV.
Our networks have been designed for power to flow "down" from the power station to the user, and not to be "distributed". We hear a lot about how fundamental the change would be to move from a "top down" system to something more akin to a "peer to peer" system.
Not being electrical engineers, we heard these protests and accepted them. Regardless of how true these concerns are, changing the conception of the network from top down to peer to peer would be a big change of thinking.
Then we took a look at what's happening in California. There it appears network designers have already changed their thinking, and governments are giving them a helping shove in the back to do so. This article http://www.greentechmedia.com/articles/read/its-time-for-grid-planners-to-put-distributed-resources-on-par-with-transmi shows that in CA, power companies HAVE to design their networks to accommodate peer to peer.
California spends about $6bn on network upgrades every year, but they're expecting 15 gw of new power to come online in the next decade, and there's no way of knowing where, when and how this energy will be produced and consumed. This report http://greentechleadership.org/programs/smart-2014/ starts to outline the challenges in re-designing the grid.
All that engineering is beyond our scope. We're looking at customer satisfaction with utilities. If you have bill hikes, brown outs, and a low feed in tariff for your rooftop solar then we're tipping that your customer satisfaction isn't going to be that great.
More than that though, is the parallel of the water industry with the electricity industry; especially in terms of change reluctance. Because some people would argue that if we don't change the way we are thinking then great economic and environmental injustices will be wrought.
Take OLV for example. It disrupted traditional thinking about our existing "top down" water supply system where water moves from dams (generators) through pipes (transmission and distribution) to end users.
OLV brought a philosophy of a distributed system to the network, using new supply sources such as stormwater (rooftop solar) into the equation. Just like in the energy industry, the existing network designers didn't embrace this new way of thinking (no judgement here on who is right or wrong).
We're wondering whether this is just entrenched thinking/change reluctance; whether the thinking about water will ever really have to change; whether a helping hand in the back would be required; or whether the water story is intrinsically different to the energy system.
One thing that we do have an opinion about is culture, and culture surveys in particular. Culture is like an organisation's personality, and one of the most important personality traits is "open mindedness/closed mindedness". Just like with individuals, organisations can be outward looking and shameless in the way they bring in new ideas; or they can be inward looking, reluctant to have their world view disturbed. Culture surveys are useful in helping to describe the current situation without judging it, but we spend lots of time listening to people talk about their employers. One thing we hear in a lot of utilities is "I've been here for xx years" and "one thing you've got to understand..." and "the history of that process....". Generally, these statements indicate closed mindedness.
If a utility is culturally closed and inward looking, what is the likelihood that it will embrace the disruptive agenda pursued by OLV, or demanded by the advent of distributed power systems?
The worst kept secret in the water industry is out. The Ombudsman has finally tabled the report into OLV in Parliament.
The OLV committed what we'd call "schoolboy errors" of procurement, failing to keep records, failing to record conflicts of interest, splitting contracts to keep them under tender thresholds and breaching recruitment rules.
OLV has been re-absorbed into DEPI. CEO MIke Waller has resigned and Chief of Staff Simon Want has also resigned ahead of the Ombudsman's report, expected next month
Victorian consumers will soon be getting news about the $100 savings from their water bills, brought about as a result of the efficiency measures demanded by OLV and calculated by consultants 3rd Horizon.
We're trying to work out how it all adds up. Many water corporations are subject to at least 50% of total costs being made up of debt and depreciation. With an average annual water bill of, say, $1,000, this leaves only $500 of room to find $100 of reductions, a 20% reduction. The "easiest" way to achieve these is by deferring capex planned for the current price period, but it is not long before the fat is finished and water corporations will need to cut into muscle and bone. Is that what's happening?
OzWater is the national water industry conference. This year it
was held in Brisbane, and one of the presentations was made by the
Living Victoria (OLV), who brought at least five people up for
the day. There was a moment of levity when they asked "how many of
the people here are from Victoria?" and about two-thirds of the
hands in the room went up. They could have saved some money by
having the meeting in Melbourne.
We've just come back from a great OzWater conference. Our presentation was about a customer focus maturity model we've been putting together for water companies.
That's a mouthful. Let's break it down. We've noticed that there is an evolution in the way water corporations think about their customers and the degree to which customers are at the centre of their decision making processes rather than the edge.
For example, we have a question in one of our staff surveys "customer needs feature prominently in decision making". At one organisation we deal with, the proportion of staff who agreed with this item has gone from 25% to 44% to 58% over three years. An interesting thing about this item is that everyone in organisations pretty much agrees with each other. The mean for CEOs who have done the survey is 5.20, senior managers 5.23, team leaders 5.21 and team members 5.17.
The question is, how has this superstar organisation's customer research changed over the time it has become more customer centric? We used this knowledge, and a broad perspective of what water corporations around Australia are looking for (from all the tenders we get asked to respond to) to come up with a model of where the customer sits in different organisations' thinking
Down the bottom seems to be what the regulator is asking for. Regulators generally are about conformance, not performance, so they want to make sure the water corporations are meeting minimum standards, not delighting their customers. To generalise (and Australia has some great regulators), regulators want to know that the water has good colour, pressure, odour, taste, that the water corporations picks up the phone and fixes problems quickly. That's a recipe for satisfaction but not for affection from customers.
