Public Inquiry Into Petroleum Fuel Pricing in the YT

Public Inquiry Into Petroleum Fuel Pricing In The Yukon Territory HEINO LILLES SEPTEMBER, 1988 338.52 PIPFP 1988 public Inquiry into petrol, Pricing in the Yukon Ter fr",nnrt"1 1Public Inquiry Into Petroleum Fuel Pricing In The Yukon Territory Board of Inquiry Heino lilies, M.Se, M. Sc, LL.M. Territorial Court Judge Legal Counsel Murray L. Smith, B.Sc., LL.B Staff Jennie L. Howie Alan J. Hunt Duncan Knowler V. Glenn Sundstrom Secretarial Support Lorna Hutchinson Terry Krahn Evi Potsepp Report Editor Anne Tayler Table of Contents Chapter 1 Introduction 1.1 Establishment of the Board of Inquiry 2 1.2 legislative Mandate of the Inquiry 3 1.3 Scope of the Inquiry 3 1.4 Conduct of the Inquiry 4 1.5 The Report 6 Glossary 7 Chapter 2 Petroleum Products Market 2.1 Overview 14 2.2 Products 20 2.3 The Consumer 24 2.4 Retailers 29 2.5 Suppliers 33 2.6 Special Case: Old Crow 39 Chapter 3 Transportation 3.1 Overview 42 3.2 Import Transportation and Distribution Systems 43 3.3 Transportation Routes - local 45 3.4 Regulations 47 3.5 Developments in the Petroleum Transportation System 50 Table of Contents Chapter 4 Pricing 4.1 Overview 52 4.2 Consumer Pricing 54 4.3 Retailer Shares 65 4.4 Transportation and Distribution Costs 72 4.5 Taxes 77 4.6 Crude Oil 80 4.7 Supplier Shares 82 Chapter 5 Conclusions and Recommendations: Market 5.1 Overview 88 5.2 Petroleum Products 89 5.3 Consumers 92 5.4 Retailers 95 5.5 Suppliers 102 5.6 Special Case: Old Crow 104 Chapter 6 Conclusions and Recommendations: Transportation 6.1 Import Routes 110 6.2 Regulations 116 ii Table of Contents Chapter 7 Conclusions and Recommendations: Pricing 7.1 Overview 120 7.2 Consumer Pricing 120 7.3 Retailer Share 121 7.4 Transportation Costs 122 7.5 Taxes 124 7.6 Crude Oil 124 7.7 Supplier Share 125 Appendices I Order - In - Council 1988/01 127 11 Return of Information Sent to Companies 131 III Reports Reviewed by the Board 137 IV Appearances of Companies/Individuals 141 V Service Stations 145 VI Methodology 149 VII Competition in the Canadian Petroleum Industry 155 iii Table of Contents List of Tables Table 1 Sales of Petroleum Fuel Products 21 Table 2 Estimated Sales of Petroleum Products 25 Table 3 Comparison of Sales Volumes, 1987 29 Table 4 Average Sales Volumes for Retail Outlets 30 Table 5 Supply and Use of Products by White Pass, 1987 34 Table 6 Supply and Use of Products by Petro Canada, 1987 35 Table 7 Supply and Use of Products by Esso, 1987 36 Table 8 Supply and Use of Products by Husky Oil, 1987 36 Table 9 Supply and Use of Products by Shell Oil, 1987 37 Table 10 Supply and Use of Products by I.C.G., 1987 38 Table 11 Supply and Use of Products 39 Table 12 Import of Fuel to the Yukon 42 Table 13 Retail Margins in Whitehorse 66 Table 14 Retail Margin & Volume Sales Table 15 Retail Margins in Selected Yukon Communities 67 Table 16 Transportation & Distribution Cost for Whitehorse 75 Table 17 Transportation Costs to Selected Yukon Communities 76 Table 18 Provincial and Territorial Taxes 78 Table 19 Supplier Shares of Whitehorse Petroleum Product Prices 83 Table 20 Supplier Shares for Selected Communities 83 Table 21 Supplier Shares in Other Centres in Canada 84 Table 22 White Pass's Wholesale Margin at Whitehorse and Industry Norms 85 Table 23 Transportation Costs 123 Table 24 Supplier Shares for Regular leaded Gasoline 125 iv Table of Contents List of Figures Figure 1 Where Costs are Added to the Price of Fuel 15 Figure 2 Optimum Pump Prices 18 Figure 3 Composition of Fuel Consumption 21 Figure 4 Consumption of Motive Fuels in the Yukon 22 Figure 5 Monthly Consumption of Gasoline 28 Figure 6 Roads of the Yukon Territory and Surrounding Areas 46 Figure 7 Price Components for Whitehorse Self-Serve and Full Serve Outlets 53 Figure 8 Self-Serve Retail Outlets 55 Figure 9 Full-Serve Retail Outlets 56 Figure 10 Price of Regular Unleaded Gasoline, 1985-1988 57 Figure 11 Price of Regular Unleaded Gasoline, 1985-1988 58 Figure 12 Price of Regular leaded Gasoline 60 Figure 13 Price of Regular leaded Gasoline 61 Figure 14 Price of Furnace Oil 62 Figure 15 Price of Furnace Oil 63 Figure 16 Price of Residential Furnace Oil 64 Figure 17 Price Components for Yukon Communities 68 Figure 18 Price Components for Yukon Communities 69 Figure 19 Retail Margins, Whitehorse versus Terrace and Vancouver 71 Figure 20 Price Components for Whitehorse and Vancouver 73 Figure 21 Price of Average Alberta Par Crude' versus Residential Furnace Oil and Regular Unleaded, Self-Serve 81 Figure 22 Comparison of low Posted Rack Prices 103 v Introduction Chapter One 1.1 Establishment of Board of Inquiry 2 1.2 legislative Mandate of Inquiry 3 1.3 Scope of the Inquiry 3 1.4 Conduct of the Inquiry 4 1.5 The Report 6 Glossary 7 Introduction oil prices since 1985, and that this "upstream" market is a very competitive and healthy one. The Board has considered factors which