HANSARD

Printed and Published by Nova Scotia Hansard Reporting Services

Ms. Maureen MacDonald (Chair)

Mr.Chuck Porter (Vice-Chairman)

Mr. Patrick Dunn

Mr. Keith Bain

Mr. Graham Steele

Mr. David Wilson (Sackville-Cobequid)

Mr. Keith Colwell

Mr. Leo Glavine

Ms. Diana Whalen

WITNESSES

Service Nova Scotia and Municipal Relations

Mr.Greg Keefe, Deputy Minister

Mr. Cameron MacNeil, Executive Director

Mr. Michael Duda, Director, Business and Consumer Policy

Ms. Margaret MacDonald, Senior Policy Analyst

In Attendance:

Mrs. Darlene Henry

Legislative Committee Clerk

Ms. Sherri Mitchell

Legislative Committees Office

Mr. Terry Spicer

Assistant Auditor General

HALIFAX, WEDNESDAY, DECEMBER 3, 2008

STANDING COMMITTEE ON PUBLIC ACCOUNTS

9:00 A.M.

CHAIR

Ms. Maureen MacDonald

VICE-CHAIRMAN

Mr. Chuck Porter

MADAM CHAIR: Order. Good morning, I'd like to call the committee to order, please. Today we have with us, Service Nova Scotia and Municipal Relations with respect to Petroleum Products Pricing Regulations. We will begin in the usual fashion with introductions, Mr. Steele.

[ The committee members introduced themselves.]

MR. CHAIRMAN: Thank you. Good morning and welcome. Mr. Keefe, you may have the floor for some opening comments, if you wish.

MR. GREG KEEFE: Thank you. Good morning, I'd like to thank the Chair and members of the committee for providing Service Nova Scotia and Municipal Relations a chance to discuss the work and policy surrounding the Petroleum Products Pricing Act.

I have with me today - immediately to my right - Cameron MacNeil, the Executive Director of Program Management and Corporate Services. He's the operational lead for the team responsible for the Petroleum Products Pricing Act.

Next to him is Mike Duda, Director of Consumer and Business Programs. To Mike's right is Maggie MacDonald, Senior Policy Analyst with the department. Among other duties, they monitor the daily market activities and supervise the data collection required to set prices. Regulation of gasoline and diesel fuel - and in some cases heating oil, propane and associate distillates - currently exist in some form or another in all jurisdictions east of Ontario. Nova Scotia's gas regulation was introduced primarily to address high price volatility. In the pre-regulation world, it was not uncommon to see several price changes a week and sometimes even multiple changes in one day.

The second goal was to address declining rural infrastructure and finally, to address wide price variations across the province.

Price regulation took effect in July 2006, with prices being set every two weeks. More than two years have now passed since the introduction of the petroleum product pricing. The objectives of the policy have remained consistent. In 2007, there was an independent, six-month review of gas regulation conducted by Gardner Pinfold Consulting Economists. This resulted in recommendations related to pricing regulations, including modifying the pricing period from two weeks to one and removing the maximum price on full-serve gasoline.

As you know, Gardner Pinfold Consulting just last week completed another review of the regulation, which spanned the full two years the regulation had been in place. The recommendations stemming from the review called for what I would define as fine tuning of the policy, rather than substantial changes. The review's findings speak to the extent to which regulation is meeting the objectives of the policy.

The review results indicate that gas regulation is meeting the intended objectives in that there are few price changes since regulation and the timing of the changes is more predictable. The rate of station closures is down from that which was seen prior to regulation and there is greater price uniformity across the province.

Other significant review findings include the average margin has increased by 0.5 cents per litre over the two years of regulations; wholesalers are better off or no worse off with regulation. Changing price setting from two weeks to one week and removing the cap on full serve has improved conditions for resellers. Higher costs are eroding the margins and X-tax prices in Nova Scotia are among the lowest in Canada. So at this point, my colleagues and I are happy to answer your questions.

MADAM CHAIR: Thank you. The opening round will be for the NDP caucus, 20 minutes. Mr. Steele.

MR. GRAHAM STEELE: Thank you very much and welcome back to everybody. This is a topic that is of a great deal of interest to Nova Scotians and I know for all of you it is not your first time here on this topic.

Let me start, Mr. Keefe, by congratulating you on the recent announcement that you will be moving to be Deputy Minister of Treasury and Policy Board, which is a unit of government of utmost importance but is very little known to the public. I think it's a testimony to the regard in which you're held within the Civil Service that you will be the new Deputy Minister of Treasury and Policy Board. In fact, your appearance here today will be one of the last things you do as Deputy Minister of Service Nova Scotia and Municipal Relations and I'm sure you're quite happy about that.

The odd thing about this whole topic is that I remember few topics in which so much nonsense has been uttered, most of it coming from the Liberal Party; it seems like the facts don't matter on this anymore. There seems like no fact which the opponents of regulation won't twist, no statistic they won't distort. One of the things that the Liberals would like people to forget is they actually voted in favour of gas price regulation when it was before the Legislature, but they like people not to remember that. They also like people not to remember that two out of their three members on the select committee said that they wanted gas price regulation; they'd prefer that people not remember that either.

However, I know that you're not here today to talk about policy, about whether it's a good idea or not, or what the government ought to do - that is a matter for government. You're here to deal with the administration and the facts, so I want to concentrate my time today on the facts, things that still are a little puzzling to me and perhaps to other people who are interested in this topic.

Let's start then with the cost of regulation. Even last week when the most recent Gardner Pinfold report was released, there seemed to be some confusion even within government spokespersons about what the cost of regulation was. Now, it seems that the cost of administration - the figure given for that was $900,000, is that correct?

MR. KEEFE: Yes, that's correct.

MR. STEELE: What do we get for that $900,000? That seems surprisingly high. That would buy quite a lot of full-time civil servants. What are we spending that $900,000 on?

MR. KEEFE: The high-level salaries are a big part of it. We have the staff - some of them here - who do the analysis, crunch the numbers, watch the market, answer the phone calls and respond to letters. We also have some enforcement people who go out to address complaints when we get a call that a service station hasn't adjusted their price like they should, these sorts of things. Another piece of that is what we call professional services-type money, that would be for things like the report that was just released, also for subscriptions to the New York markets, so we can get the data on a very timely basis that we use. There is probably some overheads in there as well, things like the office space, equipment and so on.

MR. STEELE: But within your department, these people are not spending their full time on gas price regulation, like Mr. MacNeil, Mr. Duda, Ms. MacDonald. They're all doing a whole lot of other things as well, so you can't attribute their whole salary to gas price regulation. So how much of the $900,000 is staff dedicated solely to administering this program?

MR. KEEFE: Maybe I could pass that one to Cameron who has the details.

MADAM CHAIR: Mr. MacNeil.

MR. CAMERON MACNEIL: The enforcement staff would be full time, although it is spread out over a number of people; there would be full FTEs associated with that activity. The salary for that group is about $295,000, or $300,000; the consulting services component is about $163,000; professional services, which would be the systems support that's utilized to administer gas regulation, is about $400,000; and then the other miscellaneous overhead which would include such things as subscriptions, office rent, periodicals and so forth is about $35,000.

MR. STEELE: Mr. Keefe or Mr. MacNeil, would it be the case that if we got rid of gas price regulation tomorrow, that the provincial government would save every penny of that $900,000 per year?

MR. KEEFE: No, we wouldn't save every penny because as you pointed out, some of that is allocated costs - portions of people's time that are working on other things. You don't always necessarily save that when you eliminate a program. But I believe most of that is fairly dedicated.

The enforcement folks, as Cameron mentioned - we have a fairly large enforcement staff that do a lot of things. They do this, they do fuel tax, tobacco tax, consumer regulation, so as Cameron mentioned, it equates to full-time FTEs, but not necessarily dedicated people, so there would be some unwinding there to make that happen. But if the workload of the equivalent of three or four FTEs went away, at the end of the day we'd save three or four FTEs.

MR. STEELE: The other figure that got widely thrown around last week was $6 million. Now as I understand it, that $6 million was derived in a very simple way. Mr. Gardner said that based on his analysis, the marketing margin comparing pre-regulation to post-regulation had gone up by an average across the province of 0.51 cents per litre and since we sell roughly 1.1 billion litres per year, you just multiply the two together and you get $5.6 million. Is that correct? Is that how that figure was derived?

MR. KEEFE: That's correct.

MR. STEELE: It wasn't clear last week whether the $900,000 in administration was included in that or was not. Now, it seems to me in reading the report that it's not included. Is it or is it not part of that $5.6 million?

MR. KEEFE: It would be part of that. That money is collected from industry and so that would be built into what industries' cost are, so it isn't collected directly from the consumer. The only cost to the consumer is that change in margins, which would have the $900,000 in it somewhere.

MR. STEELE: So the $900,000, if I understand it correctly, is collected from industry and not from general tax revenues - is that correct?

MR. KEEFE: That's correct.

MR. STEELE: And in the sense that, comparing post-regulation to pre-regulation - and all other things being equal - industry has collected $5.6 million, some of that at least is going back to government in order to pay for the system of regulation. Is that correct?

MR. KEEFE: That's correct, yes.

MR. STEELE: And so it is in that sense that the $900,000 is included?

MR. KEEFE: Yes.

MR. STEELE: But that means that if we cut regulation tomorrow, it wouldn't cost the government anything or save the government anything. You just would stop collecting that money from industry, isn't that right?

MR. KEEFE: That's correct, it would be a zero budget impact.