Moving away from regulatory guidelines, some water corporations are interested in transaction satisfaction, and we have an amazing solution for tracking that, which we wrote about in a recent newsletter. It's very cool, and necessary, but it is a bit like telling a person whether they're healthy by checking their pulse - there's a lot more to it.
The majority of water corporations we work with are in the space of what we call "reputation studies". These are normally annual, phone based studies that cover trust, information, environment, communication, media preferences and more. Many water corporations have data going back years and since boards like them, they have been slow to change. Done and interpreted well, these studies can incorporate customer needs into decision making more effectively, giving customers a voice where they haven't had one before.
The newest evolution of customer research concerns customer values. This turns the traditional research on its head by trying to find out what is important to customers instead of what customers think about the things that are important to the water corporation. It is also time consuming, open ended and uncertain.
However, despite its many drawbacks, customer values research has the capacity to transform water corporations into truly customer centric organisations. If a water company knows why customers judge it the way they do, then the whole organisation can be aligned to customer desires instead of guessing what they want.
For those of you who saw the model at OzWater, thanks for your positive feedback. For those that didn't, we can give you an exclusive private viewing. Please contact us.
A little while ago the MDs and directors of all Victorian Water Corporations were summoned to a briefing by the bafflingly named "Office of Living Victoria". This briefing kicked off the most significant issue for water in Victoria in 2014.
The Office of Living Victoria (OLV) is not about air quality, endangered species, rivers, wetlands, nature reserves or biodiversity. It is about urban water reform. It was set up by the Liberal/National State Government to invest $50m in better utilising the existing water resources available, especially concerning storm water including from rooftops. Non-competitive appointments to senior roles at OLV were heavily scrutinised by The Age.
Urban water use is currently based on a "one quality, many uses" philosophy. OLV is focusing on using the appropriate quality water for the appropriate purpose.
The meeting at the end of summer kicked off a project called "Fairer Water Bills". A lot of OLV material talks about developing "a comprehensive water cycle systems framework", but in plain language, the way that OLV will affect most customers in the short term is by dropping metropolitan bills from July 1.
This project cuts across the current price setting process, where each corporation submits a plan to the independent regulator, the Essential Services Commission, and gets their prices approved for the following years. The third fixed period started on July 1, 2013, and lasts for five years. The plan for prices is linked to how much money water corporations plan to spend on infrastructure.
OLV's actions will therefore cause the Essential Services Commission's role to be questioned.
In debriefing staff surveys to utility companies we're often confronted with executives who don't believe the status quo can be changed.
At one company the back office workers were hopelessly disengaged, whereas the front line workers were highly engaged. We were told "the front line workers deliver the organisation's promise, of course they are going to be more aligned and engaged than those who don't - this is always going to be the case."
A few days later we were confronted by an exec in charge of the operations workers doing the delivery of the work. The ops workers were much less engaged than the teams that supported them back at base. We were told "that's the nature of ops workers, they've never been engaged and they never will be".
Frankly, both leaders were 100% correct in the context of their own companies. Not only that, but subsequent surveys have proven them right. Why? Because as Henry Ford said "Whether you think you can, or you think you can't - you're right."
These leaders were quite sure that nothing could be changed, and that was true for them in their experience. However, we've seen it happen by measuring constantly over the years. Even without the quantitative data you can feel a change of mood in organisations by reading the comments.
The problem is more about the entrenched "truths" that managers feel, and the "confirmation bias" which causes them to seek out and reference lots of evidence that proves them right.
Having an external consultant tell them that they're wrong doesn't help at all. What needs to happen is that the status quo needs to be "unfrozen", a word that comes from a very old model of change management by Kurt Lewin.
In our experience, many organisations move to the "improvement" phase too early, before the status quo has been unfrozen. Call us for more info.
Much of the discourse about utility prices in recent years has centred on who is to blame for increasing costs and charges. The focus of the price discussion is now shifting to consumers. Recent research from Yarra Valley Water and the ESC has indicated that the increased costs are having an impact on a greater proportion of consumers than expected.
Utilities are finding that a wider range of customers are struggling to pay their bills. In fact, research suggests that the face of the average vulnerable customer is changing and is no longer necessarily a low income concession card holder. The new vulnerable customer is now a middle class home owner. The cost of living is high and getting higher, and mortgage stress has risen in recent years. These pressures show no sign of abating for many families.
The Essential Services Commission has carried out research with customers experiencing financial hardship, and has found that many customers don't know about things that could help them. This is perhaps in part because many of the customers who are struggling to pay are not accustomed to seeking help, and do not know that there are services available. Many households reportedly sacrifice other essentials including food and clothing in order to pay their utility bills, or eschew paying their bills in order to feed their family. They have to make these unsustainable choices because they are unaware that they may be eligible for hardship programs and discounts.
As prices continue to rise and more bills go unpaid, it is imperative that utilities engage with their customer base to gauge where help is needed, and determine how best to make it available. Not only will this protect the consumer, it will protect utilities' bottom lines.
