Vaughn Palmer: Premature outrage over gas gouging in B.C.? That's now under review
Credit to Author: Stephen Snelgrove| Date: Wed, 02 Oct 2019 01:40:59 +0000
VICTORIA — The B.C. Utilities Commission is being challenged over its finding that consumers were being overcharged by up to 13 cents a litre and half a billion dollars a year for gasoline.
Companies in the gasoline retailing, distribution and production sector say a commission panel failed to consider tax, regulatory and other costs in reaching those conclusions in a report released Aug. 30.
The panel anticipated such objections might be forthcoming. Its report characterized the 13-cent gap as “unexplained” but not necessarily unexplainable.
The three commissioners on the panel also conceded that because of the 100-day time frame imposed on the inquiry by the NDP cabinet, there might be additional factors in gasoline pricing that it did not have time to consider.
Consequently, the panel recommended its work be extended “to give an opportunity for the inquiry’s participants to submit additional evidence.”
The cabinet promptly granted the request and the panel began taking submissions and will continue to do so until Thursday, Oct. 10.
Not surprisingly, key players in the industry have used the extension to identify factors that were not considered by the panel in reaching its conclusions.
The panel cited the 13-cent gap as the difference in wholesale prices between Metro Vancouver and Seattle, saying “it is not entirely explained by differences in the cost of producing and delivering the product.”
But Parkland Fuel, owner of the refinery in Burnaby, says the panel wrong-footed itself by equating spot prices in Seattle with broader wholesale prices in Vancouver.
“Spot prices represent pricing for large volume, bulk transaction, typically 5,000 barrels (210,000 gallons) to 50,000 barrels (2.1 million gallons),” says the Parkland submission. A purchase destined for Vancouver would likely be for smaller volumes, such as an 8,000-gallon truck load.
“Differences in the scales of the transactions alone may lead the commission to find a price differential,” says Parkland, never mind the added costs of storage and distribution on this side of the border.
“The commission is implicitly assuming that product is brought into the distribution system in the Vancouver area and handled free of charge. A wholesaler in Vancouver could not support its operations if it were unable to markup this fuel to cover distribution costs.”
Making a similar point was Imperial Oil: “The panel does not appear to account for any profit of an importer, inferring an importer should be willing to import gasoline at break-even cost.”
High land costs in Metro Vancouver were flagged as helping to account for the difference as well.
“The opportunity cost of land is an important consideration in determining retail pricing,” argued Parkland. “If retail prices do not earn a sufficient return on land, a retail gas station’s owner would likely sell the site, which could then be put to its best alternative use.”
Also weighing in was Suncor Energy, with distribution terminals in Metro Vancouver, Vancouver Island, the North and Interior.
“Suncor confirms that taxes, leases, real estate, and the opportunity cost of land have all increased,” says the company, quoting specifics about its Burrard terminal.
“Property tax has gone up 49 per cent from 2014 to 2019. Suncor’s costs associated with its Port of Vancouver lease during this same period have gone up 152 per cent.”
Suncor also challenged the panel’s on the cost of complying with made-in-B.C. standards for low carbon fuel. The panel estimated the cost at four cents a litre over the period under study, from 2015 to 2019.
“In Suncor’s experience compliance costs have increased significantly between 2015 and 2019,” says the submission, adding “it could cost as high as seven cents per litre, which is significantly higher than the estimates relied upon by the panel.”
Suncor concedes it had flagged some cost concerns only in passing in its earlier submissions, saying it was unable to document everything within the “expedited and aggressive timelines” imposed on the inquiry by the cabinet.
The panel acknowledged as much in recommending the extension to cabinet.
The New Democrats responded favourably to the invitation to extend the timeline, thereby giving themselves time to figure out what to do with the findings.
The panel was unsure whether price controls or other forms of regulation would be all that effective. And one of the recommendations, dealing with the Trans-Mountain pipeline was a non-starter with the NDP: “The B.C. government should ensure there is infrastructure for more refined product to flow to B.C.”
Still, the decision to extend the life of the panel might not work out favourably for the New Democrats.
They, of course, seized on the finding about the 13-cent gap as vindication of their suspicions of price gouging.
“People feel like they’re being ripped off when they fill up at the gas station. And they’re right,” said cabinet minister Bruce Ralston on the day the report was released.
But the three commissioners left the door open to the possibility that the gap might be explained in whole or in part. In that event, they might have to scale down the 13-cent gap and the half a billon dollar estimate along with it.
The submissions are still coming in. Only then will the panel put together a report on the feedback along with revisions, if any, to its earlier findings.
But if the commission does have to scale back its estimates on the gouging, the New Democrats would presumably have to do the same with their outrage.
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