MR. WILLIAM ESTABROOKS (Chairman): Perhaps we could begin. First I should point out to members present that the member for the beautiful Colchester-Musquodoboit Valley, our esteemed Chairman - I am exaggerating I know, Mr. Gaudet - Mr. Taylor will join us later and then I will take my regular place. This is a session of some timely importance to all of us and we look forward to it.
We plan to, if I understand the directions Darlene has spoken to me about - Darlene Henry here to my left - we are looking at, approximately now, the old schoolteacher in me says this five minute presentation. We are here for one hour and a half and the best part of these meetings, in my opinion, is the exchange that we have. We certainly understand the importance of your comments, witnesses, and we look forward to hearing from you.
Perhaps before we begin we could go around the table and introduce ourselves. I am Bill Estabrooks, I am the Deputy Chairman of the Economic Development Committee, I am the MLA for Timberlea-Prospect. Mr. Downe, could you lead off.
[The committee members introduced themselves.]
MR. CHAIRMAN: Because of the number of microphones, I am aware of the fact that we are going to have a bit of musical chairs, if we can use that term.
I think it is appropriate that we introduce our presenters. I understand Mr. McIntosh is going to go first, Stephen McIntosh, the Canadian Oil Heat Association. Ms. Joan Lay, Canadian Pensioners Concerned. We have Mr. David Collins, Vice-President of Wilson Fuels, and we have Mr. William Hogg, the Deputy Minister of Finance. Thank you all for being here. The order of presentation, from what we discussed earlier, is we are going to hear from Mr. McIntosh, and then we are going to have Ms. Lay, then we have Mr. Hogg, and hitting clean-up is Mr. Collins; athletic expression only I assure you. Mr. McIntosh, please.
MR. STEPHEN MCINTOSH: Good afternoon, ladies and gentlemen. It is a pleasure on behalf of the members of the Canadian Oil Heat Association. I extend regrets on behalf of our President, Mr. Ralph Chancey who had all intentions of being here but had a very unfortunate accident yesterday morning. He slipped on some ice in his driveway and he is recuperating with crutches right now.
I am just going to give you a very quick overview of the oil heat industry in Nova Scotia. Later on, at the end, Mr. Collins will get into much more detail about some of the things we have seen in the last couple of weeks. The demand for heating oil is generated in all communities in Nova Scotia. There are approximately 87 retailers with 157 locations in our province. Home heating oil is marketed and distributed by five large integrated companies, together with 82 small independent operators. As most of you know - if you haven't you have found out in the last couple of weeks - oil is the principal fuel of choice. Oil is about 59 per cent of all the homes in Nova Scotia, electricity is 19 per cent, wood is 19 per cent, and others, solar and other types of things, is about 3 per cent. That is primary heating sources, that doesn't count the combinations of oil and wood and those types of things.
I hope you can see this, it is pretty blurry but there is a copy in the package that I have sent out. This is fuel oil prices, taxes included, in Nova Scotia from January 1987 to February 2000.You will see the two things that we want to point out, we have had peaks before. The first one was back in 1991, and of course we will all remember that was during the Gulf War; the second one is April 1987, that is when the HST was introduced on fuel oil in Nova Scotia.
The other thing that is important to remember is when adjusted for inflation there is a trend line, the bulk of the time, since 1987, you can see the price of fuel oil has been going down with the exception of when the HST was introduced and the recent peak we have had.
MR. DAVID HENDSBEE: Mr. Chairman, just a clarification, on that second one, April 1997 when the HST was introduced, I think you said 1987, for the record.
MR. MCINTOSH: Sorry, 1997. How did this happen? Well, wholesale prices, that is the price that the retailer pays, increased sharply in a response to global market conditions. Retailers, the people that I represent, had to pass some of these increases on to their customers. It is really important to stress that retailers generally make less per litre in a rising market such as we have experienced, and this year is no exception. It has not been a pleasure for people in the oil heat industry this year, with the conditions the way they have been. Wholesale prices are determined by the global market for petroleum products, as producers and refiners maximize their returns for their shareholders. Global market conditions almost instantaneously impact the local rack, the wholesale price.
What happens and what has been happening in the global markets? Well, the price of crude increased from $11 per barrel last February to close to and over $30 per barrel this February. It is important to point out to everybody, it is a really good gauge for everybody
to remember, that an increase of about $1.00 U.S. per barrel in crude oil is usually equivalent to about 1 cent per litre Canadian with the HST on heating oil costs.
MR. HENDSBEE: That $11.30, is that in U.S. dollars?
MR. MCINTOSH: Yes. This increase in demand caused the spot price to double. As I said when I showed the chart, we have experienced this before with peaks. The situation is only temporary. OPEC is meeting on March 27th, the inventories of heating oil in the Northeast United States are being replenished, market forces will dictate and competitive prices will play out in the market place. Prices should return to more traditional levels. We have already seen some of the prices starting to go down.
Consumers can protect themselves from these spikes. How? Well, we encourage all consumers to establish a good relationship with their local fuel oil dealer, pick one, I don't care, any one, but establish a good relationship, get on an automatic delivery schedule to ensure a secure and reliable supply of heating oil. Most companies, when you get on a plan, will make sure and guarantee that you never run out. Use an affordable budget plan to protect yourself by spreading out the effect of any increases or spikes over a 10 month or 12 month budget plan.
Another item that has come up recently is the policy of minimum delivery requirements for home heating companies. Most oil heat dealers have a cash amount or a litre minimum requirement before they will deliver oil. Amounts vary from company to company and place to place in the province. When you include the cost of the driver and the truck - because let's not forget we see our trucking friends are having problems with diesel fuel and diesel fuel also runs oil heat trucks - it is not economical to travel great distances to deliver small amounts of furnace oil to customers, and complying with such requests will ultimately just drive the overall price higher.
My understanding is that part of the reason why this committee has called us here is to talk about taxation on heating oil. Heating oil was first taxed by the introduction of the GST in 1991 and the HST in 1997. It is the view of the Canadian Oil Heat Association that taxation is a government issue for governments to decide; however, COHA believes that any tax policy that is going to be implemented must not favour one form of home heating fuel over another. If it is going to be taxed, make sure they are all taxed equally.
I guess the other song we have heard lately is to regulate or not to regulate, that is the question. Our chapter supports a free and competitive unregulated market place. It is our belief, as we saw last year, when the competitive race was downwards to record low prices of 29 cents per litre, that competition is in the best interests of Nova Scotia consumers as we saw last year, and we support the current government for its stand that it has taken on this issue.
Just a quick summary. This is a global problem, not unique to our province or indeed to our country. Last year we enjoyed the lowest fuel oil prices in 10 years. The situation is temporary, market forces will dictate and the competitive pressures will play out and prices should return to more traditional levels. Consumers can protect themselves. Regulation is not the answer, competition is in the best interest of Nova Scotians.
The last slide is just for questions, but I guess I will take those later. Thank you very much once again for the opportunity to give a very short, brief description of what we have seen in the last year and what has happened recently.
MR. CHAIRMAN: Thank you, Mr. McIntosh, and thank you for keeping to the schedule. I think it would be appropriate that we go to each presenter and then come back with questions to whomever we wish to address them to. I assume we are agreed with that, committee members?
Ms. Lay, if you would please.
MS. JOAN LAY: Our kind thanks for your invitation, which I accepted on behalf of Canadian Pensioners Concerned Nova Scotia and also as Chair of the Group of Nine. Our presentation is comprised of information from our own organization and member organizations of the Group of Nine. Accompanying me today is Mr. Ken Brown, Nova Scotia Regional Director of the Federal Superannuates National Association. The association is a member of the Group of Nine.
Our concerns surrounding issues regarding fuel prices are many because of the far- reaching effects to the senior community. We have to be aware of the ripple effect caused by the continued upward trend of these prices. We have to look at how seniors are affected by the increases and how they, in turn, affect the economy of the province.
