The Queensland Government has reviewed the QCA's Draft Methodology Paper and provides the attached submission for your consideration.

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1 Queensland Gvernment Hn Stephen Rbertsn MP Member fr Stretln MBN5579 Mr B Parmenter Chairman Queensland Cmpetitin Authrity GPO Bx 2257 BRISBAN QLD 4001 Minister fr nergy and Water Utilities 06 DC 2011 Dear Mr Parmenter The Queensland Gvernment welcmes the pprtunity t prvide cmment n the Queensland Cmpetitin Authrity's (QCA's) Draft Methdlgy Paper fr Regulated Retail lectricity Prices The Queensland Gvernment remains cncerned abut the pressure that increases in the cst f living, including rising electricity csts, are placing n husehld budgets, and has cnsistently advcated in previus pricing decisins that nly genuine increases in csts f supply be passed n t cnsumers. With the intrductin f the new price setting methdlgy in , the Gvernment wishes t again stress that the Authrity must cnsider the impact f price rises n cnsumers when determining regulated prices. T assist in mitigating the impacts f a mve t cst reflective tariffs n cnsumers, the Gvernment has apprved an inclining blck tariff (IBT) structure fr residential custmers. The IBT is designed t encurage custmers t cnserve electricity by charging a fixed supply charge and a series f cnsumptin blcks priced s the mre yu use, the mre yu pay. Under this apprach, the impact f mving t a cst reflective pricing structure n lwer cnsumptin custmers will be lessened. The Gvernment will als undertake an assessment, as ccurs every year, f the energy rebates and cncessins and hw their value can be maintained t prtect vulnerable husehlds. The Queensland Gvernment has reviewed the QCA's Draft Methdlgy Paper and prvides the attached submissin fr yur cnsideratin. Cnsistent with previus submissins, the Gvernment again wishes t emphasise that nly genuine increases in csts shuld be passed nt cnsumers thrugh the ntified prices. Levell? 61 Mary Street Brisbane 4000 PO Bx City ast Queensland 4002 Australia Telephne +6! Facsimile mail energy@ministerial.qld.gv.au ABN

2 I thank yu fr yur cnsideratin f these matters. If yu have any questins regarding my advice t yu, Mr Stuart Bushett, Acting Directr, nergy Markets and Pricing Plicy, f the Department f mplyment, cnmic Develpment and Innvatin, will be pleased t assist yu and can be cntacted n telephne STPHN ROBRTSON MP Att

3 -c: CI) C a; ~ c.~ c: 8 w... c: CI) > 0. w '0 C Q) t <1l Q. Q) ~ _... _._ _.... _ Submissin t the Queensland Cmpetitin Authrity Respnse t the Draft Methdlgy Paper n Regulated Retail lectricity Prices: Prepared by the Department f mplyment, cnmic Develpment and Innvatin December 2011 Tmrrw's Queensland a Queensland ~'"' Gvernment

4 INTRODUCTION The Queensland Gvernment welcmes the pprtunity t prvide feedback t the Queensland Cmpetitin Authrity (QCA) n its Draft Methdlgy Paper n Regulated Retail lectricity Prices The Queensland Gvernment remains cncerned abut the pressure that increases in the cst f living, including rising electricity csts, are placing n husehld budgets, and has cnsistently advcated in previus pricing decisins that nly genuine increases in csts f supply be passed n t cnsumers. The disasters f early 2011 have had an unprecedented impact n Queenslanders and the impact has been felt acrss all facets f the cmmunity including residents, businesses, and cmmunity rganisatins. Adversely affected Queenslanders are already facing an up-hill battle t restre sme balance t their everyday lives and business. The Queensland Gvernment wishes t d all pssible t cntinue t aid in this recvery. The Gvernment appreciates the wrk the Authrity has undertaken t date in the implementatin f these significant refrms t Queensland's regulated retail electricity prices (ntified prices). In line with previus submissins t the QCA, the Gvernment reiterates that ntified prices are an imprtant feature f Queensland's electricity market. This 'safety net' plicy is especially imprtant fr custmers in reginal and remte lcatins where the cst f supply is higher than the ntified prices, and as a result the Queensland Gvernment subsidises the supply f electricity t these custmers. One f the mst significant factrs driving price rises is the cntinued increase in peak demand. Hwever, it is imprtant that regulated prices reflect the nging investment in Queensland's netwrk infrastructure necessary t ensure safety and reliability f supply. Residential demand remains a key cmpnent f the strng grwth in demand. Grwth in peak demand in SQ, which has a high residential cmpnent, is frecast t average apprximately 3.9 per cent ver the next ten years 1 (up frm 3.4 per cent in the 2010 Pwerlink Annual Planning Reprt), and cntributes 2,152 megawatts (MW) r arund 52 per cent f the 4, 166MW verall increase in peak demand acrss Queensland frecast by Als, in cntrast t the rest f the State, peak demand grwth in SQ is significantly higher than verall cnsumptin grwth, reflecting the increasingly 'peaky' nature f demand in this regin. T meet these challenges the distributin cmpanies, NRGX and rgn nergy, have had t spend sme $10 billin since 2005 and expect t spend abut $15.6 billin between 2010 and 2015 n their electricity netwrks (capital and perating csts). This level f expenditure is needed t cpe with the cntinued grwth in bth ppulatin and peak demand, and has been set by the Australian nergy Regulatr, the independent federal bdy charged with making this determinatin. The new pricing structure the Gvernment is implementing is a fairer system and will aim t prvide incentives fr cnsumers t use electricity mre efficiently while prviding greater certainty t Queensland cnsumers and retailers. This will assist in ensuring the nging cmpetitiveness f the Queensland electricity market t the benefit f cnsumers. 1 Pwerlink Annual Planning Reprt 2011 Submissin t the Queensland Cmpetitin Authrity Respnse t the Draft Methdlgy Paper n Regulated Retail lectricity Prices 2012 ~ 13 2

