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THE MATTER of
the application by the P.E.I. Retail Gasoline Dealers Association for
approval of an increase in the allowable retail gasoline and diesel margin.
BEFORE THE COMMISSION
Thursday, the 29th day of March, 2012.
Maurice Rodgerson, Chair
Allan Rankin, Vice-Chair
Michael Campbell, Commissioner
Reasons for Order
This Order addresses the application filed with the Commission on March 21,
2011 by the P.E.I. Retail Gasoline Dealers Association (the "Applicant")
requesting an upward adjustment of 2.0 cents per litre in the minimum and
maximum retail dealer mark-up levels for both self-serve and full-serve
gasoline and diesel fuel and for subsequent annual reviews of dealer margin
levels. The application is filed pursuant to the
Products Act, R.S.P.E.I. 1984, Cap P-5-1 (the "Act"),
which under Section 27 (b) authorizes the Commission to establish minimum
and maximum dealer margins.
2. Procedure for Review
application was published by the Commission in The Guardian and the
Journal-Pioneer on February 13, 2012, in the Eastern Graphic on February 15,
2012, in La Voix Acadienne on February 22, 2012 and also publicly noticed on
the Commission's website on and after February 9, 2012. Among other things,
the Notice of Application (the "Notice") stated, in part, as follows:
Any person wishing to comment on the
application can do so by writing to the Commission at the
address below. In order to be considered, comments must be
received by no later than Friday, February 24, 2012 and must
include the name and address of the commentator. All public
comments received will be posted on the Commission's website.
The necessity of a public hearing will be decided
by the Commission following its initial review of the filing and the
written comments received concerning this application.
 In response to the Notice the Commission
received twelve submissions, none of which requested a public
 The Commission proceeded to review the
submission and the public comments, and reached a decision on the
3. The Application & Interventions
 The application involved a request on the part of the
P.E.I. Retail Gasoline Dealers Association for an increase of up to 2.0
cents per litre (cpl) in allowed dealer margins for both full-serve and
In its submission to the Commission, the Applicant
made the following comments in support of its position:
Our rationale for this request....can be summed up by
stating that operating input costs for the independent retailers we
represent have increased dramatically since 2007 (the date of the last
dealer margin adjustment request) and an upward adjustment in retail
margin levels is necessary to enable these retailers to continue to serve
motorists across the island.
In its application, the applicant referred to
substantial increases in a) labour costs and b) credit card service charge
expenses since the Commission last adjusted retail margin levels on
January 1 and June 1 of 2008.
 Of the twelve written submissions received, eight
were in support of the application, while four were opposed.
The eight supportive responses, primarily from
existing retailers and/or retailer associations, had a common theme citing
threatened dealer viability due to the incurrence of steadily increasing
operating costs within the context of a fixed and unchanging dealer
margin. Individual operators offered personal cost information related to
their direct experience while the Association provided an overview of the
costs experienced by retail operators.
Two comments from the general public took exception
to the request for an increased margin stating that gasoline prices were
already beyond the level of affordability of the average consumer and that
retail dealers should adjust their operational expenditures to live within
their existing margin levels.
Comments from two existing retailers opposing the
request referenced that, while operating expenses have increased,
competitive pressures from larger, primarily urban retailers, are forcing
pricing at the minimum margin level.
4. The Factors Considered
 The Commission accepts the evidence of the Applicant
that general operating costs of retail outlets and, specifically, labour
and credit card service charge costs have increased substantially since
2008, when the margin was last reviewed.
Amendments to provincial minimum wage legislation in
recent years have resulted in a per unit labour cost increase in excess of
30% since 2007. With the increased per litre price of motor fuels, credit
card service charges, which are based on a percentage of pump price, have
increased approximately 25% over this same period.
In addition, the Commission notes the evidence that
credit cards and debit cards are now the preferred method of payment for
the majority of purchases and, accordingly, the cost to the retail
operator to support these services has increased significantly. Most
retailers pay 2% of the face value of the transaction which represents a
cost to them of in excess of 50% of the existing retail margin based on
The Commission is mindful of the fact that the nature
and complexity of the retail petroleum industry has changed dramatically
over the past decade. At one time, a large percentage of the retail
outlets operated on PEI were owned and operated by large regional,
national and multi-national, fully integrated oil companies. In recent
years many of these oil companies have divested themselves of local outlet
ownership as they have refocused their attention on extraction, production
and refining activities.