The immediate effect of the high fuel prices, of course, is the cost of heating fuel, the transportation costs, food costs, and volunteer costs. The fact that truckers are loudly protesting at the present time indicates that they will, no doubt, be a factor in the escalation of consumer costs, again part of the ripple effect. As the cost to the producers of consumer products becomes apparent, these costs will be passed down to the senior consumer. Areas that will be affected in the short term, as we previously mentioned are food and fuel, costs for heat and travel, as well as electricity costs, rents, public transportation, long distance travel costs, ambulance costs and home care services. Regardless of whether fuel costs go down, unless they go down immediately, the costs in the other areas will be tacked on, because they cannot survive without putting their prices up. These costs will be passed down as we well know.
We also find that the effects will be felt in the volunteer sector at all levels. Caregivers, Meals on Wheels Programs, programs in seniors' centres, safety programs, telephone aid programs, there is hardly a facet of life in Nova Scotia that will not be affected in some negative way by the continuing rise of fuel prices.
In the long term we have to recognize that the choices seniors must make between warmth and food could prove to be a real health problem for the government. As seniors' nutrition deteriorates, they will become ill, forced into hospitals, thus escalating health costs as well as the costs to the Department of Community Services.
Protection costs will escalate due to the price of gas and the patrol activities that will be cut back, thus providing less security for older people.
From the standpoint of the elderly, we see few positives to this situation. While we realize that the problem has been created by oil producing countries over whom we have very little control, we would expect our provincial government to make representation to the federal government to implement some relief measures in various sectors to control the upward spiralling of prices of consumer goods and services.
We also realize that, as was said, the price may go down. I have noticed that it never goes down that far every time it goes down and because of the added costs to the seniors, there is no way they can pick up the money they have lost. I think we have to remember that. If the government can't control fuel prices, they can at least provide relief in some measure to their citizens. Ultimately, it will affect our economic future in Nova Scotia as the tourist industry will be negatively impacted upon to the detriment of the business community.
Costs to seniors are harder to bear than in other sectors because of being on a fixed income and not being able to provide any extra monies to cover increased costs. Seniors make up approximately 70 per cent of volunteers in Canada. Many programs will suffer across the age continuum if seniors can't continue to volunteer due to the fact they do not have enough money. It costs money to volunteer, maybe you don't realize that, but it costs me money every day to be a full-time volunteer and we do not receive any remuneration, and I don't expect any remuneration. However, the fact that I am able to continue volunteering does not mean that other seniors who have been put at risk by high prices can continue to do so.
This affects every area of Canadian life. So we do feel that if this continues, there has to be some way of the government picking up some costs, whether it be by lessening the taxes on fuel or in some other way that perhaps the representatives of government can come up with.
I thank you for your interest and allowing us to make this presentation. I know that the seniors will be looking to our Nova Scotia Government, at least for some relief. I realize that there was relief given to a certain area of the senior population, but there are many other
areas of seniors who are over the borderline. These are the seniors that are being hurt. They are in the rural districts, so they must use their transportation. We do not have bus service, we do not have train service, so therefore these people must rely on their cars or their neighbours' cars. Therefore, they are caught in a bind at this present time. Thank you very much.
MR. CHAIRMAN: Thank you, Ms. Lay. Could we move on then to Mr. Hogg.
MR. WILLIAM HOGG: My name is William Hogg and I am the Deputy Minister of the Department of Finance. I was invited to come here today and I made some assumptions about the kind of information that you would be interested in. I will be mindful of the five minutes and move through this as quickly as I can.
I just wanted to start with an overview of some international comparisons, a little bit of price history and going down to the local petroleum costs in our area. Firstly, you can see that there is quite a variance of petroleum pricing. This is actually gasoline pricing across the world. Obviously, tax decisions are part of each country's overall tax policy but, overall, prices are much higher in Europe and that, eventually, is reflected in their lifestyle, the kinds of cars that they drive, their use of mass transit and other factors.
The next slide is similar to one of the earlier ones that shows crude oil prices rising sharply, particularly in January and February 2000. I will just point out that these are from a website called worldoil.com. Anyone interested in following petroleum prices, that is an excellent website to get information on past prices and some future prices, as well.
There have been many reasons given for the increases. One of them is that prices have been depressed for about two years at a fairly low level. You can see that starting from the far left; OPEC is much more organized and better able to control the supply to their benefit; and there has been a revitalization of the Asian economy which, because of its downturn before, provided more of a supply on the market which was, in part, responsible for lower prices.
If we go to the next slide, one of the other factors, most recently - and you can see it on the top far right - the sudden spike has been attributed to a sudden cold temperature in northeastern North America; in particular, a shortage of supply there. That situation appears to have been corrected but for about two weeks there, the prices were extremely volatile and increased considerably.
Coming down to the local level on gasoline, I put forward a comparison of gasoline prices as of March 1999 and February 2000. You can see the difference in the various components of price including the government's share, including the federal government. The federal excise tax is 10 cents per litre and that is a fixed amount. It does not vary with the
price of the fuel. Similarly, the provincial fuel tax is 13.5 cents a litre and that is a fixed tax. That doesn't vary on the price of the petroleum product.
HST is, of course, a value-added tax and an ad valorem tax. That is based on the selling price of the product; in this case, gasoline. Of the 2.7 cent change between March and February, 1.3 cents will go to the federal government as GST and 1.4 cents goes to the province.
The next slide is a graphical representation. I picked January 2000 prices but the representation and the scale is the same. Also, on the next slide there is a brief history of average prices for home heating fuel. You can see that the year is 1998-99. Price-wise a dip down with the provincial ad valorem taxes ranging from a low of 2.6 cents going to the province to a high of 4 cents for the short period in February.
The next two slides, the darker lines on the left-hand side of the graph show past oil prices. These are the NYMEX heating oil prices, but generally representative of the cost of petroleum products. You can see the deep trough there in February 1999 and rising about a year later, February 2000. The lighter bars on the right-hand side are the future prices for the months moving out. I also have a similar chart for unleaded gasoline and in both cases if the future prices are correct, which are simply the market forces gaining on the future value of this commodity - in the past they have been a reasonable indication of where the prices will end up - the future prices return the prices to about the levels of the late summer/early fall of 1999.
Just in summary, the crude oil prices generally drive fuel prices. There certainly is a tax component of them which I presented earlier on. The Nova Scotia revenues are neutral to slightly positive right now, but it is clear that if high fuel prices continue, there will be an impact on provincial revenues as people institute conservation measures. On my earlier slide you have noticed that the provincial fuel tax is a fixed 13 cent per litre and the HST was based on the selling price. If someone institutes some kind of energy saving practice, then for every litre that is not purchased there is a fixed 13 cents that is not returned to the province. So the high fuel prices can have a detrimental effect in the longer run on provincial revenues.
As was mentioned earlier, high fuel prices, if they continue, can be a concern for tourism. People are reluctant to travel by vehicle and also by plane if high fuel prices are passed on.
My last point is something that is not being predicted, but during long periods of high petroleum prices there is discussion on what that impact is on inflation and interest rates. There is some debate about oil's impact on inflation in the year 2000 compared to what it was in 1977. There are some people who believe that because of new and different economies, more electronic based, that oil does not have the same impact on the economy or on inflation that it once did. However, if it were to affect inflation significantly, it is reasonable to expect
that interest rates might rise as the various national banks move to control inflation, but that is just a point of debate and some speculation on what may happen if prolonged periods of high petroleum prices were to exist. At this point we have had about two years of what many people call artificially low energy prices, fuel prices, and we have had certainly a month going on two months of unusually high prices.
[4:00 p.m.]
I think I am at my limit and I will leave my comments at that.
MR. CHAIRMAN: Thank you, sir. I appreciate your concern about time, although we are moving along nicely. I see we have been joined at the microphone by Mr. Collins and when Mr. Collins finishes, Mr. McIntosh, if we can take that portable mike down, you could just sit there. We can hear you clear enough, of course, but Hansard has to record your comments. So, Mr. Collins, please.