Since we do a lot of customer satisfaction surveys for utilities we often get asked to include Richheld's Net Promoter Score in our research. For those who aren't aware of it, your "net" word of mouth is derived by subtracting your "detractors" from your "promoters", and ignoring those who are "passive". At the extremes, if 100% of your customers are promoters then 100-0=100. Or, if 100% of your customers are detractors then your score is negative 100.
The theory states that an organisation can tailor its initiatives to achieve three goals:
1. Keep the promoters happy
2. Make the "passives" into promoters
3. Address the causes of dissatisfaction, thereby silencing the detractors
That all sounds very sensible, and despite much criticism it has worked well for a large number of companies. Our biggest Net Promoter customer survey was repeated 61 times; and each time we did surveys in 19 languages in 40 countries - this kind of experience means we can handle the average utility pretty comfortably.
Net Promoter is a blunt instrument; but in any commercial research project we trade nuance for actionability. Finding the right balance between these two poles is ultimately what makes clients happy, because they actually get performance improvements from their research.
The problem with Net Promoter is the question itself; "would you recommend xx to your family and friends?". Fundamentally, this doesn't work for natural monopolies, and when we've asked it in that form, we tend to get responses like "no, they don't live around here", or "why would I bother, we all have to use xx", or "who cares?". None of these answers are helpful.
There are two ways to make the question more meaningful, the first is just to ask people whether they speak positively about the utility. The second is to use a different question altogether, such as an overall satisfaction question, but to analyse the resultant data using the Net Promoter methodology. There are probably still three groups of people out there: those that love you, those that hate you, and those that don't care; and the idea that these three groups need to be addressed differently is probably still a worthwhile one.
Of course, there's another model of customer satisfaction that is at least as good as Net Promoter. We'll tell you about that one another day.
If you're deep in the electricity industry you can skip this, but if you're not you might need a bit of backstory. Remember the MRET? The "Mandatory Renewable Energy Target"? No? You're not alone, but you might remember the promise of "20% of electricity from renewable sources by 2020"; it's the same thing.
Well, building renewable generation capacity creates RECs, Renewable Energy Certificates. The scheme was meant to force windfarms and the like to be built; but then many of us decided to install rooftop solar hot water and PV. This meant the MRET was split into two schemes, the Large RET and the Small RET; Small being residential and Large being the power stations they were originally trying to encourage.
As with most headline targets, the LRET/SRET's devil is in the detail. Twenty percent of what exactly? Well, to provide certainty, the 20% was set at 20% of anticipated demand in 2020, which was 45 terrawatts. When the schemes split, the LRET was recalibrated to a target of 41TW and the SRET 4TW.
That's all dory and hunky (not in that order); but a range of factors including the carbon tax mean that electricity demand isn't rising; which means we're potentially installing generation capacity we don't need.
To unsettle investors even more, the target is reviewed every two years by the Climate Change Authority, and the reviews take quite a while. You can probably build a power station faster than I can, but two years doesn't seem to give enough certainty.
If we have too much generation capacity, which power stations will get used and which will stay idle? Obviously it will be the ones with the lowest short run marginal cost; a figure which is dominated by guess what? Fuelstock price. Now we all know coal is cheap, but it isn't as cheap as wind and sun. (peaking generation assets are excluded from this calculation since peak demand isn't dropping, so even though they have the highest fuel cost (gas), they'll still get turned on).
All this brings us back to whether the Coalition would like to keep the 41TW target or not. All things considered, they'd probably prefer not to mention it at all, since it is unlikely to win them any new votes.
At the clean energy conference this month, the Coalition's representative Simon Birmingham said the Coalition would support the 41TW target; but once again the devil is in the detail. The detail here is that the Coalition is going to ditch the Climate Change Authority; which means that the next review will probably be conducted by the Productivity Commission, which will view the target through a very different lens.
So you tell me, does the Coalition support the RET?
Over the last three years we have done an increasing number of safety culture surveys. /surveys-consulting/other-specialties/safety-culture-survey/ The surveys as employees about their psychological safety; behavioural safety; safety leadership and their own engagement.
The safety culture survey is a great way to find out what the culture is, and how to improve it. Research shows that safety outcomes are a lagging indicator of the prevailing safety culture.
What hasn't been done is to benchmark the safety maturity of organisations with each other. If your organisation is "reactive" then surely it would matter to you to know if there is or isn't a lot of other good practice information out there that you could use. For those not in the know, safety maturity is normally measured using the Hudson (2001) ladder; also known as the Dupont model. Some executives can't get past the language of being "generative" or "pathological"; which is why some OHS&E groups change the original labels to more accessible words. Nevertheless, if you have a five step safety maturity model, chances are that it is based on the Hudson ladder.
Insync wanted to know the level of safety maturity among utilities, so we devised a checklist based on the Hudson Ladder and sent it to half a dozen of our friends. The results were surprisingly encouraging. All six were at least at the proactive stage (the second stage from the top) in the maturity model.