5 NW DOMSTIC (RSIDNTIAL) TARIFFS Frm 1 July 2012, Queensland electricity cnsumers will see the intrductin f a Netwrk (N) + Retail (R) cst build-up (building blck) apprach t setting ntified prices, where retail and netwrk tariffs are aligned. In cnjunctin with this new cst reflective N+R methdlgy, an inclining blck tariff (IBT) structure will be intrduced fr dmestic custmers n the general residential/dmestic tariff instead f the current flat rate charges. The IBT is designed t encurage custmers t cnserve electricity by charging a fixed supply charge and a series f cnsumptin blcks priced s the mre yu use, the mre yu pay. Frm 1 July 2012, residential cnsumers will als have the ptin f mving t a vluntary Time-f-Use (TU) retail tariff fr thse with the apprpriate metering. TU tariff structures allw fr electricity price variatins acrss different times f the day r week, reflecting differences in the underlying csts f prviding electricity during these times. By allwing such price variatins, custmers can be prvided with incentives t shift lad away frm higher priced peak perids t times when prices are lwer, thus achieving a reductin in electricity csts. TU tariffs have the ptential t assist in reducing cnsumptin and peak demand by sending price signals at times when demand n the netwrk (and therefre cst f supply) is greatest (generally between 4pm - 8pm Mnday t Friday, hwever these times are yet t be finalised). Custmers wh have the flexibility t shift their cnsumptin frm peak perids t ff-peak perids, and wh are sensitive t price, are likely t benefit mst frm a TU pricing structure. CONSUMR ASSISTANC lectricity is an essential service with a generally lw elasticity f demand. The Gvernment is cncerned abut the impact f electricity price rises n husehld budgets, particularly fr thse facing financial and ther barriers t reducing their cnsumptin thrugh energy efficiency measures. There is evidence that as prices rise, lw-incme husehlds are at greater risk f being frced t cnsume less than a basic, reasnable quantity f electricity, suffer fuel pverty r lse access t supply thrugh discnnectin. T address these risks, the Queensland Gvernment has established a cncessin framewrk which prvides assistance in meeting the cst f electricity supply t: ligible pensiners and senirs (thrugh the lectricity Rebate); Residents reliant n eligible life supprt equipment (thrugh the lectricity Life Supprt Cncessin Scheme); Residents reliant n heating and cling t manage specified medical cnditins (thrugh the Medical Cling and Heating lectricity Cncessin Scheme); and Husehlds requiring ne-ff assistance where an emergency r crisis limits their ability t pay their energy bills (thrugh the Hme nergy mergency Assistance Scheme). The Gvernment will cnsider the impact f the new tariffs n energy affrdability. This will include an assessment, as ccurs every year, f the energy rebates and cncessins and hw their value can be maintained t prtect vulnerable husehlds. Submissin t the Queensland Cmpetitin Authrity Respnse t the Draft Methdlgy Paper n Regula ted Retail lectricity Prices