MR. DAVID COLLINS: I am David Collins, Vice-President of Wilson Fuel Company, and we are a company that actively markets heating oil in this province as we are an importer of heating oil. We are also a buyer at the rack, a large wholesale buyer as well. So to give you an idea of the size of our company, we buy and resell 160 million litres of fuel a year. So whenever prices move, we are very interested. I think from that standpoint, hopefully, we will give you some insights as to what it is like to be a buyer in this market. I learned a few lessons this past month and some of them were painful.
We market heating oil in the metro Halifax-Truro corridor. We have multiple suppliers, including offshore refiners, and our company has been in the home heating business since 1909. Just basically, to try to bring everybody up to speed about how heating oil flows in this province and how do we get it, product is produced locally in Imperial's Dartmouth refinery. Product is also shipped into Nova Scotia from the Irving's Saint John refinery. Imperial has what are called reciprocal exchange agreements with PetroCanada, Shell and Ultramar, where they share some significant distribution infrastructure amongst one another, so various marine terminals which bring product in, up in Sydney, they share those facilities back and forth with one another.
It is a tightly controlled wholesale environment in this province and there are only two significant alternative sources of supply that are potentially available to independent marketers such as ourselves. One, they can come through our small tank farm on Barrington Street for heating oil, or we can import product into the large tank farm that Statia Terminals operate in Port Hawkesbury, Nova Scotia.
Briefly, when you are talking, as Steve mentioned, there are 82 small heating oil dealers of which we are part; we are the largest of that 82 number. How is product priced to these fellows? You know you can actually follow prices to distributors pretty easily. The
Bloomberg website posts the Canadian unbranded rack price for Halifax, and it shows it by supplier and you can go in there and you can show what our supplier is, and what that price is, is if you are a buyer and reseller of fuel and you purchase 20 million litres a year and you are willing to commit to a supplier to purchase the minimum 20 million litres a year and pay in 10 days, that price is the price that you pay. If you buy less than 10 million litres, you are going to pay more and if you buy more than 20 million litres, there are some discounts available underneath that, but typically they stretch to, at most, maybe one-half a penny to a penny a litre underneath that price. It is a very public price. You can go in and pick it up off the Internet.
MR. HENDSBEE: Would you repeat that website you mentioned?
MR. COLLINS: Bloomberg.com. You can also get it through McGraw-Hill's network called OPIS, Oil Price Information Service, or you can get it through the Dow Jones network on their telerate system. All three of them publish the Canadian unbranded rack price. For Halifax, whether it is gasoline, whether it is heating oil, or whatever product you want, it is there.
MR. HENDSBEE: Is that Bloomberg with a double o or u?
MR. COLLINS: It is the same as the Bloomberg Business News, Bloomberg Press, B-l-o-o-m-b-e-r-g.
MR. HENDSBEE: Okay. Thank you.
MR. COLLINS: Largely speaking, every small independent operator, that is the way they are priced, off those rack pricings. So there are very few that may have some different arrangements but, by and large, that is what it is.
Rack prices here in Halifax are influenced directly and quickly by world markets and, you know, pretty simply speaking, the product follows the best price. If you are a refiner here in Dartmouth and you can sell your product into New York and get more money for it, then you have a choice, and you put it to your local distributors: either you pay for it here or we will ship it into New York where another distributor will pay more for it.
Let's talk about what has happened to us as distributors. You know, ourselves as a distributor, and to all of us collectively, what drove that rack price? On January 13th the Transco, which is a large gas transmission line utility in the United States, line no. 6, which feeds the New York City market, experienced a significant operating problem where they were just unable to ship gas into the New York market. Very quickly what ended up happening is there is a phenomenon in the natural gas business which we are going to become aware of very quickly, large industrial firms and electrical utilities are offered what are called interruptible contracts. For the privilege of giving them a discount, which they receive, they
also trade off - it is the double-edged sword - the fact that at any point in time they can be cut off from gas, or their price can be raised dramatically.
What happened to users on the Transco line no. 6 was that their price of natural gas tripled overnight, and that forced the electrical utilities and large industrial users to move very quickly into the heating oil market. It is like an auction process, it is bid, you offer and you accept or reject. Most heating oil distributors, of course, try to get the lowest price possible, so we keep rejecting hoping for a lower price. In comes a big utility, who says this is a short-term problem, yes, I will take that price, I will take those barrels, and yes, I will take those barrels, and yes, I will take. They just didn't say no to any price offered to them.
Very quickly what we watched was the heating oil price took off like a scalded cat, and in six days it doubled. What ended up happening is that very quickly the Dartmouth refinery here and the people who sell to the Dartmouth refinery went oh, perhaps there is room here to raise local prices or perhaps we should sell into that market - the best places to enrich our shareholders is to move that product to where it can get the most price. That is essentially what ended up happening.
I have run ahead of myself here. Anyway, prices in New York Harbour rose, this is converted, from 28.68 cents a litre to 53.6 cents a litre in six days. Now that is if you were going to go up and get a 2.5 million litre barge lot and pay cash. We never saw that for our home heating oil people here, and quite frankly it is probably a case of we always think of companies being fairly mercenary, one of two things, either Esso isn't quite as mercenary as we thought or they were asleep at the switch, because we never did see that peak but it was there for them to take.
They have briefly retreated on warm weather and then again when they couldn't get enough barges in because the demand was so strong, they ran out of shipping capacity, that was the next problem. They ran out of little small barges and prices shot right back up again. Today, or when I did this presentation, which was Monday morning so at Friday afternoon's price, they were 28.9 cents a litre in the New York Harbour.
How this happened is that prices rose, it fanned out from New York City, so prices in Boston went up, prices in Portland, Maine went up, prices in Bangor went up, prices in Halifax and Saint John went up. What ended up happening was that all over the place, places that could quickly supply that New England market quickly saw an opportunity to raise prices and they did. To give you an idea of how much margins the refiners picked up as a consequence of this, the refinery margins went from $2.98 a barrel to $12.34 a barrel in six days. The market reacted and reacted violently to the shortage. A lot of money was made being a refiner. If you own a pension fund, you probably have shares in that company. The market did what it was supposed to do.
What happened to us locally? Well, rather interestingly enough, Ultramar on their reciprocal exchange agreement ran out of product, furnace oil, on January 24th with a month to go. That imbalanced their supply system where they started to move it out of their Quebec City refinery, we sold them some product. It was an interesting time in late January, just simply to get product. The shortages were real and they existed, because product flowed out of the Maritimes and in to feed the New England market.
Wholesale prices locally rocketed from 29.3 cents a litre to 41.4 cents a litre, in 11 days. These are all ex-HST by the way, these are straight up, no taxes. Enercom, which is a subsidiary of Nova Scotia Power and ourselves contracted for 10 million litres of delivery of heating oil to be delivered on February 6th. That did come in, and local wholesale prices have fallen rapidly in the face of a whack of new supply and lowered offshore prices generally. Again as of Monday morning, the rack price had fallen to 32.1 cents and it is now actually 31.1 cents in Halifax. It has fallen yet again.
MR. HENDSBEE: Those prices are without excise and HST?
MR. COLLINS: That is straight up, that is the rock commodity price. That is just the price of heating oil period, no HST, no taxes, no excise tax, no road tax, nothing. (Interruption) Oh, we bought some at that. We didn't buy that much at that, but yes. That is the problem, you have to keep your homeowners warm. At the end of the day, they depend on you to have oil in the tank. You have to buy, you have to give them product. Sometimes you don't make money doing it.
Retail prices are falling now. It peaked out at 52.9 cents, now it is 47.9 cents or less and probably will head quickly lower. I heard there is a gentleman in Bridgewater at 45 cents. I think that with 82 dealers out, you are going to watch that market come quickly sliding back down to more normal levels. Prices went from 41.9 cents up to 52.9 cents and now down to 47.9 cents; it will probably fall even further. Currently, as I showed, the wholesale prices would indicate that further reductions in price are pretty inevitable. We are going to see the same kind of price you saw prior to the increase, probably within another week to 10 days. That is it. Thank you very much, gentlemen.
MR. CHAIRMAN: Thank you, sir, for your presentation. Mr. McIntosh, if you could join us at that microphone. He needs no introduction, but this is the Chairman of our committee, Mr. Taylor. Mr. Taylor, I should point out to you that Mr. Holm will be assuming my chair in a few moments.
