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Cannan: Fluctuating prices at the pump monitored by government
We all feel the frustration when local gas prices take a big jump, and I understand why people write to me questioning whether or not there is fair competition in the marketplace.
The federal government has two areas of responsibility when it comes to the price of gas—ensuring fair competition in the marketplace and remitting federal taxes on the price of gasoline.
In the first instance, the federal government ensures fair competition in the marketplace through the Competition Bureau.
Since 1990, the Competition Bureau has conducted six major investigations into allegations of price collusion in the gasoline industry.
While some individual retailers have been fined, most recently in 2010 in Quebec, it has concluded that periodic price increases are a result of market forces such as supply and demand and rising crude oil prices.
Anyone wishing to file a complaint regarding gas prices, or anyone with evidence of collusion among retailers, can call 1-800-348-5358 or submit a complaint to the Competition Bureau at www.competitionbureau.gc.ca.
The second area of federal jurisdiction is taxes, specifically the GST and excise tax.
The GST is five per cent which our government reduced from seven per cent shortly after being elected.
This major tax reduction continues to help Canadians deal with the cost of living and provides permanent, long-term relief to Canadian consumers across a broad range of purchases, including gasoline.
The federal excise tax on gas, which is 10 cents a litre for regular fuel and four cents a litre for diesel, has been unchanged since 1995 and 1987 respectively. These rates do not vary with the retail price of fuel.
Revenues from federal excise taxes go to the Consolidated Revenue Fund and are used to support a broad range of federal programs for all Canadians, such as health care, post-secondary education, seniors’ benefits, infrastructure and national defence.
Taxes on fuel are also remitted at the provincial and, in some cases, at the municipal level, which is why prices vary between provinces and even within cities.
In British Columbia for instance, we pay federal and provincial taxes, a carbon tax, and in some cities like Vancouver and Victoria, municipal transit taxes.
The price of gas has led to a number of constituents asking the federal government to regulate the industry.
Regulation of the gas industry is strictly a provincial responsibility and while some provinces have opted to regulate gasoline and other fuel prices, this approach has not resulted in lowered prices for consumers in these jurisdictions.
Provincial price regulations are generally introduced to provide more stable prices.
This brings us to the behaviour in the local market.
Years ago my wife Cindy and I used to operate a gas station in Edmonton.
Then, as now, the price we pay for gasoline at our local service station can vary quite a bit from city to city.
Other than taxes, price differences between cities across Canada depend on other key factors including competition and consumer choice, transportation costs to bring the gas to its destination, the amount sold, and the type and location of stations.
I’ve made a few inquiries and have been told that the Kelowna market is considered to be a market with less competition, higher transportation costs, and one without the competitive benefit of big box store gas retailers like the Costco in Kamloops.
These factors mean we pay more than other B.C. cities, including neighbouring cities.
According to MJ Ervin & Associates the price breakdown of a litre of gas is represented this way—about half of the price is determined by the price of crude; 15 per cent by the refiner mark up; five per cent is the retail marketers mark up; and roughly 31 per cent is taxes.
Like coffee, gold or pork bellies, gasoline is a commodity and the wholesale price reacts to a number of factors including changes in world crude oil prices, availability of supply to meet demand, local competition among retailers, seasonal demand—i.e. the annual spike in demand for gasoline during the summer driving season, and inventory levels.
In recent years, the combination of all of these factors has led to some of the highest prices for crude oil and gasoline in the last 10 years.
They have also led to frequent changes in the price that we pay at the pump.
The federal government will continue to monitor fluctuating prices to ensure they do not exceed normal reaction to market forces.
While we don’t pay the lowest prices for gasoline worldwide, we do benefit from a reliable supply, which is important considering how much we depend on gasoline and other fuels for our day to day activities.
Ron Cannan is the Conservative MP for Kelowna-Lake Country.