New Brunswick gasoline prices are three cents lower than the national average today. A triumph of gas price regulation, you say? Not at all. It is a triumph of lowered taxes. On its first day in office, the current New Brunswick government cut gas taxes by 4.3 cents a litre, moving New Brunswick immediately from the doghouse to the penthouse in terms of competitive gas pricing. No longer did it pay to zip across to Amherst, or over to Riviere-du-Loup or Notre-Dame-du-Lac. That’s fine, you say. Regulation makes sure the big oil companies don’t get any more of my money, right? Sorry. Regulation actually ensures they get every penny and more. As the New Brunswick Department of Energy’s own consultants put it in their review of price regulation, “The regulatory system makes no attempt to control the refinery selling price or any other aspect of competition at the refining stage.” The oil refineries get everything that’s coming to them thanks to the benchmark price, in this case the New York Harbour (NYH) spot price. Well, then, at least wholesalers and retailers must be getting less? No again. Regulation is designed so that wholesalers and retailers get a certain amount that should allow them to remain profitable. Then the regulator sets the maximum price a retailer can charge. That maximum is set above what most retailers need to ensure a profit, so retailers and wholesalers are better off, and at least no worse off under regulation. Don’t forget, if wholesalers or retailers are worse off because of regulation, they would be struggling or going out of business. Since changes to the initial regulatory model have been put in place, wholesalers and retailers have been rather quiet about price regulation. This is a group that is not shy to tell the world when it is not pleased with a policy – remember when some even shut their pumps off for the day in the early stages of regulation rather than sell at a loss? So retailers, wholesalers, or both are making more money, and it is not coming from the big oil companies. That only leaves one option – the money is coming from you. How much? Well, here’s what we found when checking the actual margins before regulation and after regulation in our newest paper “What’s Missing from your Wallet?” While it may defy logic and what one would assume happens with regulated prices – the allowable margins after regulation are higher than the margin before regulation. In the case of New Brunswick, it’s 0.31 cents per litre more. That’s before tax is added, so you actually pay 0.35 cents more for every litre. Now you might say wait a minute, New Brunswick’s prices were always higher than most other provinces before, and now they’re lower. Absolutely true. But remember, that has nothing to do with price regulation and everything to do with the 4.3 cent per litre tax cut in 2006. Surely retailers would be pushing the price up even higher without the maximum in place? That’s the $9.4 million question. Some would suggest that margins are rising faster elsewhere, and they’d be rising just as fast here if we didn’t clamp down with regulation. That suggestion would be wrong, though. First, margins don’t rise with inflation like prices do. In fact, over the past 20 years, the gap between the NYH benchmark and retail prices at the pumps has been decreasing, not increasing. Second, regulation doesn’t keep that gap from growing. From the first half of 2008 to the second half, the gap between retail prices in unregulated provinces and the NYH benchmark shot up roughly 25 per cent. During the same time period regulation “protected” New Brunswick consumers by allowing only a 26 per cent increase in that gap. The gap grew faster in regulated New Brunswick. If retailers or wholesalers need more money to cover costs, regulation won’t keep them from getting it. If it does, you’ll hear them complain. Love gas price regulation or hate it, your decision should be based on the facts. The facts are gas price regulation costs New Brunswickers $428 per hour, $10,270 per day, and almost $302,000 per month. That is the extra money you, your friends, your neighbours, and your guests have paid oil companies, wholesalers, retailers, and the government. They take that extra money from your wallet – every litre, every tank, every time – thanks to gas price regulation. That totals about $9.4 million as of Feb. 1, 2009, and will be $9.6 million by the end of February and $12.7 million by the end of the year. AIMS Research Manager, Bobby O’Keefe wrote the paper What’s Missing from your Wallet? on gas regulation, which accompanied the Money Guzzling Gas Regulation Gauge. To read What’s Missing from your Wallet?, click here.
