As gas prices soar, East Coast-style regulation attracting national interest

www.canada.com MICHAEL TUTTON Canadian Press Saturday, February 22, 2003

(CP) - Dave Davis cringes in disgust as he pumps 90-cent-a-litre diesel into his truck, but he says without a regulator setting the price, he'd be even angrier.

"Being regulated at high prices is better than no regulation at all," says the small businessman, who runs a snow-clearing operation based in the Grand Falls-Windsor area of central Newfoundland. "Even a couple of cents on the litre adds up to a few hundred dollars," when you're running a fleet of snowplows that consume 6,000 litres a month, he adds.

Chalk up one convert for the pro-regulatory camp in the battle over who should control the price at the pump: government or the oil industry.

With fuel prices soaring across Canada in recent weeks, Davis said he's glad he lives in one of the two provinces that has defied the oil industry by setting up a commission to regulate prices. Prince Edward Island was the first to do so in the early 1990s.

The little-known regulatory bodies are at the centre of a fierce ideological debate that is spreading to other provinces.

The oil companies argue the system in Newfoundland so distorts the market it's creating fuel shortages and could lead to fewer gas stations.

On the other side of the debate is George Saunders, chairman of the 18-month-old Petroleum Products Pricing Commission in Newfoundland and Labrador.

Saunders says his commission has cut into the oil companies' excessive profit margins and has brought the province's fuel prices in line with the rest of Atlantic Canada.

"Last Tuesday, the price of gasoline in St. John's was 87.2 cents a litre, while in Moncton, New Brunswick it was 89.9 cents. That was unheard of in the old days," he said, clearly pleased.

Saunders, a former municipal politician and teacher, says he's hoped for co-operation from the industry, but finds his mere presence is infuriating the big companies.

"I think there is an inherent fear that if regulation works in Newfoundland other provinces will start to take a more serious view of it, and so they're going to use more serious strategies to do their best to get rid of us."

Newfoundland's pricing system has been drawing both interest and supporters over the past year.

"We even had a visit from the attorney general of Hawaii last year, and he was favourably impressed," Saunders said from his office in Grand Falls-Windsor.

In Nova Scotia, where prices for regular gas jumped seven cents on Wednesday, the Opposition NDP has demanded a return to the price-setting system the province had prior to deregulation in the early 1990s.

Meanwhile in Prince Edward Island, consumers have grown fond of having the Island Regulatory and Appeals Commission set prices, said Wayne MacQuarrie, a provincial employee who helped set up the province's system in 1991.

"The beauty of it is the system forces gradual change in prices," he said. "We don't see the dramatic increases and it smooths out the peaks and valleys."

The two provincial systems use formulas that are based on spot market prices in New York Harbour. Bureaucrats factor in the costs for transport and storage and the result is a set of fuel prices that are held steady for 30 days - the sudden dips and spikes that irk most Canadians are eliminated.

A nice theory, says the industry, but in practice the system doesn't work.

"When you look at value to the consumer, they're better served by a market that is competitive," said Bill Simpkins of the Canadian Petroleum Products Institute.

In early January, as international prices soared amid fears of a war in Iraq and civil unrest in Venezuela, small firms that provide fuel to remote Newfoundland towns were caught between the big oil companies and the provincial commission.

The unregulated price of the fuel from large terminals, which are controlled by the major oil companies, shot up to near record levels while the regulated prices at the pumps remained unchanged.

The result was some delivery companies refused to pick up loads of gasoline, creating shortages in outport towns around Bay D'Espoir, on the island's south shore, and in tiny Tilting, Nfld., a town on Fogo Island, about 300 kilometres north of St. John's.

Bill Roberts, manager of a convenience store and service station in Hermitage, Nfld., an isolated town on the province's south shore, said he was down to 1,000 litres of gasoline for a population of 800.

He isn't sure who to blame for the problem, but he wants it fixed.

"We almost ran out of fuel," he said. "It's a one-hour drive to the next town."

Saunders blames the oil companies, saying they're being unco-operative by raising prices rapidly between the monthly price reviews.

"Average the price out over a period of time, that's all we're asking them to do," he said.

Steve Ecclestone, Atlantic Canada manager of Ultramar Canada Ltd., which has operated in the region for 40 years, says you can't force a company to sell below international prices.

"From a financial standpoint that just doesn't hunt," he said. "You're not going to have any company willing to buy stuff and sell it at a loss."

Ultimately, said Ecclestone, companies will likely pull service stations out of the province if regulation becomes too heavy handed.

Some industry analysts also argue that, despite anecdotes and claims, overall prices aren't really improving in regulated provinces.

Calgary-based M.J. Ervin & Associates, which provides data to the oil industry and other clients, analysed prices in the two regulated markets and compared them with prices in the rest of Canada.

"While prices in Charlottetown and St. John's have been relatively stable, for the most part they have not been lower," said Cathy Hay, an analyst at the firm.

Some observers say a better way for governments to bring down oil prices is to reduce fuel taxes - which is over one-third of the total price.

On average, Canadian taxes have increased by seven cents a litre over the past decade.

In P.E.I. and Newfoundland, tax hikes have been among the highest in the country. In Newfoundland, for instance, the tax take per litre has climbed from 21.5 cents in 1991 to current levels of 32.9 cents a litre.

Fighting such hikes, rather than creating more regulation, would give consumers the best break, said David Bradley, president of the Ontario Trucking Association.

He's examined regulation, and concluded it would do little to help prices for his membership if introduced in Ontario.

"It's interesting that the jurisdictions in Canada that have this sort of system also have among the highest provincial taxes in fuel," he said.

"It seems to me if governments want to moderate the price of fuel, they should be looking at their own tax component of it first."

In central Newfoundland, where taxes are among the highest in the land, snowplow owner Davis says he'd appreciate anything that would lower prices.

But he'd still recommend other provinces consider bringing in an bureaucratic overseer to smooth out the price spikes.

"Even though you might feel the prices are too high, you wonder how high it would be without it," he said.