The politics of gas price fixing #nlpoli

Gas prices used to be a hot political topic in Newfoundland and Labrador. 

A lot of people thought that the provincial government could do a lot about them and, in the process, protect consumers.  Others thought that the government should do something about prices and make it easier for people to get cheap gas.

Yeah, well it didn’t quite work out that way.

Gas prices and political popularity #nlpoli

In some other places, gasoline prices have a political impact you can identify and measure.

That isn’t the case in Newfoundland and Labrador.

The reasons?  We don’t have anyone doing the research, for one thing.

For another thing, the marketing job that one pollster does like clockwork every quarter is so inaccurate a device that it can’t measure anything but the equivalent of a political tsunami.  Even then, it isn’t clear that CRA’s quarterly omnibus could detect it.

And for a third explanation, none of the province’s political parties identify consumer costs as a political issue they want to talk about.

That’s one of the more curious things.  Political parties in other places actually talk about things that piss off the average voter.  In newfoundland and Labrador,  even if we knew that voters were fried about gasoline prices, there’s no party that would likely raise the issue and try to do something about it.  This is just a variation of the Echo Chamber theme your humble e-scribbler raised in the last election:  the political parties didn’t talk about the issues opinion polls identified as stuff that bothered voters.

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NDP MHA not helping consumers #nlpoli

George Murphy is the NDP member of the provincial legislature best known for pushing the government gas price gouging scheme that forces consumers to pay prices for gasoline that benefits the provincial government and the gasoline retailers.

Murphy says he is on the side of consumers.

Now Murphy thinks that a jump in food prices is caused by ferry rates:

According to Voice of the Cabinet Minister:

The MHA for St. John's East says he's concerned about the latest inflation numbers from Statistics Canada, and says those numbers are linked to Marine Atlantic's rate hike. According to Stats Can consumer prices in January are up by 2.5 per cent in metro compared to last year. Murphy says the hike of 4.9 per cent in food prices can be directly traced to the four per cent increase in Marine Atlantic ferry rates.

He says it's time for the federal government to step in and keep Marine Atlantic rates low and stable so that the people aren't gouged at the grocery store.

A small increase in the cost of sailing on a ship for a few miles caused food prices to rise dramatically.

Not the fact that the food comes from places like California on the other end of the friggin’ continent, and is brought here in trucks that burn diesel fuel, the price for which is pretty high these days.

And the solution to that problem is for the federal government to pour tax dollars into lowering those evil ferry rates.

Murphy likes spending federal tax dollars to help people.

He also wants the federal government to support development of Muskrat Falls.

That’s the Newfoundland Tory/Dipper scheme to force the taxpayers of Murphy’s district to pay full cost plus profit for electricity so that the private sector company that sells electricity to people in Nova Scotia can get the juice for free.

Murphy likes spending public money to help people.

You just gotta know that those people Murphy winds up helping aren’t consumers in Newfoundland and Labrador.

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Gouging consumers on gas

So the gas pumps in the province are prone to error in favour of retailers, as CBC reports.

Well, sort of.

We don’t know how many gas pumps there are in the province but CBC reports that of the 962 examined over a two year period, nine percent didn’t pump accurately.

Of the nine percent, 56% erred in favour of the retailer.  Logically, the remaining  44% didn’t pump the right amount but the consumer benefited.

But do the math on that to understand if you had a “decent chance” of not getting the right gas amount as the CBC story asserts. 

Fifty-six percent of nine percent of 962 works out to be 48.

48 out of 962.

That works out to be 4.9%.

So at any time you are buying gas, about five percent of the pumps across the province could be reading incorrectly in favour of the retailer.

Four percent of the pumps will make mistakes in your favour.

Gasoline watchdog George Murphy thinks that federal government officials should inspect every gas pump in the province twice a year in order to stop this. Taxpayers would bear the full freight for that, most likely.

Seems like a bit of overkill given the number of errors is relative small.

If you want to stop gouging consumers, it would be far easier and far less costly to consumers if we simply got rid of  the gas price fixing scheme the provincial government runs.  People like George Murphy agitated for that in order to protect consumers.

