Interim authorisation for Queensland interim electricity market

Interim authorisation for the transitional Queensland electricity market has been granted by the Australian Competition and Consumer Commission.

The interim authorisation will apply to allow a more detailed examination of the new arrangements through public consultations and completion of the full authorisation process.

The interim authorisation protects the parties from prosecution under the Trade Practices Act. The ACCC can revoke the interim authorisation at any time.

The ACCC's decision allows the Queensland market to begin on 1 October 1997, as planned, and continue into 1998 until the national market arrangements commence. At that time the Queensland market will adopt much of the National Electricity Code in line with other jurisdictions.

These arrangements represent a major transitional shift in Queensland which is designed to achieve consistency with the national electricity arrangements and the reforms that have occurred in other States, ACCC Chairman Professor Allan Fels, said today. These steps will enable Queensland to introduce competitive trading arrangements based on a local spot market, increased customer choice and the entry of new retailers, all of which will ultimately converge with the national electricity market.

Another key factor in the ACCC's assessment of the public benefits from these arrangements is the substantial progress made during 1997 in implementing significant reforms in Queensland.

The ACCC's examination of the Queensland reforms is consistent with its approach to the national electricity market. The ACCC noted several important reforms such as: the restructuring of the generation and retail sectors to enable competition; the entry of new generators over the 1998-2000 period; the creation of a 'ring-fenced' Queensland System Operator to manage the spot market; the gradual removal of customer franchise restrictions; the proposed mutual recognition of interstate retailers; and the role of the Queensland Competition Authority as an independent regulator.

At the same time, the ACCC recorded its concerns about several features of the Queensland arrangements. In particular the ACCC is seeking further clarification on, and/or justification of:

• long-term generator agreements which allow for variations from the market procedures and technical standards of the national code;
• the status of customer agreements and retail licensing which may impede the full delivery of customer contestability and entry by new retailers by January 1998;
• the basis for setting regions and network losses initially by a government body; the extent to which system interventions distort the market-based dispatch process, particularly in regard to the dispatch of ancillary services and the management of frequency bands;
• the duration and interstate effects of a number of the derogations from the national code; and
• vesting contracts and network pricing arrangements to be decided later this year.

Additionally, the ACCC said the Queensland electricity arrangements should be amended, to the extent it is practicably possible during the interim period, to reflect the conditions on the ACCC's authorisation decision for the National Electricity Code (to be finalised in October).

The ACCC emphasised that a range of concerns common to all the States would be addressed in its final decisions on the National Electricity Code (due in October), including the proposed Queensland / New South Wales interconnector.

Uniformity will be a major test of the national market so it is appropriate both the Queensland and national arrangements co-ordinate their efforts to achieve those additional benefits the Commission is seeking, Professor Fels said.

The ACCC will continue its public consultations on the Queensland interim arrangements. In particular, it will re-examine the implementation of the new market in November when an application will be made to incorporate the Queensland arrangements, including network access and pricing, into the longer term national scheme.

Further information on this media release Professor Allan Fels, Chairman, (03) 9290 1812 or pager (016) 373 536 Ms Lin Enright, Director, Public Relations, (02) 6264 2808

Background

Queensland Electricity Reforms

Reform of the Queensland electricity industry follows similar reforms in Victoria and New South Wales, the development of the National Electricity Code and the review undertaken in 1996 by the Queensland Electricity Task Force.30 September 1997

Structural change30 September 1997

The program of structural and regulatory reforms include:

creation of three government-owned generation companies out of the AUSTA group; the planned introduction of new generators into the market before 2000; corporatisation of the seven distribution bodies; creation of three local retail corporations; the entry of new retailers into the market in 1998, including interstate retailers; the progressive removal of customer franchises from January 1998, allowing for customer choice of supplier and retail competition; physical interconnection with the southern states and the ACT by 2001.

Market arrangements

Largely based on the National Electricity Code, the main features of the Queensland market include:

a common electricity pool serving the Queensland system; generators and loads being subject to a single central dispatch process; all wholesale trading is conducted through the pool, but participants are free to enter into contractual relationships with any counter-party of their choice; a wholesale spot market settlement function.

From January 1998, the customer franchises held by the existing retailers will be progressively removed to enable electricity users to either purchase electricity directly from generators or from other retailers.

Implementation of the Queensland market

The application to the Commission states that the Queensland market be implemented in three main stages.

Stage 1 - Interim Trading Arrangements and Queensland Interim Market

Between October 1997 and December 1997 the trading arrangements will allow participants to test the new trading and settlement systems; and gain experience in wholesale electricity market trading. From January 1998 through to the commencement of the national market (expected on 29 March, 1998), Queensland will operate its own stand alone market.

Stage 2 - NEM Operation in the Queensland Isolated System

From 29 March 1998 to the interconnection date (expected in 2000 or 2001) the Queensland electricity market is to operate according to the National Electricity Code with appropriate derogations to facilitate the transition to the fully competitive NEM.

The electricity market in Queensland will be operated as a fully participating element in the NEM.

To manage the transition to the NEM, Queensland will put in place specific derogations from the national rules. These derogations will contain technical and transitional arrangements to apply in Queensland and will aim to:

manage the transition to the competitive market; ensure that the operational requirements of the Queensland system are provided for; accommodate the Gladstone Power Station Agreement Act 1993 arrangements; provide transitional arrangements for certain existing power purchase and electricity sale agreements; provide certain specific derogations for code participants in Queensland from technical standards in the NEC; nominate regulatory arrangements applicable in Queensland in accordance with the NEC; exempt isolated systems within Queensland from the NEC; and enable Queensland Government policies in relation to retail pricing in remote and rural areas of the State to be given effect in a way which is least disruptive to the operation of the market.

The Queensland derogations will be submitted by NECA as an amendment to its application for authorisation of the NEC and approval of the NEC as an access undertaking submitted to the ACCC on 13 November, 1996.

Stage 3 - Full NEM Operation

From the date of interconnection the market for electricity in Queensland will be linked to the southern states and the ACT with the trade in electricity continuing to be governed by the NEC.