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Regulatory frameworks are evolving to place consumers at the heart of decision-making. "Excellence in Consumer Engagement: 10 Fundamentals" explores the shift from traditional regulatory processes—where decisions were imposed on consumers—to a model where consumers actively influence outcomes. The paper identifies 10 key principles that drive successful engagement, including the importance of social license, leadership commitment, and setting the right incentives. Through case studies and real-world examples, it highlights both the risks of poor engagement and the benefits of genuine collaboration. This guide serves as a resource for regulators, businesses, and policymakers looking to enhance consumer participation in regulatory decision-making.
The landscape of consumer engagement in regulation has undergone a significant transformation, moving from a model where consumers had little influence to one where they play a central role in shaping decisions. This paper presents 10 fundamental principles that underpin effective consumer engagement, including commitment from leadership, social license, and consumer empowerment. It examines both successful and failed approaches to engagement, drawing lessons from key case studies such as the Powerlink Queensland electricity transmission decision and Australia’s banking and energy sector reforms. The study also explores the regulatory incentives that encourage engagement, from reputational benefits to financial rewards. By implementing these principles, businesses and regulators can foster trust, improve regulatory outcomes, and create a more balanced and consumer-centric decision-making process.
Over the past decade, we have witnessed a radical transformation in consumer engagement in regulation in Australia. Previously, there was a saying that “regulation is something that gets done to consumers.” Consumers had little input or influence on the process but had to reach into their pockets to pay for the outcomes.
We are now seeing a growing maturity in consumer-centric regulation, where consumers can influence and own outcomes. This is a far superior model for all concerned and worthy of study and repetition.
Make no mistake, it has been a challenging journey. Multiple approaches have been tried, and there have been painful experiences and missteps along the way. There are still pockets of resistance where traditional regulatory detailed analysis is needed.
However, the tide has turned, and the picture going forward looks bright. No one who has experienced a consumer-centric regulatory process wants to return to the traditional regulatory model.
We have identified 10 fundamentals necessary for excellence. In summary these are:
1. Consumer engagement matters. What can consumer engagement add? What is to be gained from the extra time, resources, and cost of engaging with your consumers? Who needs that aggravation?
2. Understanding social licence. Twenty years ago, the term “social licence” was little known. Now it is everywhere. It is not sufficient to have all the necessary regulatory and legal approvals, you also need the goodwill of the community to operate.
3. When it goes badly. The rise of social licence, in part, has been in response to high profile incidents of poor conduct. Unfortunately, there are many.
4. When it goes well. It is harder to identify examples of good consumer engagement because when it is done well, it is quiet, there is no media attention.
5. Commitment from the top. We have seen two regulated businesses undertake almost identical consumer engagement activities, with one being a great success and the other a disappointing failure. The distinguishing characteristic being the involvement at the top of the organization.
6. The right attitude. If you only take one lesson from this paper, let it be this: attitude is everything. Attitude makes the difference between remarkable success and destructive failure.
7. Growing consumers. Perhaps the hardest part of consumer engagement is finding the consumers to engage with. Typically, consumers are busy, dispersed and poorly resourced. The regulator needs to have confidence in the consumers that are taking part in the process.
8. Consumers as partners. The best consumer groups operate on an ongoing basis outsideof the regulatory process, but with special resourcing and focus during the period whenthe regulatory proposal is being developed.
9. Set the right incentives. In some cases, there are natural incentives for consumers and suppliers to effectively negotiate outcomes with little regulatory input. However, in most cases there is not sufficient balance between the supplier and their consumers, and some other incentive is needed.
10. Engagement activities. We have listed this topic last because it is the least important. In the early days, some businesses would approach the regulator and ask for a check list of activities. This completely missed the point. Consumer engagement is not a box to be ticked.
You’re a regulated utility. Your consumers don’t have a choice, they are going to pay and use your company irrespective of whether they like you or not. Your regulator is going to set your revenue according to well established rules.
What can consumer engagement add?
What is to be gained from the extra time, resources, and cost of engaging with your consumers? After all, they are an annoying lot who complain plenty. Who needs that aggravation?
The short answer: there is much to be gained and much to be lost. Consumer engagement, done well, is a supercharger for company value and a strong antidote to serious problems. Done badly (or not done at all), it is the road to destruction.
Competition analysis tells us that companies thrive when they listen well to their customers and act on their wishes. Conversely, companies die when they lose touch and become arrogant.
On the positive side, the Australian Energy Regulator has articulated the benefits of consumer engagement as follows:
Networks that engage in genuine engagement with consumers are likely to result in better quality proposals being submitted to the AER. Proposals that reflect consumer preferences, and meet our expectations, are more likely to be largely or wholly accepted at the draft decision stage, creating a more effective and efficient regulatory process for all stakeholders. By encouraging network businesses to improve their consumer engagement, consumers will be central to the regulatory determination process. This will allow consumers to have a greater influence over the development of regulatory proposals by network businesses and, more importantly, ensure network businesses deliver outcomes valued by consumers.¹
On the negative side, as a utility in a monopoly position, your future is less secure than it appears. Even though your consumers are dispersed and poorly resourced, their collective voices can resound with government. In a crisis, when governments are looking to act, there is no easier, or more satisfying, target than the “greedy monopolist.”