MR. STEELE: When you collect the money from industry, how does that work? Do you send out a bill to them and who do you send it to and how do you calculate how much it's for?

MR. KEEFE: I better pass that one to Cameron who would know the details.

MADAM CHAIR: Mr. MacNeil, please.

MR. CAMERON MACNEIL: Yes, we merged the collection mechanism with the provincial motive fuel tax collection system. So when the bill is sent out for tax collection, this fee is also attached to it.

[9:15 a.m.]

MR. STEELE: As we learned from the Gardner Pinfold report, the industry is complicated - it has retailers, wholesalers, resellers, refiners. Who is it that gets these bills?

MR. CAMERON MACNEIL: It would be the wholesalers.

MR. STEELE: And how many of those are there?

MR. CAMERON MACNEIL: Eighteen.

MR. STEELE: And how do you calculate the share that each one of those 18 wholesalers would pay towards that $900,000?

MR. CAMERON MACNEIL: It's volume based and you use a factor of 0.0009, I believe, times the volume.

MR. STEELE: And is everybody paying their bills?

MR. CAMERON MACNEIL: Yes. I'm not sure if everybody is up-to-date as of this day but yes.

MR. STEELE: Okay. Now, here's one of the things that puzzles me about this whole analysis. What Mike Gardner said in his report is that the marketing margin has gone up. Arguably, it would have gone up anyway because as he points out in his report, there are cost pressures within the industry - for example, from credit cards, from labour as a major report - and so just because the margin has gone up, it doesn't necessarily follow that that is due entirely to regulation. So I'm wondering why it was that that $6 million number got thrown around last week as if it was a fact when, in fact, on my just reading of the report, it's not a fact at all. It's one possible explanation for why the marketing margin went up.

MADAM CHAIR: Mr. Keefe.

MR. KEEFE: Yes, I would agree there. I would agree there's some debate around that exact issue but there's no question that in order to protect the rural infrastructure in the province, we had to get more money into the system - the money shared between the retailers and the small resellers. There are independent wholesalers who service that market and the margins were set historically but to guarantee those folks. There's only a couple of places that money can come from. It can either come from the consumers or a low manufactured cost which, as we all know, we have very little control over.

So using that argument, you would say, yes, well, this is caused by regulation. On the other hand, if you look across the country, you would see that marketing margins have

increased quite a bit more - in some cases up to around two cents - since we implemented regulation, that are obviously driven by costs in that industry. It's a bit ironic but the fuel industry is also impacted by higher fuel costs for their own trucking as well as wage costs, increases in minimum wage, credit card piece. So could one argue that our margins would have gone up by 0.5, or even more, if we hadn't regulated? You probably could, but it would be speculation. Mr. Gardner points out that there are several distinct markets in Canada that aren't necessarily related to each other because of different supply and demand conditions. So he can't automatically say that because it went up two cents in Alberta, it would have gone up two cents in Nova Scotia. That's where the debate lies.

MR. STEELE: Right. That was going to be my next point, that the marketing margins have gone up across Canada in the unregulated markets anyway and so we can expect that if Nova Scotia were unregulated, the same thing would have happened here. So you can't say what part of this increase in marketing margin is due to regulation and what it is that would have happened anyway.

So it could be due to regulation, or not. I'm not saying it is or it isn't - it's just that it's not clear, it's not really what Mike Gardner says. But, part of the problem we all have now and part of the nonsense that the Liberal Party gets away with is that they just sort of assert as a fact that regulation has cost consumers $6 million and then they go on from there as if that's just an unquestionable fact, when that in fact is not what the report says. I was puzzled about why the government last week just sort of agreed that was correct, when, as you point out, it's considerably more complicated than that.

Let me move on to another question about the question of transferring the regulatory responsibility to the Utility and Review Board. Another figure that got thrown out last week - apparently from nowhere because it's not in the Gardner Pinfold Report - is that if the regulatory authority was transferred to the Utility and Review Board it would cost an extra $400,000 over and above the current cost. Where did that figure come from - is that a figure that came from government?

MR. KEEFE: No that's a figure from, probably a couple of years old now. When we first brought in fuel price regulation, we asked the Utility and Review Board what their cost would be to administer this, so we just compare the numbers they gave us to our numbers and that gives the difference.

The department, obviously costs wouldn't go to zero, we'd still be responsible for policy, we'd likely still be responsible for enforcement, but when you add it all up that's where that difference came from.

MR. STEELE: Why would it cost the Utility and Review Board $400,000 more than it's costing you to do the same service?

MR. KEEFE: It's difficult to say. I don't know if there are any differences in payroll costs or not, I'm not familiar with them. The big thing is probably their hearings - when they hold public hearings, which they tend to do around various things they regulate, they are very expensive.

MR. STEELE: But, depending on how the regulations were written, there wouldn't have to be public hearings. You don't hold public hearings, and if the board were told they don't have to hold public hearings, they wouldn't. It's just another example of another number that gets thrown around, but when you press it and see what's behind it, you realize that it's a lot fuzzier than it appears.

MR. KEEFE: Yes, like anything else, we ask for the number because there was no instruction at that time for the URB to deliver. The amount of pushing, as you said, certainly hasn't occurred. If this were ever to transfer there, all that type of due diligence would then take place.

MR. STEELE: Mr. Keefe, are you familiar with Bill No. 235?

MR. KEEFE: No - I might be, but not by number.

MR. STEELE: Okay, Bill No. 235 was a Liberal bill introduced in the Legislature which got virtually no publicity, which is the Liberal plan for an alternative regulatory scheme which sets up what they call the "gas price watchdog". I would call it the gas police, because essentially it sets up a system of inspections, inquiries, looking at books of account for people who are gouging consumers. They do everything short of regulating the price. But they have the gas police who go out and have powers to go and look through people's offices in order to get the information they need. Has your department done any pricing of the Liberal proposal for the gas police?

MR. KEEFE: I don't believe so. No, we haven't costed that.

MR. STEELE: Okay, let me move on, in the few minutes I have remaining, to another aspect of this that I certainly don't understand and I don't think it is widely understood by the public, and that is the concept of forward averaging, which sounds complicated. By way of context, the gas price is set by a formula which is well known, well understood - in fact, other people like media outlets can replicate the formula. CBC TV has gotten into the practice of predicting what the price is going to be and they're pretty accurate. They have been pretty accurate, but last week they were wrong. They predicted the price would go down and, in fact, the regulated price went up, and that's because there's one element of the formula that is discretionary, that is not transparent, nobody really understands how it works or what's going through the minister's mind and that's this thing called forward averaging. I was wondering, could you explain to me what exactly it is that forward

averaging is intended to accomplish and why it can't be more transparent and less discretionary?

MR. KEEFE: Okay, that's a big question. What it is intended to accomplish is that we set the price weekly and generally hold for a week, while in the meantime the market is still doing whatever the market will do - bouncing around, up and down, changing. So if you can imagine a line on a graph where the market is a climbing market and a falling market - and I know they're not smooth lines they're jiggled, but more or less, that's the way it goes - what we impose on top of that is a set of steps that are a week long.

On a rising market, we set a price here and the market continues to rise, so at the end of that period industry has not made the margin that the formula would indicate they should - on the same way, when it's going down consumers aren't getting the savings that they should have on a daily basis. So what we do, well we calculate them - in order to pass those changes along a little bit more quickly, we'll do a forward averaging. We'll say industry made a bit too much last week so we'll set the price a little bit lower than we otherwise would have, or the consumers didn't get the break they should have last week so we'll do the exact reverse. So that's all forward averaging is - it's an attempt to bring the average a little bit closer to the actual market.

In the long run, if you look at a period of a year or six months, I'm not sure it would make a whole lot of difference one way or the other, but on a daily basis it makes a big difference, and on the small independents, whose cash flow is extremely tight, it makes a big difference.

MR. STEELE: I think we can understand and accept the concept, but it seems to me that the friction is caused by the fact that it's discretionary and how exactly the minister does it seems to be a bit of a mystery. So you get people like CBC Television who can predict everything quite accurately, except for forward averaging - and they're not the only ones who are trying to predict the price, and I think Nova Scotians appreciate that.

I noticed in the report is says what anecdotally I thought to be the case, that Nova Scotians do most of their gas buying now on a Thursday or Friday - they buy it on a Thursday if they think the price is going to go up and they buy it on a Friday if they think the price is going to go down. Do you know what? I think that for my family, and for most Nova Scotia families, we have saved far more money because of that factor alone than regulation possibly could cost us at the pump. If I watch CBC TV on Wednesday night and they say the price is going to go down by a number of cents, well I'll just hold off my gas purchase until Friday.

The one thing that makes people think that it's still a political decision is this forward averaging. Why can't it be more transparent, so that everybody can understand what's going to happen and when?

MR. KEEFE: We believe it can. I think one of the recommendations in the report is to make that more transparent and that's one of things we'll be looking at doing in the near term. I don't believe we can or should go as far as to make that a pure mathematical formula. There are some times, as we've all experienced, the market gets extremely volatile and I'm not sure we could create a formula that would account for all of those. But I do believe we can lay out our reasoning as to what we do, what conditions we look at and where we are, so I do believe we can make that more transparent.

MR. STEELE: We do have the interrupter clause for when it's highly volatile, but I really think the forward averaging should be almost purely mathematical. Thank you.

MADAM CHAIR: Order, the time has now expired. I recognize Ms. Whalen from the Liberal caucus, and you have 20 minutes, until 9:47 a.m.

MS. DIANA WHALEN: Thank you very much and welcome this morning. Again, congratulations on your move soon to the Treasury and Policy Board.