[4:12 p.m. Mr. Brooke Taylor took the Chair.]
MR. CHAIRMAN: Mr. Estabrooks, Vice-Chairman, thank you very much. I want to thank all the presenters for their comments and presentations. I apologize, I was committed to another endeavour. What we will do now is open the floor up to intervention by honourable members. Mr. Downe, would you like to begin?
MR. DONALD DOWNE: To all the presenters, thank you very much, excellent presentations. Just a couple of questions, first to Stephen, about the comments about the tax. At one point in time, the Province of Nova Scotia's provincial tax floated with the price of fuel. We locked that in. I didn't see where that really made any impact one way or the other, because it certainly obviously would have. Today if it was on a floating rate, the provincial tax not the HST, would have been a substantially bigger windfall for the province. I didn't see where that took a dip down in your graph.
One of the questions I have is, when you talked about consumers protecting themselves with a good relationship and then you went on to minimum delivery requirements, there are a lot of people who call my office and say they can't afford $300 for the delivery and they have been buying from this company for a while and they are on a fixed income or they are on social assistance or whatever the circumstances are, and nobody projected fuel prices or home heating fuels to be as high as they currently are. I am sure Wilson's Fuels knew about it, they would have hedged themselves to the extent where they made a bucket of money. How would the average citizen be able to do that?
My question to you, my sense is that the oil companies or the deliveries are not able to help some of those individuals who cannot afford $300 for the delivery of oil, they just cannot eat and be able to pay $300 to have that truck drive into the yard. How do we deal with that issue? If you say just have a good relationship, well what I hear in my constituency, I phone up and they say, I am sorry, I can't help you, I will not deliver that fuel until you give me a post-dated or a certified cheque for $300. How does the consumer survive that? That is a tough situation to be in.
MR. MCINTOSH: I agree with you. We have recently discovered that. I guess what we are trying to stress is try to spread, get on a budget plan as much as you can afford, even if it is only $100 or $200 a month, but you can spread it over 10 months or 12 months to help reduce the shock when it comes in, number one. Number two, there are really two types of oil heat markets in Nova Scotia. There is the type that caters to the automatic delivery, the customer service, the service end, there are certain types of companies that even charge more, a cent more per litre, so that their customers will be guaranteed service, their furnace equipment and everything is all included in that price.
The other type is the type, I guess, you are talking about, people who like to play the cash spot market. There are certain dealers out there, most of whom are not members of our association, but there are dealers out there who will do those smaller deliveries. People should try to seek those out if they are in that type of situation. I guess the third thing, to answer your question, and one of the things that our association is working on right now, is to try to help those people. We have had one meeting so far and we are still working on how it is going to work. Members of the Canadian Oil Heat Association will be joining the Nova Scotia Power-Salvation Army Good Neighbour Program to help people who are in lower incomes and the less fortunate in Nova Scotia to make sure, when spikes like this happen again, and hopefully they will not, that those people will be able to get some sort of relief through this program.
MR. DOWNE: Well, just to continue on this one step further. I have asked the question; have they tried to get into a yearly spread of the cost and they are telling me that they cannot get that. They have to have the money up front no matter what, to get delivery of fuel. We have a number of them in Bridgewater and they are phoning all these people because these people who are on social assistance or on a low income, fixed income, just cannot afford this thing. They are good solid citizens and they want to pay their bill, but they just cannot afford, at the income stream that they have, to come up with 50 per cent of their monthly salary to fill up the fuel tank. Those people are hurting. I don't know why the independents didn't try to say, look, if you are going to buy fuel from us for a year and you need to have the tank filled up now, we will spread your cost over a three month period, or four month period, and not force them to come up with $300 today - because they can't eat.
This is a serious issue so I just want to make that point clear. I think there is a responsibility of the independents and the multinationals to try to find some flexibility there to help these people in this serious crisis. You were in it before. You have had to pay at 41.6 and lost your shirt. Well, these people are in the same kind of situation because they are the consumer of that product. They didn't know that fuel was going to go this crazy in four or five days. It is not the fault of those people. So I think there has to be some corporate agenda to try to help.
The other issue is that you said world prices affect rack instantly and I have never understood why world prices affect rack instantly because they might have an OPEC price and it is still in the ship or not even in the ship, and the rack price is going up today. It just doesn't add up to me. I can't accept that for five seconds. It would be great now, just because my feed went up today, that my chicken price goes up today as well. Well, it won't go up for quite some time, probably not until 8 or 10 weeks, until that product fills into the system. So how can it go up instantly? What do we do about that? That seems unfair for the consumer.
MR. COLLINS: I think the reason why it goes up pretty quickly, and it never used to, until more recently, is there are a whole collection of people in the business but there are a significant number of what are called arbitrageurs in the business, firms like, and the one that
comes to mind, Glencor. They simply buy and resell and they will move barrels around very quickly. First of all, you have the oil prices being driven by a cartel. So don't think that we have a normal market to begin with when you have the oil prices being driven by a cartel because we don't have a normal market, we have a cartel-driven market.
Second of all, in our wholesale side of the business, we have allowed a significant number of mergers and acquisitions to occur which has reduced the number of refiners or manufacturers of the product in Canada to what would be in the United States, unacceptably low numbers. So in essence we don't have a real strong vibrant wholesale refiner outlet base. So that is a bit wonky. Then all of a sudden you land in the middle of 82 retailers and for a place the size of Nova Scotia that is pretty darn good. In fairness to Stephen, I did some research prior to coming. We took a look at prices of heating oil in the Maine market. In Bangor, Maine, they peaked at 67 cents a litre. Here we only got to 52 cents.
We can complain that we are really bad but we have actually, as a group, done pretty darn good compared to our other markets. That is largely because we have a really strong and vibrant community of dealers. We have a good mix and some of the larger companies with bigger inventories didn't raise their price. I was out stumbling around selling heating oil for less than what I was buying it for, for a while. Then very quickly, what ends up happening is that they have longer inventories and so they held it and beat us about the head for market share gain and then it turns around now that prices are falling, well, who is the one leading the prices down? Those people without inventories, like Harold Selig, Wilson Fuels, whose inventory is very low right now are lowering prices because we don't have the high-cost inventory in behind us. So the consumer is winning both ways.
The market place isn't fair with respect to inventories. That is the biggest argument against having regulation in price, that the consumers benefit on the way up because dealers with large inventories use it for competitive advantage and those on the way down in the petroleum business, those dealers without inventory, don't have those high costs and they take that advantage and they beat apart the other side of it. So that is the reason why you see prices moving up and down pretty quickly.
Sure, we could have done a lot of things a lot better. I don't disagree. The $300 minimum is unacceptably high and I think that probably what should have been done, and we have talked about it in our company, we didn't handle it very well. We should have invoked a minimum fixed delivery charge to fire up the truck because that cost is real and then we should have said, well, it is $15 to deliver in Truro plus whatever, 48 cents a litre. If you want to buy five litres we will come and deliver five litres. That's what we should have done as a business. That's another learning experience we had as a business. That is a mistake. I freely admit it.
MR. CHAIRMAN: Committee members, in the interest of time and the spirit of fairness, I think what we will do is try to limit ourselves to two questions and perhaps a little less editorial comment.
Mr. Hendsbee.
MR. HENDSBEE: Mr. Chairman, could I have a clarification. One says 82 retailers, the other says 87 in the presentation. Do you have a correct number?
MR. COLLINS: Yes, 82 independents and 5 integrated marketers makes 87.
MR. HENDSBEE: In regard to the comments you just said, Mr. Collins, you kind of alluded right into my question. We hear a lot of people on the street comparing, well, P.E.I. regulates their prices why don't we? What argument or response would you have? You basically said that earlier but in regard to the political situation that we find ourselves in, people are expecting, should we bring in wage and price controls or something or regulate the industry?
