Irving Oil Ltd. is blaming petroleum price regulation in New Brunswick for failing to keep up with industry costs and pushing it to request "urgent" price increases, even though it twice refused requests from the Energy and Utilities Board to help improve wholesale margins.
In written evidence submitted to the board earlier this month, Irving Oil marketing president Darren Gillis said that regulated markets "have become disconnected from non-regulated markets over time and do not provide for adequate recovery of costs."
That has "eroded industry's ability to continue to supply regulated markets and remain competitive across our regions," Gillis said.
Irving Oil applied on Jan. 5 to increase the margins wholesalers can earn on gasoline, diesel and furnace oil sales by 4.13 cents per litre, including an "immediate" increase of 3.5 cents.
This week, it revised that request downward to 4.09 cents for gasoline and diesel and 3.02 cents for furnace oil.
If that request is granted, that will increase the cost to consumers by a total of $60 million more per year.
Irving Oil, others declined to help EUB update margins
In evidence submitted with the application, Gillis said the last increase in wholesale margins was awarded by the Energy and Utilities Board (EUB) in 2013, based on 2011 cost data.
Since then, he said, industry expenses have escalated significantly without matching increases in revenue.
Irving Oil's claim that petroleum regulation has caused wholesaling margins in New Brunswick to grow stale comes after two major Energy and Utility Board attempts to keep them current were thwarted by a number of companies, including Irving Oil.
In 2016, three years after the last margin adjustment, the board wrote to every New Brunswick petroleum wholesaler asking for help to update margins to cover changing costs.
"It is important to remember that the Board can only change the margins if it has sufficient evidence to support such adjustments," it noted in asking for the companies' cooperation, and the review had to be abandoned.
But four months later, the consultant the board hired to conduct the analysis, Gardner Pinfold of Halifax, reported back that no companies would cooperate with it.
Review abandoned in 2019 after second attempt
"Gardner Pinfold sent a letter to each petroleum wholesaler on December 15, 2016 to invite companies to participate in the review," it told the Energy and Utilities Board at the time.
"No wholesaler expressed an interest in participating in the review and none provided data. Due to a lack of data, Gardner Pinfold is unable to provide a recommendation to change the current wholesale margin."
The board tried again in 2019.
Petroleum wholesalers again declined to provide any information to Gardner Pinfold about the adequacy of margins, prompting comment from then Energy and Utilities Board chair Raymond Gorman.
"I would point out that this technically is a review of the wholesale margin, but Mr. Gardner didn't get any evidence," Gorman said during hearings in September 2019.
"Nobody filed any evidence, so again we are in that situation where we have no data in order -- you know, to be able to deal with it."
Following the hearing in November 2019, the board announced it could not increase margins for New Brunswick petroleum wholesalers because none of them would provide information, even in confidence.
The board noted that a consultant "made initial and follow-up requests to wholesalers" to provide data on certain specified costs, including maritime freight, working capital, receivables, and terminal costs.
"No data was submitted by the wholesalers. In the absence of sufficient evidence of changes to those factors, or other factors, an adjustment to the maximum wholesale margin for motor fuels cannot be justified," the board wrote, concluding the matter and taking no action.
Irving Oil did not respond to a request for an interview about why it did not ask for margin increases in 2017 or 2019, when the board was asking for its help to reset them.
But the company is pointing to margins not increasing in those years, combined with sudden demand reductions caused by the COVID-19 pandemic, as evidence regulation is not working.
"Petroleum pricing regulations in New Brunswick were created 15 years ago. They did not contemplate the challenges of the last several years and were not designed to react to a global pandemic," said Gillis.
"Unregulated markets, however, respond as required to ensure supply at reasonable cost recovery levels. This is not the case in regulated markets."