I'm very interested in this issue. I've been following it from the time I was first elected to the Legislature, and I believe there have been a few comments made here directed at the Liberal Party and I think it's important that we look specifically at the genesis of this policy and also at the objectives of this report which is before us today.

Certainly, in terms of the factors you mentioned that drove the introduction of regulation, you talked about price stability which does not mean lower prices, is that not right?

MR. KEEFE: That's correct.

MS. WHALEN: And I believe the original report from the Gardner Pinfold group that cost $171,000 - I think it was - for the Province of Nova Scotia, recommended against price regulation?

MR. KEEFE: The original one?

MS. WHALEN: In 2005 - he may have even had an earlier one - this is the gift that keeps giving to Gardner Pinfold, I've got to tell you.

MR. KEEFE: I think this is the third study that they've done for us.

MS. WHALEN: I used to be a consultant. It would be a wonderful thing to be an expert in this particular one. So, $170,000 and the result was don't do it, you can't control the prices. The market rules, we're one million people in Nova Scotia.

MR. KEEFE: For the amount, yes.

MS. WHALEN: That's right. The main objective of this study has been, and it says clearly in the summary page, that this study is to provide input into the policy concerning the decline of retail gasoline operators, particularly in rural areas. Would that be fair to say that that was the primary issue that this study today was looking at - this most recent Gardner Pinfold study?

MR. KEEFE: It's certainly one of our more important objectives, yes.

MS. WHALEN: I mean that's mentioned above what's best for consumers, what's best for the marketplace, what's best for wholesalers - it's talking specifically about retailers and most specifically in rural areas.

MR. KEEFE: Yes, I believe that's also about consumers because the reason we worry about those service stations out there is so that the people in those communities have access to gas in a reasonable time period, at a reasonable distance.

MS. WHALEN: Just to go back again - the fact is that in 2005 there was a recommendation not to introduce price regulation, and John Hamm, who was Premier at the time, stood by that report. When we got into 2006, with a new Premier and an election looming, a lot of politics were at play; in fact two Parties in this Legislature chose to campaign on gas regulation - one Party pushed it, the other Party adopted it - only the Liberal Party said the marketplace is what serves the consumer the best.

Those frequent price changes that we spoke about, that the consumers were alarmed about, were actually meaning we'd get our savings faster when the prices were falling, that if they were adjusting them several times a day, that was because they were actually competing on price - would that not be true?

[9:30 a.m.]

MR. KEEFE: It certainly would mean they would be competing on price, whether or not it would be faster or not.

MS. WHALEN: One of the comments made in the report was that one of our major retailers, one of the big chains, had said that they made their market share based on price competition, on saying they would always be the lowest. They've now lost market share because that's no longer something that, as a corporation, they can use. Do you recall that comment in the report?

MR. KEEFE: No, I don't recall that specific comment, but I do recognize that some companies were able to use - I was going to use the word "play" but that's not right - understand and use the market more than others. That's what competition is about.

We've left a small bit of competition in there - as you know, the retail margins can fluctuate between four and five and a half cents.

MS. WHALEN: Mr. Keefe, you just said a minute ago that using the forward averaging was a way to mimic the market. Is this whole scheme not just designed to try, as closely as possible, to mimic the market, while still having government regulation? You've moved from two weeks to a one-week period for changing the price because it was recognized that you weren't responsive to the market forces at two weeks.

It seems to me that all the changes and all of the tinkering that's been done with this regulation has been to come closer and closer to a market system.

MR. KEEFE: In terms of the wholesale price of gas or the refinery rack price, as we call it, yes, Nova Scotia has no way of controlling that price, like any other jurisdiction in the world. So obviously we need to stay close to that price, that defines reality somewhat for us.

How it breaks down from there, though, in terms of how often some oversight on the prices, to be able to give some protection and set up conditions so those small rural stations can stay in business, that's the piece that regulation addresses. To that extent, we would differ from the market slightly. But the market, there's no question, the world market for gasoline price is the foundation on which it is all based.

MS. WHALEN: Exactly, okay. Well I still think we're saying that you are trying to mimic a market. You agree with me that a million people in Nova Scotia are not going to set their own prices - it is a commodity.

I think it's worth mentioning that the Halifax Chamber of Commerce has said several time this Fall that they are against the price regulation that is in place and believe that the market would be a better way to set prices. They have, in one of their comments that I looked at on-line last night, said "Economists know that regulation cannot greatly influence gasoline prices. Gasoline is a commodity, whose price is greatly influenced by worldwide events." I think that's pretty obvious.

The fact is they're saying the market would serve Nova Scotians better than having the regulated interference of government in this process.

The report states that gas regulation is meeting its objectives - the question is are they the right objectives? Is this main purpose of sustaining rural gas stations the best and most important thing for the one million people who live in Nova Scotia? Somebody is paying that

extra amount - if the margins have gone up there's extra money going out of the pockets of Nova Scotians. It's all very speculative to say whether or not that would have happened otherwise, but we know for sure the margins are up and that's costing Nova Scotians right now, today.

So again, the complexity of this shouldn't mask the fact that the market forces are very, very responsive to consumer demand - there's a lot of competition and there are a lot of complicating factors that are making regulation difficult in Nova Scotia, and that shouldn't be lost.

I wanted to ask you about the price promotions that individual companies are doing. It was very clear in the report that this is making it difficult - it says "putting government in a difficult position." I actually had a complaint in my office at one point about a company that was advertising a promotion, and then the customer was told it is not offered in Nova Scotia. When we called your office, I think it was clarified that yes, they could offer it, but even the companies are confused about whether they're allowed to offer certain price promotions. So could you talk about that, if you wouldn't mind? It's on Page 47 of the report, talking about the fact that "Promotions of the kind now common in the province are not a good thing from the independent retailers' perspective . . ."

MR. KEEFE: Okay, what we did when we brought regulation in is we grandfathered, if you will, any promotions that were in the market at that time - that's not just grandfathered in the terms of whatever company was offering that promotion, any other company could feel free to offer a similar promotion, so we locked them in.

The ones that are causing the problems now are not the traditional type of promotion, or I should say the ones that potentially could cause problems - these are what we call escalating promotions, where the more groceries you buy, the deeper your discount off the gas, and obviously what they impact is the minimum margin that retailers can get, in that they impact their cost of fuel.

We're definitely going to have to watch that. I mean there's no question, from a consumer point of view, these are great things. Friends and family tell me yes, they love them, I would. So what we need to worry about is how are they going to impact the goal of trying to protect the rural infrastructure? To the extent they don't impact it, i.e., to the extent these promotions are mostly in urban areas, they may not be a problem down the road. To the extent they do impact it, we'll have to look at it.

So yes, Mr. Gardner raised that as a red flag. It was already on our radar. We don't have any clear evidence yet, one way or the other - it is something we need to watch.

MS. WHALEN: But it's certainly something that the larger stores, or the ones that are connected to retail or grocery stories, have an opportunity to do that other small

independents don't. So again, it's a change in the marketplace that you can't control right now.

MR. KEEFE: No, we can't control it. The cross-merchandising - and I see no particular reason that wouldn't be open to small independents, it would be up to them to negotiate their deals with stores, like anybody else.

MS. WHALEN: I wonder if you could tell me the total number of gas stations in the province, roughly - I'm sure every day it changes a little bit.

MR. KEEFE: I think it is 400 (Interruption) 424.

MS. WHALEN: And how many of the independents in this province have opted into the regulatory system you've offered?

MR. KEEFE: I believe right now we're around 40 per cent of the independents have opted in . . .

MS. WHALEN: And how many stations is that out of the roughly 400?

MR. KEEFE: Do you have that figure, Mike?

MADAM CHAIR: Mr. Duda.

MR. MIKE DUDA: It would be, roughly about half would be independents.

MS. WHALEN: About 200 are independents and about 40 per cent opted in, so we're talking about 80 stations, roughly, out of 400 - would that be somewhere close to the truth?

MR. DUDA: I believe about 55 per cent opted in at the time we began regulation, as is pointed out in the report. There has been some movement to 40 per cent that are now opted in.

MS. WHALEN: So about 38 per cent of all the stations are really the ones that we're focusing on through regulation and through this elaborate system, which is costing almost $1 million in Nova Scotia - we have got that in the report. Whether those resources could be redirected to other things within the department is neither here nor there - right now we have $1 million dedicated to controlling regulation in this province.

MADAM CHAIR: Mr. Keefe.

MR. KEEFE: Mr. Gardner points out in his report, it's not quite that clear-cut of the independents. One of the things we try to do here is recognize that the petroleum industry is

quite complex, as we all know. It is not simply that you have a wholesaler that sells to the retailer and the retailer puts on a markup and makes some money. There are a lot of other ways money flows between retailers and wholesalers out there - there are things like cross-leases, who owns the pumps, who owns the gas until when. It's a fairly complicated industry.

We set a minimum margin for retailers and said, if this is better for you, accept the minimum margin. If you can sit down and negotiate a better deal with your wholesaler for whatever terms, whether it's financing or whatever, go for it. Therefore you can opt out of that minimum margin - I should make it clear, they can't opt out of the price to the consumer.

MS. WHALEN: Of the price, exactly, well they're controlled by that, exactly.

MR. KEEFE: Some would say the fact that we had that minimum margin there gives even the ones that have opted out a bit of a bargaining tool.