MR. COLLINS: We had regulations in this province and what ended up happening was that, particularly in the gasoline business, by the time regulation had finished, the wholesale to retail spread, what a large volume wholesaler like myself would buy for and what you as a motorist would pay for was frequently around 14 cents to 17 cents a litre. That was what the regulator felt the appropriate margin was to conduct business in Nova Scotia. We fought very heavily as a company to get into business and we did and today, well, even Mr. Hogg's presentation showed in January 7.7 cents and today it is more like 6.7 cents today as we speak. So we are less than half of what the regulated market had originally been given in 1991. The reason we have a lot of increase in pump prices of course is that it has been backfilled with taxes. So that market efficiency has been largely erased, in fact even more than erased by an increase in taxes. So that is something beyond my control.
When you take a look at the pump price today of 71.9 cents a litre, the wholesale to retail spread is less than 7 cents a litre so I am less than 10 per cent of the problem there. There are others who are greater sinners than me that are beyond my ability to control. The refining margins are bit high but largely it is crude related, it is taxation related. Those are the big winners at the pumps.
In terms of regulating the price, in P.E.I. they have this 90 day delay system. So when you have this ever-increasing rise in price, they always look great. Well, if you looked backed 18 months ago they were ready throw the Island Regulatory and Appeals Commission (IRAC) out on its ear because they were always 90 days late in getting the price decreased. So when you have this sort of backward looking pricing system, all you ended up doing in their case was add a flock of bureaucrats and end up paying the exact same price. So all you really did was swell your Public Service wage load to just have the privilege of paying the same price.
If you want to regulate, David, I guess the biggest thing is, I think I would end up the biggest winner. I don't really think the citizens would end up the biggest winner.
MR. HENDSBEE: My other question would be, in regard to wholesale availability of product, I heard you the other day either on TV or radio in regard to the availability of product from the refineries and I believe it was Vancouver that had the new entry into the market and that is why there is more competitive pricing at the wholesale level. Do you find with the limitations of having wholesale product around here that the independents or small dealers have what I would call a situation where they won't get a competitive price from these retailers? Is there predatory pricing at the wholesale pumps?
MR. COLLINS: There is not predatory at the wholesale pumps, I would say it is more opportunistic pricing at the wholesale pumps that reflects the rural size of our market. Yes, a new refiner marketing in our province would drastically lower wholesale prices for sure. But whether the market size is big enough to bring that new entrant in is questionable. So yes, we do pay a premium for where we are and for the lack of refiner competition. But that premium is in the range of a couple of pennies a litre, we are not talking 10 cents a litre, David.
MR. CHAIRMAN: Mr. Chipman.
MR. FRANK CHIPMAN: Mr. Chairman, I guess it astounds me here when I look at the international retail gasoline prices. I have a neighbour who lives in my area now and he is from Northern Ireland and he was just back to Dumfries and they pay $1.94 a litre over there. When I look at the price of coffee, to buy a litre of coffee at the local coffee shop and you go to the store and buy those little bottles of water, we are paying anywhere from $1.75 to $2.60 a litre. When I look at the price the rest of the world is paying for fuel and gas, we are getting a bargain. Doctors recommend that we drink seven to nine litres of water a day, so let's hope the price of water never gets to the price of gasoline.
Anyway, I am interested in domestic oil protection. I am reading there, it says that Newfoundland, the Grand Banks supply 30 per cent of the Canadian supply. Does that mean domestic Canadian supply?
MR. COLLINS: I don't know where that number came from. The Grand Banks has 100,000 barrels a day and locally here that would be approximately 30 per cent of the Maritime demand.
MR. CHIPMAN: This is put out by the Canadian Oil Heat Association and it says that, "More than 30 percent of Canada's oil supply comes from the shores of the Grand Banks in Newfoundland!". So I am wondering is that . . .
MR. COLLINS: Wrong.
MR. CHIPMAN: It is wrong, is it?
MR. COLLINS: Yes.
MR. CHIPMAN: How much of the oil consumption of Canada is produced domestically? They are not paying the world market? You know what I am saying, it is not exactly the same price, so should we get a reduction because of the percentages produced in Canada?
MR. COLLINS: I think that is the conundrum which stymies the action federally because at higher oil prices is a net economic benefit to Canada, we are a net exporter of crude oil in this country. So the higher the price goes, the greater the revenues to our country. It hurts some regions while it benefits others. So, if you think about it, the West benefits greatly by higher crude oil prices and it punishes the East. From a federal government standpoint, that's a challenge for them to overcome as to what is the appropriate level and how do you deal with it.
MR. CHIPMAN I guess my question was, do you know the percentage of domestic production as compared to consumption?
MR. COLLINS: We are a net exporter, sir.
MR. CHIPMAN: So we actually export more than we import.
MR. COLLINS: Yes.
MR. CHIPMAN: That's interesting to know. I noticed on the other chart there, crude oil prices are up 120 per cent and refining costs are up 40 per cent and taxation is only up 7 per cent. What accounts for the increase in refining costs?
MR. COLLINS: It is not as competitive an environment in refining in Canada as we would like it to be.
MR. CHIPMAN: Maybe I should ask Mr. Hogg, because I think it was his presentation. The refining costs are up 40 per cent.
MR. HOGG: I wouldn't want you to attribute any more accuracy than what is deserved on that number. What we did was take the rack price, which would be the combination of crude and refining and subtract an estimation of the crude price to come up with the 5.2. I can't really comment on the reasons why the refining costs are increasing.
MR. CHIPMAN: The refining cost reflects on the retail price of the gasoline.
MR. HOGG: It does, but whether it is 5.2 or 4.8 or 5.6, the number that we were looking at is the combination of the two. Our allocation might not be 100 per cent accurate but it has gone up from 3.8 to some higher number. I don't have any information as to why refining cost, in particular, is higher.
[4:30 p.m.]
MR. CHIPMAN: Is it not true refining is done by natural gas, or what fuel do you use to refine with?
MR. COLLINS: Crude. The oil business is a pretty simple business. There are three functions. One is the mining side which is the crude oil side of the business where they drill or dig it out and turn it into crude oil for use. Then it goes into a manufacturing plant which is a refinery. We have one here in Dartmouth and they manufacture it into useable products. Then there is a marketing and distribution function. So what you are seeing there when they do it, there is an implied refining margin that occurs and those implied refining margins have, in fact, grown by 40 per cent. You are right. The refining sector in Canada is not as competitive as it is south of the border and that is the reason why I say it, it is about 2 cents a litre that would be attributable to lack of competition here locally.
MR. CHIPMAN: Because you use the crude to refine?
MR. COLLINS: That is right.
MR. CHIPMAN: To refine with, okay.
MR. CHAIRMAN: Excuse me, Mr. Chipman. I am going to move on to Mr. Epstein.
MR. HOWARD EPSTEIN: Mr. McIntosh, I have a question for you. In part of your presentation you said it is the view of your organization that taxation is a government issue. You went on to say, however, that if any taxes are imposed, the policy must not favour one form of home heating fuel over another. I take it by that you were referring to the prospect of natural gas and what is to happen there. Is that right?
MR. MCINTOSH: That is one aspect of it. It is the same as if you look at electricity or wood, as long as everything is taxed equally, you know, that . . .
MR. EPSTEIN: Are you saying you are not being taxed equally?
MR. MCINTOSH: We currently are.
MR. EPSTEIN: Are or are not?
MR. MCINTOSH: We are.
MR. EPSTEIN: You are.
MR. MCINTOSH: That is my understanding. Correct me if I am wrong.
MR. EPSTEIN: Okay. So what was the point about this . . .
MR. MCINTOSH: If the government of the day is looking at changing the taxation system for heating fuels, just make sure if they are going to change it, that it is changed equally for everybody. I assume when natural gas comes into this market, it will be taxed the same way all the other fuels are now, as it is in Ontario and other places.
MR. EPSTEIN: Do you have any reason to think that isn't going to be the case?
MR. MCINTOSH: I don't know. We will have to wait and see.
MR. EPSTEIN: All right. So you are just sending a warning shot there?
MR. MCINTOSH: That is correct.
MR. EPSTEIN: That is fine.
