When pump politics backfire
There is a perception by some in Ontario that gasoline marketers are “greedy Big Oil,” racketeers who relish increasing gasoline prices before long weekends or at other opportunistic times, pocketing the surplus. This notion of toying with consumer dollars for profit also seems to play well politically, and can be seen in the Ontario NDP’s latest private members’ bill proposing to regulate gasoline pricing.
This perception, quite simply, is false and feeds the inaccurate portrayal of the nation’s gasoline marketing sector.
According to Kent Group Ltd., which recently publ i shed a report entitled “Understanding Retai l Transportation Fuel Pricing in Ontario,” non-refiner marketers represented 70 per cent of Ontario’s retail sites in 2016, and 78 per cent of sites had their prices set by independent retailers. This means independent business owners and companies run the vast majority of our Canadian retail gasoline sites. It’s a competitive, freemarket l and scape where profit margins, regardless of fluctuating gasoline prices at the pumps, remain slim.
In Ontario specifically, the largest single component of the price at the pump is taxes: 36.2 cents per litre on average l ast year. We saw the pump prices rise an additional 4.3 cents per litre in Ontario as a direct result of the cap- and- trade program in 2016, an increase which consumers also pay tax on. The gross margin, from which retailers need to pay all operating costs and expenses, was just 8.2 cents per litre. Adjusted for inflation, marketing margins are only six cents per litre higher than in 1991. This will only become more constrained with the Ontario government pushing labour costs higher with new minimum wage rules.
Despite this lean operat- ing model, the report found that markets with more volatility generally have lower retail margins. It also showed that Ontario’s 2016 retail margins and pump prices were rational given each market’s characteristics. In fact, the province’s markets showed competitive price behaviour, according to their analysis.
While the NDP points to market regulation as the answer to price volatility, the facts don’t support this model. In Newfoundland, where prices are regulated, they are also among the highest in the country. According to the Kent Group report, “as with any regulation, the stated objectives of price regulation are not always consistent with its outcomes, and they can fundamentally alter the competitive dynamics of a market. There is evidence that current price regulations in some provinces are affecting markets in ways that may not necessarily benefit consumers.”
Governments and political parties need to be prudent in their recommendations for regulatory change, and should be equipped with the facts before jumping to conclusions. In this scenario, a deeper dive into the actual workings of our province’s — and our nation’s — petroleum-marketing sector for the Ontario NDP party is merited.
THE NDP POINTS TO REGULATION AS THE ANSWER TO GAS-PRICE VOLATILITY, BUT THE FACTS DON’T SUPPORT IT.