MS. WHALEN: Mr. Keefe, one of the recommendations in this report is that Nova Scotians need to be better educated about this difficult and complex industry. Is that not completely self-serving for government and for the Opposition NDP, who would love to see everybody understand it better and hopefully, tell your story the way you want to tell it. I think it's unbelievable that we would spend more money to explain a worldwide commodity and how it's priced and how we're doing it. Right now, Nova Scotians are being hosed by this whole process and we want to explain to them how the international markets work? Have you any idea what that would cost to implement a public relations education plan?

MR. KEEFE: I never saw that particular recommendation as costing a lot of money. I just thought it was mostly related to the more openness we talked about before, in terms of how we use forward averaging . . .

MS. WHALEN: How would you describe that to people? How would you get your message out? How are we going to explain it to the many people who are not tuned in?

MR. KEEFE: Not tuned - that's often difficult, but certainly we could get more information on our Web site. The folks are looking at public information, a way we can increase the understanding of how the market works and particularly how the issue is protecting rural infrastructure, how the mechanics of that actually work. I don't know if we were ever intending to explain the world commodity markets - I'm not sure I could if we were challenged.

MS. WHALEN: I appreciate that. It alarms me to think that we're just going to have another PR campaign to explain something that, as you said, is very complicated, that the markets were working very well before and the fact that the prices were changing shows that they're very sensitive to all the world changes. It was benefiting consumers sometimes, sometimes it was going higher, but bringing in price regulation was done under the guise that

people believed it was going to mean lower prices. That's where they've gotten angry when the prices rose, they blame government because the prices were going up and that's the world markets, you can't control them.

I just think the fact is that public education is not going to change the outcome here, that it's the wrong thing to be regulating in the first place and that you can't control the prices. You're going to be able to, as you say, keep narrowing the number of days between changes.

Again, going back to the chamber of commerce, they actually say something similar to what my colleague from the NDP said a minute ago, that it simply lets consumers know when to fill up their tanks. That's really what we've accomplished here, is you can pretty much figure out whether the price is going up or down and I don't think that's enough to warrant going forward with this process.

I'm going to turn it over to my colleague for Kings.

MADAM CHAIR: Mr. Glavine.

MR. LEO GLAVINE: Thank you very much, Madam Chair and thank you Mr. Keefe and staff for being here today and I've certainly appreciated working with you at Service Nova Scotia and Municipal Relations and I want to wish you the best.

In terms of stations closing, how many stations have closed since gas regulation began on July 1, 2006? I was wondering if you could give me a figure on that?

MADAM CHAIR: Mr. Duda.

MR. MICHAEL DUDA: A net figure of 18 have closed, meaning there have been openings and more closings, but the net has been 18 over the last 28 months or so.

MR. GLAVINE: Does that compare with regulated and unregulated markets across the country, if we look at kind of a pan-Canadian experience here in regard to stations closing?

MADAM CHAIR: Mr. Keefe.

MR. KEEFE: No, the rate of closure prior to regulation was about 3 per cent a year. We're down to about 1.5 per cent since regulation, so that has slowed quite a bit. I don't know if I have any recent numbers across the country but prior to regulation the same thing was happening everywhere, so I would say there are fewer closures than the rest of the country.

MR. GLAVINE: That was a piece of information that obviously, probably, Mr. Hamm was more astute to than the present Premier because, in a 2005 report, Mike Gardner found that the decline in rural gas stations was not attributable to a lack of regulated system. He found that station closures occurred at the same rate in P.E.I. and other regulated markets as occurred in Nova Scotia and to quote from his report: The number of gasoline stations has declined throughout Canada. Station numbers have dropped by about 45 per cent in Nova Scotia since 1990. This rate of decline in Nova Scotia, both urban and rural, is comparable to that of other Atlantic Provinces and has been observed across Canada over the past 10 to 15 years.

So would we say then perhaps rural stations closed at an accelerated rate in the early 2000s because of Canadian Tire, Sobey's and the Atlantic Superstore? Would that be a fair statement?

MR. KEEFE: I don't know if those are the only reasons. There has certainly been a lot of change in buying habits. There has been a change in the demographics. As we know, we're becoming a more urban society. There's probably a lot of reasons but to compare to your comment on the other two regulated markets close to here, New Brunswick and P.E.I., they regulate the price to the consumer. What they don't regulate is a guaranteed margin for the retailer. Neither of those provinces had the objective of protecting rural infrastructure. We do and that's the reason for the difference in the models between us and those two provinces. So we tried to target that as an objective where those two systems don't.

MR. GLAVINE: Well, you know, just looking at kind of an intensive area in your own riding - you know, before regulation, communities like Aylesford, Auburn, Kingston and Morristown had service stations; today they don't have service stations. So in many ways one of the primary premises that we made for gas regulation was that we would save those kinds of service stations. Even as the member for Kings North often points out with regulation, he has lost his service station in Canning where there's a school of over 1,000 students. It just has not been a compelling argument. So again I ask, is the real reason for station closure the rise of big box stores and the depopulation of our rural communities?

[9:45 a.m.]

MR. KEEFE: I would say that's a big piece of it but I think we've still given them a fighting chance and I think you can see there's a small outfit up in Cape Breton - Caper Fuels I believe - which has pretty well come into existence since regulation. Another very small reseller and wholesaler, XTR, that has been able to grow their business and service that particular industry under this model because the large multinationals don't particularly care a whole lot about very small independents there. Like any other business, they're in business to make money.

So I think the model that we have has created a little market niche for those small businesses to operate in and protect the rural infrastructure. I do agree, there are those larger trends there - that people tend to shop at large centres, those big box stores, there's depopulation. All those are definitely there and will continue in the future but I do believe we've created a little niche that will slow it down if not stop it.

MR. GLAVINE: So in many ways then, you are agreeing that regulation was brought in under that premise of saving stations when, in fact, regulation could never really address such a complexity as we see in terms of depopulation and other forces?

MR. KEEFE: It certainly hasn't stopped it but I think the evidence is clear it has slowed it down quite a bit and I believe we can point to that. There has actually been some new emerging businesses in that market.

MR. GLAVINE: I guess I would take the other position that the corrections were pretty well already taking place prior to regulation as far as closures go and I know in my area we'll see another one right after Christmas.

One of the biggest complaints about the Nova Scotia model of regulation is the forward averaging component that we've seen here this morning. How often has it been applied? I mean, is it a constant thing or when is that decision made?

MR. KEEFE: It's not made every week, but it certainly is common. The faster prices are moving, the more likely we are to use forward averaging.

MADAM CHAIR: Order, please. The time has now expired for the Liberal caucus. I recognize Mr. Bain for the PC caucus. You have until 10:07 a.m.

MR. KEITH BAIN: Thank you very much, Madam Chair, and good morning to each of you. I just want to follow up, if I could, on a couple of statements that the last two speakers made. The expectation of lower prices as a result of regulation - is it not correct in saying the purpose of regulation was to create stability and not lower prices?

MR. KEEFE: That's correct, yes. We never intended to lower prices. We knew from the word go that Nova Scotia simply does not have any legislative authority or anything else to control the world price of gas.

MR. BAIN: Mr. Gardner, in his report, indicates the three main goals of regulation are being met. We know that stability is one of those, but can you give us the three goals and what the report actually says?

MR. KEEFE: The three goals are to protect rural infrastructure and the report says we've succeeded there to the extent that the rate of closures has dropped from about 3 per

cent to about 1.5 per cent. Plus, you've seen, growing small businesses in that area, stabilize prices, the number of price changes is down significantly from prior to regulation compared to a couple of U.S. markets and it also shows that the number of price changes here are a lot less.

The third one was price differences across the province. Prior to regulation, they seemed almost random - the difference between Halifax and Yarmouth, for example and Halifax and Kentville, to pick another one. Sometimes one was lower, sometimes the other one was lower. I think there was some frustration, what's this about? Right now, those differences are fixed by the formula. The difference between here and Yarmouth can't be any more than 1.5 or 2 cents - whatever the freight is.

Again, those are the three objectives and the evidence is that those are being met.

MR. BAIN: The other one was the closure of gas stations, particularly in rural Nova Scotia. I guess being from rural Nova Scotia, the way I look at it is that gas stations aren't just a number. Can you tell us the impact of closing a gas station in a rural community, what your feeling is or what the department's feeling is? What happens to a small rural community when their local gas station closes?

MR. KEEFE: Being a city boy, it's hard to take a personal view on that. I would think it's fairly significant in that to the extent people are living in the community, it becomes extremely inconvenient for them just to buy gas. To the extent they're commuting, that would probably be reduced a bit but there's still the need to buy gas on a regular basis - maybe even get gas for your lawnmower or whatever. You don't want to have to drive 30 kilometres to do that. I would think it's a significant impact.

I think we are seeing the industry change quite a bit, as we've already chatted about a bit. If you look at the basics of the gasoline market, even if you have a service station selling a million litres a year, which is a fair-sized service station in Nova Scotia - our service stations tend to be smaller than average - even at our 5 cent margin, that's only $50,000 gross profit that dealer has to pay for his mortgage, his lights, his heat, his salaries. All these expenses of operating the business has to come out of that $50,000. I think it's fairly clear that nobody is making money only operating gas pumps.

Even the small ones have some other business included. When Mike mentioned, it's a net of 18, there's openings and closings. You see that going on, they're building partnerships with corner stores, videos, or whatever to make the entire business viable where the gas pumps simply wouldn't be.

MR. BAIN: We were told that regulation costs about $12.50 a year, something like that; 25 cents each time you fill up. Does that money keep the stations in places like Baddeck, Caledonia, Digby and other places open?

