'Something wrong': B.C.'s gas report shows pricing market flawed, says Horgan
Credit to Author: Rob Shaw| Date: Wed, 13 Nov 2019 01:00:27 +0000
VICTORIA — Premier John Horgan says a new report by the province’s independent energy regulator has failed to clear up confusion over gasoline profit margins and has only intensified his worry that consumers are getting gouged at the pumps.
“Clearly there is something wrong with the gas market in British Columbia and we want to get to the bottom of that,” Horgan told reporters on Tuesday, following the release of a second report by the B.C. Utilities Commission that did not clarify an unexplained 13-cent-a-litre margin on the price of gasoline at the pumps.
Horgan said he plans to take the issue to Prime Minister Justin Trudeau because the federal government can act on anti-competitive practices.
“I think the federal government has a role to play as well,” said Horgan. “It’s not just about supply and we need more gasoline … we need to have more gasoline here, but why are we paying 13 cents more a litre than anywhere else in the country? Those are questions that still remain unanswered.”
The Horgan government is readying legislation that would force oil and gas companies to hand over sensitive supply and pricing data to provincial regulators on a regular basis, in order to better understand why gas prices can suddenly spike without warning.
That kind of legislation will only result in more delays, as will appealing to Ottawa to intervene, said Opposition Liberal leader Andrew Wilkinson.
“We’ve seen nothing but excuses,” said Wilkinson, who urged a cut to provincial gas taxes and efforts to boost supply of gasoline from pipelines.
The government forbid the utilities commission from examining the impact of provincial fuel taxes or pipeline policies on the price of gasoline in the two reports.
Premier John Horgan.
The utilities commission concluded in its supplementary report Tuesday that oil and gas companies provided inconclusive or conflicting data to explain the 13-cent-a-litre margin customers pay at retail stations that were first identified in an August report.
It also noted B.C.’s gas supply and retail outlets are owned by a small number of companies, creating an oligopoly.
The commission reviewed new submissions from five major B.C. companies: Parkland Fuel Corporation, the owner of Metro Vancouver’s only refinery, located in Burnaby; Imperial Oil Limited; Suncor Energy; 7-Eleven Canada and Advanced Biofuels Canada.
The commission concluded that the price of all gas in B.C. is set by the most expensive five per cent of the province’s supply, from Seattle, called the Pacific Northwest Spot Price. That creates a profit margin for companies that get cheaper gas from Alberta, or elsewhere.
The second margin is the difference between Vancouver’s price and Seattle’s price, which has grown to 20 cents a litre since 2015.
Gas companies cited increased costs for transportation, B.C. and federal fuel standards, overhead, U.S. credits, exchange rates, inflation and other factors, but the commission said that still left 10 to 13 cents per litre unexplained.
“That’s 13 cents more that they are charging for something, presumably, they don’t have to pay for,” said commission chair David Morton.
The unexplained margin costs B.C. motorists approximately $490 million annually at the pumps, according to the commission.
The 13-cent price difference can be better explained if you consider B.C.’s scarcity premium due to a limit in refining and pipeline capacity, as well as the profit margin built in for oil companies due to B.C.’s “oligopolistic market structure,” said Werner Antwiler, associate professor of the University of B.C.’s Sauder School of Business, who researches gas prices.
The oil and gas companies had at first fought the commission to avoid handing over sensitive data on profit margins and supply. Eventually, after subsequent security assurances, they did provide some of that information.
But Morton said during the supplementary phase of the report, released Tuesday, that the companies provided only hypothetical data to explain why the 13 cent price gap was incorrect, and not actual invoices and costs the companies incurred in the province.
“The oil companies that made those arguments were not able to provide any single piece of evidence that would persuade us that was the case,” said Morton. “All they did was send us a spreadsheet, this is what a hypothetical gas company would look like.
“They didn’t send us an invoice and say this is what it costs to provide a shipment in. There was no concrete evidence provided.
“At the end of the day we said we really don’t have anything definitive, so we’re not going to back off this 13-cent number.”
The commission reports were less clear in breaking down the cost structure at the retail level of gas stations, which are mostly owned and operated by the major companies.
Morton said retail gas pricing, which starts at a daily high around 10 a.m. and lowers to a 6 p.m. price, was impossible to break down with the data provided.
“We don’t really know what the full story is on retail sales,” he said. Morton cited protests in Squamish and Powell River over higher gas prices than elsewhere in the province, and was unable to explain why.
The retail side warrants more investigation, he said. But the NDP government’s cabinet order giving the commission jurisdiction to investigate gasoline pricing expired on the weekend, and it can do no further work without provincial approval.
Morton said he would be pleased if government did pass legislation that gave his commission more routine data from the oil and gas companies on supply and pricing, but it would need to come with a mandate from government to do something with that information.
“Certainly if we were asked to participate further in trying to unravel this mystery, so to speak, yes it would be very helpful.”
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