MR. MCINTOSH: I think our association's view on subsidizing of natural gas has been made loud and clear.
MR. EPSTEIN: The other thing I wondered was, and this is I think probably for Mr. Collins, because I was trying to understand the take you have on the extent to which we have a competitive market here for our fuels. It seemed to me that sort of different things were being said and it was not entirely clear. On one hand you seem to be pointing to an international situation in which there were cartels who were very much in control of the supply and, therefore, to a certain extent of the price. On the other hand you referred to having 82 retailers, locally. That is for home heating fuel, is that right?
MR. COLLINS: Correct.
MR. EPSTEIN: Do you have any information on what share of the market those 82 retailers would have?
MR. COLLINS: No, but it would be less than one-half the market. It would be a small proportion of the market. Relatively speaking, those 82 retailers would comprise approximately, what, 30 per cent of the market or thereabouts?
MR. MCINTOSH: We are going to say 28 per cent to 30 per cent.
MR. EPSTEIN: Yes. So the majors would dominate.
MR. COLLINS: Absolutely.
MR. EPSTEIN: Yes, absolutely. So would it be fair to say then that the market, both internationally and domestically, is in fact a relatively concentrated market?
MR. COLLINS: Absolutely.
MR. EPSTEIN: Can you offer us some observations on how difficult it would be for a new entrant to get into the market?
MR. COLLINS: Into the refining side of the business or . . .
MR. EPSTEIN: No, not the refining side.
MR. COLLINS: Into the heating oil side of the business?
MR. EPSTEIN: Yes.
MR. COLLINS: Because we have supplied a number of them ourselves, that entry into the heating oil business is actually much easier than it is the gasoline business, primarily because there is no municipal zoning which keeps stations out. Halifax-Dartmouth is a prime example. I am still trying to get permits to rebuild a station in Fall River and I am into year two on that and that is on an existing site that is already pumping gas, whereas with heating oil, you buy a truck, you can get a cell phone, take out some ads and come to me and buy fuel. So you can be in business probably within about a month on the heating oil side of the business.
MR. EPSTEIN: Then that directs my attention to something I am particularly interested in which is supply contracts to independents. I am wondering to what extent that is a convenient point of entry for new vendors and I am wondering to what extent that is controlled or whether there is an ability on the supplier's part to vary their price?
MR. COLLINS: How do I describe it? When you are out as the mouse running in amongst the elephants, you try not to get stepped on and occasionally there are some things that you can do. Occasionally we have imported product and we do supply other competitors and other new entrants into the business. It is not limitless as to what we are able to do.
MR. EPSTEIN: But there is nothing to require you to offer the same price to all comers, is that right, or to the refiners?
MR. COLLINS: Well, we do as a matter of course. I just cannot afford to try and separate you from anybody else who comes in the door because then it is hard to keep your story straight and then you start losing customers. At the end of the day, you have to price each customer fairly from my perspective which is, you know, if you are coming in and you are buying the same amount of volume and you are paying the same way, then you get the same price.
MR. EPSTEIN: But that is your choice. What about the refineries? Is there anything to stop them varying their price?
MR. COLLINS: No. In the gasoline business it is most pronounced where they have a lot of varied delivered price zones. We have seen a lot of evidence of that where they single out, for instance, a number of them, PetroCanada and Esso have in the retail gasoline business over 40 separate delivered wholesale prices for gasoline in this province. So when you do that and you set the wholesale price that discreetly to each retailer, they are in fact setting the price at retail.
MR. EPSTEIN: But wouldn't you prefer to have the refineries not able to distinguish . . .
MR. COLLINS: Absolutely.
MR. EPSTEIN: You would.
MR. COLLINS: I could not agree with you more. My price is very public. As I say, you can go to Bloomberg, you could pick it out. That is the way it should be for every retail service station dealer, they should all be buying on the same pricing basis, one price for Halifax, and let them all compete. Let them all be accountable to the motoring public and if the motoring public doesn't like it, they can complain to their local retailer and the local retailer is responsible for setting this price. Make them that way. That is what a lot of American States have done, gentlemen, 27 American States have done that and I urge you in the gasoline business to do that because with the current supply levels of gasoline, look for a shock this summer. We are low on gasoline in the northeast and all we need is a major refinery to go down or something bad to happen and prices in gasoline will hit 80 cents here so fast it will make your head spin in the summer.
That is the big thing, but one of the key ways is, in the heating oil business what you are seeing is that it is coming down quite rapidly. That is because there are alternative choices. What we have to do is get the rest of the dealers in the gasoline business freed up to act the same way.
MR. CHAIRMAN: Perhaps I could just direct a quick question to Mr. Collins or any of the presenters who might like to reply. We have a situation relative to the trucking industry where the truckers, hardworking men and women, have seen their livelihood and, in fact, subsistence pretty much threatened by runaway fuel prices and yet we know that the federal tax, the 4 cents on diesel fuel, that excise tax has stayed constant. The provincial tax, the 15.4 cents has remained the same and those taxes have been at that level for a number of years now, but yet because of the increase in costs the industry is actually reeling and it is not profitable I guess. From what we are hearing it is not profitable to run the big rigs up and down the road anymore.
A number of people have suggested that, well, maybe some of these costs that have been passed on to the consumer, in this case the trucker, really are not justified, but other than perhaps the trucking companies collectively going to the refiner in this province, Imperial Oil, and asking for a rate relative to volumes, or something like that, Mr. Collins or other members, short of that what would you suggest to that industry and to these men and women, neighbours, friends, who feel that their livelihood is, quite frankly, at risk?
MR. COLLINS: That is a tough one. With our business we do a significant amount of outside contracting for fuel. We have been approached for and given fuel surcharges. We have recognized that. We probably are, of course, the easiest sell because we do petroleum every day. Someone comes, it is a pretty easy thing to deal with. The fuel price surcharges that have been requested and granted on our side have amounted to 5 per cent and I believe the province has offered the salt truckers 8 per cent. So that is a pretty good offer in light of that.
I think that trucking is a commercial business. The truckers need the shippers, the shippers need the truckers. I think somewhere along the way that got lost through all this. Some of the shippers are being a little too strident in their positions and they have pushed some of these poor independent truckers to the point of desperation. The trouble with the trucking business is that the shippers have an inordinate amount of power over their livelihoods. I urge shippers of all stripes to follow the government's lead, permit those fuel surcharges to go through, raise the rates, recognize that they need each other, because at the end of the day, how are we going to serve our customers? So I think it is really important that this is and remains an issue between shippers and truckers personally. It is something that hopefully the two of them can work out without more of this. That is our company's position on it.
MR. CHAIRMAN: Sounds most logical.
Mr. Gaudet.
MR. WAYNE GAUDET: Mr. Chairman, my question is for Mr. Collins. Any time that gas or oil prices go up, consumers look for help. The debate always turns to whether government should regulate the industry or let the market or the competition work. We were talking earlier about the shortage, whether it is real, maybe it is, but we know for a fact that the world prices will have a big say in terms of prices. I guess my question is - to try to get an understanding and we could certainly debate this for quite some time - should Nova Scotia actually consider regulating the industry or should we basically let the industry run by itself?
MR. COLLINS: Well, I think if you regulate, what portion of the total price do you end up in fact being able to control. That is what I would ask the minister. Now you take a look, there is that big lump which is crude, can you control that in Nova Scotia? I don't think anybody is under the illusion that we can convince the OPEC nations to give us a preferential rate on crude oil. So I think that is right out the door.
We have heard Deputy Minister Hogg and the Minister of Finance talk about the dire financial side. There is 33 cents in taxes. Are we really going to be able to regulate that? No, so that goes out. So what are we left with? We are left with a dime that is struggling between the refiners and the marketers, so we are talking about regulating 10 cents of the 70 cents. So do you want to put a big government infrastructure in over that 10 cents or do you want to enact some laws which try to make competition work a little bit better? I think you can enact laws like the Americans have done to enhance competition, and maybe bring that 10 cents or 11 cents down to 8 cents or 9 cents. That is about the limit you can do. There is a large proportion of the price that is beyond our ability as a province to control.
