Though it does feed populist outrage over the high price of
gasoline in the Lower Mainland, the BC Utility Commission (BCUC) fixation in
its original and latest gasoline pricing inquiry report on an unexplained
differential between Vancouver wholesale gasoline prices and spot prices in the
Pacific Northwest (PNW) is misplaced and not very helpful.
As industry experts, most economists and the BCUC itself would agree, wholesale gasoline prices in Vancouver are not based on the actual cost of supply. Rather
they are based on the delivered cost of the marginal or most expensive source
of supply. For Vancouver the marginal source of supply is generally considered
to be the PNW, which is why the BCUC determined that Vancouver wholesale
gasoline prices should reflect delivered prices from that region. Yet
apparently they don’t – they have been some 10 to 13 cents per litre higher
than that this past year.
Industry counters that the marginal source of supply can be
more expensive than the PNW prices the BCUC calculated. It may be the cost of
PNW gasoline delivered by truck, not the less expensive cost of delivery by
barge. When supply is tight, as it has been much of this past year, the marginal
source of supply could be California or other more distant US refiners – again with
higher costs than what the BCUC calculated for its assumed marginal source of
supply.
But while the back and forth in the latest BCUC report is interesting
to read (at least if you are desperate for reading material because it is too windy
today to stand-up board here in central Baja), that debate misses the much
larger point. The PNW spot price, even without an unexplained differential of
some magnitude on top of that, is itself much higher than the cost of gasoline produced
in BC or the large amount that is produced and delivered from Alberta.
The issue government can and should address isn’t whether Vancouver
wholesale gasoline prices are even higher than the cost of PNW supply; the
issue is why prices should be based on PNW prices in the first place. What
British Columbia needs and could greatly benefit from is for gasoline prices to
reflect the delivered cost of Alberta supply (adjusted for differences in carbon
content standards, distribution costs and taxes) just like the rest of western
Canada.
What we need, in effect, is for the marginal source of
supply in the Lower Mainland to be more product from Alberta, not high cost imports
from the U.S.
The government’s response to the BCUC findings appears to be a requirement for more transparency from the oil companies on the source and cost of their supply. And the BCUC appears to suggest that some
type of regulation may be called for.
But while transparency may be helpful for public shaming and
perhaps some moral suasion, and BCUC regulation of pump prices would almost certainly be time consuming, expensive and largely ineffectual, there are steps government can take to move the
marginal source of supply from the PNW to much lower cost Alberta supply.
More than anything, government needs to support coops and
other independents to secure pipeline capacity for gasoline deliveries from Alberta,
something that will be facilitated by the Trans Mountain expansion project should that go ahead as planned. And it needs to ensure that coops and independents have
non-discriminatory access to the terminal and storage capacity they need to increase purchases from Alberta.
The goal is to support the competition and possible
expansion by coops and independents to force everyone in the Vancouver market
to base their prices on the delivered cost of Alberta supply. That goal should not be lost in the political
effort to find out if we are currently paying even more than unnecessarily
high PNW prices would suggest.