MR. KEEFE: That's the exact reason for the margins to sit where they were, to protect those rural stations. You'll note in the report, in metro - which is quite a competitive market - it doesn't have very many independents, very high of company owned stores. The increase in margins has been fairly small, about two-tenths of a cent compared to the average of five. So where we've stabilized those margins, particularly the freight costs in rural areas - yes, that's where the money came from and that's to keep those stations open.

MR. BAIN: So, just for clarification, the $6 million cost - one of the purposes is to keep rural gas stations open. That half a cent a litre, who's actually paying that? Is somebody in metro Halifax paying it or somebody in, can I say, Baddeck?

MR. KEEFE: It varies across the province. I don't know if I can find the report right now, but I believe that number varies from about 0.2 in metro to I believe as high as 0.8 in some other areas. So, it varies depending on the area.

MR. BAIN: The small rural area is paying more to keep their local station?

MR. KEEFE: Yes, more than in metro itself.

MR. BAIN: Okay. We already spoke about the URB and whether it would be better to send regulation of gasoline prices to the URB. The recommendation is that it stay with Service Nova Scotia and Municipal Relations. Am I right in saying that?

MR. KEEFE: That's the recommendation, correct.

MR. BAIN: And that in itself is a cost saving - did I hear that just a minute ago?

MR. KEEFE: That's correct, the original numbers we were given from the URB, the costs would be higher than we are currently delivering it.

MR. BAIN: One of the biggest consumer complaints used to be, it's one price when I go to work, it's another price when I come home from work. That annoyed everybody, including myself. Has regulation helped that?

MR. KEEFE: Yes, regulation has obviously significantly impacted that because we are only changing once - to begin with, two weeks, now once a week. That still can happen, rarely - we have our catastrophic interrupter when the markets really go significant changes in a short period of time. So there we could see a change outside of our normal weekly. I think there has only been a handful of them in the two years. So it's still possible but by and large, yes, we've virtually eliminated that issue.

MR. BAIN: You just made reference to the interrupter clause. I'd like for you to tell us how many times the interrupter clause has been used and what happened each time it was used.

MR. KEEFE: Okay, I think maybe I should pass that one - I think it's half a dozen.

MADAM CHAIR: Mr. MacNeil.

MR. CAMERON MACNEIL: I believe it is five times since regulation was put into place - four times the price was lowered, one time it was increased.

MR. BAIN: That's quite a thing because a lot of times you hear when the interrupter clause comes in, you hear more about the price when it went up at that particular time than the four times it came down.

MR. CAMERON MACNEIL: Mr. Duda also pointed out that one time it was increased for diesel - I just wanted to get that on the record as well; that would be an addition.

MR. BAIN: Okay. We like to compare prices and I think every time the price goes up here, we're looking at what is happening in other parts of the country. There's companies out there, like Gas Buddies, or whatever, that are comparing prices. How do our prices compare now with New Brunswick and the rest of the country? Is it better or worse since regulation?

MR. KEEFE: It's better since regulation. I can understand the consumer's point of view, they look at the price at the pump when they can compare gas prices. In Nova Scotia, our road taxes are higher than most other provinces. So therefore, the price in Nova Scotia at the pump looked high compared to - for example, the difference between here and New Brunswick is about five and a half cents. So if the price at the pump is five and a half cents higher in Nova Scotia than it is in New Brunswick, actually the regulated price is identical at that point.

If you look at prices without tax, Nova Scotia has about the lowest in the country. There's only the very hot markets in southern Ontario and Montreal that are lower than Nova Scotia on a regular basis tax. Tax in, we tend then to come up higher because of the rates of taxes. So, for example, compared to Alberta where there's virtually no taxes, we don't compare favourably at the pump. But that gap has closed with the Canadian average, by a couple of cents since we started regulating so things are better, both X tax - the tax in and the tax out.

MR. BAIN: So lower gas prices in a major centre like Toronto would probably be governed more by volume than it would by anything else, would that be fair to say?

MR. KEEFE: Oh, yes, it's not unusual to have a service station in Toronto selling 20 million litres a year, compared to our one to two. So obviously you don't need much margin to cover the overheads when you're selling that volume.

MR. BAIN: Okay. We know that wholesalers aren't that keen on regulation. They don't want anybody telling them what they are supposed to be doing, but it's the little guys pumping the gas who are going out of business. Do you talk to those little guys on a regular basis? If you are, what are they saying about regulation?

MR. KEEFE: If you mean you, in the sense of the department, yes. The staff spend quite a bit of time talking to those folks. I don't, obviously, very often at all.

We're getting generally positive feedback from those. I believe even in the recommendation in the report not to move to the URB, that was part of the reasoning behind it. Those folks find staff very accessible, very willing to move quickly when there's a particular issue, try to understand their concerns and how we can address it. Industry likes that responsiveness of the department - they're not sure they would get that from a regulatory body, so I think that was one of the reasons.

Generally those small businesses, under regulation, are well treated and that's what they're telling us. They still have their cash flow issues. We've already said they're only working on a 4- or 5-cent margin and when we change the price on a particular day at a magnitude of 4 or 5 cents they could all of a sudden be selling gas in their tank for actually less than they paid for it.

Now, over time they make that up when it goes the other way, but a small business - that can jam them a bit on cash flow. They let us know when that's an issue; they let us know - especially last summer when the price of fuel was very high - that the amount we had in there for freight might not be reasonable. The price of fuel had doubled since we set that particular margin, and they were pointing that out to us.

The same with credit card fees, a big issue they have. They generally pay 2 per cent, in that range, for a credit card, so on 80-cent gas or $1.00 gas, that's about 2 cents of their 4- to 5-cent litre. On $1.50 gas, that we had last July, that's 3 cents of their 4 or 5 cents. Obviously that jams them quite a bit, so we certainly hear those anecdotes but, overall, those small guys are very positive on regulation.

MR. BAIN: Yes, I can relate because I know of one particular operator who told me, prior to regulation, if I went and I filled my car up with gas and gave him my credit card on that particular day that he would actually be losing a half a cent a litre selling me gas. So common sense would tell you that he can't stay in business very long with that.

[10:00 a.m.]

MR. KEEFE: There's something else we've done for - the margins are obviously what catches the attention on price regulation but, for example, I mentioned the small outfit XTR and there's a couple of others, but the names don't come to me right now, and prior to regulation we had a rule in the province that a wholesaler had to have their own storage. So these small independents end up having to buy from other wholesalers. That was in place more related to fuel tax than anything else. It was an old rule and times have changed, so we didn't need it any more. By relaxing that, it gave those guys more flexibility of where they could buy and where they could get their contracts. So there's another piece of regulation that put a rule in place to give them more room to manoeuvre in the market.

MR. BAIN: I just want to move on to the report itself. Mr. Gardner makes 13 recommendations - I wonder, could you give us sort of a timeline as to when you think the department will be addressing those recommendations?

MR. KEEFE: There's four of them. I think there's four - they're pretty well status quo, so they're virtually right away. There would be another six that we would do soon, in the sense that it is going to take time, we are going to have a change a regulation or some wording, so we need to prepare all the paperwork. So I'd say within two or three months.

There's another three that are pretty well indeterminate timeline, we had to study them. Which ones are they? That is zones and the differentials - there was some comment made there that do we have the right zones? Do we need more? Do we need fewer? It's the amount of difference - so that would need some study to implement that and to figure out where we would go. Promotions, as we've already talked about, are certainly going to need some monitoring and study. The margin review, where we've talked about are the margins correct right now? Are we paying them enough for the transportation costs? Should the margins be reactive to price, instead of fixed, to address the credit card issues? I think that needs some work and study before we could do anything there. So ten of them quite soon, three of them longer term.

MR. BAIN: People seem to be critical of the fact that the minister has the discretion to balance things out in the commodity markets when they swing too far one way or the other. A lot of people are critical of it. I understand Mr. Gardner recently finished a report for the Province of New Brunswick and one of the things he said was there needs to be some discretion for the regulator - is that correct? Why is it a good thing that he would recommend that?

MR. KEEFE: That is correct. It reflects the volatility of the world markets we have now, where a mathematical formula can sometimes take you into situations that you wouldn't normally do otherwise; it wouldn't particularly make common sense.

We've seen price changes in the magnitude of 4 and 5 cents up and down within one day, where at the end of the day it may not have made any change at all, but if we had to react to some mathematical formula that said if the price moved by so much you had to change, it might force us to make a price change when common sense would have told you no, you better wait this one out. So I think our colleagues in New Brunswick recognize that. They've been jammed a couple of times, especially through the late winter, early Spring there. I think the others recognized that having a bit of that judgment at the time you set the price is not a bad thing, as long as the accountability and the openness is there.

MR. BAIN: I'm jumping all over the place, but I want to go back to the numbers you gave us or rural gas stations that have closed since regulation began. You said it was 18, I believe?

MR. KEEFE: Yes.

MR. BAIN: Is that actual closures or is that count including the ones that have opened, or reopened - can I say - as a result?

MR. KEEFE: Yes, that would be a net.

MR. BAIN: Eighteen would be the . . .

MR. KEEFE: Yes, some closures less some new ones opened.

MR. BAIN: And I don't want to put you on the spot by asking this question, but would it be that those stations that have opened, would they have opened if we didn't have regulation? What, in your opinion - I guess I'm asking for a personal opinion here now - did regulation make it more attractive for them to open? I guess that's a fair way of putting it.

MR. KEEFE: Yes, that would depend on where they were when they opened. Yes, as I pointed out a couple of times, I think we have made it more attractive for a small rural service station to operate. So to the extent that some opened there, yes, that may have been part of their decision.

