Gas prices in BC appear 'choreographed' : BCUC

Inquiry into high gas prices in BC finds unexplained price swings and offers two options for regulation

After gas prices spiked to record highs in April, the John Horgan government ordered an inquiry in what causes gas prices in Vancouver to be higher than anywhere else in Canada.

Spikes in gasoline prices in Vancouver appear to be "choreographed," says the BC Utilities Commission (BCUC).

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The commission released a final report on its inquiry into high gasoline prices Friday August 30.If the government decides to regulate gas prices, the commission is recommending two possible options: regulating prices themselves or supply chain access.

Generally, the commission was puzzled by an unexplained difference of about $0.13 in the wholesale gas price that it could not explain.

"There is an unexplained difference in wholesale price of approximately 13 cents per litre (cpl) between Metro Vancouver and the US Pacific Northwest," the BCUC says in an executive summary to its final report. "We cannot find a specific trigger in 2015 that would explain the beginning of this disconnect."

Jobs, Trade and Technology Minister Bruce Ralston said the commission confirms that the wholesale gas prices in B.C. is not competitive.

"People feel like they're being ripped off when they fill up at the gas station," Ralston said. "And they're right."
The commission was asked by Premier John Horgan to get to the bottom of gasoline price spikes in B.C. in May, after gas prices spiked as high as $1.72 per litre in Vancouver in April.

Gas prices have since fallen more than $0.30 per litre. The average price in Vancouver Thursday August 29 was $1.47 per litre, and lowest price was $1.28, according to Gasbuddy.com. But prices are already up by about $0.05 per litre today – just in time for the long weekend and the BCUC’s final report.

BCUC commissioner David Morton said there are certain differences in prices for B.C. compared to other parts of Canada that remain "unexplained." The commission has found that the market is not functioning properly.

As part of its inquiry, the BCUC commissioned studies and compelled oil and gas companies and refiners to answer questions posed by interveners and explain why gas prices are so high in B.C. compared with other parts of Canada.

The BCUC was explicitly told by the Horgan government not to consider provincial policies, like taxes or its low carbon fuel standard, as part of its inquiry, but that didn't stop companies like Parkland Fuel Corp. (TSX:PKI) from pointing to those policies.

Parkland and others, like Suncor Energy Inc. (TSX:SU), also pointed to a highly constrained Trans Mountain pipeline as contributing to the problem. Since 2015, more crude and less refined fuels have moved on the Trans Mountain pipeline, which means obtaining more refined fuel products like gasoline, diesel and jet fuel by truck, train and barge, and from "marginal" suppliers in the U.S. – all of which increases the wholesale price.

"With the supply of refined products shipped via the Trans Mountain Pipeline (“TMPL”) having been sharply constrained since 2015, B.C. demand has been met by ever more expensive sources of supply from as far away as California, the US Midwest and the Gulf Coast," Parkland, which operates the only refinery in the Lower Mainland, wrote in one of its submissions.

"In other words, the marginal source of supply is now a more costly source of supply, and the wholesale price has increased correspondingly. New costs imposed on marketers supplying the BC market, such as those associated with BC’s low-carbon regulatory requirements, has only amplified this effect."
Supporters of the Trans Mountain pipeline expansion argue that the twinning project would free up more space on the existing line for more refined fuels from Alberta, thus lowering their price.

Robyn Allan and Marc Eliesen have argued the expansion isn't necessary because there is already under-utilized capacity on the Trans mountain pipeline.

In their submissions to the BCUC, they relied on National Energy Board (NEB) data from 2014 to argue that the Trans Mountain pipeline has a capacity of 400,000 barrels per day, and that it is not operating at capacity.

“Trans Mountain's apportionment process is fundamentally flawed resulting in unused capacity,” they wrote.

Both the NEB and Trans Mountain responded bysaying that is not the case. The NEB stated that a graph it had produced in a 2014 on pipeline capacity, which Allan and Eliesen relied on, was “theoretical” not a reflection of the volume that actually moves on the pipeline.

If no crude moved on the pipeline, then its capacity for refined fuels could be as high as 400,000 bpd, but that’s not a reflection of what actually moves on the pipeline.

Trans Mountain pointed out that, as the operator of the pipeline, it was “in the best position” to verify data on what types of fuels and volumes move on the pipeline.

“Trans Mountain confirms that the capacity allocation rules do not result in unused capacity and the pipeline capacity is fully-utilized,” Trans Mountain writes.

The NEB was asked if it would be possible to increased the amount of refined fuels moving on the pipeline, or the amount of light crude Parkland needs for domestic refining. The NEB said it was entirely possible, but pointed out that it is the shippers who pay for pipeline capacity that decide what products to ship on the pipeline.

Morton said that there is no guarantee that an expanded Trans Mountain pipeline will necessarily mean more refined fuels and lower prices. The way the products are allocated would have to change.
Only 4% of the gasoline that is imported to B.C. but "it's the price of that that sets the market price," Morton said, which suggests that even if more refined fuel products became available, prices would still be vulnerable to prices in the Pacific Northwest.

Following the report’s release, Bruce Ralston, Minister of Jobs, Trade and Technology, issued a statement saying, "People feel like they're being ripped off when they fill up at the gas station. And they're right.”

"Today, the BC Utilities Commission found that the wholesale gasoline market is not truly competitive, which results in unexplained higher gas prices for consumers, and potentially higher profits for oil and gas companies,” Ralston said. “This means that British Columbians pay $490 million a year more than they otherwise would. "Our government is concerned with the allocation of refined gasoline flowing into B.C., as well as the lack of transparency around how the price of gas is set.”

In a conference call with media afterwards Ralston wouldn’t speculate on any action the government might take in response to the BCUC report, including price regulation which he called "premature."

“The commission has given us a lot to digest and we would want to move forward fully aware of all the implications of any potential action that might be taken,” he said.

The BC Liberal opposition called it it a “rigged review” and a "sham", and renewed their call for gas tax relief.

“John Horgan broke his promise to help British Columbians by sitting back and watching B.C. families pay the highest fuel costs in North America all summer without raising a finger to help ease pain at the pumps,” said Peter Milobar, MLA for Kamloops-North Thompson. “Instead, Horgan and the NDP dragged their feet with a sham review that was barred from looking at the impact of their policies and taxation on the costs of fuel. John Horgan insisted high gas prices were due to industry collusion and this review has proven him wrong.”

- with files from Sean Eckford

Copyright © Powell River Peak

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