As it turned out, the government price fixing scheme gouges the people pumping gas into their cars 100% of the time.  The only people who benefit from it are gasoline retailers and the provincial government and they benefit from the price fixing scheme 100% of the time.

Five percent chance you could lose some money versus 100% chance of getting hosed.

There’s gouging and then there’s gouging, obviously.

That’s math anyone can follow.

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Yep. Something’s wrong.

Gasoline prices in Newfoundland and Labrador jumped by more than three cents per litre last Thursday.

Interestingly, the prices in this province have taken some wildly leaps up and down over the last while.  But they didn’t flip quite some much on average across the country.

Your humble e-scribbler has always maintained the government gas price-fixing scheme needs to be abolished.  Here’s more evidence.

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The Great NL Gasoline Price Fixing Scheme: Summer 2009 edition

Gasoline prices in Newfoundland and Labrador are set by the provincial government.

While gasoline prices across North America have been dropping recently, the government’s price fixing mechanism hasn’t kept pace.

To give an idea of the consequences, take a look at this chart.  It shows the average Canadian price per litre (blue) and the average price in Newfoundland (red).

Look closely at that blue line which has been on a steady downward trend since June 20.  The average stands at $1.01 per litre on July 9, down from  $1.06 at peak.

In Newfoundland, the number has pretty much been a steady average above the current average $1.12 per litre since June 20. There were even a couple of upticks in the Newfoundland number during the period.  The current average prices is less than two cents down from the peak.

If none of the previous arguments against government-controlled prices worked, then surely this chart should cause you to sit up and wonder why gas in this province is 11 cents per litre above the Canadian average. 

There’s obviously something wrong.

Seriously wrong.

There have been two big winners from gas price regulation in Newfoundland and Labrador and neither of them is the average consumer.

Gasoline retailers have been gifted with steady and predictable profit margins. They buy at market prices and sell at the government price.  As you can see from the charts below, that can be pretty sweet.

The provincial government also wins.  Its taxes are buried in the price and when the price stays high based on the vagaries of some contrived formula, its tax haul stays nice and fat.

Not surprisingly, there aren’t any politicians calling for the elimination of gas price fixing by the provincial government. In fact, one of the guys who pushed hardest for this scheme – St. John’s mayor Dennis O’Keefe – has been conspicuously silent about the whole issue.

And it’s not like this is a new phenomenon.

Over the past four years not only have prices been substantially above the Canadian average, there are too many occasions where the local prices have bucked the downward trend.  And on some of the upward trends the local price jumps have been disproportionately highly compared to the national average.

Just for good measure, let’s look at the trending over six years.

 

More of the same.

The only astonishing thing in this has been the dead silence from consumers, let alone from the various self-appointed consumer advocates out there, one of whom has managed to find himself a sweet job leading a Great Sittee.

If you didn’t think there was a reason to scrap the government-dictated gasoline price scheme in this province, surely the events this week and this evidence should make you sit up and take notice of what is a fairly obvious problem.

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Quality matters

Newfoundlanders and Labradorians got a huge reminder today of a piece of red tape the provincial government deliberately ignored in its recent three year crusade to rid the province of unnecessary and burdensome government regulation.

Gas prices leaped six and a half cents.

The provincial government’s petroleum products price fixing agency has cost taxpayers in the province more than $65 million above what would have occurred if the regulatory system wasn’t in place. 

Some taxpayers, like those on the coast of Labrador, get an extra shaft from the province’s price fixing scheme.  Early price freezes mean the price per gallon stayed well above what the island portion of the province paid through the fall and early winter as prices everywhere else dropped.

Supposedly the provincial government eliminated 27% of the red tape that used to be there.  How they measured it is beyond anyone other than the people who issued the news releases over the past three years that contained little more than numbers:  government has cut another 3,652 pieces of red tape on its goal of cutting some other bigger meaningless number.

Rather than quantity, they should have gone for quality.  if they really wanted to wipe out useless government bureaucracy they’d have closed the gas pricing fixing office.

That’s something every consumer in the province – businesses included – would have seen every single day.

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The smear of schmeergelder

When former New Brunswick gas regulator David Nelson couldn’t impugn a think tank report that shows – as drivers know – that gas price regulations costs them more than the unregulated system, the only thing Nelson could offer up is the suggestion the think tank is on the take.