If you're interested in benchmarking your safety maturity please give us a call.
Insync specialises in stakeholder consultation for utilities. We always hope that doing the job properly means that regulators are left with little doubt as to how certain proposals will be received. Here's what IPART had to say about Hunter Water's consultation:
"We also took account of Hunter Water's extensive customer engagement on its pricing proposals. In its price submission, Hunter Water has fulfilled our request to provide:
We have accepted Hunter Water's proposals and we commend Hunter Water on its customer consultations for the 2013 price review. We consider that Hunter Water's customer consultations achieved the objectives that we identified in our recent review of customer engagement. These were to improve community acceptance of proposals on discretionary spending and price structures, and to streamline our review process by reducing our need to look at other evidence."
It is well known that governments in W.A., Queensland, Tasmania and N.T. are all considering the shape of their water and/or electricity industries. Many managers in the organisations affected are finding it hard to deal with workers whose engagement is increasingly driven by what they see, hear and read in the media, and what politicians and commentators might say about their employers.
No doubt, leadership teams would love to see a passionate, high performing organisation that can weather the storm of public criticism about prices, "gold plating", downsizing and the scrutiny of officialdom. However, evidence suggests that they may not be able to have it both ways.
The right question might be whether to drive these already stressed organisations harder; or whether to adopt a more forgiving posture and win back the hearts of disillusioned workers. Each path has its own pros and cons. For example, driving the organisation harder might lead to a drop in performance, industrial relations issues or major attrition. Winning back workers might cause a drop off in performance, or appear disingenuous.
The two courses of action we've described above both entail risks, but at least they have a chance of succeeding. Trying to do both at once is almost sure to fail. Who was it that said "it is better to be feared than to be loved, if one cannot be both"?
Of course, the only course of action guaranteed to fail when State governments expect passionate, high performing organisations is no action at all. Yet we are always surprised at how many workers say that their organisations have done nothing in response to the last staff survey. At the centre of the organisation there are plenty of ripples, but by the time these extend out to the edges, their power is greatly reduced.
Looking across our benchmark database, there are a number of groups of outdoor/blue collar and trades workers being highly engaged. For example, we have seen it in shipping companies, exhibition centres and trucking companies. Similar examples are harder to find in utility companies. Why?
First of all, we should admit that a superb manager can and will make all the difference. Great managers can have high performing teams anywhere. Team leadership is still the single greatest determinant of how workers perceive every other aspect of their employment experience.
However, there are a number of factors about utility companies that make it a challenge to engage blue collar workers. For example, in monopolies, workers don't have an obvious alternate employer, so employees are more likely to "quit and stay" than "quit and leave". Most utilities also have an aging workforce, some of whom are "serving out their time", which also mitigates against engagement. Thirdly, many workers over 45 started at utilities with the reasonable expectation of a "job for life". Conservative governments around the country are shaking that expectation up. It is harder for any worker to be engaged in uncertain times. Finally, due to the technical nature of many jobs in utilities, there is often little movement in and out of teams. This can lead to an acceptance of the status quo.
Regardless of the challenge, engaging blue collar workers has proven links to positive productivity and safety outcomes. For utilities under State government scrutiny; the best way to avoid unwanted outcomes is to be a high performing organisation with high productivity and a great safety record. Perhaps accepting the status quo is the worst thing managers could do this year.
One of the most famous questions in our Alignment and Engagement Survey is about whether bad news rises quickly. This question is incredibly important to directors; because if bad news rises quickly then they have a chance to address the issue proactively. Conversely, if there is a culture of covering up bad news, directors will find it hard to sleep at night. Not knowing what the culture is like is just as bad.
Our survey items form themselves up into "factors". This refers to a group of items that tend to co-vary. For example, if your team sets high performance targets, then it is also more likely to be the kind of team that acts when those targets aren't met.
Our preliminary research with staff of 500 organisations suggested that the "culture of no surprises" item didn't have much in common with any of the other groups of questions. However, with even more data a fascinating pattern has emerged, and it shows whose responsibility it is to create this kind of culture.
The item loaded quite well onto the factor that contained other items about a person's team leader. So teams where the leader is a good business coach, for example, are also likely to be teams with a culture of no surprises.
However, the item loaded even better onto the factor that dealt with senior leaders. So having a culture of no surprises tends to happen when senior leaders are good role models, have an inspiring vision, encourage new ideas and are open to feedback. It also means that the exec team is even more responsible for creating a culture of no surprises than team leaders are.
This finding has special significance for managers, executives and directors. Boards are increasingly demanding that their leadership teams create such a culture; but seen from the perspective of the exec team, this might seem the exclusive domain of the team leader. Certainly the leadership teams of some high profile corporate failures are far more likely to characterise themselves as the unlucky victims of rogue managers than powerful initiators of a culture of no surprises.
With Sydney landfill costs rising by 50% in the next five years, NSW is where a lot of the waste industry innovation can be found right now. The main source of innovation is how to divert certain parts of the waste stream away from landfill.
