Regulation of fuel prices in New Brunswick is behind the move that has more than one large fuel company reassessing the viability of small gas stations, says an industry insider.
Kevin McCann, general manager of Wilsons Fuel Co. Ltd., made the comments Tuesday after being asked to comment on reports that Shell Canada is pulling service at more than one location in the Fredericton area.
“The lower-volume stations that require tank upgrades are not going to survive,” McCann said. The province’s three-year-old experiment with fuel-price regulation is to blame, he said. “With regulation, (the operators) can’t set a price to justify reinvestment,” he said.
Wilsons Fuel owns and operates service stations and distributes fuel to dealers in Nova Scotia, New Brunswick, Newfoundland and Prince Edward Island. McCann said Wilsons’ corporate-owned stations tend to be large-volume operations that also incorporate other businesses such as fast-food chains, so it’s not confronted with the problem. But some of its dealers are facing the issue, he said.
“This is not surprising. We’re likely going to see more of this activity as time goes on,” he said, “We’re going to see long-term effects of regulation on New Brunswick.
McCann said he has been contacted by the operators of five Shell stations in the province inquiring about having his company supply them. Wilsons and other companies in the fuel business have been pushing to have the maximum allowable profit increased from five cents a litre.
In August, Halifax-based Gardner Pinfold Consulting Economists Ltd. filed a report to the Energy and Utilities Board calling for an increase of 1.28-cent-per-litre to the maximum allowable profit for motor fuel retailers of five cents a litre. The report also called for an increase in the maximum allowable delivery charge, to be passed on to consumers, from two to three cents. Though the report was rejected, the Energy and Utilities Board decided to raise the maximum delivery charge to 2.5 cents a litre based on evidence some stations were paying that much to receive their fuel. The profit margin wasn’t increased.
Charles Cirtwill of the Atlantic Insitute for Market Studies questions McCann’s contention. He said there’s evidence that oil companies tend to make more profit under regulation. He said the fixed-revenue stream means the companies don’t upgrade, but there’s also no proof regulation helps small stations.
“One of the things government likes to say is that fixed returns will save low-volume stations,” Cirtwill said. “That’s a fantasy. If you’re low volume, you’re at risk. Period. Full stop.” Cirtwill said he can’t fault a company that’s opting to get out of a market where its hands are tied.
“They’re not running a charity. They are in it to run a business and deliver to shareholders,” he said.
New Brunswick Energy Minister Jack Keir doesn’t think regulation is playing into Shell’s decision.
“I don’t think it has anything to do with gas regulation,” he said. “Some folks would argue that per capita, we have the most gas stations.”
If retailers feel their profit margin is unfair, they have recourse to appeal to the Energy and Utilities Board, he said. He said retailers have made that argument to the board in the past year but haven’t been able to sway the arm’s length, independent board to increase their profit margin.
“Retailers couldn’t make their argument to the EUB, which is a third party,” Keir said.