This trend of course has been observed on a national
and international basis and is not restricted to the PEI market. The
impact locally, however, is that the majority of retail outlets now
operated on PEI can be characterized as either independent owner/operator
outlets or smaller, regionally owned outlet networks. Accordingly, as a
result of this fundamental industry restructuring, the requirement for the
maintenance of an adequate dealer margin has become increasingly important
to the economic survival of retail outlet operations.
Having fully reviewed the submission, the Commission
is convinced that an increase in the dealer margin is warranted.
The decision then must be of the determination of the amount of
increase and of how best that increase can be implemented.
The Commission is not convinced costs have increased
to the extent that the requested increase in retail margin of the full
amount (2.0 cpl) is warranted.
comments of two established independent retailers suggests the issue is
not of the adequacy of the existing margin range but the tendency for
competitive pricing to push the margin to the minimum level.
These comments are consistent with
the Commission's own monitoring of Island wide pump prices. The Commission
is therefore not convinced that an increase in the upper level of the
self-serve margin is either warranted, or will address the core issue
reflected in the evidence presented.
The Commission is mindful of the desirability of
competition between retail outlets. However, the Commission is also
mindful of its legislative mandate to ensure at all times a just and
reasonable price for heating fuel and motor fuel to consumers and
licensees within the province.
The maintenance of a viable rural independent dealer
network which allows for petroleum product service in all parts of the
province is extremely important.
The Commission notes that the urbanization of our
Island population and the related shift in traffic patterns over the past
decade, in particular, have severely strained outlet volumes and related
dealer viability in the rural parts of our province.
The Commission must make its decision within the
authority of the
Products Act and takes particular note of the
requirement as outlined in Section 29 (1) that "The price charged by a
wholesaler or wholesaler-retailer for each grade of heating fuel and motor
fuel shall be a common and universal price to all retailers throughout the
The Commission accepts that the cost of providing
both self-service and full-service motor fuel dispensing has increased.
The rising labour costs have had a proportionately greater impact
on full-service operations. Steadily
increasing wage rates coupled with shrinking volumes have significantly
impacted those operators committed to providing full-serve as a method of
petroleum dispensing. Indeed, the situation has deteriorated to the point
where many of these operators have requested the Commission's permission
to abandon full service as a sales option.
The Commission considers the full-serve option as an
important element of service to the motoring public and, as much as
reasonable, that option should be provided in all regions of the province.
For these reasons the Commission finds that an increase in both minimum
and maximum margins for full-service is warranted. These changes will
support dealer viability and help maintain the full-service option for
The Commission has determined that while an increase
in overall dealer margin for self-service is warranted it can be achieved
without an across the board increase in the maximum retail dealer margin.
The Commission has determined that a more effective
means of addressing the issues raised in the submission is achieved by
adjusting the range of the permitted margin for self-service dispensing.
Therefore, the minimum margin will be adjusted upwards but the maximum
margin will remain unchanged.
Upon a full review of the evidence the Commission determines this action
will support dealer viability and the existence of a vibrant rural dealer
The Commission also recognizes the value of more
timely reviews of retail dealer margins and, accordingly, will consider
another review of the matter within the next 24-36 months.
Approved changes will be introduced, as outlined in
the attached Order.
 An Order will therefore issue
approving an amendment to the existing gasoline and diesel dealer margin
range for self serve and an increase in dealer margins for full serve.
and considering the application and the submissions filed herein;
for the reasons given in the annexed Reasons for Order;
1. The minimum and
maximum mark-up between the wholesale price to the retailer and the retail
price to the consumer of motor fuel shall be amended as follows:
April 1, 2012
||4.5 - 6.5
||5.5 - 6.5
||6.5 - 9.5
||7.5 - 10.5
DATED at Charlottetown, Prince
Edward Island, this 29th day of March, 2012.
BY THE COMMISSION:
Maurice Rodgerson, Chair
Allan Rankin, Vice-Chair
Michael Campbell, Commissioner
Section 12 of the
and Appeals Commission Act
reads as follows:
12. The Commission may, in
its absolute discretion, review, rescind or vary any order or decision
made by it or rehear any application before deciding it.
Parties to this proceeding seeking a
review of the Commission's decision or order in this matter may do so by
filing with the Commission, at the earliest date, a written
Request for Review, which
clearly states the reasons for the review and the nature of the relief
Sections 13.(1) and 13(2) of the
provide as follows:
13.(1) An appeal lies
from a decision or order of the Commission to the Court of Appeal upon a
question of law or jurisdiction.
(2) The appeal shall
be made by filing a notice of appeal in the Court of Appeal within
twenty days after the decision or order appealed from and the rules of
the court respecting appeals apply with the necessary changes.