That’s as convincing as the defence offered by local licenses and permits minister of Kevin O’Brien who took issue with the AIMS report that drivers in Newfoundland and Labrador had shelled out $65 million extra due to gas price regulation.

O’Brien said the amount couldn’t be that high because the regulatory office only costs $500K a year and that is paid by the gas retailers. 

Yes.  A cabinet minister responsible in part for looking after consumers doesn’t understand that when they pay more than they should have, that’s a cost.

But anyway…

CBC gives way too much credit to Nelson’s smear. They add their own observations at the end of the piece:

Also, the Calgary petroleum consulting firm MJ Ervin reported in its 60-city national survey that five of the 10 lowest pump prices recorded in 2008 [not including taxes] were in New Brunswick or Nova Scotia. Halifax gas prices ranked fourth lowest in the country.

One tiny problem:

Pump prices include taxes.

Check those on the MJ Ervin study and you find the ten lowest prices are in western Canada and parts of Ontario.

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Government gas price fixing explained

Well, sort of.

There's no point in having a provincial government price fixing analyst try and explain why the system of government price fixing for oil works. 

He only knows how it works.

Sort of.

Something missed in the interview with CBC this morning:  if David Hillier and his colleagues use spot pricing to set fix the price of gas in Newfoundland and Labrador, then what about companies that bought futures last at considerably less than the current spot price price?

We really didn't get that in his talk about supply and demand (an Economics 101 example with lumber).

There may be good reason for the current spike in prices.  The major problem seems to be that consumers in Newfoundland and Labrador won't get the advantage of lower prices which will comeas Gulf coast refineries come back on stream.  Won't get it like we haven't seen drops lately when 25% of refining capacity wasn't shut down but, all the same, gas prices didn't meet whatever triggers there are in arcane formula the gas price fixers use that would actually send gas prices down.

You see, market forces -  supply and demand and simple competition in the marketplace  - will move prices up and down on their own. It's Economics 101.

We don't need a bureaucratic apparatus - way too cumbersome, undoubtedly unwieldy, and completely inscrutable - to fix gas prices in the marketplace.

That's more like State Planning 101 from 1920s Russia.  We all know how effective that model of economics worked.

Well, that is if the "we" is consumers.

We consumers can get along just fine without government gas price fixing.

This government gas price fixing  scheme makes you wonder who the "we" is the this thing is set up for.

Makes you wonder about that almost more than why it is that the cabinet minister responsible for the price fixing scheme isn't on the air defending it.

Maybe we can ask the guy who introduced this price fixing scam to the province in the first place.

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A simple question with no good answer

In the week ending September 9,  the average price of gasoline across Canada dropped by 1.9 cents per litre.

Read that again.

Gasoline prices dropped last week, on average by almost two whole cents.  That was regular.  Mid-grade and premium dropped by even more.

In some parts of the country, the drop on a litre of regular gasoline was as much as a nickel.

So how come it is that in Newfoundland and Labrador - like the other provinces using the bankrupt system of government price fixing - gasoline went up by a cent and a half this week?

Anyone?

Even George Murphy, who justifiably earned the respect of consumers for tracking gasoline retail prices with his superb price forecasts, can only offer answers to CBC News that make no sense.

If the loonie and the potential interruptions in supply from refinery shutdowns were the factors, then how come there were parts of the country which saw such dramatic decreases in gasoline prices last week?

Market forces, is the answer to that one.  The free market system working as it worked for everyone before government price fixing was introduced in 2001. 

Last week, markets without government price fixing typically saw a drop in the price consumers pay for gasoline.

In the places unfortunate enough to have a price fixed by government, gasoline went up.

It makes no sense.

Well, not unless you are an oil and gas company.

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Gas went up?

How much more evidence do we need that the petroleum products pricing office is a massive scam that must be ended?

Gasoline prices in Newfoundland and Labrador went up on Thursday.

Now gasoline sells as a commodity separately from crude, but still, there's something slightly perverse about a jump in retail prices at a time when prices for both commodities are declining across North America both on current sales and on futures.  At best, in the short term, prices are staying level, but except in very rare circumstances are they increasing in major centres.