This kind of innovation was expected to be given a lift right around the country as a result of the carbon tax, but the base cost per ton in different jurisdictions means that some of the new, higher prices still aren't causing much pain. Many industry observers say the carbon tax is costing in the order of $15-$25 per ton of waste. However in Qld this is on a base price of $40, whereas in Melbourne it is on a base price of about $100.
In NSW levy inceases are already in law to 2016; whereas in Queensland only the carbon tax has prevented prices from dropping. There are stories in the industry of NSW trucks going north of the border to dump their waste.
This is a great example of policy driving economically inefficeint behaviour. Let's hope that innovation and entrepreneurial spirit can achieve at least as much as a mismatched set of incentives.
Lots of people, including us, talk about how much electricity infrastructure is only used for a few hours a year.
What about water? How often is our water infrastructure fully utilised? If we could knock the peak off demand, how much could we save? Smart meter charging for water is one obvious solution; but so is the system of odds and evens watering that worked during the recent drought. We're sure someone would have done the modelling on this - can anyone tell us who and where to find it?
The productivity commission's new draft report on electricty network regulation is out http://www.pc.gov.au/projects/inquiry/electricity/draft . At 900 pages you wont get through it in an afternoon, but commisioner Phil Weickhardt has done a great job bringing together a range of sensible thoughts about how to maximise the efficeincy of one of this country's most valuable asseets.
We all know that 25% of distribution infrastructure is only used for about 40 hours per annum, but when that gets put into dollars it is quite confronting. A house using a 2kw air conditioner on the hottest days of the year is receiving a $330 subsidy from the identical house next door that doesn't. Wow. (this is because both houses pay the same fixed charge for the network, and also because the electricity is charged at a fixed rate which is inflated for most of the year and drastically discounted on super hot days).
The obvious idea that comes out of this is smart meters; but here's a less obvious one that applies better to rural communities than big cities: why don't we ask the customers what sort of reliability/cost tradeoff they want? In research terms there are a few different techniques you could use to elicit such information in electricty customer surveys: choice modelling, contingent value analysis and willingness to pay studies being three of them.
We're used to getting choice in other parts of our life; we wonder what point on the reliability curve would maximise total economic and social wellbeing.
Last week we attended CEDA's launch of Volume 2 of the Australian Water Project. It is always good to hear what John Langford has to say, and on this occasion he shared the lecturn with Nathan Taylor and Dominic Skinner.
We enjoyed seeing an economic analysis of empowering the Commonwealth Environmental Water Holder (CEWH) to trade on the market. If you're not familiar with this idea, here's a synopsis. Currently, the CEWH holds the rights to the water that has been bought back from farmers over the years. It's a lot of water, and depending on what target the Murray Darling Basin Plan sets, the amount of water could grow by a lot more.
In a dry year the price of water is very high and there isn't enough water in the rivers to flood the forests and wetlands anyway. So in theory, the CEWH could sell some of its water at a high price and put the money in the bank.
In a wet year the price of water plummets since farmers don't need so much of it. The CEWH could buy a lot of water with the money it had saved up, and use that extra water to ensure that the forests and wetlands were flooded.
This scenario increases the total agricultural output AND increases the environmental benefits; an example of the free market helping the environment.
Customer surveys and research in the electricity sector often fail to provide the clarity their sponsors were hoping for. So let's make it really simple....customers want cheap, reliable and green electricity. What we should be focusing on is trading these three off against each other using prices to force customers to reveal their priorities.
Is there anything we can learn from other fields? If you're familiar with the project management triangle http://en.wikipedia.org/wiki/Project_management_triangle you'll know that the "anchor" is what's really important. Briefly, in any project there is a scope, a cost and an amount of time. Change one and the other two change. Everyone starts by saying "I want it all now, for next to nothing" and it is the supplier (internal IT department, a residential architect, a management consultancy) who has to work out which is more important. That's why we suggest that we have to focus our electricity customer surveys on working out peoples' priorities rather than their desires.
The same thing goes for high end bicycle wheels. A designer named Keith Bontrager understood the difference between desire and priority when he said "Strong. Light. Cheap. Pick Two." http://bontrager.com/history/a-brief-history
Consumer priorities are best expressed in buying behaviours. However, future source mix for energy is an implied (theoretical) preference and not a stated (real) preference. Measuring implied preferences is an inexact science - who correctly forecast the take up rates for green power? Either way, a lot is riding on our ability to understand consumer willingness to pay for the three things they want in electricity.
Cheap, reliable, green.....pick two.
Lately we've been wondering whether the smart meter rollout in electricity has anything to do with the "Target 155" water conservation campaign in Victoria (or its peer programs in other States).
In particular, we were wondering how the water conservation campaign worked so well without smart water meters, whereas the smart meter rollout for electricity has been so tortured.
The difference seems to be community engagement. Ask the average person why electricity smart meters are being rolled out and they'll tell you "so they can raise prices". This attitude has led to refusal rates of up to 40%, which must affect the morale of smart meter installers.
However, without any technological or price prompting, Australian water customers have moderated their usage to an extent that surprises many of the experts.
We're not arguing that water and electricity attract the same moral values...you won't find Aussies banging on their neighbours' doors in anger if someone chooses to shine a light on their driveway....but if they hose down the driveway, WATCH OUT!
