Changes to wholesale fuel market to bring better deal for motorists

Energy and Resources

A Bill encouraging more competitive wholesale fuel pricing to help ensure motorists get a fairer deal passed its third reading in Parliament today, Minister of Energy and Resources Megan Woods says.

“The Government is continuing its work to put in place a suite of regulations to improve competition and fairness in the wholesale and retail fuel markets for consumers,” Megan Woods said.

One of those regulations introduced a terminal gate pricing regime, which creates a wholesale fuel spot market. This makes it easier for new participants to enter the market and for existing fuel sellers to expand into new areas around the country.

“However, with the terminal gate pricing regime comes the possible risks that suppliers use it as a vehicle to coordinate pricing, or set terminal prices that reflect market power, particularly at isolated terminals.

“The Fuel Industry Amendment Bill aims to eliminate those risks by giving the Commerce Commission the power to step in as a backstop and regulate terminal gate pricing if it believes fuel wholesalers are setting excessive prices.
“The terminal gate price backstop will deter misuses of market power and ensure better competition in the wholesale fuel market to get motorists a fairer deal at the pump in the medium to long term.

“We have already seen that the Fuel Industry Act 2020 has contributed to more competition in New Zealand. For example, the terminal gate pricing regime has supported the expansion of smaller players into new areas.

“However this regulatory backstop is a necessary next step to enhance the terminal gate price regime and strongly incentivise fuel wholesalers to set reasonable terminal gate prices that support wholesale competition,” Megan Woods said.

 

 

Notes to editors
Under the new regime:

  • The Commerce Commission would be empowered to investigate terminal gate pricing at particular terminals if it suspects excessive terminal gate prices are being offered. Alternatively, the Government could request the Commerce Commission investigates this.
  • Following an investigation, the Commission could recommend that terminal gate prices of one or more wholesale suppliers should be regulated.
  • If the Energy and Resources Minister agrees that terminal gate prices should be regulated, an Order in Council may be made prescribing that one or more wholesale suppliers are subject to regulated terminal gate prices. The Commission would then determine a pricing principle or method that the wholesale supplier must use to set its terminal gate prices.  
  • The wholesale supplier could face a pecuniary penalty if it breaches the regulated prices.
  • The terminal gate price backstop will not allow the Commission or the Government to set retail fuel prices.