22 June, 2016 | Transport
On 10 June 2016, the QCA released its final decision on Queensland Rail’s (QR’s) draft access undertaking proposal (DAU), submitted in May 1015. This has been a lengthy process, having initially kicked off when QR submitted its initial DAU in March 2012 for an intended commencement date of June 2013. The QCA now requires that QR submit a new DAU that complies with this final decision by 16 August 2016.
QR’s initial objective was to create a light handed regulatory framework, consistent with it being a vertically separated provider of freight services with little, if any, potential to earn monopoly rents given the nature of its users. While the QCA’s recommended regulatory framework is clearly less onerous than for the neighbouring Aurizon Network, this final decision will still create significantly more intensive regulation than QR had sought.
In this decision, the QCA has affirmed its legal interpretation of some key principles in the QCA Act, which has set the basis for its decision:
The most contentious aspect of this regulatory review has been the development of a reference tariff for West Moreton coal services. This has been complicated as the West Moreton system was developed over 100 years ago for agricultural freight purposes and remains a mixed use railway, and coal services also need to traverse the Brisbane metropolitan area, designed for high frequency passenger services.
The QCA has rejected QR’s proposed reference tariff of $19.41/000gtk – which reflected a continuation of the current tariffs, instead recommending $17.92/000gtk west of Brisbane, and $16.66/000gkt through the metropolitan network (on average, around $17.54/000gtk for the entire journey – 10% lower than sought by QR). Further, the QCA requires that QR refund approximately $32m to users, to reflect the difference between actual tariffs applied from July 2013 to June 2016 compared to the reference tariff that the QCA considers should have applied from that date. While there are significant differences between the QCA’s draft and final decision, we note that the overall financial impact is similar, with the October 2015 draft decision reflecting a proposed average reference tariff of around $17.50/000gtk and an estimated tariff adjustment of $27m.
QR had calculated a ceiling price of $34.92/000gtk, but proposed a lower ‘commercially prudent’ reference tariff. The QCA has rejected this ‘de-coupled’ approach as providing no regulatory certainty for users beyond the current regulatory period and instead requires that the tariff be based on a well understood process that derives the price from the underlying costs and revenues.
Key elements of the QCA’s methodology are:
The age and condition of the West Moreton System means that the infrastructure standard is well short of that required for a modern, heavy haul railway. The QCA has recognised the high expenses incurred in sustaining this rail infrastructure, while acknowledging that these are driven by the nature of the underlying assets. Key elements include:
Contrary to prior expectations, QR’s 2015 DAU did not provide for retrospective application of the new tariffs to the expiry date of the previous ones (July 2013). The QCA has maintained its approach of requiring a tariff adjustment to reflect its assessment of the resulting over recovery of revenue by QR, albeit in a modified form. In its response to the draft decision, QR had argued that this would be a retrospective application of regulation and as such beyond the QCA’s powers.
Consistent with its draft decision, the QCA accepts QR’s general approach to negotiating access, but requires significant amendment to clarify arrangements and create more stringent obligations on QR.
22 June, 2016 | Transport