Annual Report FY 11/12

Chairperson’s Introduction

This report gives details of the activities of the Queensland Competition Authority over the financial year 2011-12, in regulating Queensland’s coal-export infrastructure (ports and rail), its electricity and gas markets and the water sector. It also reports on the establishment of a new research unit established during the year and notes that the Queensland Competition Authority Act 1997 (the QCA Act) was amended in June 2012 extending the range of matters that the Ministers can refer to the Authority for investigation. This allowed the establishment of the Office of Best Practice Regulation (OBPR) via which the Authority will be advising on the measurement of and reduction in the burden of a wide range of government regulations.

Rail
A key activity as far as the coal-export infrastructure is concerned has been the attempt to resolve issues that were left unresolved in the 2010 QR Network Access Undertaking. Most important is an investment framework that seeks to introduce user-funding options for network. Progress on solving the practical problems associated with this has been disappointingly slow. Resolution will lighten the hand of regulation by replacing the need for the Authority to adjudicate on appropriate funding conditions on a case-by-case basis with a competitive mechanism. The problems of relying on case-by-case adjudication are well illustrated by the approval process for the Wiggins Island Rail Project. Drawn out by delays in identifying that negotiations were formally underway and by court action that QRN eventually with drew, this process ran from early 2011 until May 2012.

Energy
As in previous years, the Authority’s most prominent role in the electricity and gas markets is its setting of regulated retail electricity tariffs. For prices to apply in 2012-13, the Authority used a new N (network) + R (retail) approach, designed to ensure that tariffs reflected costs more accurately than under the previous Benchmark Retail Cost Index (BRCI) method. This led to modest increases in the tariffs, due largely to the introduction of the carbon-pricing scheme and reflecting the current relatively low level of wholesale electricity prices. I note, however, that the Authority’s 2012-13 determination is currently under legal challenge by Origin Energy.

Water
With regard to the water sector, the Authority undertook three main activities: continuation of its monitoring of the prices, costs and revenues of the South East Queensland (SEQ) water retailers; investigating and recommending the grid service charges paid by the Water Grid Manager for the supply of bulk water; and a major review of the prices to be charged by SunWater for the supply of water to irrigators over the period out to 2017. The recommendations of the SunWater review identified significant potential cost savings, rebalanced irrigation prices to better reflect cost drivers and sough to promote improved engagement between SunWater and its irrigation customers. The recommendations have all been accepted by the State government.

Research
The Authority has established a new research unit and appointed a highly qualified economist with extensive policy experience to head it. The unit will provide technical support across all areas of the organisation and ensure that the Authority remains a leader in regulatory thinking and practice.

In closing, I would like, once again, to acknowledge the great effort that has been required, especially by the Authority’s employees but also by my fellow Members, in meeting the Authority’s challenging responsibilities. I thank them all for their efforts over the last year and am confident that they will continue to rise to whatever challenges are thrown up by what I hope will be an expanded range of responsibilities in the year ahead.

Brian R Parmenter
Chairperson