Why N.S. gas stations and wholesalers can — for now — sell gas for 3 cents a litre more
Regulator concerned about retailers and wholesalers not being able to afford to sell gas
An interim order by the Nova Scotia Utility and Review Board could contribute to higher gas prices at the pump starting today.
Retailers (gas stations) and wholesalers (the companies that sell to retailers) are now able to charge three cents a litre more for gas. However, this could be offset by decreases in market prices.
Pump prices for regular gas did go up at midnight by 5.6 cents per litre, while premium gas went up 5.5 cents.
According to the order issued on Dec. 23, the gas price regulator made this decision to increase the wholesale margin because "an emergency situation may exist in the province" which could lead to a shortage of gas.
Without the UARB's action, there was concern about whether retailers and wholesalers could afford to sell gas.
"We've been struggling with this for some time now whether we keep gas [as part of the business] because it's been such a negative cash flow to us," said Stephen Murphy, owner of Steve R. Murphy's Auto Services.
The mid-sized automotive service company in Halifax was one of two businesses that applied to the UARB for the three-cent margin increase.
Shrinking profit margins
Wholesalers and many retailers purchase gas at a price that's based on the rack price, or the unregulated market price charged by refiners like Irving Oil and Imperial Oil.
That unregulated rack price has been moving closer to the UARB's regulated wholesale and retail gas prices.
This means the cost of buying gas has gone up in relative terms, but the price at which retailers and wholesalers can sell the fuel has not increased to compensate for that, eating into their profit margins.
Murphy said the company's profit margin for gas sales dropped below one per cent at several points over the last six months.
The company has not seen profit margins decline like this in four decades, added Eileen Murphy, who oversees finances for the business.
The UARB has launched an investigation into why this is happening, how much of a problem it is and whether any permanent action is needed going forward.
Murphy said the company applied to the UARB to intervene and investigate as a last resort, and that she understands how this could increase costs for Nova Scotians at the pump.
But Murphy said if gas retailers can't keep their doors open, that would have a major impact.
Imperial Oil declined a request for comment from CBC News. Irving Oil and the Canadian Fuels Association did not respond to requests for comment.
All of this could be more of an issue for independent retailers in rural areas, said Murphy.
Things like pumps and tanks need to be replaced, and those smaller retailers may not have the money to maintain their business, he said.
In addition, "wholesalers may not renew [supply contracts with] some of these smaller sites because there's no money involved for them," Murphy said.
The interim order will be in place until further notice pending the investigation. A public hearing has been set for Aug. 6.
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