August 11, 2006
The following is being distributed at
the request of the Public Utilities Board’s Petroleum Pricing Office (PPO):
Changes in fuel-price
regulation to reflect updated storage and distribution costs
The Board of Commissioners of Public
Utilities (the “Board”) has completed another component of its ongoing
review into the regulation of petroleum products pricing in Newfoundland
and Labrador (NL).
This segment of the review will result in changes to the cost inputs
used to set maximum regulated prices of petroleum products, and will be
incorporated with the scheduled mid-month price adjustment for both
automotive and home heating fuels on August 15, 2006.
These changes are based on a study completed by an independent
consultant - A Study of Storage and Distribution Costs for Petroleum
Products throughout Newfoundland and Labrador (the “S&D Study”). The
report identifies the multitude of supply networks operating in the 14
separate pricing zones in the province for each petroleum product
regulated by the board, and considers the related storage and
distribution costs associated with supplying these petroleum products to
consumers in each zone.
As a result of these changes maximum regulated prices in most zones will
either increase or decrease to reflect the updated costs identified in
the S&D Study, and will be applied to the regular pricing data to be
implemented on August 15, 2006. Some adjustments in zone boundary
designations will also be made to better reflect how supply and
distribution networks operate in these areas.
The following adjustments to the pricing models for automotive and
heating fuels will be implemented as of August 15, 2006:
- The total allowed mark-up for
gasoline in the Avalon Peninsula base zone will be increased by 0.08
cents per litre (cpl) to 13.58 cpl to account for increased
transportation costs related to diesel fuel within this zone. This
increase is, therefore, also applicable to the other zones. With
taxes this will result in an increase in the maximum price for
gasoline of 0.1 cpl in all zones.
- The existing zone differentials for
automotive fuels (gasoline and diesel) will be adjusted, which will
result in changes to maximum automotive fuel prices ranging from a
decrease of 2.5 cpl in Zone 7a (Ramea) to an increase of 6.2 cpl for
Zone 7b (Grey River/François/Grand Bruit/La Poile)
- The existing zone differentials for
furnace and stove oil will also change, with adjustments ranging
from a decrease of 1.3 cpl in Zone 12 (Central Labrador) to an
increase of 8.3 cpl for drum delivery in Zone 4a (Gaultois/McCallum/Rencontre
- Adjustments to zone differentials
for residential propane used for home heating will be made in some
zones, ranging from no change in certain areas to increases of 0.2
cpl in Zone 4 (Connaigre Peninsula) and 1.7 cpl in Zone 9 (Northern
Peninsula to Englee and St. Anthony).
The tables: (i) Impact of Updates to
S&D Costs on Maximum Prices for Automotive Fuels; (ii) Impact of Updates
to S&D Costs on Maximum Prices for Distillate Home Heating Fuels; and
(iii) Impact of Updates to S&D Costs on Maximum Prices for Propane Used
for Home Heating Purposes show the resulting changes to the maximum
regulated prices for each product in every zone. A backgrounder and a
summary of zone designation changes, as well as revised zone
descriptions and updated zone maps for all products are also with this
release, as well as a series of Q & As relating to the implementation of
the Storage and Distribution Study.
PROTECTING LOCAL SUPPLY NETWORK
Since fuel-price regulation was implemented in 2001, there have been few
changes to maximum fuel prices outside of pricing movements on NYMEX
(New York Mercantile Exchange) resulting from global market conditions.
These changes were reflected in either regular mid-monthly price
adjustments or through the application of the board’s interruption
formula when interim price changes were warranted (See Backgrounder).
In order to maintain the integrity of the province’s fuel supply
network, it became necessary to review the costs related to the storage
and distribution of fuel as it moved from one place to another, whether
it be to a storage facility, retail outlet or to someone’s home. There
are many unique geographic features and ways of doing business that
affect the supply of petroleum products throughout the province.
Consequently, prices must reflect the handling of these products, which
sometimes involve ferry service and drum delivery to remote communities.
The S&D Study’s recommendations address the overall provincial costs of
storage and distribution as well as transportation within each zone.
They also ensure that regulated maximum prices recover such costs to
provide a secure and continuous fuel-supply network so that petroleum
products are available for consumers in all regions of the province.
It is the board’s view that if these changes were not made many smaller
operations in the province, which are filling market voids left by
larger enterprises, will likely not be viable over the long term. This
situation would ultimately hurt the end-user, the consumer, in that fuel
supplies may not be readily accessible or supplied in certain locations
The implementation of these changes relating to automotive and heating
fuels is part of the second phase of the board’s ongoing review of
petroleum products regulation in the province. The first phase involved
a review of the administrative and financial practices of the former
Petroleum Products Pricing Commission (PPPC) intended to eliminate
duplication and effect efficiencies in the integration with the board of
the Petroleum Pricing Office itself.
This second phase includes a review of the operational aspects of the
pricing methodology used to set maximum prices for petroleum products in
the province. In addition to the S&D Study recommendations that are now
being implemented, the second phase also incorporates consideration of a
number of other issues concerning the pricing adjustment methodology and
processes employed by the board and regulatory reporting requirements.
The board will conclude discussions with stakeholders and finalize
implementation of the remainder of the review in the early fall.
To learn more about the S&D Study, as well as to view other supporting
documentation, such as this announcement and the board’s ongoing review
of petroleum products regulation, visit:
Documents - PDF
Media contact: Michelle Hicks,
Communications Officer, (709) 489-8837, 1-866-489-8800
2006 08 11