AIMS misleading the public on gas price regulation

June 4, 2009

Halifax, N.S. – A new report released today by the Canadian Centre for Policy Alternatives in Nova Scotia busts the myth that was created by the Atlantic Institute for Market Studies (AIMS) that regulation of prices at the gas pump ‘robs from consumers’ in Atlantic Canada. The CCPA-NS mythbuster takes a closer look at what’s missing from the analysis in the AIMS report and refutes this claim. According to report author Roderick Hill, the AIMS analysis did not: adjust for inflation; consider other factors that influence retail prices; look at the whole picture and consider price trends; provide an accurate analysis of regulation because of errors; provide a correct analysis of sales taxes; and, include an analysis of who really benefits from deregulation.

CCPA Nova Scotia Director Christine Saulnier says we can only conclude that “the claim by AIMS that gas price regulation has ‘robbed from consumers’ has no foundation in fact. What is more serious is that its statements have misled the public.”

When Hill, an economics professor at the University of New Brunswick Saint John, took a closer look at the AIMS report, the first problem he found with its conclusions was that the data used were not adjusted for inflation. The focus of the study was the effect of gas price regulation on ‘marketing margins’- the revenues per litre received by wholesalers and retailers. According to Professor Hill, “Once adjustments are made for inflation, the average real revenues per litre of gasoline that wholesaler and retailers receive are lower after regulation in New Brunswick, Prince Edward Island and Newfoundland & Labrador.” In Nova Scotia, wholesalers’ and retailers’ average real revenue per litre of gas was the same after regulation in Halifax, but an average of only 0.6 cents/litre higher in three other communities (Sydney, Truro, and Yarmouth).

However, such a simple comparison of averages, the basis of the AIMS study, is not enough to determine the effects of gas price regulation. That requires a comparison of actual prices under regulation with an estimate of what prices would have been had regulation not been in place. The AIMS study makes no attempt to do that.

For Nova Scotia, Professor Hill found that average real revenue received by wholesalers and retailers was trending upward in all communities in the period before regulation. This could have been due to rising costs faced by sellers or to a reduction in competition among them, factors ignored by the AIMS study.

However, after regulation average real margins in the province trended downwards. Regulation would only have raised prices if margins would have fallen even faster in the absence of regulation. AIMS offers no evidence that this would have been the case.

Gas price regulation has become an issue in the Nova Scotia election with the Liberals pledging to deregulate the prices. The Liberal platform claims that “regulation is increasing the cost of gas in Nova Scotia”. While this is indeed AIMS’ claim, Professor Hill’s examination of the AIMS study concludes that it has failed to make a case for this conclusion.

The AIMS study claims that regulation began in Prince Edward Island in February 1991, when it actually began in March 1988. As a result, its calculations for PEI do not show average margins before and after regulation. Its calculations for Newfoundland and Labrador are also based on incorrect data; correcting the errors produces very different results.

The AIMS analysis claims that consumers have also paid millions more in extra sales taxes as a result of higher prices for gasoline. Yet even if gasoline prices had actually been higher as a result of regulation (and there is no evidence that this is the case), extra taxes on gasoline would most likely just be replacing taxes on other goods and services as consumers spend more on gas and less on other things. Of course, the AIMS analysis also implicitly assumes that citizens get no benefits from the taxes they pay.

Finally, the AIMS study claims that Atlantic Canadians would be better off if gas prices were deregulated. It is interesting that the Canadian Petroleum Products Institute and the oil companies themselves oppose retail gas price regulation because they claim that it benefits them through higher prices and reduced competition. Is it plausible to assume that the oil and gas industry support deregulation because it favours the consumer?

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For readers interested in the full analysis, download the new report published by the CCPA-NS entitled CCPA-NS Mythbuster: Debunking the myth that gas price regulation robs from consumers, at www.policyalternatives.ca.

For media interviews contact Christine Saulnier the Nova Scotia Director of the Canadian Centre for Policy Alternatives at (902) 477-1252 or 240-0926 (cell) or the author of the report, Roderick Hill at (506) 832-2917 or by email at rhill@unb.ca.

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