However, the case for water conservation was well made over a number of years and backed up with customer surveys and community surveys. Water customer surveys constantly show a preference for greater control over bills and a move to a user pays system. Electricity customer surveys show a growing concern over sustainability, but the link between sustainability/user pays and smart meters just hasn't been made in the minds of customers.
Where to from here? Firstly, the electricity companies could learn a lot from the water campaigns of the last decade. Secondly, just as Rudd's CPRS was rebadged into Gillard's carbon tax; smart meters might benefit from a name change that better relates them to sustainability and user pays. Lastly, the water campaigns have taught us that appealing to values can be even more potent in terms of behaviour change than price signals; so community consultation that allows us to understand and track underlying values might be a good place to start....or re-start.
A war among three ideas is being fought across the utilities industries in 2012, with State Premiers and the Prime Minister all having their say. The war is being fought State by State, utility by utility but comes into sharper focus when viewed nationally across electricity and water.
The protagonists and their proponents are essentially trying to shape public opinion on why utility prices are rising:
The Federal Opposition would like us to believe that prices are rising because of the carbon tax. Some conservative State Premiers would like us to believe that public utilities have become wasteful and lazy under years of Labor oversight and have got away with gold plating their infrastructure. Finally, the Federal Government and various State Oppositions want us to belive that prices are rising because right wing State Governments are taxing by stealth.
Of course, the reality is more complex than any of the arguments. For example, IPART recently gave the electricity companies an 18.5% price rise and Sydney Water a price drop in real terms; which rather debunks the notion of a nationwide, multi industry trend or a systematic cash grab on behalf of the NSW State Government.
To further illustrate why this war is being fought on many fronts, one of our water clients recently calculated that $25 of the average bill is actually an electricity bill.
The ability of each State Government to defend itself against accusations of profiteering depends on the regulatory framework separating government from price setting. In Victoria the ESC approves prices but does not set them. In NSW, IPART sets prices after reviewing the corporation's price submission; whereas in WA, Water Corporation's price submission goes to the Economic Regulation Authority, but the final determination rests with the Minister.
For people in the industries, who are almost invariably honest and guided by their moral compass; it is sad and sometimes hurtful to see such a complex issue distilled into tabloid headlines. Everyone wants public input but we also need our public to be educated about the real choices they can make.
The last five years have seen unprecendented infrastructure spending by Australia's utilities; particularly in water and in electricity distribution. Our water and electricity customer surveys and community engagement work show very clearly that customers know their bills are rising.
What many customers don't think about is how their utilities can double their spending (especially on capital works) without their bills doubling. In fact, our community consultations show that, very reasonably, customers don't consider whether any of their bills are for works done outside the period of the bill.
Interest and depreciation are the two largest figures in the expense columns of the annual reports of most utility companies. This is all well and good and satisfies the principle of intergenerational equity that we are familiar with. However, it tends to fall down in two cases:
- the public don't mind the fact that their bills hardly change when a capital works program doubles; but customer surveys show that they don't like the fact that their bills don't drop when capital works programs are cut
- as interest and depreciation consume an ever larger portion of total expenses, utilities have a commensurately declining ability to cut their costs. One utility we worked with recently has only 42% of their costs still in the current year; and it isn't the worst off. This means that to cut total expenses by ten percent they need to cut their workforce and all operating expenditures by almost a quarter.
Conservative Governments in Qld, NSW and WA are all making noises about their utilities needing to make cuts; but substantial cuts won't come easy now that balance sheets are loaded with debt and depreciating assets as never before.
That great public institution, the bom, provides more than just rain radar. Take a look at their new publication about la niña at http://www.bom.gov.au/climate/enso/history/ln-2010-12/?ref=ad The older and more rural a customer is, the less likely they are to subscibe to theories of anthropogenic climate change according to our water and electricity customer surveys. This means that utilities are going to have to explain the need for increased infrastructure spending very carefully indeed.
The Australian and Queensland Health are at the forefront of science in reporting on their front page that "A 'GROWING body of evidence' that wind farm noise could have health effects has prompted Queensland Health to call for caution when approving wind farm developments. Queensland Health has in effect become the first government health agency to recommend that wind turbines not be built within 2km of homes."
I was surprised to hear this. I don't have the evidence, but someone said to me recently that the independent variable most closely associated with adverse health effects was whether the sufferer had turbines on their land or whether they were on a neighboring property. As it turns out, there is a problem, one that Climate Spectator found: "Climate Spectator called the Queensland Department of Health to verify this report and was told: 'The Australian report is not correct.'"
IPART did not release their draft report in mid May since they are thinking of moving directly to a final position. Sometimes the authenticity of these consultation processes outweighs the public's interest in them. Of course, when people are affected they will ask "why weren't we consulted?" Though theoretically they did get a chance, how many consultation processes are going on right now around the country?
