The Committee's objective is to identify the type of environment that will enable the market to work to the benefit of consumers over the long run. With this intent, the Committee has reviewed a range of options including:
The experience of Nova Scotia and Prince Edward Island with price regulation does not appear to have been to the advantage of consumers. Accordingly, price regulation is not an option under consideration by the Committee.
The Committee is focusing on four options as it formulates recommendations:
- price regulation
- divorcement and partial divorcement
- below cost selling laws
- strategies for encouraging wholesale competition
- fair marketing practices type laws
- increased industry monitoring and reporting.
Each of these options are described below. The Committee is open to input on other strategies for encouraging a competitive marketplace that will keep prices and margins in New Brunswick at reasonable levels in the future.
- A required minimum retail margin of between 0˘ and 3˘ per litre which could be implemented by regulation under existing legislation. The objective of this would be to limit the damage that can be inflicted on an independent by any refiner marketer, during a price war.
- A fair marketing practices act modelled on "HR 2966" which was proposed at the federal level in the United States.
- A customized fair marketing practices act of the type advanced by the independent sector.
- Increased monitoring and reporting of industry structure, prices and margins.
A. Minimum Margin Under Existing Legislation
Clause 6 of the existing legislation (The Gasoline, Diesel Oil and Home Heating Oil Act) indicates "no wholesaler shall sell gasoline to a retailer at a price that would prevent the retailer from obtaining the minimum retailer margin fixed by the Minister in accordance with regulations" An option designed to limit discriminatory pricing by refiner marketers would be to establish a minimum margin at a level of between 0˘ and perhaps 3.0˘ per litre.
For this approach to achieve the desired effect, careful consideration must be given to the supporting regulations. The legislation implies that retailers have the right to sell gasoline at whatever price is necessary to retain their usual sales volume. When retailers sell at that "volume retaining" price, they are entitled to purchase gasoline at a cost that allows them to earn at least the legislated minimum margin. The supporting regulations would then require a process for establishing the "volume retaining" price as well as specify the other information necessary for a retailer to prove that they were prevented from obtaining the regulated minimum retail margin.
B. Anti-discriminatory Pricing Legislation Similar to HR 2966
The Society of Independent Gasoline Marketers of America (SIGMA) advocates a piece of draft legislation prepared by their legal counsel called HR 2966. A copy of HR 2966 is provided as Appendix C. The draft legislation was introduced at the federal level but was not passed into law. It is designed to be an improvement over the various below cost selling laws which exist because it does not prohibit price wars and because it defines a prima facie case in a manner that avoids extensive debate about the meaning of "below cost".
The Committee is concerned about the minimum retail margins that are implicitly established by the selection of the 94% threshold. A possible option would be to consider legislation similar to HR 2966, but modifying Section 403 (d) (1) (A) (Page 12 line 23) and replacing the 94% with 100 percent of its consumer retail price per litre less the cost of transportation to the customer's retail location . Paragraph (d) (1) (B) would have to be similarly adjusted.
- the prima facie case is established if a refiner sells gas to a reseller at "a price which is higher than 94% of its consumer retail price per gallon".
C. Proposals from the Independent Sector
The following have been proposed by the independent sector:
The Committee is concerned about the minimum retail margins that are implicitly established by number 4. If this approach were considered, it may be necessary to examine alternative wording for number 4. One possibility would be as follows:
- Posting of Rack Prices
Refiners and Wholesalers must post their branded wholesale prices in a public accessible format.
- Unbranded no more than branded
It shall be unlawful for a refiner to enter into an arrangement with a branded dealer whereby the unbranded wholesale price is greater than the branded wholesale price of the refiner.
- Refiners cannot set retail price
It shall be unlawful for a refiner to dictate the retail prices of motor fuel, except that this section shall not apply to a refiner's retail sales at its direct operated outlets.
- Rack price must be lower than retail less cost to retail
The price at a refiner's direct operated outlet, less that refiner's transportation and retail operating expenses shall be at no time less than the price the refiner charges to any reseller.
- Ex-freight prices must be offered
Refiners/wholesalers must post wholesale prices excluding freight. (Freight included prices could also be offered.)
- Dealers able to select terminal
It shall be unlawful for a refiner to restrict the supply point(s) where a dealer is able to obtain their supplies of motor fuel from that refiner.
- Outlet opening promotions exempt
A refiner-marketer is not bound by the terms of number 4 (above) for the first two weeks a station is in business.
- Civil remedies
In the event that any provision is broken by any member of the industry, the onus rests with private interests to launch a civil action for injunctive relief or damages.
There are then, effectively, two variations of each of the three options presented above, under consideration by the Committee. Each of options A, B and C could be implemented in a form that provides for a minimum retail margin targeted at the level of an efficient operator. Alternatively they could each be implemented in a way that only prohibits a refiner marketer from charging branded or unbranded independent resellers more than that refiner/marketer's price to the public through outlets carrying its brand.
- "the price at a refiner's direct operated outlet, less the cost of transportation to the outlet shall be at no time less than the price the refiner charges to any reseller."
D. Increased Industry Reporting and Monitoring
This option would include increased industry structure and price monitoring and the publication of price comparisons to improve consumer awareness of pricing practices. Companies would be required to file specified information such as number of outlets by ownership and operating arrangement. Such a regime could also require reporting of instances where retail prices at outlets owned by refiner marketers fall below wholesale prices to other customers.