ComCom Issues “please Explain” To Fuel Companies On Pricing Anomalies

The Commerce Commission is seeking an explanation from New Zealand's major fuel companies about anomalies that have been identified in retail fuel pricing over the first year of monitoring under the new Fuel Industry Act regulatory regime.

Commission Chair, John Small, says the latest Quarterly Fuel Monitoring Report for the period ended 31 March 2023 has further highlighted pricing variation between cities and towns – and within individual centres.

Some of the pricing levels and variations are “concerning, with no clear underlying factors”, Dr Small says. The Commission is engaging with fuel companies to seek further information on how they are setting fuel prices for their retail sites to determine whether the pricing can be justified based on costs or other factors.

The Commission has responsibilities for monitoring and regulating fuel markets under the Fuel Industry Act 2020. The purpose of the Act is to promote competition in fuel markets for the long-term benefit of consumers.

One of the indicators of a competitive market is pricing that reflects the cost of supplying fuel at retail sites. “We are seeing wide variations in prices both between and within cities, and these pricing differences do not appear to be explained by differences in the underlying costs.

“We’re writing to all the major fuel companies in New Zealand to ask them to please explain what we’ve seen in some of the pricing levels observed as part of our analysis feeding into Quarterly Fuel Monitoring Reports,” says Dr Small.

“In a competitive market, we’d expect to see prices at the pump reflect the cost of supplying fuel at the pump, whereas what we are seeing is retailers in some towns and cities charging a lot more for what is essentially the same product with similar cost components.”

The Commission’s latest report shows motorists in Whangārei are paying more for fuel than the other cities studied, and Dr Small says this cannot be easily explained by the data supplied to the Commission.

“Marsden Point is our nearest port to major fuel sources like Singapore and South Korea, and being near the Marsden Point import terminal means higher prices can’t simply be explained by higher ocean or local transport costs. Land costs in Whangārei don’t shed any light on these prices either.

“In contrast, Hamilton is seeing some of the lowest prices in the country – another anomaly we’re wanting these major fuel companies to shine a light on.

“This significant variation in pricing is of concern to us so we are asking the major fuel companies to help us understand the data being reported to us,” Dr Small says.

Background

Fuel Industry Act 2020
The Commission’s monitoring regime was introduced following the first market study carried out under Part 3A of the Commerce Act 1986. In its Market Study into the retail fuel sector report, published in 2019, the Commission identified shortcomings in the competitiveness of fuel markets in New Zealand. In particular, the Commission identified the absence of an active wholesale market and poor consumer information at the pump.

In response, the Government established a regulatory regime aimed at promoting competition in fuel markets for the long-term benefit of consumers. The Fuel Industry Act 2020 and related regulations came into effect in stages. The requirement to publish TGPs took effect on 11 August 2021. Requirements relating to fixed wholesale contracts also came into effect on 11 August 2021 (for all contracts entered into on or after 11 August 2021) and 11 August 2022 (for all contracts, including those entered into prior to 11 August 2021).

Commerce Commission’s role
The Commission is responsible for enforcing the obligations of fuel industry participants under the Act. We monitor compliance with the requirements of the Act, investigate potential non-compliance, and take enforcement action where appropriate.

Where we have concerns about potential non-compliance, we may investigate. If we consider a breach has likely occurred, we will apply our Enforcement Criteria to select from a range of enforcement responses. One possible response is to seek pecuniary penalties against industry participants in the courts.

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