Reasons for Order
Pursuant to section 27 of the
Petroleum Products Act,
R.S.P.E.I. 1988, c. P-5.1 (the "Act")
the Island Regulatory and Appeals Commission (the "Commission") initiated
a review of the minimum and maximum retail fuel mark-up permitted to be
charged by retailers to consumers for gasoline and diesel fuel ("margin or
margins") to determine and to set, if necessary, new margins, which
margins were last reviewed in 2012.
provides the Commission with a broad mandate to regulate the distribution
and sale of petroleum products in the province of Prince Edward Island to
ensure that at all times a just and reasonable price is charged for retail
As part of this mandate, the Commission has general supervision
over all retailers with respect to the pricing of motor fuel and the
setting of minimum and maximum mark-up above the allowable wholesale price
that retailers are permitted to sell retail motor fuel.2
The core issue before the Commission is whether the current retail
margins for gasoline and diesel fuel are justified or does the information
and data that has been collected by the Commission justify a change in the
retail margins for gasoline and diesel fuel?
The current allowable retail margins for gasoline and diesel fuel
are a minimum of 5.5 cents per litre ("cpl") to a maximum of 6.5 cpl for
self serve gasoline and diesel fuel.
The retail margins for full service gasoline and diesel fuel are a
minimum 7.5 cpl to a maximum 10.5 cpl.
The Commission received a submission from a group of retailers
("retail association") requesting that the allowable margins be increased
by 2.02 - 2.95 cpl. The retail association provided the Commission with
very little information to justify the request for such an increase.
The Commission, therefore, commenced work on obtaining data to
determine whether or not any change in the margins was justified.
To assist in this review, the Commission had its senior financial
officer develop a margin sensitivity analysis model ("model") for
petroleum sales in the province based on low-, medium- and high-volumes of
gasoline and diesel sales.
Expenses common to all retailers were determined by applying the Canadian
Industry Statistics for all retail outlets in Canada.
The Commission determined that it should obtain further financial
information from retailers. A
questionnaire was designed and was sent to a sample of 30 retailers
representing low-, medium- and high-volume gasoline and diesel sales.
Of these 30 questionnaires, 18 retailers responded.
In addition, a further 19 responses were received from various
retailers outside of the sample that was taken.
The Commission, therefore, received a total of 37 responses from
various retail outlets. The responses, which all contained private
financial information, were sought and received on a confidential basis.
The responses were helpful in providing greater insight into the revenue
and cost drivers of petroleum retailers.
Commission compiled the information received, analyzed the revenue and
expenses, and prepared a sensitivity analysis using various theoretical
minimum and maximum margins.
analyzed the data and the Commission engaged the services of the
accounting firm of Fitzpatrick & Co. to conduct further reviews of the
financial information provided to allow the Commission to determine
whether or not a change in the allowable minimum and maximum margins was
The Commission also received information from the New Brunswick
Energy and Utilities Board ("New Brunswick Board"), that was also
undertaking a review of retail margins for gasoline, diesel fuel and other
petroleum products in that province.
During the course of its review the New Brunswick Board engaged the
firm of Gardner Pinfold Consultants Inc., experts in the field of economic
market structure and competitive behaviour in regulated industries.
The Commission has had the benefit of receiving and reviewing the
Gardner Pinfold report which, although it dealt with a review of the costs
and expenses incurred in the retail motor fuel industry in New Brunswick,
is also instructive with respect to gasoline and diesel retailers here in
Prince Edward Island.
Commission found that the financial information that was provided by the
P.E.I. retailers was very similar to the information disclosed by New
Brunswick retailers and summarized in the Gardner Pinfold report.
The Gardner Pinfold report concluded that an increase in the motor
fuel retail margin of 0.3 cpl was justified.
The New Brunswick Board accepted the recommendation and in its
decision allowed for a 0.3 cpl increase in the allowable maximum retail
margin, bringing the maximum to 6.8 cpl.3
The analysis conducted by the Commission staff and its external
accounting experts using the model, provides justification for a 0.5 cpl
increase in the retail margins for gasoline and diesel fuel.
The Commission, therefore, determines that the minimum retail
margin for gasoline and diesel fuel shall increase by 0.5 cpl and the
maximum retail margin for gasoline and diesel fuel shall increase by 0.5
cpl. The new minimum retail
margin for self serve gasoline and diesel fuel shall be 6.0 cpl, and the
new maximum retail margin for self serve gasoline and diesel fuel shall be
7.0 cpl. The margin increases
shall be effective as of January 1, 2020.
The margins shall continue in effect until otherwise determined by
The Commission also reviewed the retail minimum and maximum margins
for provision of full service sales for gasoline and diesel.
Full service means having a retail staff person attend to the
refueling of gasoline or diesel fuel to a consumer�s vehicle.
The minimum and maximum margins allowed for full service do not
apply to self service refueling where the individual consumer attends to
refueling gasoline and diesel fuel.
The Commission considered the historical requirement of retailers
to charge a minimum extra margin for full service of at least 2.0 cpl
above the self service price for gasoline and diesel fuel.
The Commission can find very little justification to continue to
have this intrusion into what otherwise would be a competitive market
allowing retailers to offer competitive service to customers by providing
full service fueling at a retail price that is the same as the self serve
retail price. The Commission finds that the present minimum retail margin
for full service refueling of 7.5cpl is to be reduced to 6.0cpl,
consistent with the minimum retail margin for self serve refueling.
The Commission does recognize that provision of full service
refueling of retail gasoline and diesel can have an added expense for
retailers. As such, the
maximum retail margin for full service refueling is permitted to be set
higher than self serve retail sales.
The Commission finds that the existing maximum margin for full
service refueling of retail gasoline and diesel fuel at 10.5 cpl is
justified and shall continue.