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III Review of Price Components 1989 to 1996

This chapter presents comparative data on retail prices, retail margins, taxes, refining and marketing costs and margins and crude costs from 1989 to 1996.

The principal source of gasoline industry price and margin data is Natural Resources Canada (NRCan). Since 1986, NRCan has compiled price and margin data for the largest city in each Canadian province on a monthly basis, relying on data supplied by each province. Every oil company presenting to the Committee used NRCan statistics to support their arguments. It is important, nonetheless, to recognize that the data is only from the major centres and does not represent provincial averages or allow calculation of national averages. Appropriate caution must thus be used in making inferences regarding province-wide conditions from the data.

A. Retail Prices Excluding Taxes

1. Saint John

NRCan data comparing prices in Saint John to the average of prices in the largest centre in each province is provided in Exhibits 5 and 6. With the exception of a period of distortion around the time of the Gulf war, the price in Saint John excluding taxes (ex-tax price) has fluctuated between 28 and 35 cents per litre since 1989. The exhibits indicate that although the Saint John price was similar to the major city average during 1989 and 1990, beginning in September of 1991 a gap began to appear. As shown in Exhibit 6, the gap between the Saint John price and the major city average increased from 1991 until 1995 and averaged at least 4 cents per litre. The gap decreased and perhaps disappeared in 1996, a period when there were severe and prolonged price wars in selected markets in the Province. Appendix D provides various other price analyses on both tax included and tax excluded bases comparing the Saint John average price and the New Brunswick average retail price to various other cities and jurisdictions.

2. New Brunswick Average

Comparisons of provincial average prices between New Brunswick and other provinces are difficult because of a lack of data. The Department of Natural Resources and Energy undertakes price surveys for New Brunswick and Nova Scotia. Only Ontario, Manitoba and British Columbia were also able to provide provincial average data.

Exhibit 7 provides provincial average data for Nova Scotia, Ontario, Manitoba and British Columbia for 1994, 1995 and 1996 to the end of August. The exhibit indicates both differences between major centre and provincial average prices as well as differences between provinces.

Ex-tax prices on a provincial average basis for New Brunswick were substantially higher in 1994, 1995 and 1996 than Nova Scotia and Ontario, but comparable to Manitoba. In 1994, the New Brunswick average was 2.4 cents per litre higher than the Nova Scotia average and 4.1 cents higher than the Ontario average. In 1995, the New Brunswick average was 6.4 cents per litre higher than the Nova Scotia average and 4.8 cents higher than the Ontario average.

Referring again to Exhibit 7, the differences between the major centre averages and provincial averages provide an indication of the ability of the major centre averages to reflect provincial average conditions. In Ontario, Nova Scotia, Manitoba and British Columbia there was a spread of approximately 2 cents per litre between the provincial average and the major centre average. This contrasts with New Brunswick where the Saint John price has tracked the provincial average price closely as shown in Exhibit 8. Thus although the Saint John price provides a reasonable proxy for the New Brunswick provincial average, the major centre price appears less representative of average prices in other provinces.

B. Cost of Crude

Exhibit 9 compares the Saint John ex-tax retail price to the cost of crude oil. According to the NRCan data, the cost of crude has ranged between 11 and 19 cents per litre from 1989 to mid-1996, excluding the time around the Gulf war. Over the period, the cost of crude has typically been less than 30% of the total retail price of motor fuel including taxes.

C. Retail Margins

A comparison of the retail margin in Saint John compared to the average retail margin for other major Canadian cities is provided in Exhibit 10. Exhibit 11 provides a comparison between retail margins in Saint John, St. John's , Halifax and Charlottetown. Both graphs indicate that the retail margin in Saint John has been relatively constant at a level averaging a little over four cents per litre, except during the first half of 1996 when it dropped below four cents. The other major centres collectively exhibit a declining trend over most of this period to an average margin closer to three cents per litre during 1994 and 1995, increasing somewhat in 1996 but remaining below the Saint John level. Saint John retail margins have been similar to or below those of St. John's and Charlottetown since 1991. Relative to Halifax, from 1991 to early 1993 Saint John retail margins were lower. Since March of 1993, Halifax retail margins have been lower than Saint John on a reasonably consistent basis. Retail margins for other Canadian cities compared to Saint John are provided in Appendix D.

D. Taxes

Provincial tax levels for 1989 to 1996 by province are presented in Exhibit 12. The New Brunswick tax rate is 10.7 cents per litre relative to 13.5 cents per litre in Nova Scotia and a Canadian average of 14.9 cents. In addition to the provincial tax, there are federal taxes which averaged 13.7 cents per litre for the 10 major centres across the country in 1996. Appendix D provides tax comparisons by province and versus Maine from 1989 to 1996.

