Watching the discussion on my previous posts on FuelWatch, I can see that there are many myths being perpetuated. I thought I’d list them here.
Myth No.1: The ACCC recommended a WA-style FuelWatch scheme. Not quite. The ACCC only investigated fully a WA-style FuelWatch scheme and explicitly did not analyse whether it was the best possible arrangement. Quoting from their conclusion:
Assessing any system in the style of FuelWatch that incorporates increased price information and price commitment requires great care due to the potential for anti-competitive as well as pro-competitive benefits. Although the inquiry gained a preliminary assessment of the impacts in Perth from the scheme, it is clear that a case–by-case approach is required to assess the potential impacts on competition of any similar scheme. In particular the ACCC has not analysed the application of such a scheme to rural and regional areas. Apparent extra considerations here include the increased potential for anti-competitive effects due to the more concentrated nature of the market, the extra cost in initialisation, administration and compliance and how to decide which areas to cover. In summary, there are potential benefits and potential costs of adopting a national price commitment arrangement that need to be carefully considered.
The other options to increase price transparency have only briefly been considered in the time available for the inquiry.
Hence, my concern that in just adopting the current WA model, not enough due diligence has been done on find the best policy. Now the response might be: “well, we can adjust the scheme later.” However, I worry that once a scheme is in place it will stick.
What the ACCC did explicitly want was an expansion of the powers of our price fixing laws to take into account the exclusive sharing of price and other information amongst competitors. On that score, the government does not appear to have considered the ACCC concerns at all. Hence, strictly speaking, we should consider the ACCC’s recommendations as currently ignored.
Myth No.2: The ACCC found conclusively that FuelWatch in WA lowered petrol prices. Not quite. The ACCC did make a far more rigorous investigation of the WA scheme than anyone had ever done and had concluded that the introduction of the scheme was associated with a 1.92 cent per litre average price fall. But there were caveats such as the difference between eastern capitals and Perth, the lack of data going back prior to 1998, difference in fuel standards, transport and port charges were not explicitly modelled and other factors driving price margins in Perth contemporaneous to the changes in their petrol regime. All these were explicitly laid out in the ACCC report.
Now here is where industry has to step up. All of these factors, including my desire for a site-by-site econometric investigation can be done. If the industry is concerned about the FuelWatch scheme where was their analysis. They could have done it in submissions to the ACCC. They could commission academics to do so. And they could provide analyses that could be published subject to peer review. At the moment, the ACCC did a good but not fully conclusive job. Absent other information, it suggests that a WA-style scheme would do little harm to consumers.
3. Myth No.3: A FuelWatch scheme is unprecedented in Australia. This is definitely not true. Our entire wholesale electricity market operates in a very similar manner. In that market, there is a single customer — a system operator — who solicits bids from generators 48 hours in advance and with only limited room for adjustment after that. Generator bids are fixed for 30 minutes at a time. Moreover, prices are provided every 5 minutes and bid information is provided to everyone the next day. (It used to be only to generators but thankfully that rule has been removed). It is a regulated, financial market with constraints operating very similar to those that will be in place for FuelWatch. Indeed, my suggestion as to a better petrol scheme was based on the electricity market model.