THE case being made to Canadian motorists these days is that higher taxes on fuel, and thus higher prices, will force us to conserve any way we can to save money. Fair enough. But what if the pre-tax prices aren’t fair to start with? What if drivers are being gouged?
That’s what the federal Competition Bureau can decide. It is in place to investigate allegations or suspicions of collusion to set prices in a given market. Thunder Bay and Northwestern Ontario, for instance, where the board recently had a look and came to the surprising conclusion that there was no evidence of funny business.
For decades, local and regional drivers have wondered if they’re being fleeced.
They see pump prices on most days among the highest in Ontario. They see prices go up as soon as the price of oil goes up but they don’t see a corresponding drop in prices when the oil price takes a plunge. (Oil was $145 a barrel in 2008 when Thunder Bay’s gas hit an all-time high price of $1.48. Today, oil is at $70 a barrel and gas is $1.47.)
Thunder Bay drivers see prices rise in unison, usually to the same amount, at gas stations from Westfort to Current River. It’s almost as if someone is telling station staff what price to set and when. Motorists are especially irked when they see fuel prices hiked on the Friday of a long weekend.
Drivers are told there are a variety of factors governing fuel pricing that can’t be avoided. Summer versus winter fuel additives. Refinery maintenance and unexpected shutdowns. Middle East politics. The value of the loonie.
But no one in authority has yet answered the basic question in all of this: Why are profit margins in Thunder Bay and region so much higher than in other jurisdictions? The gap between wholesale and retail fuel prices in Thunder Bay and the Northwest is around 24 cents per litre — double the industry standard.
Is there a reason for that, one that would explain high prices to everyone’s satisfaction? Something that’s believable despite the overwhelming suspicion that prices are set artificially high?
Petroleum analyst Dan McTeague has a theory — lack of competition in this market. In larger cities, a big independent player like Costco will price gas aggressively and drive down the overall local price level. And with more motorists buying more volume the stations can get by on lower margins.
There were a few attempts at “gas wars” by small operators in Thunder Bay years ago, but the combined might of the big-name players was able to force the base price back up by waiting out the independents which could not survive on the tiny profits they got from cheap gas.
McTeague is right; there is a lack of competition locally. But does it amount to price fixing?
Kenora MPP and Ontario Energy Minister Greg Rickford wanted to know. He asked the Competition Bureau last year to investigate gas prices across the Northwest. Rickford sought answers after regional gas prices failed to drop at the same rates as other parts of Ontario when the province cancelled the cap and trade plan put in place by the previous Liberal government.
Wholesale gas prices dropped from 92 cents a litre to 84 cents between August and October 2018, but retail gas prices hardly budged while retail margins increased substantially. Fishy?
Rickford said the bureau agreed to, in his words, take “a very close look at industry participants” in Thunder Bay and other Northwestern markets.
The bureau has a lot of experience. Since 2008, as a result of its investigations, 33 individuals and 12 companies have pleaded or been found guilty of fixing the price of gasoline in Ontario and Quebec.
The Quebec case is a textbook example of how such federal operations are conducted, or can be. Criminal charges were laid following an “extensive investigation” by the bureau from 2004 to 2007 involving wiretaps, searches and informants.
The bureau alleges the gas retailers — individual operators who ran their stations under the banners of Shell, Esso, Petro-Canada and Irving oil — called each other to agree on prices.
Announcement of the charges in 2008 “sends a clear message that the Competition Bureau will take action to stop price fixers whenever we have evidence that they have broken the law,” bureau commissioner Sheridan Scott said.
Compare the efforts put forth in Quebec — wiretaps, searches and informants — with the investigation in Northwestern Ontario. In announcing this week that it found no evidence of price fixing, the Competition Bureau says its officers conducted field interviews at 50 gas stations in Thunder Bay, Dryden, Fort Frances and Kenora. The investigation also included the collection and analysis of pricing data from various sources, and a study of regional market characteristics such as wholesale gasoline supply and distribution.
And so, motorists are still left with no understanding of the incredible pricing coincidences that occur at their local gas stations day after day. And since the bureau didn’t look at the reasons behind pricing, drivers are no closer to understanding why pump prices are almost always inflated in comparison to other markets.
Remember analyst McTeague’s theory on lack of competition in the local market? Shell Oil offers a website tutorial on “Understanding fuel pricing” in which it says, “Supply and demand effectively keep Canadian drivers supplied with gasoline and diesel fuel that is among the least expensive in the world. Price changes are a direct result of fierce competition as Shell vies for your business.”
Gas prices may well be cheaper than in other countries but where is the “fierce competition” in local markets? And if market size has a major bearing on prices, why was the price of gas in Thunder Bay Friday $1.47 a litre while in Dryden (pop. 7,700) the price was $1.28, the same as Toronto?
It would appear that Thunder Bay drivers are not well served by their gas stations or by the Competition Bureau whose relatively cursory examination of local and regional prices leaves us with more questions than answers.
Ian Pattison is retired as editorial page editor of The Chronicle-Journal, but still shares his thoughts on current affairs.
(Originally published May 4, 2019)