MR. BAIN: I keep thinking - and again I'll make reference to my own particular constituency which is totally rural - and I'll refer to the north of Smokey area where there are I think probably in the vicinity of three service stations down there, and if those three service stations weren't there the people who live north of Smokey would have to travel to Cheticamp or Baddeck to get their gas. I guess when you consider everything, as to whether or not regulation and the chance for operators to make a better profit margin is helping, I think that's the proof right there. I guess I'm saying that because I'm totally rural and I think it's important that the chance is given for those operators to stay in business.

I guess I'm expressing my own opinions on this, but with that, Madam Chair, I'll give up my time and I'll have more questions when we come back.

MADAM CHAIR: I recognize Mr. Steele for the NDP caucus. The second round will be 15 minutes per caucus.

MR. GRAHAM STEELE: Thank you very much. During the Liberals' turn, one of their members referred to consumers being hosed by regulation, which I think is just a little bit of an exaggeration - if anybody is getting hosed, it's people getting hosed by Liberal misinformation about how this program works. They fling around figures as if they're facts and you realize they're not facts - they make assertions. Anyway, it's quite disgraceful, I think really, when you have people to whom the facts just don't seem to matter.

Let me read a Liberal news release from May 2005. Liberal MLA Gerald Sampson read a resolution in the House of Assembly today stating that Liberal Leader Francis MacKenzie and the Liberal caucus plan to support government moving ahead with the Petroleum Products Pricing Act, and then it goes on to explain why on balance they think that regulation is a good thing.

Every single one of the Liberal members who are here today in this Legislature voted for the system of regulation. They would like us all to forget that, but every single one of them voted for it - not against it - and it was just one of many changes over time in the Liberal position; they would like us to forget that in Bill No. 235 they proposed what promises to be an expensive and pointless system of gas police; and they would like us to forget that the first Gardner Pinfold report that was done after six months was done at their insistence and Mr. Gardner found what anybody could have said, which is it was too early to say. I've always said that the bill for that report should have gone to the Liberal caucus because they were the ones who insisted that it be done.

When you look at the numbers that get thrown around here, you realize how soft they are. The government says it cost $900,000 to administer regulation, but when you look at it, it really doesn't. If we got rid of regulation, government wouldn't save $900,000. People say it costs consumers $6 million but when you look into that you realize that's only on the assumption that the marketing margin would have stayed exactly the same if we didn't have regulation.

But the marketing margin has been rising across the country. There is absolutely no reason to think that without regulation the marketing margin in Nova Scotia would have stayed exactly the same and so you realize even that figure is soft. That's a little complicated probably for the Liberals to understand. Then you get figures like $400,000 that it would cost the Utility and Review Board and you press then and you realize that's really like a two year old estimate and there's no particular reason to think it would cost that much.

Having said all that and as tired as I am of the nonsense being spread around by the Liberal Party, there are still legitimate questions about gas price regulation. One that I ended my last round on had to do with this concept of forward averaging. The fact that there is one item left in the formula which no one can predict because it is almost entirely discretionary. Mr. Keefe, you said that given the fact that one of Mr. Gardner's recommendations is that this be made more transparent, that's something that may very well happen.

One interesting thing to know would be who exactly makes that decision and when? Is it made at the Civil Service level or is it something that you advise the minister to do or is that a decision the minister takes entirely on his own? And, at what point in the pricing cycle does that point get made?

MR. KEEFE: We meet with the minister weekly and bring him recommendations. One of those recommendations is always what we call the model - in other words, what the formula has laid out in the regulations would say the price would be. Then there's usually - I think it sometimes has been four, but for the most part there's two other recommendations that would address the forward averaging: Do we need to go a little bit more one way or the other, and why we believe we would need to do that?

We present those three options, the model, plus two others, to the minister, make our case if you will, why we think it should be one of those three and the minister makes the call.

MR. STEELE: Okay, when I look at the chart on Page 11, which is almost impossible to read because it's in such a tiny font, there is information there about how often forward averaging has been applied. This is the discretionary part of the formula - the one that nobody outside government can predict. Just looking at it very roughly, I would say roughly two-thirds of the occasions, there has been some factor for forward averaging. They tend to be fairly small, although they can be over two cents per litre.

Discretion is fine and Mr. Bain has referred to the fact that there is some virtue in discretion and you've referred to the fact that sometimes you just need to apply a little bit of common sense. But discretion doesn't imply that you can just do whatever you want. There can be rules around it, there can be criteria, there can be an explanation.

MR. KEEFE: Yes.

MR. STEELE: Why can't the minister explain each week why he did what he did on that discretionary part of the formula?

MR. KEEFE: I believe when we talked about accepting the recommendation, that's exactly what we're talking about doing - let's put that reasoning out there. I think we can - when I say I wouldn't recommend a mathematical formula, I think there is a series of logic statements, if I can put it that way, that we can put out that we follow. If this, then we do this.

If the market is rising and we owe industry some money, instead of sitting the model, we'll sit the current New York, which may be a cent or two above what the model was. We can have some rules like that that we generally follow anyway.

MR. STEELE: It seems to me, as I alluded to earlier, that one of the real benefits of the system - I know it is for me personally and I assume it is for most Nova Scotians - is the relative predictability of when I ought to fill up. Should I wait until the Friday price setting or should I fill up before-hand?

I have to say, I claim the virtue of having a gas-electric hybrid vehicle so I don't need to fill up every week - I only need to fill up every third week - but nevertheless, I usually have enough information to know whether I should fill up before or after the price setting. The only piece that's missing is this discretionary piece which it seems nobody outside the department understands. We understand the concept, but that is the one factor that prevents Nova Scotians from knowing for sure which way prices are going to go. Let me just leave that as a comment - that it seems to me that is something on which we could be much more transparent.

Let me turn then to the question of whether the Nova Scotia public does or does not support gas price regulation in this form. Now I know that your department is doing opinion research. How often do you do that opinion research.

MR. KEEFE: It has probably been at least a year, I think, since we asked a question on this one.

MR. STEELE: How often have you done formal opinion research on the degree of support or opposition to gas price regulation?

MR. KEEFE: Maybe two or three times, it has been a while.

MR. STEELE: And is there any plan to do any opinion research in the immediate future?

MR. KEEFE: No.

MR. STEELE: Mr. Gardner has done a form of opinion research as part of his report. He has done focus groups but he only alludes in a very general way to the results of those focus groups. Do you have any more information that you can share with us about the opinion research that Mr. Gardner did as part of his report?

MR. KEEFE: I didn't talk to him in detail - Mike or Cameron?

MADAM CHAIR: Mr. Duda.

MR. DUDA: I would say you've seen representative statements in the document that represent what various stakeholders that he spoke to are saying. What he said to us, generally, is that people, although they've sort of forgotten what happened prior to regulation, once reminded, they're generally acceptable with regulation and in particular I'm talking about the price stability that once reminded him often the prices may have changed during the course of the day, that it is now only once a week, they generally are in favour of regulation.

MR. STEELE: One of the groups that Mr. Gardner seems to have had some trouble getting to are the retailers themselves. When you look at the number of people who responded to his survey questionnaire, it's quite low. Now he says it's a representative sample, in terms of covering the different types of retailers, but the actual number of responses to his survey was quite low.

[10:15 a.m.]

Now I assume it's because the retailers are mostly busy trying to make a living and this survey would have been just one more complicated piece of paper that really had nothing to do with actually making a living, so many of them disregarded it. It would just be another document from government that they didn't have time to complete.

Is the department doing anything to try and find out, in more detail, how it is that retailers feel about gas price regulation?

MR. KEEFE: Nothing specific but I should say there I don't know if - they're not overly shy about letting us know when they disagree, if I can put it that way. The phones ring quite regularly when they have a particular issue and staff try to deal with it. It might be unique to that, it might need a policy change that we'd raise. When they're happy, we don't hear from them; when they're not, the phone calls and letters tend to come in.

MR. STEELE: Does your department keep logs of calls or e-mails or correspondence from the public about gas price regulation?

MADAM CHAIR: Mr. Duda.

MR. DUDA: We certainly log any letters or e-mails that come in and we respond to each one of them. We do get a lot of them from retailers and consumers so I think we do get a fairly good sense of what the concerns are, whether people are happy with the system. Phone calls - I don't believe we log those. We could probably keep some record in our notes of some outstanding ones but probably not each one of them.

MR. STEELE: How would you characterize the correspondence that you get? Is it generally for regulation or generally against? Or is it people looking for more information about how things are done?

MR. DUDA: I think there's still some confusion out in the marketplace as to how prices are set and at least recently a lot of the letters from consumers have been around why are prices not following the crude price, and that's not really what we follow. I believe as the deputy has outlined, we follow the NYMEX gasoline price and unfortunately there's some confusion out there as to what the barometer is that we're following. So we try to clear up that confusion in the letters and responses.

MR. KEEFE: I'd like to add to that a bit. That's certainly one of the biggest areas of confusion - people look at the price of crude and compare it to the pump. Now obviously there is a relationship between the two but it isn't as linear.

I will point out that - if I go back prior to regulation, a couple of years there, this is one of the files we get the most letters on. This is one of our hot files. Prior to regulation, for a couple of years people seemed to be leaning one way, it looked like we were going to regulate and then another way it looked like we weren't going to regulate - whenever that changed, the letters changed. When it looked like we were going to regulate, we started getting letters, don't do it. When it looked like we weren't going to regulate, all of a sudden we started getting letters, do it.

