N.B. Tories introduce Petroleum Products Pricing Act;
Energy minister discounts suggestions drivers will pay more in the long term
By Daniel McHardie
Times & Transcript Staff
FREDERICTON –The Conservative government’s long-awaited gas regulation law drew immediate opposition from analysts and gas companies yesterday, promising consumers will be stuck paying higher pump prices.
Energy Minister Brenda Fowlie said the Petroleum Products Pricing Act will help smooth out volatile gasoline and home-heating fuel prices, while still allowing companies to dabble in price wars.
Dave Collins, vice-president of the Halifax-based Wilson Fuel Co. Ltd., said the government is attempting a “high-risk strategy” that could end up seeing gas stations close because it could limit gas supply if prices aren’t set properly.
“I’m sure Shippagan will be really happy when they’re dry because you don’t set the price right,” Collins said. “It comes down to the fundamental belief that governments are better setters of price, and coming from a Conservative government it is shocking, they should know better. The trouble with government regulation is it imposes uniformity and doesn’t recognize idiosyncrasies.”
Liberal Leader Shawn Graham immediately pounced on what he believes is the legislation’s shortcomings, saying the bill is just regulation for regulation’s sake.
“This is a Zeller’s-lite bill. It doesn’t guarantee that the lowest price will be the law,” Graham said.
As expected, the government will hand over responsibility for gas regulation to the Public Utilities Board, where prices will be changed on 14-day cycles based on the fluctuation of international oil prices. Once the benchmark rates are set, the maximum price will be the combination of the maximum margins for wholesalers and retailers, all applicable taxes and delivery charges.
The board will set maximum margins for both wholesalers and retailers, ensuring that neither party is negatively impacted in selling its product under the new regulatory regime.
A wholesale margin offers independent retailers the comfort in knowing they will be no discriminately high prices from large wholesalers.
On top of the margins, a maximum delivery charge will be set, one for the entire province and a separate for Grand Manan. This provision ensures that areas that cost more to ship gas to will have to pay more.
Once the act is proclaimed, the government will also bring in a regulation allowing for emergency price increases when international forces, such as the devastating impact of Hurricane Katrina last year, cause costs to skyrocket.
The energy minister said those regulations will be tight so the interim adjustments are infrequent. Fowlie said in the last five years the measure would have been used only 10 times.
The act offers retailers and wholesalers an option to appeal the margin rates to the board, however, those caught selling above the maximum price could be slapped with fines as high as $2,600 a day.
The proposed legislation offers retailers the protection of not being forced to participate in promotional activities offered by wholesalers, such as handing out merchandise. Unlike Prince Edward Island, the government will not stop companies from offering coupons or cross-promotions including gas.
As with all laws, there are exemptions to the gas regulation law. For example, the legislation will not stymie commercial contracts between wholesalers and non-retailers, such as taxi companies, farmers and cruise ships.
There will be no minimum price established, so retailers are free to sell gas for as little as they want in order to stimulate competition. Further, there is nothing stopping gas stations from raising and cutting pump prices daily as long as they do not exceed the maximum price.
The gas regulation regime will be on a very short leash however. Premier Bernard Lord has committed that if prices end up higher under a government-controlled market than it would under a free market, the policy will be scrapped.
The province’s energy minister said she’s confident the proposed system will be good for drivers, in spite of reports proving that gas regulation forces consumers to dip deeper into their pockets over time.
“What we have said all along, consumers have asked for stability in pricing. Now I know there (are) a lot of reports out there that say overall people are paying more. That is not always correct,” Fowlie said. “If people are not happy with their regulated market, why have they kept it in the province of Prince Edward Island since the ’80s?'”
There is a very good reason why gas prices will end up being higher over the long term in a regulated market, according to a think tank president. Brian Lee Crowley, president of the Atlantic Institute for Market Studies, said wholesalers and retailers are forced to sell gas at a loss when the market pushes prices up, so they have no choice but to sell their gas at higher levels for longer once prices start dropping to make up for their losses.
Crowley said gas regulation means two things: prices will move more slowly and, over time, New Brunswickers will pay more for their gasoline.
“(Gas regulation) provides political benefits for the government but doesn’t provide any real benefits for consumers,” he said.
Irving Oil Ltd. declined to be interviewed on the government’s gas regulation policy.
Kevin McCann, operations and sales manager for Wilson Fuel in New Brunswick, who also owns and operates the Esso on Mapleton Road in Moncton, said he’s concerned that the proposed law will hurt rural gas stations, as well as mean little for drivers.
“Ultimately I believe that price regulation leads to higher prices,” McCann said. “It is documented in every regulated market. Price regulation, all it really achieves is, somewhat, price stability, although I’m not sure how stable the price will be under this legislation.”