Atlantic Canada's drivers pay more for gas regulation: think-tank

The Atlantic Institute for Market Studies says the regulation of gasoline prices has cost New Brunswick drivers about $9.4 million, and about $155 million for drivers throughout Atlantic Canada since regulation was established.

Gas regulation was established in New Brunswick in 2006 with the intent of stabilizing the volatile gasoline market.

The controversial report from the Atlantic Institute for Market Studies, a Halifax-based think-tank, says consumers are paying more under regulation than they would if prices were allowed to fluctuate naturally.

Bobby O'Keefe, a research manager at AIMS, said the system doesn't bring the stability that politicians claim.

'The estimates are worthless because they fail to take inflation into account.' — Rod Hill, UNBSJ economist

"In terms of price stability, the price may not change as often, but it's going to change as much because of the benchmark that's used," O'Keefe said.

"So if the price is going to change 10 cents in a week, whether it does it all at once under regulation, or three or four times over a week, it's not really stabilizing prices."

The study added up all the extra costs that drivers in the four Atlantic provinces have paid since their jurisdictions adopted regulated gas systems.

According to the study, New Brunswickers pay 0.3 cents a litre more with regulation than they would if gas stations could set their own prices freely.

The research firm says New Brunswickers have paid out an extra $9.4 million since July 1, 2006, but other Atlantic drivers have shelled out more over the years.

The think-tank study says gas regulation has cost Nova Scotia consumers $17.8 million more since July 1, 2006. In Newfoundland and Labrador, the report estimates drivers have paid out an extra $65.2 million since October 2001. And for drivers in Prince Edward Island, which has regulated gas prices since 1991, the research paper estimates the added costs at $63 million.

AIMS calculated the difference using a method previously developed for Nova Scotia price regulation.

Economist dismisses AIMS report

Rod Hill, an economist with the University of New Brunswick in Saint John, published a study on gas price regulation in New Brunswick in 2008 that found, among other things, prices in the province had likely been lowered by the policy.

Hill said the AIMS report tries to blame inflation on regulation which he calls a "shameless sleight of hand."

"The estimates are worthless because they fail to take inflation into account," Hill said in a rebuttal to the AIMS study.

"Even if regulation has lowered consumer prices below what they otherwise would have been, as is the case in New Brunswick, AIMS’ bogus calculation makes it look like prices have gone up."

In its report, AIMS found that oil company marketing margins on gasoline in New Brunswick increased 0.31 cents per litre, or 2.7 per cent, in the first 30 months of regulation compared to where they were in the 30 months before. 

That is about half the rate of inflation during that time.

Hill said the report's calculations would be true only if an unregulated market would have produced no increase over the same 30 months, which, he said, is unlikely.

In fact, every Canadian petroleum market recorded increases in marketing margins during the period, most of them substantially higher than New Brunswick, according to two Canadian petroleum consulting companies, Gardiner Pinfold in Halifax and MJ Ervin & Associates in Calgary.  

Data on MJ Ervin's website says marketing margins increased an average of 1.2 cents per litre across Canada between the two 30 month periods, quadruple the increase AIMS says New Brunswick's regulated system produced.

Since the introduction of petroleum regulation, prices in New Brunswick, excluding taxes, have dipped below the national average in several communities. In 2008, MJ Ervin says prices in Saint John, Moncton, Fredericton, Bathurst and Sussex were all below the Canadian average for the year.

No New Brunswick community ever recorded an annual gasoline price below the national average prior to regulation.  In 1997, consumers in Saint John paid a record 5.3 cents per litre above the national average for gasoline for the entire year.

Keir defends gas regulation

Energy Minister Jack Keir said he believes the New Brunswick gas regulation system is working.

"Maybe folks forget how volatile the retailer pricing was back then, but it was very volatile," Keir said.

"Regulation was put in place to stabilize that, so that folks knew from one day to the next exactly what it was they were going to be paying for gasoline."

Keir said he will have his staff review the AIMS report before commenting on it directly.

The energy minister pointed out that the AIMS report does not reflect the findings of a University of New Brunswick Saint John study that demonstrated how regulation saves consumers about one cent per litre.

The Liberal government has made a series of changes to the New Brunswick system of gas regulation since the 2006 election. Now the Energy and Utilities Board sets the maximum price of gasoline weekly based on the previous week's trading of gasoline on the international markets.