Webb DuncanFUEL INDUSTRY AMENDMENT BILLSecond ReadingHon Dr DUNCAN WEBB (Minister of Commerce and Consumer Affairs) 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 Dr DUNCAN WEBB: Talofa lava Mr Speaker. I move That the Fuel Industry Amendment Bill be now read a second time.Ensuring we get our regulatory settings right for our engine fuel markets is a key focus for the Minister's work programme. As a country we are currently experiencing higher than usual engine fuel prices driven by the Russia-Ukraine conflict. Although these are beyond our control we can do more to promote competition. In 2019 the Commerce Commission released its 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 the wholesale markets; and that that 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.The Government implemented that recommendation and the passing of the Fuel Industry Act 2020 saw the introduction of terminal gate pricing for wholesale suppliers to make easier entry at a wholesale level. However the commission also recommended that a regulatory backstop be introduced to deal with the risk that fuel companies use 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 the terminal is isolated. The development of the backstop was put on a slower track to avoid holding up the other fuel industry reforms as there are some complexities in developing an effective backstop. After experiencing high price volatility in 2022 now is the right time to introduce this regulatory backstop to give consumers confidence 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 to provide competitive tension. The bill supports these trends by providing strong incentives for fuel companies to ensure that terminal gate prices are competitive and by providing insurance against commercial behaviour which chills competition and contributes to higher fuel prices. So on behalf of the Minister I want to thank the Economic Development Science and Innovation Committee for their work and consideration of this bill and I also want to thank those who took time to submit and provide their feedback.This bill provides an incentive for wholesale engine fuel suppliers to offer competitive terminal gate prices. It does this by providing a process by which these prices could be regulated by the Commerce Commission after an inquiry and recommendation to the Minister. The Minister could then recommend to the Governor-General that an Order in Council be made declaring a particular terminal gate price subject to price regulation. The Commerce Commission would then be responsible for setting and enforcing a form of the price regulation. This would deter misuse of market power and ensure better competition in the wholesale market which is expected to flow through to consumers at the pump in the medium to long term. This is a well calibrated process. It is 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 fuel companies should have every incentive to compete hard and avoid being regulated.The bill was referred to the Economic Development Science and Innovation Committee on 22 November 2022. The committee received six written submissions and heard two oral submissions and I want to thank the select committee for their work on this bill and thank those who submitted. Six amendments to the bill have been recommended by the committee to address matters raised by submitters and advisers and also the excellent Regulations Review Committee. The first was to amend the test for price regulation. The bill currently states that the commission may make a recommendation 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 that were not consistent with what would be expected in a competitive market. To make this test clearer it has been recommended that the text be amended from not consistent" to "above". The second is to reduce the maximum period of regulation from 10 to five years—this is a recommendation that's been made—so that it will balance wholesale suppliers' concern regarding future market conditions while ensuring the regime is effective in terms of improved competition.Third: to make clearer that the Commerce Commission must consider investment incentives. This change has also been recommended and it would make it clearer that when the Commerce Commission sets the price regulation in considering whether the Act's purpose is promoted in making that determination consideration should be given to determining that the wholesale suppliers' incentives to invest and meet end-user demands are taken into account.Fourth: better information-gathering powers for the Commerce Commission. It's been recommended that one of the Commerce Commission's information-gathering powers from the Commerce Act should be more broadly incorporated into the Fuel Industry Act. This will allow the Commerce Commission to require comparative information from wholesale suppliers that are not subject to the inquiry and price-setting process.Also some better process requirements: two recommendations have been made in that regard—the first to add a requirement for the Minister to specify a time frame by which the Commerce Commission must make a recommendation after an inquiry is triggered; the second to clarify a requirement for the Commerce Commission to consult on draft price regulation.So that was a great select committee process as always—another great step to a competitive market for fuel in New Zealand. I commend this bill to the House.DEPUTY SPEAKER: The question is that the motion be agreed to."