In other consultation related news, the MDBC is at it again. For the third time in five years the basin plan is out; find it here. Remember the Gordian knot? Alexander solved an unsolvable problem with one stroke of his sword. Why go out three times? The answer seems to me that the question has changed. The original question was "what can be sustainably diverted in the various physical segments of the river system?" The question appears to have become "what SDLs will placate the most interest groups in the most areas?"
The Gordian knot metaphor tells me that there are going to be winners and losers in this process. Pretending otherwise is a failure of leadership; but it also prolongs the agony experienced through uncertainty and having hopes built up only to be "let down gently".
The other reality of the situation is that the Commonwealth Rights holder has rather a lot of water already. In a great example of Ready Fire Aim policy, the buyback has been happening for years. I'm wondering whether there are irrigators who think the Commonwealth is underpinning the market and have sold their rights and are buying sales water with the intention of buying back once the Commonwealth leaves the market and prices drop.
IPART has released a discussion paper on customer engagement
on prices for monopoly services. The paper reviews options
for customer engagement. The basis for the paper is stakeholder
engagemnt last year. IPART are keen for feedback on the paper
by 23 March 2012. We think that this feedback would be
feedback on feedback given as a result of feedback from
stakeholders on the feedback process. They do say it's a
Are IBTs dead in the water? Did anybody mandate them in the first place? Our water customer surveys show that consumers know a lot more about their total bill than about the various components of it. They certainly don't realise that IBTs don't make a big difference to the total cost per kl a household pays once the fixed charges are incorporated. Instead, getting rid of IBTs can too easily be seen as water utilities not sending the appropriate conservation signals. Any volunteers to explain a declining cost curve to a local paper?
Many water corporations are drowning in water customer survey, focus group, online forum, consultative committee and written feedback data. This will have been colleced over a period of years by skilled and concerned members of staff in different parts of the organisation. Some of the data were collected for the WSDS, or in the course of annual customer surveys, or in relation to other research projects; but the data are all over the corporation and were collected from different stakeholders at different times using different feedback channels. Unfortunately, many corporations don't have the time or the specialised skills to analyse and synthesise the data into what the WP3 strategists and economists need to make a plan that pays due attention to customer feedback. If only there was a party that could take all the data and draw conclusions that were:
As drafts come together all water corporations are concerned about whether they have satisfied the provisions of the WIRO. If there is any doubt, maybe Insync can be of assistance. Our water industry expertise and data mining capabilities mean that we can turn existing customer data into insight for comms teams and WP3 teams alike.
Recommendation 6.3 of the Productivity Commission's recent report into Australia's Urban Water Sector suggests that tenants should incur the fixed and volumetric water/wastewater charges. Currently, many tenants only pay the volumetric charges. Adding up to $500 of fixed charges per annum would constitute a 4% rent rise for people paying $1,000 per month; or 2% for those paying $2,000. No equalisation measure is suggested by the Productivity Commission, and can anyone see landlords giving a reduction in rent to compensate unless forced to do so?
There are many State based schemes that provide a measure of hardship assistance to concession card holders; however most of these provide only a 15% discount on the water bill.
Despite the inequities and hardships; the current situation makes little sense in terms of incentives. The landlord has the option of investing in water saving infrastructure at the leased property but gets none of the benefit in terms of reduced volumetric charges. The tenant may be faced with wasteful appliances and leaks but is faced with a landlord who has no interest in improving the situation.
Putting all charges onto the tenant doesn't alleviate this situation; since the cannot be expect to install dual flush toilets and water efficient shower heads at their own cost. Much as we abhor any (further) complication of the taxation system; a 150% tax rebate for water saving infrastructure, or simply being able to expense the investment might encourage the right behaviours.
For water authorities, the Productivity Commission has got it right: keep a system that ensures plenty of water is sold and at the same time reduce the overhead with one less bill.
We have until April 2012 to respond to this discussion paper. One key point for discussion is the relative merits of tenders, EOIs, using brokers or online platforms. Like optimising our electricity generation portfolio to cater for present and future needs and taking into account fuel prices, carbon taxes and policy changes; taking a portfolio approach to the instruments where the Commonwealth interacts with the water markets is prudent. The discussion paper can be found at http://www.environment.gov.au/ewater/publications/water-trade-discussion-paper.html .
One question is how the office will weigh, for example, one hundred almost identical submissions from irrigators with that of a Department of Water economics from a University; and the transparency of that weighting. Would a water customer survey help? Where on the IAP2 spectrum should the Commonwealth place its energies?
Postage Stamp Pricing....how far should it go? The tyranny of distance has made postage stamp pricing a generally accepted part of Australian economic life, applied to electricity, gas, water, the NBN and, well, postage stamps. Water consumers in cities regularly subsidise O&M costs of the small towns in their areas without much ado. However, do they know the extent of the subsidies? How fair is it that the largest town in each utility's area has to subsidise the smaller towns, but the next biggest town e.g. Melbourne, doesn't subsidise the regional centres? Hydrogeological arguments don't always hold water in the case, since the small towns in question often draw from separate systems or even groundwater.
You might expect that as a specialist in water customer surveys, focus groups and consulting; we'd advocate a water customer survey in all cases. Often it is a good idea, but how much do customers really know about the existance or extent of subsidies?
