ComCom to step in over high fuel prices

The government will give the Commerce Commission new powers following concern petrol companies are charging too much.

The Commerce Commission will be given new powers to compel fuel companies to provide more information on how fuel prices are set.

The government plans to amend the Commerce Act to have new market study powers by the end of 2018, which will help determine if any further action in the fuel market needs to be taken.  

This follows a Ministry of Business (MBIE) update on the Fuel Market Financial Performance Study, which highlighted concerns that petrol companies were charging too much for fuel.

The update, in the form of a briefing to Energy and Resources Minister Megan Woods, suggests the government assesses three options.

The first is to “let the market play itself out,” with the government taking a hands-off approach and limiting its role to just simply monitoring the market.

The second option suggests exploring further analysis through a Commerce Commission-led market study – this could lead to regulatory intervention.

The last option is direct government intervention but any information as to what this could entail has been redacted from the briefing paper.

MBIE recommends the government adopt the second option as providing any strong recommendations on government intervention before a market study has been undertaken would be “premature.”

“This briefing suggests amending the Commerce Act to give the Commerce Commission powers to conduct market studies, supported by information-gathering powers. This would be the preferred vehicle for undertaking this task.”

Ms Woods and Commerce and Consumer Affairs Minister Kris Faafoi have opted for the middle ground and asked officials to fast-track work to enable the commission to undertake market studies.

“This power compels companies to provide information to the Commerce Commission to fully understand how markets are functioning,” Mr Faafoi says.

He adds that having thorough information and “shining a light on a market” enables the government to decide if “more action needs to be taken.”

But what “more action” could mean is unclear as any mention of options for government intervention in the fuel market within the briefing is redacted.

However, the briefing says any of these options “would require legislative change and result in varying degrees of disruption, and associated risks, to current industry practices.”

Z Energy spokesman Jonathan Hill says he welcomes the Commerce Commission's new role as consumers deserve to have questions answered with facts. He says the petrol company has allowed the release of its submission to MBIE for this stage of the process with only minimal redactions.

"We need to categorically and, once and for all, get to the bottom of this issue and provide the facts and assurances that consumers and stakeholders want and deserve," he says. "The reviews so far have been inconclusive and a Commerce Commission market study seems a sensible way to go about it."

A long and costly process
MBIE says a market-led study by the Commerce Commission is likely to be “lengthy, costly, litigious, very burdensome both in terms of internal resourcing requirements and costs to fuel suppliers and for a result that is highly uncertain.

“Were the market study to result in the government deciding on some form of legislative intervention to promote greater levels of competition in the sector, then this would push the timeframes out to the early 2020s at the earliest before any structural change occurred.”

MBIE says the government needs to weigh the costs and risks of the market-led study against the potential materiality of the wealth transfer from consumers to fuel suppliers.

“The risks of doing nothing with pre-tax premium petrol prices, now the highest in the OECD, seems far more unsatisfactory. The potential wealth transfer from consumers to fuel suppliers since 2008 is likely measured in the hundreds of millions of dollars a year.”

The background
In July, the Fuel Market Financial Performance Study outlined the New Zealand fuel market “may not be consistent with a workably competitive market.”

It couldn’t definitively say whether fuel prices were reasonable or not – given Z Energy, BP, Mobil, Caltex and Gull did not provide comparable financial data – but it had “reason to believe they might not be.”

Z’s shares dropped 3.6% after the report was released earlier this year.

At the time, then energy and resource minister Judith Collins conceded there is “obviously an issue” and was pushing to see prices addressed by fuel companies.

Although petrol prices dropped in the weeks leading up to the report’s release, they have since crept back up.

Yesterday, AA spokesman Mark Stockdale said petrol prices are too high and fuel company’s margins are well above 40c a litre.

“The margins have increased recently thanks to a drop in the cost of importing fuel. So that means the companies should be dropping the price at the pump. They haven’t done so, and we think they should,” he says.

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