In addition to 13 regular adjustments, the Utilities Council has made 14 extraordinary price adjustments since February. (Axel Tardio / CBC / Radio Canada)
Gas prices in Newfoundland and Labrador are sky-high, and frequent, sudden changes in those prices have added to the frustration and added confusion.
The Utilities Council, which has been responsible for regulating fuel prices in Newfoundland and Labrador since 2001, usually makes adjustments once a week. But the PUB may also make extraordinary adjustments in response to drastic changes in the fuel market, and it has often done so recently.
PUB has changed fuel prices 26 times in the last three months, including 14 extraordinary changes in addition to the 13 planned adjustments.
In a statement, PUB Director of Corporate Services Cheryl Blondon said until recently that extraordinary changes were rare – the latest after the World Health Organization declared the COVID-19 pandemic in March 2020.
“Since the beginning of 2022, there have been a number of extraordinary adjustments beyond the planned weekly adjustments as a result of significant volatility in world commodity market prices,” Blondon said.
As frustration grows, some gas experts, such as Canadian President for Affordable Energy Dan McTeague, say the unpredictability of gas prices in the province shows that regulation has been a futile effort.
“A better approach would be to simply remove the fully regulated system and have the predictability you have in any other region of the country,” McTeague argued. “It’s a force returned to the people.”
Dan McTeague, pictured in the photo, is president of the Canadians for Affordable Energy. He believes it is time to stop fuel regulation in Newfoundland and Labrador. (Simon Dingley / CBC)
According to McTeague, regulation made more sense before the widespread use of the Internet, as it provided a form of stability, predictability and transparency. Now that market information is readily available, it has become much easier to predict gas prices in unregulated markets, he said.
“Gas stations tend to reflect these prices up and down 48 hours later, and here comes the predictability,” he said.
The federal government does not regulate gas prices, but the provinces can. The other three Atlantic provinces and Quebec also set limits on how much retailers can charge.
Extraordinary times, exceptional prices
Several factors contribute to the high price of gasoline in Newfoundland and Labrador – most of which are beyond the control of the provincial government or PUB.
The price of crude oil is one of the main forces driving up pump prices. Sanctions against Russian crude oil have strained global supplies. Demand for gasoline is rising, a trend that is normal in the summer but is escalating as COVID-19 restrictions weaken in many areas. A weaker Canadian dollar also means it is more expensive to buy fuel.
All of these factors also contribute to the volatile market, said Larry Short, CPA at Short Financial.
“When we receive indications of economic growth or slowdown, as we receive indications that there may be potential changes that will occur after the Ukrainian war, and especially as far as Europeans are concerned, whether they will effectively impose a complete blockade or ban on imports of “Russian oil, it affects the price of oil on world markets,” he said.
However, PUB does not publicly announce when it will make an emergency adjustment until midnight on the day of the change. PUB also does not conduct media interviews.
Blondon said the decision to make an extraordinary adjustment was based on the daily reference price of fuel he received from Platts US Marketscan. According to Blondon, PUB considers an extraordinary adjustment justified if the average daily or weekly standard changes by about six to eight cents per liter. Trends in data and time of correction also play a role.
“These adjustments occur when it is necessary to change the maximum prices in order to allow wholesalers / retailers to reimburse delivery costs or to ensure that consumers do not pay more than necessary to ensure reimbursement of these costs, “Blondon said.
Rod Hill is a professor of economics at the University of New Brunswick. Hill argues that regulation still has some value because it provides stability and prevents collusion. (Julia Wright / CBC)
Although an unregulated market can allow for better predictability when fuel markets are volatile, a professor of economics at the University of New Brunswick says regulation still allows for better long-term predictability and prevents collusion.
“One of the benefits of regulation – if done in a transparent way, which is important – is that it allows buyers of these fuels to understand where these prices come from,” said Rod Hill. “Another benefit that the regulation offers is… it could be to keep this price lower than it would otherwise be if this particular market was not very competitive.”
Without regulation, Hill said, the lack of competition could mean higher prices in small communities with limited gas traders.
Blondon said PUB does not monitor the price of fuel in unregulated jurisdictions and said the decision to regulate fuel is up to the government, not PUB.
Need for transparency
Although they disagree on the regulation of gas prices, both Hill and McTeague agree that prices must be transparent and the PUB must be clear in its methodology.
“The regulator really needs to clarify what the wholesale margins are, what the retail margins are if transport allowances are to be made,” Hill said. “This must be done in a clear and transparent way.”
NL Minister of Digital Government and Services Sarah Stodley, seen here in a photo file, has introduced legislation aimed at a more transparent PUB process for setting gas prices. (video on NL House of Assembly)
PUB provides a limited breakdown of how it calculates prices on its website, but does not provide details on what is included in mark-ups or the decision-making process for making extraordinary price adjustments.
Although answering written questions, PUB does not provide media interviews.
The provincial government says it aims to make the PUB more transparent with changes to the Petroleum Products Act. The changes will require PUB to provide a breakdown of retail and wholesale mark-ups for gas prices. NL Minister of Digital Government and Services Sarah Stodley will also be able to direct PUB to hold public hearings.
“The day-to-day implementation of these rules is monitored and enforced by the Utilities Council, and this is what we are trying to demystify with our proposed changes,” Stodley told a news briefing earlier in May.
According to Short, there is currently little evidence for or against regulation in the province. He said a government review may be needed.
“But I doubt there is such a big difference,” he said.
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