The New Brunswick government will review the gas regulation system in 2012 as retailers complain the weekly price settings are costing them money while consumers have enjoyed five years of pump prices below the Canadian average.
Energy Minister Craig Leonard announced in October the province’s regulated gas scheme would be reviewed in 2012 as a part of the Progressive Conservative government’s energy plan.
New Brunswick began regulating pump prices in 2006, a decision that was intended to bring price stability to the province.
Gas retailers and politicians warned in 2006 that removing the free market from the price setting would make gas prices more predictable but it would also prove more costly to consumers.
But in the last five years those predictions have not come true. For instance, Saint John’s gas prices were below the national average for 34 weeks in 2011.
Gas prices across New Brunswick have been below the national average for five consecutive years. The timing coincides with the switch to the gas pricing system.
New Brunswick, however, was not always home to lower gas prices compared to other Canadian markets. In the mid-1990s, New Brunswick went 228 weeks in a row without posting one price below the national average.
Michael Ervin, a Calgary-based analyst with MJ Ervin Associates, has said in the past that gas price regulation should not be given all the credit for the lower prices.
“One might conclude that because retail gasoline in Saint John and other New Brunswick markets have gone down relative to the Canadian average, one might conclude that somehow the price regulatins there were being effective,” Ervin said in an earlier interview.
“But that doesn’t take into consideration the fact that entire regions of Canada quite often will be at variance with the Canadian average.”
The Atlantic Institute for Market Studies issued a report in 2009 that said the regulation of gasoline prices has cost New Brunswick drivers about $9.4 million.
The former Liberal government altered the gas regulation system to allow for weekly settings. Prior to that, gas prices were in place for two weeks unless the price interruption clause kicked in.
Gasoline prices are set based on the commodity’s trading on the international market during the previous week. Once those prices are set, the gas system adds on taxes and margins. Retailers can then choose to add a fuel distribution fee.
Gasoline retailers have said they need larger margins to make their businesses viable.
Business in the Fredericton area have also complained about gas wars in the capital region that were spurred on after Costco arrived.
Fredericton drivers have enjoyed prices that were as much as 10 cents per litre below the regulated maximum price.
When the Energy and Utilities Board sets its weekly price, it only enforces a regulated maximum price. Retailers are permitted to sell gasoline below that price.
Other provinces have included a minimum price in their regulation schemes as a way to stop companies from under-cutting their competitors.
The province’s energy minister has said the retailers’ complaints will be studied during the upcoming review of the regulation system.