Tara's Thoughts

What can we do to address fuel prices in the ACT?

May 31, 2019

 So, what are we thinking about doing to address fuel prices in the ACT? 

The committee is looking at a range of recommendations. Some have considerable consequences. A number of recommendations could be employed together. We want to know what you think. 🧐 Here they are 👇

 Possible recommendation 1: Do nothing
The committee has received considerable support for this option, particularly from industry. There is a view that the market is operating as it should; that the ACT is well serviced by applications and websites which provide the transparency needed; and that it is the responsibility of Canberrans to change their behaviours, including searching for cheaper fuel prices and not relying on convenience.

Pros: 
✔️ No cost to Government or industry

Cons: 
 Likely no resulting lowering of fuel prices

Considerations:
The committee has heard changes to ownership, such as Viva Energy acquiring Coles sites, may result in greater competition as pricing models and strategies change. 
The committee notes that Viva Energy acquired Coles sites in early March and no change has yet been observed.

 Possible recommendation 2: Better education
The committee has consistently heard evidence that there is poor community understanding of the fuel industry and market. A better understanding of what drives fuel prices may result in at a minimum, less community anxiety and, potentially, a change in some consumer behaviour.

Pros: 
✔️ Low cost to Government or industry 
✔️ The more informed the community, the greater agency they may have in making purchasing decisions

Cons: 
 Potentially no resulting lowering of fuel prices 
 Price change only likely to occur if consumer-led

Considerations:
Information already exists on the Access Canberra website explaining the drivers of fuel prices. Any new education package would need to provide either new information or present it more usefully.

 Possible recommendation 3: Create a fuel prices oversight position or body
The committee has been encouraged by a range of witnesses to recommend creating a fuel prices oversight position or body. In Western Australia, a fuel prices commissioner exists whose role is to report daily on fuel prices and explain market trends. On the basis that, since the establishment of the select committee into fuel prices, prices have generally been lower in the ACT, the Chief Minister has suggested that the establishment of a standing committee tasked with monitoring and reporting on fuel prices may be a consideration.

Pros:
✔️ Would assist with aiding transparency of fuel prices and be an ongoing education model
✔️ Depending on the model, likely low cost to Government or industry

Cons: 
 Potentially no resulting lowering of fuel prices

Considerations:
The effectiveness of the role or body on lowering fuel prices may depend on how bold it is in calling out issues or trends.

 Possible recommendation 4: Introduce a Government-run real-time price monitoring scheme
While some submitters and witnesses have insisted that the ACT is well-serviced by applications and websites which detail fuel prices, the committee has heard other evidence that no existing model provides perfect coverage of the ACT market, nor necessarily accurate prices. In the absence of any one product providing the clearest, most comprehensive and most accurate picture of the ACT market, there is potential for a cost to the consumer in searching for the best price. A Government-run scheme, along the lines of FuelCheck in NSW or the fuel price reporting trial in Queensland, could be considered.

These models would allow retailers to continue to change prices throughout the day. Being able to change prices during the day, whether higher or lower, can have either the actual or perceived result that there may be high volatility, making it difficult for ACT residents to know whether they are getting a fair deal – whether within the ACT or as compared to different cities and regions.

Pros: 
✔️ Provides a full picture of the ACT market to the community
✔️ Provides certainty to the ACT community that fuel prices reported are accurate and complete 
✔️ Would assist with aiding transparency of fuel prices and be an ongoing education model 
✔️ The more informed consumers are, the more aware they are of competition, and the more they may feel they can or are empowered to shop around 
✔️ Provides short- and long-term reliable data to identify trends, including potential collusive behaviour or retailers which are consistently providing higher or lower prices than the rest of the market

Cons:
 Potentially duplicating existing mechanisms at a significant cost to Government (although a model similar to the Queensland trial would require less resources as it leverages existing price monitoring apps and websites) 
 The cost to retailers of implementing this scheme may be passed on to consumers 
 Potentially no resulting lowering of fuel prices 
 Because prices can change in an instant, the price a consumer sees on an application or website may not be the price they encounter when they arrive at the pump

Considerations:
The ACT Government may be able to leverage off or partner with the NSW scheme to reduce costs. The committee has made inquiries to NSW about this.

The committee is concerned that the requirement to report a price change may reduce the level of intra-day price changes, potentially resulting in companies choosing not to lower their prices as often as they may otherwise have done. The committee has seen little evidence that supports that intra-day price changes occurs often in the ACT at the moment.

The committee was also advised in private meetings that applications and websites are on the way out and that communicating via messaging is increasingly common.

 Possible recommendation 5: Petrol companies required to lock in fuel prices for 24 hours, with mandatory reporting 
Western Australia introduced this scheme in the early 2000s as a world-first. It has remained highly popular within that state. Fuel companies are required to submit their fuel prices to Government at 2pm each day, and then employ this price from 6am the following day for 24 hours. It creates a mini reverse-auction each day. While over time it is apparent that fuel prices in WA have kept pace with other metropolitan jurisdictions, there is contention that this is due to factors influencing the entire market. The committee was advised there have been a number of benefits in introducing the scheme.

There is an artificial price cycle, where there is one day a week where all companies lower their prices. Consumers can receive daily reports of where the cheaper fuel is, through media, the app or website, or e-mail subscription. It is apparent that the scheme has also resulted in the introduction of more independents into the market; they benefit from the ‘free advertising’ they get from these daily reports. There is certainty provided to consumers which aids their planning.

