Water, electricity, gas & waste
Insync Surveys specialises in surveys, research and consulting in the utilities sector.
From staff surveys of utilities to:
- surveys of exiting staff
- customer perceptions surveys
- strategic thinking about bringing tariff structures into line with community expectations
- assessments of uptake rates on new water products
- choice modelling and willingness to pay studies
Insync Surveys 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.
December 2012: percentage of bill attributable to peak demand infrastructure
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.
November 2012: percentage of bill attributable to peak demand infrastructure
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?
November 2012: Involving customers in network decision making.
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.
October 2012: New ideas in water.
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.
September 2012: Cheap. Reliable. Green. Pick two.
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.
September 2012: Why economics without community engagement just doesn't work
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.
August 2012: What's driving up our electricity bills: carbon tax, State Govt revenue raising or infrastructure gold plating?
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.
July 2012: The diminishing "in year spend" percentage of utility companies' budgets
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.
August 2012: If La Niña is gone for now, when are the next restrictions coming on?
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.
May 2012: Is there new evidence on infrasound?
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.'"
May 2012: IPART revises timelines on customer engagement strategy
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?
May 2012: MDBC v3.0
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.
February 2012: IPART releases customer engagement discussion paper
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
January 2012: Are Inclining Block Tariffs dead in the water?
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?
December 2011: Do you already have enough customer information to satisfy your WIRO requirements for WP3?
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:
- Completely based on evidence and not opinion based
- Useful for WP3 staff and
- Expressed in plain language
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 Surveys 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.
December 2011: The issue of tenants
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.
November 2011: Discussion paper released by Commonwealth Environmental water.
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?
October 2011: How far can a postage stamp go?
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?
October 2011: Productivity Commission report into Australia's Urban Water Sector
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 Surveys' 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.
September 2011: How to choose between hundreds of infrastructure projects
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.
August 2011: The externalities of "willing sellers"
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.
July 2011: Should all water be owned?
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.
April 2011: The WIRO requires corporations to test tariffs with customers
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.