affect the pricing of the following petroleum fuel products sold in the Yukon Territory: gasoline fuels, diesel fuels, home heating oil, propane, and aviation fuel. 1.4 Conduct of the Inquiry The activities of the Board of Inquiry have been well publicized throughout the Yukon. In addition to press releases and numerous newspaper articles, there have been advertisements for hearings in The Yukon News and The Whitehorse Star, and on CBC, CKRW, and CHON FM radio. The Board has sought input from interested persons and organizations, and worked to have as much information as possible entered into the public record. In order to reach and accommodate members of the general public in all Yukon communities, the Board publicized the fact that it was prepared to travel to any community. Also, hearings have been held in the evening as required. The Board identified persons in the Yukon who might have relevant information, and communicated directly with them. Personalized letters were written to elected politicians, including band chiefs; to community and business associations; and to persons engaged in the distribution or sale of petroleum fuel products. Inquiry staff developed rules of procedure with input from participants at a preliminary hearing. The Board then distributed the rules to all participants and interested parties. Whenever substantial interest was expressed in a community outside Whitehorse, the Board travelled to hear from the people there. Hearings were held in Dawson City and Old Crow, as well as Whitehorse. As the hearings progressed, documents from the public record - including transcripts, submissions, and reports - were filed in the Resource Centre in the Yukon Archives, where they have been available for public inspection. Public attendance at hearings has been lower than expected; but given the season, the technical complexity of the subject matter, and extensive daily coverage by local news media, the attendance is understandable. Petro-Canada Inc., White Pass and Yukon Corporation Limited, Shell Canada Products Limited, ICG Liquid Gas Ltd., Esso Petroleum Canada and the Yukon Territorial 4 Introduction Government have all appeared in the proceedings as ongoing participants, or "intervenors," usually represented by counsel. In order to expedite collection of relevant information, the Board sent questionnaires, "Returns of Information," to all suppliers and retailers of petroleum products in the Territory, as well as major industrial users. Sample "Returns of Information" are included in Appendix 11. The Board is pleased with the responses received to the questionnaires. All major suppliers have given the Board the information requested, with the exception of The White Pass and Yukon Corporation Limited and Chevron Canada Ltd., the latter being White Pass' supplier of petroleum products. White Pass and Yukon Corporation Limited objected to making available significant portions of the information requested by the Board. In response to an application made by White Pass, the Supreme Court of the Yukon Territory, ruled that White Pass was not required to provide information that would disclose their acquisition costs for petroleum products from Chevron Canada Ltd. in Bumaby, British Columbia, or their transportation costs from Burnaby to Whitehorse, Yukon. In addition, the Court held that White Pass did not have to account publicly to a Territorial Commission for the management of its inter-provincial undertaking. As a result, White Pass has submitted no information relating to extra-territorial activities and only partial information on their transactions within the territory. White Pass has, however, provided complete and useful information with regard to their network of retail service stations and bulk stations in the Yukon. None of the other major oil companies doing business in the Yukon Territory objected to providing the Board with information about the acquisition and transportation of petroleum products. In particular, Petro-Canada, Esso and Shell have given the Board full cooperation and made full disclosures. Indeed, the Board was given access to product exchange agreements, documents which are considered highly confidential in the industry. From the evidence received, it has been possible to reliably estimate some of the more important statistics withheld by White Pass. The lack of a full disclosure by White Pass and Chevron has detracted somewhat from the completeness of the Board's report; but in the final result, the absence of this information has not had significant impact on the Board's conclusions and recommendations. The Board heard from more than forty witnesses over some four weeks of hearings. Most of those witnesses were involved in the 5 Introduction industry and their testimony complements the extensive information gained through the questionswnaires.

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