Pros:
✔️ This model provides both transparency and certainty by reducing price volatility; having a price locked in for a period of time allows consumers to plan 
✔️ Monitoring prices can assist smaller players who may not have the resources to monitor prices themselves 
✔️ May encourage more independent retailers into the market who benefit from the free advertising and, at times, will have a competitive advantage for a full 24 hours
✔️ Provides short- and long-term reliable data to identify trends, including collusive behaviour or retailers which are consistently providing higher or lower prices than the rest of the market 
✔️ This may result in lowering of fuel prices by creating an artificial price cycle.

Cons:
 Potentially no resulting lowering of fuel prices 
 By requiring companies to set a price it is reasonable to assume that there is a likelihood that, depending on the business model, companies will seek to maximise profits 
 Restricts the ability for different retailers to respond to others’ pricing decisions, potentially harming a retailer 
 This would only be for a short, set amount of time 
 Retailers with the lowest prices may be a considerable distance away for some Canberrans

Considerations:
Austria introduced a similar scheme where companies set a maximum price for the day and but are able to lower it throughout the day. The more price changes there are within a day, the less transparent the market may be. The committee has identified studies which provide conflicting evidence about whether this model has resulted in lower fuel prices.

It has been suggested to the committee that the same brand of company should be required to set the same price of fuel at all of its service stations each day. This would potentially reduce the distance that consumers had to travel and provide equity within regions. This would likely reduce congestion at some service stations. This would reduce the ability for a particular company to be a price leader in one region by having significantly higher prices in others, which would be distorting their reputation as a ‘cheaper provider’. This would likely cause complications for individual retailers who operate within a brand but currently set the price themselves.

Some witnesses advised the committee that the introduction of this model would not affect future investment decisions in the ACT fuel market, regardless of their views of such a scheme.

 Possible recommendation 6: Set maximum retail margin for fuel companies
Countries such as Luxembourg and some Canadian provinces set a maximum price for oil products sold to the end-user. The committee has been urged to consider whether introducing a model where retailers are required to charge a price which so no more than a certain level above which they paid for the fuel.

Pros:
✔️ This could result in lower fuel prices
✔️ It would provide some degree of certainty and perception of fairness to the consumer

Cons:
 Considerable intervention in the market may result in market distortion
 The committee notes that some retailers, like Viva Energy, are also suppliers of fuel. This may encourage them to increase their supply costs, resulting in no net gain for the consumer.
 Could discourage or prohibit smaller or independent operators from entering the market
 Could impact existing retailers
 Could result in higher prices in the in-store offering, reducing overall gain for the consumer

Considerations:
It could be difficult to determine what is a reasonable maximum which would benefit consumers and not unfairly harm retailers. 
It is likely that, due to the interdependent oligopolistic nature of the market, most retailers would seek to operate near or at that maximum margin. 
One study claims that the introduction of this has resulted in higher prices in Luxembourg.

 Possible recommendation 7: Set aside highly visible land in the ACT for numerous service stations
The committee has consistently heard evidence that the historical planning rules in the ACT has lowered the degree of visibility and, thus, transparency in the market. Due to service stations being somewhat out of the way for most consumers, there is no ‘eyeballing’ numerous prices in quick succession for consumers to make their own assessment of where cheaper prices are. The ACT Government may wish to set aside highly visible land in the ACT where numerous service stations can be established to address this issue, or to ensure any new service stations are only on highly visible land.

Pros:
✔️ Provides greater visibility and transparency

Cons:
 It is not guaranteed that this would result in lower fuel prices 
 Much of the highly visible land in the ACT is typically on or near nature reserves
 Additional sites may cause reduced volume of sales for surrounding service stations, resulting in higher prices being charged for them to remain viable

Considerations:
There remains a question of how to effectively attract service stations to the market. The committee is not convinced that Canberrans want service stations and their prices advertised in highly visible locations, particularly noting evidence heard in the inquiry related to billboards in the ACT. Many arterial roads are within the National Capital Authority’s jurisdiction and any changes to these thoroughfares would require the authority’s approval.

 Possible recommendation 8: Review the Government rates and taxes charges to service station operators 
The committee has heard evidence that it can be more expensive to ‘do business in the ACT’. It may be timely to review these costs within the ACT and as compared to similar jurisdictions to determine if there is a fairness issue influencing retail prices.

Pros:
✔️ Low cost to Government
✔️ Would help reveal whether these claims are correct

Cons:
 No guarantee any potential change in costs of doing business in the ACT would result in lower fuel prices

 Possible recommendation 9: Subsidies for low-income families
The committee has heard that the impact of fuel prices is greatest for individuals and families with low incomes, where what is spent on fuel is a significant proportion of the overall income. The committee has been encouraged to consider whether the ACT Government providing fuel subsidies to low-income motorists would help ease this cost burden. The committee heard evidence that petrol is the third-biggest expense for low-income households in Canberra after housing and food.

Pros:
✔️ Reduces the cost of fuel for some families, easing their burden

Cons:
 Cost to the ACT Government 
 No change in fuel prices for the whole market; provides no incentive for companies to lower their fuel prices
 May distort the market further 
 Difficult to administer