AIMS report misses the mark

Has gasoline price regulation really cost Prince Edward Islanders $91 million since 1991? This is the claim of Marco Navarro-Génie, the President of the Atlantic Institute for Market Studies (AIMS) in a recent column in this newspaper (“Gasoline price-fixing”, 25 August). He also claims that regulation has cost consumers in other provinces in Atlantic Canada tens of millions of dollars.

The Journal Pioneer then published an editorial echoing AIMS’ numbers (“Burned at the pump”, 25 August), advancing the theory that governments have raised prices through regulation to collect more money through the HST. All of the claims by AIMS are bogus. Let’s see why the numbers for P.E.I. are wrong.

The new AIMS study, “What’s Still Missing From Your Wallet?” updates their 2009 study “What’s Missing From Your Wallet? How Gas Prices Regulation Robs from Consumers”. That 2009 study reported that regulation had cost P.E.I. consumers $63 million up to then. The new study extrapolates from that to claim that regulation has cost Islanders an additional $28 million over for 2009-2017, giving a total of $91 million. Where did these numbers come from?

What AIMS is trying to calculate is how much consumers paid wholesalers and retailers for a litre of gas for a period of time before and after regulation. If this “marketing margin” rises after regulation, AIMS claims that regulation caused it. Knowing the total number of litres of gas purchased since regulation began gives their estimate of the change in total costs to consumers.

I looked into AIMS’ 2009 calculations in a paper published later that year by the Canadian Centre for Policy Alternatives (“Debunking the Myth That Gas Price Regulation Robs From Consumers”).

The 2009 AIMS study claimed that regulation began in February 1991, but I learned from the Island Regulatory and Appeals Commission that regulation began on March 31, 1988. The reason for the confusion: the current Petroleum Products Act came into effect in 1991, but it replaced an earlier Petroleum Products Act that implemented price regulation in 1988.

AIMS compared the marketing margin for the two and a half years before February 1991 with the two and a half years after it. But because regulation was in effect the entire time, the calculation showed nothing about its effects.

Their claim of a $63 million cost to P.E.I. consumers up to 2009 was completely wrong, as they now know. It is an indication of the integrity of their work that the current AIMS report not only repeats this number but extrapolates from it to come up with their claim of a total cost of $91 million in higher gas prices. This number has no basis in fact.

Incidentally, in my own study I found that if AIMS’ method were correctly applied, marketing margins for gas in Charlottetown declined substantially after regulation began. There was certainly no evidence in the late 1980s that the introduction of regulation raised prices.

I also found that AIMS’ calculations for every other province were done incorrectly. Their new report not only persists in using them but makes more mistakes as well. Their claims about increased costs to consumers are unfounded.

Despite years of claims that gas price regulation has raised prices for consumers in Prince Edward Island, AIMS has yet to provide a shred of evidence to support its position. Debates about public policy should be based on fact not fiction.