NLIS 6
March 14, 2003
(Government Services and Lands)
 

Petroleum Products Pricing Commission releases review report

The Petroleum Products Pricing Commission (PPPC) is eager to implement an action plan that has evolved from a two-month internal review process.

From January 8 to March 7, 2003, the PPPC staff, with the assistance of Myers Consulting of St. John�s, carried out a thorough investigation of several aspects of fuel regulation: the pricing model; zones; and the legislation governing the commission in Newfoundland and Labrador.

During this time, meetings were held with all stakeholders in the industry, including government, oil suppliers, resellers, retailers and consumer groups, where each was given the opportunity to provide input on various issues.

Recurring issues brought to the commission�s attention were: the timing of price increases/decreases; base price review for motor and distillate fuels; zonal boundary consideration; and legislation and regulations.

George Saunders, PPPC commissioner, said he is pleased with the outcome of the review, and believes the overall process was a positive experience that will enable the commission to carry out its mandate more effectively.

"We wanted to make sure that we preserved the themes associated with regulation in the province; they being fairness, transparency and stability," said the commissioner. "We have a serious responsibility to all stakeholders at all levels. We do not want to set prices that interfere with the security of supply in any region of the province, nor do we want pricing to adversely affect the operation of businesses involved in the petroleum industry. The commission also wants to ensure that fairness, transparency and stability also works to protect consumers in the province."

Mr. Saunders added that his office wants to ensure that the petroleum industry functions for the benefit of all Newfoundlanders and Labradorians, even during extremely adverse conditions in the marketplace, such as those experienced over the last 90 days.

This review has given us a better insight into the kinds of challenges faced by small companies, as well as the major oil companies, in terms of making sure there is a steady flow of products to all parts of the province at an economical level," he said.

Mr. Saunders said the commission has also recognized that resellers play an integral role in the petroleum industry in this province. Steps have been taken to ensure this sector is included in the amendments to the legislation as soon as possible.

"We now have a much more in-depth appreciation of the marketplace in the province as it relates to the fuel supply distribution network provided by resellers," said Mr. Saunders.

The commissioner pointed out that the outcome of this review will also affect consumers.

Dramatic spikes in world fuel prices over the past two weeks have caused resellers to purchase fuel at a daily rack price that was higher than the maximum selling price set by the PPPC. But Mr. Saunders said the commission didn�t intervene in the pricing model, as it had January 3, because the review wasn�t complete and researchers were in the process of defining a set of criteria for future potential price interruptions.

The commission has introduced an interruption formula so that whenever the benchmark price of a particular fuel experiences a sudden and sustained increase or decrease over an established period of time (see pages 5-8 of the report), the commission will automatically adjust prices based on the average difference to the time prices were previously set.

"This change doesn�t mean prices will go up or down every week, as the commission will continue its monthly schedule of setting maximum prices," explained Mr. Saunders. "Instead, we wanted to come up with an approach so that when intervention is necessary, we had a clearly established set of guidelines to use, and the public isn�t shocked like they were January 3, when we had to interrupt the model for the first time in our history.

"I think it�s common knowledge to anyone watching the evening news or following the markets that oil prices have soared during the past three months, but we are able to stabilize prices so they continue to be well within the range of the rest of Canada."

All actions and recommendations in the report are effective March 15, 2003.

The review was submitted to Government Services and Lands Minister George Sweeney this week, and a copy can be viewed by clicking below:

• Download Document (PDF)

The PPPC will release its monthly maximum prices Saturday, March 15.

Media contact: Michelle Hicks, communications officer. Cell: (709) 486-4789 (voice mail available)

1. The Petroleum Products Pricing Commission (PPPC) carried out an internal review of its pricing model, zones, regulations and legislation between Janary 8, 2003 and March 7, 2003.
   
   
2. Meetings were held with stakeholders: government; industry stakeholders, such as suppliers, resellers, and retailers; and consumer groups in order to receive input on petroleum-related issues in Newfoundland and Labrador.
   
   
3. A number of concerns emerged from the meetings and are addressed in the report, including:

a. Timing of price increases/decreases;
b. Base price review for motor fuels/distillate fuels;
c. Zonal boundary consideration; and
d. Legislation and regulations.

4. Actions detailed in this review are effective March 15, 2003.
   
   
5. Timing of price increases/decreases:

a. the commission has introduced an interruption formula, which provides a set of criteria that would see the commission automatically adjust the price of any the regulated refined products when the benchmark price experiences a major spike, both sudden and sustained increases or decreases of an established amount over a specified period of time (see pages 5-8 of the report);

b. The adjustments in the four product groups will be made as necessary and independently of each other.

6. Base price review:

a. the base price of gasoline will increase by 1.5 cents per litre (cpl) over New York Harbour benchmark prices (see pages 8-9); and

b. a change in the methods used to calculate the base price of furnace oil: industry practice has been to blend jet fuel or stove oil with furnace oil in order to make the fuel suitable for storage and use in cold temperatures, and future regulated prices will use the weighted average of the two fuels between October 15 and April 15 annually (see page 9).

7. There will be no changes to the margins currently established for retailers (See page 9).
   
   
8. Zonal boundaries (see pages 9-10):

a. The commission reserves the right to continue to accept representation to consider zone boundary changes based on valid evidence;

b. Zone 6 (Deer Lake/Corner Brook/Bay of Islands/Gros Morne) and Zone 8 (Northern Peninsula � Lobster Cove/Gros Morne National Park to Bellburns) will revert to their original boundaries prior to Sept. 15, 2002. The description for Zone 6 now reads Deer Lake, Corner Brook, Bay of Islands, and Zone 8 will be described as Northern Peninsula-Gros Morne National Park to Bellburns.

9. The commissioner has requested that the Government Services and Lands minister make amendments to the Petroleum Products Act to incorporate resellers, who are determined to be an integral part of the petroleum industry in this province, and present these amendments to the House of Assembly as soon as possible.
   
   
10. Assessment regulations (see page12):

a. A revised assessment is in effect, which requires wholesalers and retailers to pay the cost of the PPPC office based on the number of litres sold in the province.

2003 03 14              3:20 p.m.