In the face of escalating energy prices, the government is taking action to stop energy networks using the LMR (Limited Merits Review) to extract monopoly rents from consumers.²
There is a fancy name for this phenomenon: “social licence.”
¹ AER, Better Resets Handbook: Towards Consumer Centric Network Proposals, December 2021, page 3.
² House of Representatives, BILLS, Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017, Second Reading Speech, Thursday, 10 August 2017.
Over the past decade, we have seen a radical transformation in consumer engagement in regulation in Australia. Previously, there was a saying that “regulation is something that gets done to consumers.” Consumers had little input or influence on the process but had to reach into their pockets to pay for the outcome.
We are now seeing a growing maturity in consumer-centric regulation, where consumers can influence and own outcomes. This is a far superior model for all concerned and worthy of study and repetition.
Make no mistake, it has been a challenging journey. Multiple approaches have been tried, and there have been some painful experiences and missteps along the way. There are still pockets of recalcitrance where traditional regulatory detailed analysis is needed.
But the tide has turned, and the picture going forward looks bright. No one who has experienced a consumer-centric regulatory process wants to go back to the traditional regulatory model.
Over the past decade, we have seen a radical transformation in consumer engagement in regulation in Australia. Previously, there was a saying that “regulation is something that gets done to consumers.” Consumers had little input or influence on the process but had to reach into their pockets to pay for the outcome.
We are now seeing a growing maturity in consumer-centric regulation, where consumers can influence and own outcomes. This is a far superior model for all concerned and worthy of study and repetition.
Make no mistake, it has been a challenging journey. Multiple approaches have been tried, and there have been some painful experiences and missteps along the way. There are still pockets of recalcitrance where traditional regulatory detailed analysis is needed.
But the tide has turned, and the picture going forward looks bright. No one who has experienced a consumer-centric regulatory process wants to go back to the traditional regulatory model.
The rise of social license, in part, has been in response to high-profile incidents of poor conduct. Unfortunately, there are many, but here are a few to illustrate the point.
Billions of dollars returned to customers. Thousands of pages of new laws. Reams of court cases chastening wrongdoing.³
Not to mention the careers ended (senior executive and board), the regulator humiliated and the companies no longer operating.
The Australian Government established the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry on 14 December 2017. At the time, there was an expectation that some degree of misconduct would be unearthed; however, no one anticipated the breadth and seriousness of the issues. Perhaps the most grievous was continuing to charge fees to people who had died.
The final report concluded:
Very often, the conduct has broken the law. And if it has not broken thelaw, the conduct has fallen short of the kind of behaviour the communitynot only expects of financial services entities but is also entitled to expectof them.4
In 2005, new economic regulation legislation and rules were established for energy networks in Australia. The legislation and rules were highly supportive of the entities that were regulated, including a favourable merits review framework. However, following a series of large price increases led by the regulated networks, action was taken. First, the supportive rules were rebalanced toward consumers.
The rules improve the strength and capacity of the regulator to determine network price increases, so consumers don’t pay more than necessary for reliable supplies of electricity and gas. The new rules better equip the Australian Energy Regulator (AER) to develop methods and processes to achieve efficient outcomes in setting revenues and prices for consumers in several areas. They include how the rate of return on capital is set.⁵
Second, the merits review framework was removed.
To date LMR has increased consumer bills by $6.5 billion.... the Council of Australian Governments (COAG) Energy Council reviewed the LMR regime again in 2016. The review found that the 2013 amendments to the regime had largely failed, including that LMR: remained routine; had significant costs to all participants; presented barriers to meaningful consumer participation; led to significant regulatory and price uncertainty; and was failing to demonstrate outcomes that were in the long-term interests of consumers. In the face of escalating energy prices, the government is taking action to stop energy networks using the LMR to extract monopoly rents from consumers.⁶
⁵ Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry Final Report, VOLUME 1, 2019, page 1.
⁶ House of Representatives, Bills, Competition and Consumer Amendment (Abolition of Limited Merits Review) Bill 2017, Second Reading Speech, Thursday, 10 August 2017
Bad behaviour by mining companies has led to strong community action to limit access. While initially focused on mining, community attention now extends to all types of infrastructure, including toll roads, airports, flight paths, wind and solar farms, mobile phone towers, gas pipelines, electricity transmission lines, and so on. Poor consumer engagement heightens community concerns, leading to delays and cost increases.
The Lock the Gate Alliance was formed in 2010 following meetings in New South Wales and Queensland of landholders, organisations and communities concerned about the ongoing and rapid expansion of coal and coal seam gas development.
A declaration was made farmers would lock their gates to these rapacious industries. Ten years on and the Alliance continues to gain momentum, with rural and urban communities all over Australia stepping up to defend our land, water, and future from the invasive coal and unconventional gas industries.⁷
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