In October 2011 the Productivity Commission released its report into Australia's Urban Water Sector. http://www.pc.gov.au/projects/inquiry/urban-water/report We applaud the many recommendations aimed at increasing the economic efficiency of the sector. However, do the recommendations accord with the values of the general public? For example, recommendation 5.1 suggests that regional urban water authorities be allowed to trade water unless there is a net public benefit in prevent such trade. Insync's water sector research shows that public acceptance of agricultural trade is not universal, let alone acceptance of trade at the utility or household level. The fact of the matter is that as a utility, and an emotive one at that, water attracts passion and apathy in equal measure.
Water Plan 3 planning is now well underway. There are team(s) doing the hard work of calculating the revenue requirement, and have long lists of projects that need to be done.
Some of these projects will be compliance based, in response to DSE directives. Others will be to replace aging infrastructure, augmenting existing infrastructure and supplying new water and sewer services where none previously existed.
Apart from capital works projects; no doubt corporations are considering how to build and sustain the capabilities of their organisation, forecasting the cost of Learning and Development, salary increases and changes to headcount.
Lastly, there are leases, overheads and hobby horses to consider.
On top of these considerations there are new board members, in some cases even a new chair. The extent to which these people will change priorities is unknown, for now.
The revenue requirement will be built up out of all these initiatives, but do organisations' aspirations, strategies and key business drivers provide enough guidance to prioritise them? Do corporation execs know how their board would have them choose between fixing an expected sewer blockage point and replacing part of a treatment plant? Perhaps you should make a bandaid fix to the blockage in order to bring the treatment plant upgrade forward by two years, even though the total cost would increase.
There are other hard questions that corporations face in building the revenue requirement. Should they upgrade the GIS system before augmenting supply in areas where usage might exceed capacity if household demand returns to 220kl? If you augment supply but post drought usage never bounces then you will be open to accusations of gold plating your infrastructure.
Feel free to get in touch if prioritising your spend is proving difficult. A water customer survey might help to incorporate the voice of customers; but there are many other drivers of business success that also need to be factored in.
Can regional urban water utilities ever buy water from willing agricultural sellers without a public backlash? One might as what is it about the words "willing sellers" that doesn't get through? Instead, towns are characterised as stealing water, robbing entire regions of their livelihood and taking advantage of people in need. The most obvious explanation (unless you think the general public are stupid) is a lack of education. With an aging farming workforce, selling water provides many with a retirement option that doesn't involve leaving the farm. For farmers in financial need, the only thing worse than selling water would be not being able to sell it. Judging by the backlash, water utilities would be well served by increasing their marketing spend now so that these actions are better accepted when the next drought comes.
Of course, there's another important side to the "willing sellers" debate. That's the side of the farmers left with an increasing share of the maintenance costs of channels. This only applies in some jurisdictions. In others, even if the water is sold, the obligation to pay for the maintenance of the channel remains. For farms where the water has been sold but that still have a $10,000 per annum bill from the irrigation company, the net value of the land is very low indeed; especially if annual rainfall is less than 400mm.
The beach in Bali: the tragedy of the commons overcome. Since Garret Hardin opened the "pandora's can of worms", economists have told us that private goods are better preserved than public goods, which are usually undersupplied and overused. Some public goods, such as a beach, clearly benefit from private responsibility, such as the beach in Bali. Each 20m stretch is leased by a person hiring sun lounges and umbrellas. Further space is sublet to those who rent surfboards and food stalls. Dawn finds the beach deserted apart from leaseholders cleaning their stretch of every spec of flotsam so that customers will be attracted to the beauty of their leasehold. Thus is the tragedy of the commons avoided.
Carving up water is both literally and legally difficult. However, there are obvious benefits to be gained from ownership, regardless of whether the owner is a farmer or the environmental water holder. Economic efficiency would probably be maximised by full tradability of all water; which would entail the environmental water holder selling in drought years at high prices and buying in normal years at low prices to provide our rivers with the floods they need. Are the public ready for this though? How are we going to explain why the "government" is selling the natural environment short while farmers "waste" water.
Meanwhile, in Victoria and the ACT, it's ironic that 2011/12 is the year when water corporations have to work out how much water their customers are going to demand from 2013 to 2018. The irony is that past data would suggest that customers don't use water no matter how much it rains. They didn't use it in drought and they're not using it in flood.
Of course, we will all use scenarios that forecast a return to medium amounts of rainfall; which would suggest that for once there will be a happy co-incidence of high supply and high demand. Usage will inevitably jump from drought lows, and post drought new lows to 200kl (ish) per household. If winters are wet and summers are hot some utilities might even be in danger of making too much profit, something the ESC will just love.
The WIRO requires utilities to demonstrate that customers have been engaged in decisions on tariff structures and major spending. This means that more than the usual water customer satisfaction survey to inform WP3.
However, there's a bit of a chicken and egg thing going on here. We only know the revenue requirement once we know how much infrastructure we have to build. We only know the infrastructure requirement once we know the public's preferences for supply and security, and we only know the supply and security preferences when we can put a dollar value on them.