In the United States, and you haven't seen our energy minister go around, but Energy Secretary Richardson is going around urging the OPEC countries, Norway and Russia to increase production so they won't damage the world economies, but because we are in that exporter group, you don't see our energy minister out doing that.
MR. GAUDET: My next question is, we often hear about gas wars but we never hear about furnace oil wars. Each has indicated that currently there is a retailer somewhere on the South Shore now looking at selling its product around 45 cents a litre. I am curious, why are consumers not made aware of these furnace oil wars that are taking place within the province?
MR. COLLINS: Well, I think two things separate the business, first and foremost. One is the heating oil companies go to their customers and frequently customers do switch and switch supply. There are price changes, the commodity does go up and down. Whereas in the gasoline business, everybody puts their price up on a sign and the customers come to them, so how do you drag them in off the street, so it is a very different way in which those two products are marketed. We don't put a price up on the street saying, here is furnace oil, come with your pail and pail it into your tank. Now in New England, they do that in some rural markets and that may be something that may come down the road. We have looked at it in
some rural markets as we watched some of the majors pull out, so there may be a market opportunity to do that. Who knows?
MR. MCINTOSH: Can I just add something to that? I believe, and the Canadian Oil Heat Association believes, you don't hear a lot about oil heating price wars because, I guess, maybe, we don't promote them enough or people have very short memories. Last year, Nova Scotia had just as much competitive nature as the industry has ever seen and the race was downwards. It went from 34 cents to 29 cents. I was at the natural gas hearings and I was taking great pleasure in how low the prices were going every day. People forget that.
I guess the analogy I would leave you with is, there are thousands of airplanes that take off and land every day. People don't think about that. But when one crashes, they remember it. When we have bad years, like we are having this year, people will remember it. When we have good years, like we had last year, people forget about it very quickly.
MR. CHAIRMAN: Mr. Holm.
MR. JOHN HOLM: A few questions, if I might. First, Mr. Hogg, you talked about the refining costs going up about 40 per cent but that you were not able to attribute how much of that was crude and how much was actual refining cost. Do you have any idea how much of that 40 per cent increased cost was as a result of increased profits?
MR. HOGG: No, I don't.
MR. HOLM: Mr. Collins, you talked about, under the Nova Scotia market you said, in refining, you saw an opportunity to move products to New England at a very attractive price. Refining margins soared from $2.98 per barrel to $12.34 cents. That would work out to about just shy of 8 cents a litre. So on a 900 litre or 200 gallon tank, that would see their refining profit margins soar by about $70. That is one thing that may be able to be controlled.
If I could go to the issue of refineries again. You talked about a predatory pricing. It is an issue that we have had some discussion about in previous years. You purchase most of your produce - as other independents in Nova Scotia, and there aren't very many of you - I would assume, from Esso and a little bit from Irving?
MR. COLLINS: We do Esso and Shell, actually, and some offshore, as well.
MR. HOLM: The last major gasoline price war was what, about three years ago?
MR. COLLINS: Here in Halifax, yes. We just came off another one in Moncton.
MR. HOLM: At that time, the major refineries, were they selling it to their flag stations for a lower price than they were selling it to your own independents?
MR. COLLINS: Yes.
MR. HOLM: Were they selling it from their own stations for less than they were selling it to you?
MR. COLLINS: Yes.
MR. HOLM: So every litre you sold, you would lose money?
MR. COLLINS: Yes. Frequently, in a price war, how they discipline the market into price conformance is that the price at their flag stations will be less than the wholesale price. In other words, you as a motorist will pay less than I will, who buys 100 million litres a year. It pays in 10 days. You can go up there in your car, get 30 litres and put it on your credit card, and get air miles for less.
MR. HOLM: So in other words, if somebody doesn't say, uncle, if that price war were to continue, if you had stayed in it, is it fair to say that before too many months went by, you would be out of business?
MR. COLLINS: Absolutely.
MR. HOLM: Twenty-seven states in the United States have outlawed that practice and they must sell it to all at exactly the same rack price?
MR. COLLINS: What they have done, actually, is a federal Statute there, called the Clayton Act - more precisely, the Robinson-Patman amendments to the Clayton Act - of 1936, which is a price discrimination provision underneath the law. Every one of those incidences which we face, we would be able to launch a private suit in the United States to sue for damages.
MR. HOLM: They have to post their price?
MR. COLLINS: Yes. Then, over and above that, a key fundamental federal piece of legislation in the United States which separates our Canadian Competition Act - as I describe it, our "Monopoly Enhancement Act" - compared to the Americans is that there are another 27 states that have moved even farther to do more legislation, to increase competition in their markets, the most drastic, of which, of course, is in places like Maryland and Massachusetts where they forbid refiners from owning or operating the gas station. That is an effort to try to inject competition. So they backed the refiners away from retailing.
MR. HOLM: Okay, if I could, just a couple of other short ones. I know our time is getting short. How can you say there is competition in Nova Scotia if basically there is really one or two refiners and where those refiners and those big boys can use predatory pricing practices to discipline anybody who challenges them, trying to shave their margin, into keeping their prices up to the level that the big boys say they want to so that they can keep their profit margins up?
MR. COLLINS: It is not to the level that I think customers or consumers or anybody really would expect a government to try to achieve, but we do have some. It is not great, it is not highly functional, and there are steps that we believe as a company, that everybody has a right to buy any product in a competitive environment and we don't believe as a company, that the wholesale side of the business is as competitive as it could be, or as it should be. What we talk about is, and Don as a farmer you would relate to this, when you have a field and you plow it as a farmer, you don't throw the seed down and forget about it, there is some tending that is required.
If you take a look at the United States, which we did - I am a member of a national group of chain retailers of gasoline. What we did, courtesy of the Queen's Printer, was we had managed to print the U.S. legislation applicable to gasoline. That literally was, in the United States, a stack of paper 12 inches high, in Canada it is 2 inches high. The land of the free, when it comes to marketing and carrying on business, is Canada. Compared to even the Europeans or any place else, it is unfettered, wild-west-show capitalism. That sometimes doesn't always work to the consumers' benefit.
MR. HOLM: That is why we aren't calling for a return to regulation, but we are calling for an empowerment to roll back unjustified price increases, because in a lot of areas, yes you can compete by giving out Club Sobey's points or giving air miles, but in terms of actual price competition, if an independent wants to try to increase their market share by somewhat shaving their margins and by being more efficient, they can be disciplined rather quickly and they don't have as deep pockets.
The other point that I guess . . .
MR. CHAIRMAN: In the spirit of fairness, we will move on to Mr. Downe.
MR. DOWNE: I understood, John, that you were actually looking at price control and now you are saying you are not. That is important.
MR. HOLM: . . . you should look at the legislation . . .
MR. DOWNE: No, no, that is good. Dave, you talk about the Robinson Act. There was a bill that went through, the Arkansas Bill I guess it was called. We talked about this before, about trying to allow more competition for the independents, as it were, in the system
because Charles Cook's rack price is 5 cents above the rack price for Esso, and there is no way he is going to be able to survive. The independents are so small, we have the smallest percentage of independents, probably one of the lowest number of independents in the country. There is no ability for you to be able to get a competitive pricing structure to be able to flow through to the consumer. I want to look into that issue. I think you are right.
The concern I have is that when I look back at P.E.I., since 1996 their prices in just starting in 1997, comparing to Nova Scotia, are consistently lower.
MR. COLLINS: Taxes. Taxes. Taxes.
MR. DOWNE: All the way through?
MR. COLLINS: Yes. They have only the GST, remember? And they have a lower road tax.
MR. DOWNE: So that is why they have been running lower?
MR. COLLINS: Yes.
MR. DOWNE: Simply because of the taxes.
MR. COLLINS: Well, lately it is because of the delay. In 1997 they were higher . . .
MR. DOWNE: But in New Brunswick, ironically, they have the same tax structure and their prices are lower.
