A ‘FuelWatch’ scheme was introduced in Western Australia in January 2001. This followed the October 2000 recommendations of a WA parliamentary select committee, in its report Getting a Fair Deal for Western Australian Motorists. The purpose of the scheme has been to provide certainty to consumers as to petrol prices for a fixed period of time. In practice, WA service stations have been required to notify FuelWatch of their prices for the next day. On the following day, beginning at 6am, the service station fuel prices are fixed for 24 hours — this is known as the 24-hour rule. The 24-hour rule was amended to close a loophole in August 2001.
The WA FuelWatch scheme has been investigated on a number of occasions. The ACCC argued in its December 2002 Terminal gate pricing arrangements in Australia and other fuel pricing arrangements in Western Australia that ‘it is hard to conclude that the Western Australian fuel pricing arrangements have been successful to date’ (p.47). The ACCC also expressed concerns that the WA FuelWatch scheme had had a detrimental effect on competition. In October 2006, the ACCC was able to advise the Senate that additional investigations into the WA FuelWatch scheme had occurred (Senate Estimates Hansard, 19 October 2006: E20). These reports included a May 2005 Northern Territory report, the 2005 National Competition Council assessment report, and an April 2006 Queensland government report. Graeme Samuel approvingly quoted from the National Competition Council report that the Council ‘considers that Western Australia is yet to conclusively demonstrate that its petrol pricing restrictions provide a net public benefit, and [the Council’s] concerns were heightened by fines imposed on a retailer in July 2005 for lowering price(s). Such an outcome does not appear to promote competition and consumer interests’ (Ibid: E21).
The ACCC CEO Brian Cassidy also had his doubts — as these doubts are important for the later argument, they are detailed in full:
We are doubtful, at the very least, about just what impact the Western Australian arrangements have had on price levels in Western Australia. The arrangements came into place in 2001. If you compare Perth prices against Sydney and Melbourne, between 2001 and 2003–04, there was a marginal improvement in Perth prices relative to Sydney prices and there was an actual deterioration in Perth prices relative to Melbourne prices. Around 2003–04, two things happened. Firstly, Coles and the joint venture Woolworths-Caltex sites started to enter the Western Australian market … Secondly, Western Australia for some time has had reasonably restrictive fuel standards. Around 2003–04, the Commonwealth introduced national fuel standards, which are not as restrictive as the Western Australian standards but they nonetheless came into force, although the more restrictive Western Australian standards still apply in Western Australia. So it meant there was a levelling up to some extent, if you like, in the price impact of the fuel standards between Western Australia and other states.
If you look at that price comparison I was talking about it is interesting to note that it is really only after 2003–04 that there has been some improvement in Perth prices as against both Sydney and Melbourne prices. Given the Western Australian arrangements have been in place since 2001, you are then left to wonder whether that improvement, which has occurred from about 2003–04 onwards, is a product of the Western Australian arrangements or whether it is a product of these other factors. If you say it is a product of the Western Australian arrangements, then the next question is why did it take two or three years for those arrangements to actually start to impact on the price relativities between, say, Perth and Sydney and Melbourne? (Ibid: E19–E20).
The doubts that the ACCC harboured about the WA FuelWatch scheme related to whether the policy actually had led to decreased prices in isolation of the confounding effects of the entry of Coles and Woolworths into the market along with a change in fuel standards. These are serious and legitimate doubts about the efficacy of the FuelWatch scheme. The ACCC had long had doubts about whether the FuelWatch scheme actually reduced prices and had undertaken extensive analysis of petrol pricing in its 2002 report (the analysis ran for several pages but did not include any econometric or regression analysis). It is clear that as late as October 2006 the ACCC was not in favour of the WA FuelWatch scheme being extended to other parts of Australia.
In December 2007, the ACCC released Petrol Prices and Australian Consumers, its report into petrol pricing in Australia. While the ACCC expressed some concern about transparency in retail petrol markets, it did indicate that ‘there is a significant degree of price competition at the retail level’ (ACCC 2007: 15), and ‘the existence of price cycles does not provide any evidence of a lack of retail competition’ (Ibid: 16). Importantly, the ACCC also indicated ‘that in the time available it was not possible to fully review all the options with regard to their administrative implications, effects on competition or their likelihood of delivering the objective of increased price transparency’ (Ibid: 18). Nowhere in the 2007 report did the ACCC actually recommend a national FuelWatch scheme be adopted.[2] However, the report did include an Appendix (Appendix S) that contained an econometric analysis of the WA FuelWatch scheme that implied, according to the ACCC, that ‘there has been some reduction in average price margins [in Perth] relative to the eastern capitals in the time following the introduction of FuelWatch’ (ACCC 2007: 257; emphasis added).
Within six months of the release of the 2007 report, the ACCC had reversed its previous position that the Western Australian FuelWatch scheme was not worth extending to other parts of Australia. On 4 June 2008, a Treasury official told the Senate Estimates Committee: ‘In discussions with the government, the chairman of the ACCC recommended that we should introduce a Fuelwatch scheme’ (Senate Estimates Hansard, 4 June 2008: E85). When challenged on this reversal, Graeme Samuel paraphrased John Maynard Keynes: ‘When I find evidence that I was wrong, I change my mind. What would you do?’ (Senate Estimates Hansard, 5 June 2008: E57). But what might be that evidence? Not economic modelling: when asked by Senator Helen Coonan as to whether any economic modelling had been done on the notion of consumer empowerment, Graeme Samuel answered, ‘No’ (Ibid: E65). However, econometric analysis had been widely cited as demonstrating that the FuelWatch scheme has led to lower prices in Western Australia. At Senate estimates, Senator Barnaby Joyce put it to Brian Cassidy that ‘The whole premise of FuelWatch is based on this econometric analysis. That is why it is the crux of our questioning.’ Cassidy replied, ‘Yes’ (Ibid: E42). It seems quite clear that the federal government relied on the ACCC when making the decision to implement a national FuelWatch scheme and, in particular, relied on the fact that the ACCC had undertaken a rigorous econometric analysis.[3]
[2] At the Senate estimates, Graeme Samuel commented: 'If the commissioners that sat on that inquiry had found through that econometric modelling that Perth motorists had suffered harm as a result of the introduction of FuelWatch, we would never have recommended it to the Australian government in our report ' (Senate Estimates Hansard, 5 June 2008: E16; emphasis added). The ACCC did recommend FuelWatch to the Australian government; but not in its 2007 report ‘Petrol Prices and Australian Consumers’.
[3] Furthermore, the Minister for Competition Policy and Consumer Affairs, Chris Bowen, told the Parliament on 28 May 2008, 'The ACCC recommended that more work be done on FuelWatch. I understand that the government had had the benefit of that analysis and that process and that the opposition has not … The chairman of the ACCC is more than happy to work them through the analysis that the ACCC has done, work them through the econometric analysis and work them through the proposals' (Hansard 28 May 2008: 52).