Victorian Transport Infrastructure 2004

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Victorian Transport Infrastructure 2004

• Regulating rail access Victorias recent
  experience
• Thursday 25 March 2004
• John Tamblyn, Chairperson
• Essential Services Commission

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INTRODUCTION AND OVERVIEW

• Outline of Victorian rail access experience
• Light-handed negotiate/arbitrate model
  problematic
• Case-study illustration of a recent dispute
• Talk outline
• the ESC economic regulation role
• Specific ESC role in relation to rail access
• Recent rail dispute outcomes and causes
• Options for improvement?

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THE COMMISSIONS ECONOMIC REGULATION ROLE

• ESC is Victorias independent economic regulator
  of essential infrastructure services
• Energy, water, transport sectors
• ESCs guiding objectives include
• Protect the long-term interests of consumers
• Prevent monopoly conduct/promote efficiency
• Promote long-term infrastructure investment

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ESCs Role in Rail Access

• Balancing interests of service users with the
  requirements of viable service businesses is the
  essential regulatory problem
• The rail access task is to ensure the benefits of
  providing access exceed the costs
• Promoting above rail access for efficiency gains
• Limiting the costs of regulation (admin costs and
  disincentives)

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THE VICTORIAN RAIL ACCESS FRAMEWORK

• Part of reform and privatisation process (1998)
• Negotiate-arbitrate model for access regulation
  
• Emphasis on negotiations/arbitration by exception
• ESCs role to resolve disputes where
• No formal offer of access made
• Parties cant agree terms and conditions
• Access of party is hindered
• Access pricing principles/method in pricing order
• ESC information notices to assist/inform
  negotiations
• Arbitration decisions appealable on merits/law

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Case study Freight Aust/Graincorp Dispute

• First dispute was protracted/legalistic rather
  than light-handed
• 21 months from first application to final
  determination (after appeal) in February 2004
• Initial application was poorly specified
• determination required exchange of info
  resumption of negotiations
• Negotiations unsuccessful/dispute put back to ESC

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Freight/Graincorp Dispute (2)

• ESC sought further info as basis for determining
  the dispute
• delayed responses/partial info supplied/changes
  to info over time
• limited ESC power to obtain info/conducted cost
  benchmark study to fill gaps
• Draft determination subject of protracted debate
  about data, powers, process
• Final determination appealed by F.A on numerous
  grounds (75) largely dismissed
• Redetermination on 3 minor issues published
  months after initial application

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Freight/Graincorp Dispute - Outcome

• The process was heavy handed/NOT light-handed
• Costly, protracted, legalistic
• Did not serve the interests of parties
• Not consistent with objectives of policy
• Questions of WHY this occurred and what CHANGES
  needed to reduce costs/improve results

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Why did this happen?

• The outcome appears due to 3 related factors
• Incentives of a V.I access provider contrary to
  objectives of the access regime
• Regime design based on assumptions about
  incentives/conduct not borne out in practice
• Operational defects shortcomings in regulatory
  principles and powers
• On the positive side the process has had benefits
• ESC has learned from the process/analysis
• Determinations/appeal have established precedents
• Shortcomings of regime have been identified and
  can now be addressed

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Key features of regimes in other jurisdictions

• Vertically integrated operator regimes
• SA WA negotiate arbitrate/tariff floors
  ceilings/info powers
• QLD undertaking/reference
  tariffs/tariff floors
  ceilings/info powers
• Vertically separated operator regimes
• NSW undertaking/reference tariffs
• ARTC undertaking/reference tariffs

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Options for improving Victorian regime

• Emphasise these are policy matters
• Status quo given recent lessons/experience
• Negotiate-arbitrate model with strengthened
  principles and information powers
• As above with addition of reference tariffs
• Adopt undertaking/reference tariff model
• Structural possibilities probably not feasible
  EG
• Revert to regulated VI monopoly model (CPA obs)
• Vertical separation of privately owned business