E. Refining and Marketing Costs and Margins

NRCan calculates a value referred to as "refining and marketing costs and margins" by subtracting the published cost of crude, taxes and retail margins (from surveys) from the retail prices reported in its monthly 10 city survey. Exhibit 13 provides a comparison of this value for Saint John versus the other major Canadian centres. Exhibit 14 compares Saint John to Halifax, Montreal and Toronto. Refining and marketing costs and margins are higher in Saint John than both the major centre average and the other cities isolated in Exhibit 14, on a consistent basis from 1992 to 1995. In 1996, the gap between Saint John and other centres diminished.

F. Overview of all Price Components

The differences in all price components between Saint John and the other major cities are quantified in Exhibit 15 using data for the first six months of each year from 1991 to 1996. The difference between Saint John retail margins plus refining and marketing costs and margins averaged more than four cents per litre from 1991 to 1995. Exhibit 16 provides average data for retail prices, taxes and margins for the ten cities surveyed by NRCan as well as a volume weighted average for the 10 cities.

G. Price Diversity within New Brunswick

Exhibit 17 provides annual average tax included prices by county within New Brunswick from 1992 to 1996. and the percentage of independents by county. The exhibit illustrates the degree of variation in prices from county to county and how relative prices fluctuate over time. As an example, in 1992, the average Moncton price was 5.3 cents per litre higher than the Fredericton price. In 1996, the Moncton price was 1.8 cents per litre lower than the Fredericton price. The spread between the market with the lowest yearly average prices and the one with the highest yearly average prices has been 8.9 cents, 5.5 cents 3.3 cents, 3.5 cents and 5.8 cents per litre respectively for 1992 to August of 1996 respectively.

Exhibit 5 - Saint John Ave. Retail Price vs Canada Ave. Retail Price Excluding All Taxes, 1989 - 1996

(see original)

Exhibit 6 - Saint John Ave. Retail Price vs Canadian Ave. Excluding All Taxes, July 1991 - December 1995

(see original)

Exhibit 7 - Price Difference Between Major Urban Centre and the Provincial Average

                                           ¢ / litre
                                    Including Taxes                    Excluding Taxes
                                1994    1995    1996            1994    1995    1996
                                               To Date                         To Date
        Saint John              54,1     56,4    53,9           31,4     32,2    29,6
        Prov Avg.
  Incl Saint John               53,9     57,2    56,6           31,3     33,1    32,3
        Difference               0,1    (0,9)   (2,7)            0,1    (0,8)   (2,7)

        Halifax                  52,1    54,1    53,2            27,1    27,3    26,2
        Prov Avg. Incl Halifax   53,7    56,5    56,4            28,8    29,6    29,4
        Difference               (1,6)   (2,4)   (3,2)           (1,8)   (2,2)   (3,2)

        Toronto                   50,1    52,9    55,3            23,6    24,5    27,0
        Prov Avg. Incl. Toronto   52,4    56,3    58,8            27,1    28,2    30,5
        Difference                (2,3)   (3,4)   (3,5)           (3,5)   (3,7)   (3,5)

        Winnipeg                 55,2    54,4    56,0            31,8    29,5    30,8
        Prov Avg. Incl. Winnipeg 55,0    57,3    59,4            31,6    32,4    34,1
        Difference                0,2   (2,9)   (3,4)             0,2   (2,9)   (3,4)

British Colombia
        Vancouver                57,0            59,0            31,5            30,0
    Prov Avg. Incl. Vancouver    51,4            58,8            29,1            33,0

        Difference                5,6             0,2             2,4           (3,0)

Data is for 12-May-93 and 12 Apr-96
Vancouver has a 4 cpl transit tax
New Brunswick and Nova Scotia: NBDNRE Surveys, NSDNR
Ontario: Ont. Ministry of Energy
Manitoba: Manitoba Ministry of Consumer & Corporate Affairs
British Colombia: BC Utilities Commission, British Columbia Inquiry into Gasoline Pricing

Exhibit 8 - NB Ave. Retail Price vs Saint John Ave. Retail Price Including All Taxes($Cdn) 1989-1996

(See original)

Exhibit 9 - Saint John Ave. Retail Price Excluding Taxes vs. Delivered Crude Costs, 1989-1996

(See original)

Exhibit 10 - Saint John, N.B. Ave Retail Margin vs Canada Ave. Retail Margin, 1989-1996

(See original)

Exhibit 11 - Saint John, N.B. Ave Retail Margin vs Ave Retail Margins in Other Atlantic Cities, 1989-1986

(See original)

Exhibit 12 - Provincial Motor Fuel Taxes

(See original)

Exhibit 13 - Saint John Refining & Marketing Costs & Margins vs Canada Ave, 1989-1996

(See original)

Exhibit14 - Saint John Refining & Marketing Costs & Margins vs Other Major Centres, 1989-1996

(See original)

Exhibit 15 - Saint John versus 10 City Average - Breakdown of Price Components, 1992-1996

(See original

Exhibit 16 - Tax, Retail Price and Margins by Major Market, 1989-1996

(See original)

Exhibit 17 - Structure of the New Brunswick Retail Gasoline Business

(See original)

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