Image Credit: CFJC Today

By Simon Little / Global BC

Gas Prices

B.C. gas price inquiry: No collusion, but unexplained price difference costing $490M per year

Aug 30, 2019 | 1:57 PM

An inquiry by the B.C. Utilities Commission into B.C. gas prices has found that there is a “significant unexplained difference” of about 13 cents per litre in the price of gas in southern B.C. compared to the rest of the Pacific Northwest.

“The prices in the Metro Vancouver area are higher by an unexplained 13 cents per litre, and they’re higher than they would be expected under more competitive conditions, and the higher price differentials cannot be explained by economic theory or justified by known factors in the market,” said BCUC chair and CEO David Morton.

“We didn’t look at the taxes, we removed the taxes and we looked at the portion of the price that doesn’t include taxes … and then from that we determined the 13 cent unexplained difference.”

The BCUC report added that B.C.’s wholesale gas market is “not truly competitive” with high levels of market concentration and high barriers to entry, with retail prices that can be controlled by just five refiner-marketers.

Despite this, the review found there was no evidence to suggest collusion among retail operators or cartel behaviour.

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It also opened the door to possible regulation of gas prices in B.C., which it said could “potentially reduce the wholesale and/or retail margins to what is earned in comparable jurisdictions and reduce price volatility.”

The panel has now recommended a one-month comment period on the findings for inquiry participants to submit further evidence.

According to the BCUC, gas prices in northern B.C. are generally set by the Edmonton wholesale market, while prices in southern B.C. are determined by the Pacific Northwest Spot Market — even though B.C. imports just three per cent of its fuel from south of the border.

It said prior to 2015, those B.C. wholesale prices tracked generally with prices in the rest of Canada, but that in the last four years those prices have diverged by about 20 cents.

Seven cents of that could be explained, it found.

But even after ruling out inflation, foreign exchange, the higher cost of crude, Trans Mountain pipeline constraints, retailers’ higher costs, a remaining difference of 13 cents in southern B.C. and six cents in northern B.C. could not be explained.

“Given the differential of 13 cpl in southern BC and 6 cpl in northern BC we estimate that applying an average 10 cpl differential to all gasoline sold in BC consumers paid approximately $490 million per year more than they otherwise would have paid,” states the report.

The report further stated that it could not find a specific trigger in 2015 to explain the divergence in prices.

While Friday’s report opened the door to possible provincial regulation of gas prices, B.C. Minister of Trade Bruce Ralston said the idea is “premature,” adding that no decision had been made on the idea.

He said the government was still reviewing the report in detail.

“We’re going to look at the conclusions that the commission has come to and consider some of their suggestions in detail and determine some next steps to bring some fairness for motorists,” said Ralston.

Ralston defended the government’s decision not to include taxation in the inquiry, saying that the amount of taxes added to gas is transparent and publicly available.

Instead, he suggested that the review focused on the portion of gas prices that is not transparent to the consumer, suggesting it had found signs of the “gouging” Premier John Horgan alluded to this spring.

“Today’s report from the Utilities Commission shows that there’s significant evidence to support people’s view that price gouging exists in the market,” Ralston said.

The NDP government tasked the regulator with the probe back in May, as the province was in the grips of record-high prices at the pump.

The commission was asked to look at market factors underpinning both wholesale and retail prices and to look at price fluctuations along with the possibility of price fixing or gouging.

Premier John Horgan said the goal was to have the regulator develop a “common set of facts” about the fuel market.

Under the inquiry’s terms of reference, the BCUC had the power to compel oil companies to explain prices, however several major producers resisted sharing information about refining and retail margins, citing “competitive sensitivity.”

Representatives for those companies also testified during a four-day public hearing that helped inform the final report.

The hearing heard those companies deny any collusion or price-setting between them, arguing that stiff competition was a major factor that contributed to price fluctuations.

The regulator was also prevented from reviewing the role of government policies or taxes, which amount to as much as 40 cents per litre in some parts of B.C.

That exception has drawn criticism from the opposition BC Liberals and groups like the Canadian Taxpayers Federation, which have called on the government to slash gas taxes.