MR. COLLINS: Because the road tax is lower. They have 10.7 cents road tax, we have 13.5 cents. When you add the HST, which is the tax on the tax, they have 3 cents less tax than we do. Actually when you take away the taxes, the prices in Halifax are less.
MR. DOWNE: The other issue that I am hearing a lot about is, why is the distribution of fuel so much higher in some areas than others? For example, sometimes you can buy fuel in Yarmouth cheaper than you can in Bridgewater, and Bridgewater seems to be a higher zone. We have talked about this before, Lunenburg County. That is true in other geographic areas of the system. I don't know if that is true with home heating fuel, but I assume there is some correlation between the two. Why is that? Why, all of a sudden one area gets picked on repeatedly for years to be a higher zone than Halifax or further down the shore?
MR. COLLINS: The price discrimination bill which John talked about would solve that. I have seen that bill that John has, it would solve that problem just like that. You want to get rid of that, put that bill through, support it. It is all that differential zone pricing where they single out one retailer to pay for a higher price. It can be down to the microscopic.
I talked to a PetroCanada dealer who was squabbling over his contract in Bridgewater, your home town. He was reduced this summer to stumbling around on margins of eight-tenths of a cent a litre. In other words, the minute the person brought out their credit card, he was losing money. The guy two miles away towards Chester was paying significantly less wholesale prices than he was. He was only two miles away. Why? No good reason at all.
MR. DOWNE: But you, as an independent, would be able to fix that?
MR. COLLINS: Well, no, they have contractual rights of supply to those sites. I can't fix it. I can't supply him. I'm not allowed to.
Again, some other American states have said, okay, well, as a dealer - and they are called open supply contracts, where they are saying - I don't care what you have as a commercial contract; 20 per cent of their supply is able to be bought from whoever at any point in time without invalidating their branded contract. There are some rather creative things that have gone on in the United States to break this zone pricing and your problems that you have been dealing with.
John's law, it was drafted under your administration, it was drafted by the Liberals, and John has it. It would solve that problem. It just takes time and some courage to put it in. The major oil companies can be a very powerful lobby against it.
MR. CHAIRMAN: Mr. Collins, are you a member of the Nova Scotia Gasoline Retailers Association?
MR. COLLINS: Yes, I am.
MR. CHAIRMAN: Just a question, for general knowledge. Sometime ago, they were complaining about the big oil companies, the conglomerates, the parent company downloading on them, regarding some national program that they may be employing. If the retailer doesn't raise the price per litre, then they have to absorb the cost as a retailer. Now, you wouldn't be subjected to that type of concern?
MR. COLLINS: No, that's right.
MR. CHAIRMAN: So that does give you a competitive advantage?
MR. COLLINS: Absolutely.
MR. CHAIRMAN: Mr. Chipman.
MR. CHIPMAN: Getting back to being an exporter of oil in this country, do you think the Canadian companies are treating their fellow citizens fairly by not passing on any increase that they are getting because of world markets?
MR. COLLINS: I think that a company's first and foremost responsibility is to its owners.
MR. CHIPMAN: Shareholders.
MR. COLLINS: To the shareholders. The shareholders have a specific request of management and that is to go out and earn money. I think when you muddy in the consumer - those businesses saying, well, you should hold your prices down - that is a slippery slope which I don't know whether we want to have businesses make that decision or not.
I think that, to a certain degree, one would like to think that the Canadian crude oil producers are not a cartel and are competing in lowering prices to refiners. Maybe the refiners, because there are not enough of them, it is not getting out the back end.
MR. CHIPMAN: Right. I guess what I am saying is, people come to the government because they say, oh, you are collecting all this money on tax, but really there are Canadian companies actually benefitting from high oil prices in the Middle East. It is not really the government's fault.
Just one other thing I was going to ask you. It says that Enercom in Wilson's contract is for 10 million litres. Enercom, is that a Nova Scotia Power type of . . .
MR. COLLINS: It is a subsidiary of Nova Scotia Power.
MR. CHIPMAN: Okay, that's all I want to know.
MR. CHAIRMAN: I'm sorry, I got caught up in a little discussion here. Does that mean I can ask another short snapper? We only have a few minutes left but, Mr. McIntosh, I heard your comment about the Good Neighbour Energy Fund that the Salvation Army and Nova Scotia Power has partnered on. Did you say that the Canadian Oil Heat Association is going to partner with those two?
MR. MCINTOSH: We are currently - negotiations wouldn't be the right word because you don't negotiate something like that, but we are currently - trying to work out an understanding on how the members of our association can participate in that program. The thing we have to work out is whether it is going to be through a litrage donation or a cash
donation, and all the logistics of those types of things. Yes, we are very eager to participate in that program.
MR. CHAIRMAN: Yes, I would say that it is a very valuable program. I know it helped out a number of low income Nova Scotians over the course of last year. But we learned, or at least our constituency office did, that if you received some help last winter, if you were low income, working poor, or a poor family, if you received some help with your energy bill, I guess it is, that you are ineligible this year. I am just wondering, I know a lot of people who were poor last year are poor this year. I hope that with your involvement and intervention that perhaps you could at least look at that.
[5:00 p.m.]
MR. MCINTOSH: That is my understanding in the conversations I have had, that that is the case. But let's not forget one thing, too, that a lot of oil heating companies that are members of our association do things that they are not recognized for in their communities. Some of them very quietly through their churches and through sports organizations do a lot of things so they are constantly supporting people in their communities.
MR. CHAIRMAN: Mr. Holm wants to have the last word before we offer time to the presenters to wrap things up. They want to make some final comments.
MR. HOLM: I just have one question and that has to do with temperature conversion which is another issue. Here in the winter season all volumes of oil delivered are converted to what they would be at 10 Celsius, even if it is -10. I wonder if you could tell us how many litres consumers are paying for that, in fact, in terms of volume they aren't receiving? I know you can put over 900 litres in a 900 litre tank.
MR. MCINTOSH: Approximately the sales of retail heating oil would be about 0.5 billion, so 500 million litres times about 1.5 per cent, John, so whatever that number is. So it is about 7.5 million litres of extra fuel.
MR. HOLM: There are 7.5 million litres that we are paying for, that we don't get, so that would work out, using 50 cents, to over $3 million.
MR. CHAIRMAN: I would like to thank the presenters and all honourable colleagues for their interventions. Now if the presenters wish to make a couple of brief statements in summary, we would appreciate it. You certainly aren't compelled to do so. Mr. McIntosh.
MR. MCINTOSH: I just want to leave everybody with one final thought because it is really important and it is part of what happened that affected us all here in Nova Scotia. As MLAs and legislators, please start learning and encouraging others in the government to learn about the effects of interruptible natural gas contracts. I didn't go into it in my presentation
but part of the rundown of the inventory, there were between 2 and 2.5 million gallons per day in Long Island; in Connecticut there were 1 million gallons per day; in New Jersey there were two million gallons per day. Those three instances sucked out five million gallons of heating oil inventory and diesel per day to serve natural gas customers. Our understanding from our friends and our colleagues down in the Maine Oil Heat Association and other oil heat associations, is that there was a total of 10 million gallons a day that was sucked out of the New England States because of interruptible gas contracts.
It is something that I know the provincial government hasn't started to look at and when you look at the effects that it could have in our province, four or five years down the road when natural gas starts becoming a bigger player in the market, it is something to very seriously think about and start getting a handle on.
MR. CHAIRMAN: Mr. Collins.
MR. COLLINS: I can't agree more. You have to be very careful with this new energy coming in, in that it has the potential to make heating oil less efficient. If you permit them to cheapen up on the capital and not serve their customers, they can drive prices crazy. So he is completely right.
MR. CHAIRMAN: Ms. Lay.
MS. LAY: Basically I just want to say that it does look as if the government has its work cut out for it. Certainly as a senior consumer we will be watching to see what happens. We will let our 100,000 members watch as well.
MR. CHAIRMAN: Committee members, our next meeting will be March 7th from 1:00 p.m. to 3:00 p.m. There will be a change of time, from 1:00 p.m. to 3:00 p.m. It is OTANS.
We are adjourned.
[The committee adjourned at 5:04 p.m.]