A lot of the letters we get from the public, for the most part, are those that aren't happy with the way any policy anywhere is going. The folks that are happy with it, we hardly ever hear from.

MR. STEELE: As MLAs, we all know that as well. It's not that often people call the office to say, boy, I'm really, really happy and you're doing a great job - although we do get some of those, but it's fairly rare and they're quite welcome when they arrive.

Mr. Gardner, in his report, actually has a really good explanation about why it is that gas prices in Nova Scotia don't track crude oil prices. I actually learned a lot from reading that portion of his report. The one thing I think the general public doesn't understand - I certainly didn't - was the connection between the New York harbour price for gasoline and the crude oil price. Our gasoline prices do track quite closely the New York harbour price, but they do not track the crude oil price and that's simply because of delays in refining, choices that refiners make. Although, as you say Mr. Keefe, it does track it in the long run. It's certainly far from being immediate.

Unfortunately, what gets reported on the radio and in the newspaper is the price of crude and so people say that's up or that's down, well then the gas price at my pump today

ought to be up or down. Anyway, I learned a lot from reading that part of Mr. Gardner's report.

My last question is not about the past, but about the future. One of the recommendations that Mr. Gardner makes is the government should look very seriously at increasing the margin because it is not a percentage margin but it is in cents per litre when the costs of sellers go up, they need to be able to recoup that through an increased margin and Mr. Gardner points to things like credit card charges and labour charges, in particular, as reasons why the existing margin probably is not enough.

If changes are going to be made to the margin, when would we expect that to happen and what kind of amount do you think we would be looking at?

MR. KEEFE: We haven't put a timeline on that, as I mentioned, that's one of the ones we need to study. On the surface, that looks like it makes sense, we'd probably need a sliding scale because the costs change. But, as you'd be well aware, in developing any public policy, it's the unintended consequences we often have to worry about more than the intended ones. So we want to do some study on that first to make sure we understand what the reaction would be before we brought some recommendations forward. I would say that one is more like months than weeks because we need some time to do that work.

MADAM CHAIR: Order, the time has expired now for the NDP caucus. I recognize Mr. Colwell for the Liberal caucus. You have until 10:36 a.m.

MR. KEITH COLWELL: Thank you so much for coming in today and congratulations on your new appointment. That'll be, I'm sure, very challenging and interesting. I know from working with you in the past, you're up to the task, no problem at all.

MR. KEEFE: Well, thank you.

MR. COLWELL: I'm going to ask for some information to start with. I'd like to get a copy of the expenses, all travel expenses outside of Nova Scotia by all the senior staff that travel with anything to do with gas regulation, excluding the enforcement people. Can you commit to doing that, please?

MR. KEEFE: Oh, sure. It would mostly be, we travel to some conferences and also met with the other two provinces trying to - we'd love to figure out a way to have one for people who do this, but we haven't quite got there yet.

MR. COLWELL: Yes, that's probably time well spent, actually. I'd just like to have those expenses if I could, please. And attached to it every individual who went, where they went, and I don't care why, just the travel expenses.

It has been an interesting conversation here today and you indicated earlier that at 5.5 cents difference in New Brunswick, we're equal to New Brunswick's price. That's correct. We've been many times at 9 cents more, 11 cents more - today in Prince Edward Island, they're at 75 cents - where are we going tomorrow? Are we going to 75 cents tomorrow? Where 80 cents would make us equal? Is that a possibility?

MR. KEEFE: P.E.I. is a difference of 7 cents so, actually, our next tax price will probably be lower than P.E.I. right now.

To get back to your first part of the question - that gap opens up more than the 5.5 cents sometimes. You will see that in the continually climbing market. Basically the timing of the formulas, we take an average of five business days from Thursday to Wednesday. So we take those five days, and New Brunswick takes a day earlier than that, then also take seven days, they take the price in New York on Friday, account for Saturday and Sunday, and use the seven day average.

So when there's a climbing market, we have a newer, higher number in our average because it's a more recent day, where they have three times a lower number at the back end of their formula, so they tend to calculate a lower price all the way up than we do. So you'll see that gap expand. What you've seen since July is the exact opposite; we have been less than a 5.5 cents gap to New Brunswick actually. Last week, or the week before, we were equal or even a little bit below them for the same reason. We have a newer, lower number in our average, where they have more of the older, higher days five or six days ago. So it's just the pure mechanics of the way the two formulas work.

We ran New Brunswick's - I can't remember from what period of time, six to twelve months - just to see and it was negligible, it was less than one-tenth of a cent difference in what people will pay over time. So it does make a difference in any particular week; over time it makes very little difference.

MR. COLWELL: You also indicated if you sell a million litres of fuel, you make about $50,000, is that correct?

MR. KEEFE: Yes.

MR. COLWELL: I ran a business before I got into politics - and if you're paying somebody, if you want to make money on an employee, that would be an employee who would have a gross salary of $17,000 or less a year to generate $50,000 in total revenue that can make money. So it's very, very clear that you don't make money selling gas. That's very clear. I think that the reason that a lot of these rural stations are closed is to do with the new vehicles. Typically the local service station can't fix them anymore, and that was a major part of their revenue and one of the reasons I think that the big box stores are so successful is

because they offer incentives for people to buy and they make it on the other end, on their groceries or whatever the case may be, or the hardware stores, in that area.

A survey that I'm aware of indicates that 75 per cent of Nova Scotians don't like gas regulation. It would be interesting, you know, why the government and the coalition with the NDP and the Progressive Conservative Government are pushing this gas regulation so hard.

If you look at the Halifax Chamber of Commerce, they have stated recently that the government knew that regulation wouldn't work, and now that it has failed it has come time to put an end to it. That's why Valerie Payn, Halifax Chamber of Commerce President said "The benefit of minimal price stability isn't worth the pain of paying more at the pumps." That would be an opinion of the whole Chamber of Commerce, I would believe, because typically the president doesn't step out on their own and make statements that contradict what other members believe.

The whole thing of gas regulation is disturbing. The thing that I really find difficult about this, with a background of business, is you add $900,000 for administration fees - and you've gone through what all that's about, and it's debatable whether it's worth it or not - that means it's $900,000 that we're less competitive than New Brunswick, Newfoundland and Labrador, or indeed Prince Edward Island. That may not sound like much, but we see companies close here in Nova Scotia and a lot of businesses dropping off. So every time you add another .25 per cent to their costs, that means they're less competitive, and if they're less competitive they can't compete outside of Nova Scotia with people who have the same or lower cost for the same commodity.

It's the same as we overtax a business or if we property tax them to death. Any tax you add that adds costs to that business, it makes them less competitive with people outside of the province - and I stress "outside the province" - and that means we've got fewer people working in Nova Scotia. We've seen that already with some of the major suppliers and manufacturers closed down. Ontario is in a crisis right now because the manufacturing is closing in their areas and I think we're headed for big, big trouble in Nova Scotia. It just hasn't come to roost yet because we're a bit slower reacting - we're usually about two years behind a recession, if the 1980s were any indication of what it's going to be like this time around.

You made the point that this $900,000 wouldn't all be saved, but I disagree with that because if you take $900,000 out of costs that people are paying to regulate this, it goes right back into the economy - rather than going into government it goes into businesses and individuals' pockets and it really helps them.

The coalition between the NDP and the Tories, I'm quite upset about that whole system. I hear continuously from people complaining about gas regulation, just continuously.

It's not once in awhile, it's pretty well everyone you talk to. We've added - we haven't, but the Progressive Conservative Government added a fuel tax on highways. On all of those taxes, and you add the cost to create your $900,000 for administration fees, does that attract harmonized sales tax?

MR. KEEFE: To the extent it's built into the price, yes.

MR. COLWELL: So every time the price goes up . . .

MR. KEEFE: The full price is subject to harmonized sales tax.

MR. COLWELL: So we get double taxed, basically is what we're doing. So if they put the motive fuel tax up 4 cents, add the harmonized sales tax to that, if you put the administration costs up by $900,000 a year, the harmonized sales tax is attached to that too, so you're actually a whole lot higher when you add the harmonized sales tax, then the $900,000 and the 4 cents that the government adds for the tax. As this all multiplies, it gets more and more complex and does cost people more and more.

Also, there's probably more than one company, well I know there's more than one company in Nova Scotia that can do the studies that Gardner Pinfold has done - why have they gotten all three contracts? Did they go to bid every time and, if they did, was it an open process?

MR. KEEFE: Yes, all three went to tender. I believe in the most recent case this was the only bid we got.

MR. COLWELL: That's probably because everyone else had given up, and they figured they weren't going to get a contract anyway, so why waste their time and a lot of money?

[10:30 a.m.]

MR. KEEFE: But they had been through an open - following all the procurement rules of a competitive process.

MR. COLWELL: Could you give us a list of the people for all three contracts - I know the third one hasn't - who would have bid on that contract in the past as well, supply that to the committee?

MR. KEEFE: Yes.

MR. COLWELL: That would be very interesting to see.

You know, there's talk about the $6 million, and that's really what I'm getting at here, that it has cost the economy of Nova Scotia, and we're really talking about costing the economy of Nova Scotia - as I say, as the cost of something increases that you can't deal with, I mean outside of the gas business you've got to purchase gasoline to operate your business with, and that means that's a cost you have increased and that reduces your gross margin. As your gross margin decreases, that means you become less profitable, and that means you cannot expand, you can't hire the new employees, you can't develop new products, all the things that really make the economy go in Nova Scotia.

