A practical application for PREMO regulatory framework

PREMO regulatory framework

The Essential Services Commission were seeking to design a new framework for implementing their new approach to pricing water in Victoria. This proposed framework, entitled ‘PREMO’ (Performance, Risk, Engagement, Management, Outcomes), will incentivise water businesses to work with their customers and deliver outcomes that reflect customers’ priorities.

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The PREMO framework requires a business to use customer engagement to identify the outcomes that customers require and manage risk, cost and resulting outputs, to deliver those customer outcomes and whose performance the business must manage and be accountable to customers.

KPMG was engaged to develop the Commission’s assessment framework, performance monitoring arrangements and price adjustment mechanisms.

PREMO regulatory framework overview

PREMO will:

  • require businesses to work with their customers to develop a submission that meets each of the four PREMO assessment elements: Risk, Engagement, Management accountability, Outcomes (the assessment elements or PREMO elements)
  • require businesses to self-assess that submission against four possible ratings: Leading, Ambitious, Standard and Basic
  • involve the Commission in completing its own assessment, looking at each submission, and also completing a relative comparison between businesses
  • allow the Commission to set the level of return that each business will be allowed to earn during the regulatory period, based on the two assessments.
  • include ongoing monitoring of performance during the regulatory period, and potential for the Commission to take action if a business does not deliver to their customers what they have promised.

Our detailed three-part report covers a practical application of the PREMO framework, the PREMO Assessment Tool and an outline of detailed questions and lessons and assessment frameworks from implementing PREMO in the UK.

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