Sure there was a jump yesterday, but the public utilities board's gas fixing scheme isn't sensitive enough to pick up a change a day before it's regular price adjustment.  Beyond that the futrues price for gasoline is about one dollar a gallon below current retail prices, even after the eight cent jump.

On top of that analysts don't expect that jump to last with the cotinued drop in American demand.

So what gives?

Essentially you have an entrenched bureaucracy which, if it does nothing else, will work hard to justify its existence. Take a look at the scheme's website and you won't see a definition of a positive public policy enefit there anywhere:  the board exists to enforce the Act that created it.  That's it.  Justifying that existence is pretty easy, but the justification only makes sense in the world of bureaucracy;  heck there's probably a buggy whip safety agency out there somewhere still enforcing its legislation.

Meanwhile, over on the political side, there isn't a single politican on the ogvernment benches will to tackle the issue.  The issue isn't important enough to merit attention by the Premier's office since, for the most part consumers haven't kicked up a fuss yet.

If it isn't being talked up on the voice of the cabinet minister, cabinet's can't hear it.

Maybe that's the key:  If people realised that the provincial government sets gasoline prices in Newfoundland and Labrador, then maybe they'd start pressing the provincial government to scrap the gasoline pricing fixing scheme.

If they started making that cry on the Great Oracle of the Valley, then just maybe there'd be some action.

Don't count on it though.  There are too many established political interests behind this scam to let it go that easily.

If publicly outcry was enough, the provincial government still wouldn't be pursuing its illegal policy on the Memorial University president, enabled by the board of regents.

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The Great Government Consumer Rip-Off

The 2003 general election did not herald a new approach, a new era in public policy or much "new" of any other sort except elites.

That's a point your humble e-scribbler has made several times and it bears repeating. In many respects, the Progressive Conservatives under Danny Williams have continued policies from Roger Grime's Liberals often times without any changes at all, let alone even cosmetic ones.

One of the most obvious examples of the continuation of Grimes policy is the consumer rip-off otherwise known as petroleum products pricing.

Regular readers will be familiar with the view around these parts of the provincially-run price-fixing scheme that masquerades as some sort of consumer protection.

It doesn't protect consumers from anything at all, since by interfering in the marketplace, the price fixing scheme serves only to slow the benefit to consumers of falling gasoline prices.

Like right now.

On Tuesday, crude oil hit US$112, its lowest close in three months.

Consumers are not paying the same price per litre for gasoline that they were three months ago.

In fact, oil dropped dramatically just last week, but the petroleum office did not lower prices a single penny. gasoline sits, on average about 12 cents per litre higher in Newfoundland than across Ontario, but if you look at the localised breakdowns the price gap is disgustingly wide.  In glorious Kingston, Ontario, where your humble e-scribbler is currently enjoying the rain, gasoline is retailing for $1.17 per litre.

The situation is not far off what obtained three years ago but even then it was fairly obvious that the marketplace was delivering price breaks to consumers that the government-orchestrated scam could not.  heck, at a time when prices were dropping across North America only a few weeks ago, Newfoundlanders and Labradorians enjoyed a price increase, courtesy of the government folly.

Now when this whole fraud was foisted on the public, the politicians could be forgiven if they were simply suckered into it as a vote ploy.  Some of them might have even been fooled into believing the silly arguments used to justify it that somehow consumers would be protected from the "evil" oil companies if the provincial government established maximum prices for (some) petroleum products,

There isn't really the same excuse any more and there certainly hasn't been since 2003.  After only a couple of years of operation, the folly of government-organized oil price fixing was evident, at least to consumers.

The argument for government price-fixing is even harder to swallow now that the provincial government has joined the ranks of the oil companies. 

Consider if you will, that simple point when (if?) the Hebron deal gets signed.  Sitting at the table will be major oil companies who produce crude oil and who retail gasoline across North America. The petroleum pricing scheme was supposed to protect consumers from their supposed "gouging".

Sitting right next to them will be a new oil producer who, at least in this province, not only produces crude oil but who also legally fixes the retail price for gasoline products.  We just don't know where the government share of the crude will be refined and sold, but what's to stop it from coming back to this province or - if the provincial government gets involved further with NLRC - never leaves it?

It's a sweet set up.

But not for consumers.

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