Irving Oil requests hike in wholesale gas margins
Wholesale margins have been unchanged since 2006
Irving Oil Ltd. is seeking approval from the Energy and Utilities Board to increase wholesale margins on gasoline and home heating fuel, a move that would lead to higher costs for consumers.
The province’s regulated gas prices allows for a six-cent margin for wholesalers, a fee that has not been increased since the system was put in place in 2006.
In documents filed with the Energy and Utilities Board, Irving Oil says those margins must be increased or it could threaten the financial viability of wholesale companies in the province.
"It is important for the actual wholesale costs to be recovered in the wholesale margins because without cost recovery it will not make economic sense to continue to supply retailers where the wholesale cost increases exceed what can be recovered from retailers," stated Matthew Holland, the petroleum manager of Irving Oil Marketing G.P. in a document filed with the regulator.
"As the costs need to be ultimately recovered, it is necessary to provide for a reasonable opportunity of cost recovery to maintain a competitive marketplace. "
There are 59 wholesalers registered in New Brunswick.
Irving Oil would like to see the wholesale margin for gasoline to rise to 7.36 cents per litre from six cents per litre.
Further, the company would like to see the wholesale margin for heating oil to rise to 6.28 cents per litre from five cents per litre.
Irving Oil has requested the financial documents that it is using to justify its request to be kept confidential.
"Public disclosure of the confidential information will harm Irving Oil by providing its competitors, suppliers, retailers and other counterparties with access to commercially and financially sensitive, information with respect to a critical component of its operations," said Len Hoyt, a lawyer for Irving Oil in a statement to the board.
Retail margins increased in 2011
When the Energy and Utilities Board sets its weekly price, a certain portion is set aside for the cost of fuel, plus wholesale and retail margins. And a maximum of 2.5 cents per litre can be added for a delivery charge.
While Irving Oil is seeking an increase to its wholesale margins, retailers have already benefited from an increase in their margins. In June 2011, the board approved the maximum retail margin for gasoline to increase to 5.9 cents per litre up from five cents per litre.
Irving Oil said much has changed in the oil and gas industry since the regulated gas system came into place in 2006.
"Since the time when the wholesale margins were established, there have been substantial increases in wholesale costs," Holland said.
"Wholesalers cannot and should not continue to have their unit margin eroded without the ability to recover their lost revenue in a timely manner," Holland added in his statement.