Report on B.C. gas prices a 'painful portrait' with no close look at the role of taxes

In the hours before the long weekend, where big news is brought to be buried, the British Columbia Utilities Commission (BCUC) painted a frustrating picture Friday of why our gas prices are North America’s highest. It will take much labour beyond Labour Day for the culprits to get the smell from their product off their hands.

The commission ran out of fingers to point, but the most distressing and unsolveable is a wholesale market that “is not competitive,“ an “oligopoly” among four firms with “elements of a natural monopoly.”

That said, that factor does not equate with a fault. Barriers to entry are formidable, refining is pretty much at capacity, and the report says it would take a lot of new infrastructure to transport, receive, store and distribute meaningfully to affect price.

One presumed suspect exonerated: While prices are “choreographed,” often several times a day, and while this properly frustrates (and, I might add, even raises suspicion among) consumers, the commission found “no evidence” of collusion or “cartel behaviour” among retailers.

There was one mystery the commission could not solve: why there is a nearly 13-cent wholesale price difference in Metro Vancouver and the Pacific Northwest. Neither “economic theory” nor “known factors in the market” can explain it. It’s some sort of Bermuda Triangle in which 13 cents magically disappears – ultimately that, and then some, from drivers.

There is also a non-mystery that the commission could not solve: the rationale and impact of government taxes that total more than one-third of the price at the pump. It was forbidden by the Horgan government to do so, even if it might be Exhibit A in a forensic exploration, even if the BC NDP didn’t necessarily create the issue.

The commission investigation was launched by the premier in May, when prices flirted with $1.60 a litre in Metro Vancouver. The report reiterates what we hear every year about the phenomenon of late-spring prices. It debunks the myth of the gas gouge. It is simply a matter of supply and demand, in which winter gasoline is switched at the refineries to summer gasoline, and summer gasoline is in greater demand.

The commission turns its attention in the report to some proposed next steps, and it is difficult to find much hope, especially anything short-term.

To start, we are driving a little less and will drive even less in the years to come, so the demand for gasoline will diminish.  But that’s hardly helpful today, tomorrow or soon.

If industry and government were to invest in greater refining capacity, the cumulative benefits of jobs, supply security, sectoral scale and export options could in turn drive down prices here. The commission says this has potential, but again, this is not going to happen before the Vancouver Canucks are Stanley Cup contenders.
Besides, even if terminal infrastructure were added, the commission concludes incumbent firms could drop their wholesale rack prices long enough “to prevent new participants from entering.”

Wholesale price regulation is a possibility, in that it could “smooth” the variations in prices. But in a very rare self-effacing moment for any government institution, the commission actually wonders if “a regulator will do a better job than is currently being done by the oil companies.”

As for retail price regulation, well, the commission is cooler to that idea. Sure, it could reduce retail margins – some of them justifiable because of the overhead that land value imposes on retailers – and make them more in line with the rest of the country. But it could also drive away low-cost providers. Thus, the commission concludes, the “reward” might be less than the “cost” of regulation.

What we got Friday was the painful portrait, somewhat understandable and somewhat a riddle, with no examination of government taxes in the mix.

Prices have come down since the furore in May, so it is hard to believe the province will view this as a priority when it will need the revenue for its program spending, for its climate action strategy, and to deal with any economic headwinds.

Drive safely, everyone, even if you don’t drive cheaply.

Kirk LaPointe is editor-in-chief of Business in Vancouver and vice-president, editorial, of Glacier Media.