Radhakrishnan PriyancaFUEL INDUSTRY AMENDMENT BILLFirst ReadingHon PRIYANCA RADHAKRISHNAN (Minister for the Community and Voluntary Sector) on behalf of the Minister of Energy and Resources: I present a legislative statement on the Fuel Industry Amendment Bill.DEPUTY SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon PRIYANCA RADHAKRISHNAN: I move That the Fuel Industry Amendment Bill be now read a first time. I nominate the Economic Development Science and Innovation Committee to consider the bill.In December 2019 the Commerce Commission released its final report on the retail fuel market study. The commission's report indicated that fuel companies had been making persistently higher profits over the previous decade than would be expected in a competitive market—that there is limited competition in wholesale markets and that this flows through to the retail market.One of the commission's key recommendations in that report was to create greater transparency by requiring fuel companies to publish wholesale spot prices at fuel terminals. This Government implemented that recommendation. The passing of the Fuel Industry Bill in 2020 saw the introduction of the terminal gate pricing (TGP) regime for wholesale suppliers to make entry easier at the wholesale level. However the commission also recommended that a regulatory backstop be introduced to deal with the risk that fuel companies used the terminal gate pricing regime to coordinate prices. The backstop could also address situations where a fuel company could exert market power at a terminal—for example where that terminal was isolated.There are some design complexities in developing an effective backstop and the Government did not want to hold up the introduction of the other fuel industry reforms that were implemented through the Fuel Industry Act 2020. So the development of the backstop was put on a slower track. However now is the right time to introduce this important feature to give consumers confidence during a time of high pricing volatility that increases in fuel prices are not being driven by unreasonably high margins.The Fuel Industry Act has already contributed to more competition in New Zealand. The terminal gate pricing regime has supported expansion into new areas by low price retailers such as Gull NPD and Waitomo. Gull has publicly stated that without the Act it would not be able to competitively source fuel to operate its South Island outlets and provide competitive tension. In its first quarterly report under the Act the Commerce Commission noted that importer margins in the June 2022 quarter were lower than observed during the market study. This bill supports these trends by providing strong incentives for fuel companies to ensure that TGPs are competitive.The bill provides for price regulation of wholesale spot prices by the commission if a wholesale supplier or suppliers set terminal gate prices that are not consistent with what would be expected in a competitive market. The commission can on its own initiative or at the request of the Minister hold an inquiry into terminal gate prices. Once the commission has held the inquiry it then makes a recommendation to the Minister responsible for the administration of the Act on whether to price-regulate the terminal gate price of a wholesale supplier. The price regulation could apply to a single supplier or many suppliers—to one or many types of fuel—and it could apply to one some or all terminals operated by a supplier.The Commerce Commission can recommend that price regulation should be imposed on terminal gate prices only if it is satisfied that the relevant wholesale supplier has posted terminal gate prices for a grade of engine fuel and at a bulk storage facility that was not consistent with what would have been expected in a competitive market. If the Minister considers that regulation is required the Minister then recommends that the Governor-General make an Order in Council to that effect. The commission would then make a determination setting a pricing principle or methodology that the wholesale supplier or suppliers would be required to follow when setting terminal gate prices. The commission must consult with interested parties before making this determination. If the commission finds that the requirements of a determination have been breached it may apply to the court for an order imposing a pecuniary penalty on the relevant wholesale supplier.This is a well-calibrated process and I want to stress that it's not a return to the price regulation that was seen in days past. This is a new power for the Commerce Commission and if the market works as it should and in line with what we expect then fuel companies should have every incentive to compete hard and avoid being regulated.Fuel markets have recently been volatile and factors beyond our control like the Russia-Ukraine conflict have led to uncomfortable price spikes for consumers. These are factors beyond our control but we can do more to promote competition. I expect that the change proposed in this bill will provide insurance against commercial behaviour which chills competition and contributes to higher fuel prices. I commend this bill to the House.DEPUTY SPEAKER: The question is that the motion be agreed to.