So as you add more of these costs, it gets more and more expensive to operate in Nova Scotia, and less and less desirable to run a business here. Quite frankly, if we don't have businesses running here and generating revenue and employing people and paying taxes - income tax and corporate tax, whatever the case may be - our economy is going to fail and it's going to fail long term. It's something that you just don't bring back in a week.

You know, we have tremendous pressure from countries like China, with really low labour rates and well-trained people. I see Mexico now under the free trade agreement is really pounding the living daylights out of us. Here in Nova Scotia we see Moirs candy factory go there, we've seen the Trenton car works go there. They won't be back; they simply won't be back. As we add more and more costs to these things, it makes it very, very difficult for people to compete.

If we're going to save a few rural gas stations which probably wouldn't have stayed open anyway, quite frankly - and there has been some discussion that there have been fewer closures since gas regulation than before gas regulation - it would be far better for the province to come along and say here's a community that needs a local gas station, provide them with some kind of fuel subsidy or something to operate with, or a reduction on their taxes, something to make it worthwhile, rather than spending $900,000 on an administration process.

This whole thing just seems self-serving and it really disturbs me because as you see the economy shrink in Nova Scotia - and that's what's happening, it's shrinking - and if you take the real manufacturing jobs out, the value of a manufacturing job in Nova Scotia is probably 7 to 1, so every dollar that company sells outside of Nova Scotia, that brings the equivalent of $7 into Nova Scotia. So as it becomes less and less competitive, fewer and fewer people are exporting outside the province, the province becomes less and less competitive.

As they become less competitive, in the Civil Service it will come to the point - we're to the point now, the government just announced $100 million, and instead of paying on the debt, they're going to pay on highways. We need highways fixed, no problem, but if we don't pay our debt down and get our debt load down, this province is going to be in serious, serious trouble because they're not going to be able to service the debt as time goes on, as health care

grows and everything else grows, you know, and that was in legislation that any surplus has to go to the debt.

So I mean the government is just ignoring everything that's going on here. It's getting to the point that it's getting insane, what's going on with this province. You sit back, as an elected member, in frustration knowing that there are things that have to change. This is one of those examples. I mean you can talk all the political talk you want about this, the bottom line is this is costing Nova Scotia money, costing Nova Scotians money. We're less competitive than we could have been in a lower price or less administration costs in this whole process, and that would have meant a difference to some businesses and would have helped our economy grow.

So I'm not in favour of gas regulation. I have never been in favour of gas regulation and when I was minister of the department, we went through this process and at that time I was advised by staff - and you were one of the staff who advised me of this - that gas regulation doesn't work because it means higher prices for gasoline, and that's what we're seeing in New Brunswick. It might be one-tenth of 1 cent difference but I don't really remember when gasoline in New Brunswick was 10 cents or 11 cents cheaper than it is in Nova Scotia. I don't remember that. Did it ever happen?

MR. KEEFE: Certainly not recently.

MR. COLWELL: Not recently, no, not since regulation probably. So how do you get one-tenth of 1 cent difference when you look at the whole thing - and sometimes you see 9 cents difference, you see 11 cents difference, you see 7 cents difference - how do you calculate one-tenth of 1 cent difference in the price? It's impossible. I mean the numbers don't lie, they're there and we've got all the figures on what the gas prices have been every week from all of the provinces around. We have to look at the local area because our local competitors for business are New Brunswick and Prince Edward Island. Those are the two key areas, and we really should be looking at New England because businesses in New England have a huge competitive advantage over us and they're struggling now.

I really don't know what this is all going to come to but, you know, when we have an NDP Party that wants to regulate everything under the sun, that won't work because if we don't have a free economy to grow and prosper, we don't have the money to put into the programs we need in government, that's going to mean that we can grow our economy and, if we can grow our economy, then we can put good programs in place that government can operate and do those things. But if you don't have the tax revenue to do that, none of that can happen.

MADAM CHAIR: Order, please. The time has now expired for the Liberal caucus.

I recognize Mr. Bain for the PC caucus. You have 15 minutes - until 10:51 a.m.

MR. BAIN: Thank you again, Madam Chair. Just one thing, I was interested to hear the member mention that there was a survey that says 75 per cent of people were against regulation. I know we, as a caucus, would like to get a copy of that survey if the member could provide it to us. Mention was also made about the price of gas in New Brunswick and I guess that's where we're going, on the differences that are there. We know what has been happening in New Brunswick. We know that their tax is lower, they have lowered their taxes. In Nova Scotia our motive fuel tax goes above - all of our motive fuel tax, plus more, goes to our highway system in Nova Scotia. Am I correct in saying that?

MR. KEEFE: That's correct, yes, the motive fuel taxes and some of the RMB piece.

MR. BAIN: So a 1 per cent cut in our motive fuel tax would amount to what in dollars, approximately?

MR. KEEFE: I think it's about $11 million on gas, $15 million if you include gas and diesel, for every penny.

MR. BAIN: So if we lowered our tax, there's $11 million that won't be going into our highway system.

MR. KEEFE: For every penny, yes.

MR. BAIN: Per penny, sorry, yes. I want to talk about rural stations, the rural economy again. I want to talk about a success, Mr. Keefe, that you mentioned earlier, and that's Caper Gas. There are a lot of instances I know in Cape Breton where some of the small retailers could not get gas, they had trouble getting their supply of fuel. I'd like to hear your version of the Caper story because it's my understanding that Boudreau Fuels in Isle Madame has become a distributor and, as a result of that, there's not one station, but three or four that have opened up in that particular case. I'd like to hear the success story, if I could, and whether or not regulation has played a part in that success story.

MR. KEEFE: My level of understanding is - and I'll turn it over to Cameron to provide more details - that particular business is largely a fuel-oil distributor. They recognized an opportunity with this particular scheme and went after it, but I think I may have a few more details. I believe they're up to five stations now, Cameron?

MADAM CHAIR: Mr. MacNeil.

MR. CAMERON MACNEIL: I'm not sure if the fifth one has opened yet but I think it is scheduled to open.

Boudreau Fuels, as the deputy has mentioned, started out largely as a heating-oil distributor. In order to keep their equipment and people employed over the summer months,

the non-heating season, they got into the gas-supply business. At the outset of regulation I think they had one and possibly two outlets, which were largely small, country store operations and they had an external tank, I believe, and they would fill these tanks and had an arrangement made with the store owner. From there they've over doubled their size, they're now running four or five outlets and largely they work with local, small entrepreneurs, small operations that wish to augment their operation with gasoline supplies. So it has worked out very well for them.

They have started to become more sophisticated as they've grown, and we're now seeing canopies developing with their signage and their brand and so forth. So they've really moved into a market niche that was largely being vacated by the larger oil companies in rural Cape Breton, due to the fact that gas sales weren't highly profitable so there wasn't a lot of interest by the larger players. They moved in to fill that void and appear to be doing quite well.

MR. BAIN: So I guess it would be fair to say that Boudreau Fuels, as an example, as a small player in this whole thing, is employing more people because if they're growing and serving the needs of the small rural station, they have grown, they've provided more employment and we have to remember - I'm going to go back to my rural being again - these small rural retailers pay taxes and employ people, regardless of where they are.

MADAM CHAIR: Mr. Keefe.

MR. KEEFE: I think that points out one of the strengths in the model, not so much whether we're regulating or not, but the particular way we're doing it is we still leave a lot of room for entrepreneurs to do their thing. It's almost a minimalist approach to try to achieve the objectives we have. So, for example, while we do have the ability there to guarantee a margin for small retailers, they are free to make a better deal if they want to and if they can - as I guess the numbers would tell us, that 60 per cent of them have - they can go right ahead and do that.

I like that feature of the model, the same as we realize we could take the cap off full-serve without impacting the objectives of the model and again, that gave some of those small retailers more wiggle room to operate in the model. So personally, that's a strength I like of the model, that we have a series of rules but we also leave as much room as we can for business people to do what business people do.

MR. BAIN: Just for clarification, in the full-serve aspect, the cap is off that. But there are instances where service stations sell their full-serve at self-serve prices, and they have every right to do that.

MR. KEEFE: That's a business decision they can make.

MR. BAIN: That's a business decision that they alone make.

Madam Chair, I don't have any further questions. Thank you.

MADAM CHAIR: Thank you. That concludes the questioning round of our meeting this morning. I would invite Mr. Keefe to make some closing comments.

MR. KEEFE: I'll be brief. I would just like to thank the committee again and I hope we were able to provide you with the answers you were looking for. That would be about it.

MADAM CHAIR: Thank you very much. On behalf of the committee, I would like to thank you for being here. I also would like to add my congratulations and best wishes as you proceed in your career.

I just want to remind the department that there were documents requested: a copy of all travel expenses by senior staff outside Nova Scotia with regard to the regulations; and a list of all the people who bid on the past three contracts, including the current one that Gardner Pinfold won. That information can be provided to the clerk, please, for distribution to the committee. So thank you again. Mr. Steele.

MR. STEELE: Yes, in the same vein, Madam Chair, I'm just echoing what Mr. Bain said. Mr. Colwell referred to a document that none of the rest of us have and I would like to ask that he table that document, specifically the survey purporting to show that 75 per cent of Nova Scotians oppose regulation.

MADAM CHAIR: Yes, I would just remind Mr. Colwell that the document needs to be tabled at our next meeting. Thank you.

So is there any other business? With that, we stand adjourned.

The subcommittee will meet here in the Chamber. (Interruptions) We'll take a five-minute break.

We stand adjourned.

[The committee adjourned at 10:45 a.m.]