6 In additin, the Queensland nergy Management Plan cntains several initiatives aimed at assisting vulnerable husehlds t reduce energy cnsumptin and access energy efficiency measures. These include: imprving the energy efficiency f state-wned scial husing stck; establishing a Scial Plicy Taskfrce t investigate the scial impacts f changes t energy csts; undertaking demand management pprtunities in remte and islated cmmunities; and investigating ways t encurage energy efficiency in leased prperties in the residential sectr. NRGY FFICINCY The Queensland Gvernment remains cmmitted t assisting cnsumers imprving energy efficiency in husehlds and businesses. The ClimateS mart Hme Service is available t assist husehlds by installing energy saving devices, prviding custmers with behaviur change tls and ffering detailed, tailred advice n ways t reduce energy use. The ClimateSmart Business and Business Cluster Prgrams help Queensland small and medium enterprises lwer greenhuse gas emissins, save n energy, water, materials and waste, and reduce business csts. These prgrams are part f the Queensland Gvernment's ClimateSmart Living initiative aimed at reducing Queensland husehlds' greenhuse gas emissins, imprve energy efficiency and save mney n husehld electricity bills. COST COMPONNTS nergy Csts The Gvernment ntes that the QCA prpses t use a market-based apprach t estimating whlesale energy. The Gvernment acknwledges the cmplex task facing the QCA in determining an apprpriate apprach t estimate whlesale energy prices and supprts the nging prcess f cnsultatin being undertaken by the QCA t find a wrkable methdlgy fr estimating energy csts. In the Draft Methdlgy Paper, the QCA nted that, if a carbn tax is implemented n 1 July 2012, the csts assciated with this tax will need t be accunted fr in the energy purchase cst. The QCA has indicated that in calculating whlesale energy csts, ACIL Tasman intends t run tw pricing scenaris - ne that is carbn-inclusive and ne that is carbn-exclusive. If a carbn tax takes effect frm 1 July 2012, the QCA will apply the carbn-inclusive scenari t its energy cst allwance. If nt, the carbn-exclusive scenari will be used. The Queensland Gvernment supprts this apprach. Retail Csts The QCA intends t include allwances fr retail perating csts, custmer acquisitin and retentin csts, and a retail margin in its calculatin f the retail cst cmpnent f the regulated retail tariffs. In relatin t the retail margin, the QCA intends t undertake an assessment f the apprpriateness f the current margin f five per cent in the cntext f margins adpted in ther jurisdictins. This apprach is supprted. Submissin t the Queensland Cmpetitin Authrity Respnse t the Draft Methdlgy Paper n Regulated Retail lectricity Prices

7 OTHR ISSUS The Queensland Gvernment als specifically ntes the fllwing : Farming and Irrigatin Tariffs In relatin t farming and irrigatin tariffs and custmers supplied under the Rural Subsidy Scheme r in drught declared areas, it is nted that the QCA has indicated it may cnsider transitinal prvisins nce financial impacts f changes t these tariffs are knwn. Cnsistent with the TR, the QCA is encuraged t ensure that adequate levels f cnsultatin with these stakehlders are undertaken. Implementatin Issues The QCA acknwledges that in ratinalising the tariff schedule (remval f bslete and declining blck tariffs), there may be sme disruptins fr sme custmers. The QCA has als nted that it will cnsider the impact f these changes and may cnsider transitinal arrangements t smth the changes nce the level f impacts is knwn. This apprach is supprted by Gvernment and the QCA is encuraged t cnsult as necessary with affected stakehlders t minimise the impacts f these electricity price refrms. Card Operated Meters (islated cmmunities) With regard t the treatment f card perated meter custmers in rgn nergy's islated cmmunities, it is nted that an inclining blck tariff structure cannt be applied t card perated meters as they are nly capable f capturing a flat rate. The QCA has indicated it may be necessary t create a separate regulated tariff applicable t these custmers nly. The Gvernment acknwledges this issue and supprts this apprach by the QCA. CONCLUSION The Queensland Gvernment emphasises the imprtance f ensuring that nly genuine changes in the csts f electricity supply are passed nt cnsumers. It is acknwledged that if prices d nt rise in line with the cst f supplying electricity, the secure prvisin f electricity t Queensland cnsumers - including husehlds - will be at risk. Hwever, the Gvernment als stresses the QCA has a respnsibility t ensure price rises are n greater than necessary t cver cst increases. The Gvernment cnsiders that the level f transparency prvided by the QCA and ACIL Tasman in the Draft Methdlgy Paper is apprpriate and cnsistent with gd regulatry practice. Such an apprach facilitates an pen and cnstructive cnsultatin prcess. Submissin t the Queensland Cmpetitin Authrity Respnse t the Draft Methdlgy Paper n Regulated Retail lectrici ty Prices