P.E.I. petroleum pricing has lacked transparency, says auditor general

P.E.I.'s Island Regulatory and Appeals Commission is moving to better inform the public about how it prices gasoline, diesel, heating oil and propane following a report from the province's auditor general.

Some changes already made

IRAC is aiming to be more transparent about how it sets the price of gas. (CBC)

P.E.I.'s Island Regulatory and Appeals Commission is moving to better inform the public about how it prices gasoline, diesel, heating oil and propane following a critical report from the province's auditor general.

In a special report released Friday, Auditor General Jane MacAdam took the commission to task over a lack of transparency in the way it sets fuel prices.

Islanders have grown accustomed to the twice monthly review of these prices from IRAC, with the occasional unscheduled change. But MacAdam found how IRAC came to these pricing decisions was not clearly documented, and that process should be more transparent to the public.

IRAC "has a major responsibility for setting fuel prices," MacAdam said at a media briefing Friday. "And on top of that there are the taxes.... It's all part of what we pay at the pump, and I think based on the work that we did, it's important that there is more transparency and more documentation to demonstrate that prices are fair and reasonable."

Key factors in price adjustments were not documented, says Auditor General Jane MacAdam. (CBC)

Quebec and the Atlantic provinces all have some form of price control on fuels, MacAdam said. But P.E.I. is the only Atlantic province that does not use a strict formula-based system for setting prices, providing IRAC with discretion to consider other factors in setting prices including seasonal changes in demand, political issues in oil-producing countries and the strength of the Canadian dollar.

Lack of documentation on price changes

But in her report MacAdam said there was "inadequate documentation available to Islanders on the key factors that supported each of IRAC's price decisions."

MacAdam said the formula-based systems used in other provinces provide more transparency for those taxpayers, and said it's essential for IRAC to provide more information to allow "the public to understand the merits of any pricing decision."

MacAdam also found that, while IRAC had established a standard process for the regular review of petroleum prices, "this process was not documented and formally approved as a policy of the commission, nor was it transparent to Islanders.... So nowhere could the average Islander find information on IRAC's methodology."

No public info on markups

The auditor general said the public was also not provided with information on approved markups for retailers or wholesalers, nor was there a documented policy to consider applications to adjust those markups.

MacAdam said the combined wholesale/retail profit margin for furnace oil was increased from 19.5 to 21 cents per litre in July 2017, and the decision to approve the increase was recorded in IRAC's minutes.

She said retail profit margins on gas and diesel ranging from 5.5 to 6.5 cents per litre were approved by an order of the commission in March 2012. She said the target wholesale margin for gas and diesel of 5 cents per litre dates back at least 15 years, and IRAC couldn't provide documented authorization for that margin.

Finally MacAdam found there was a lack of documentation to show how the commission dealt with unscheduled price adjustments, which are supposed to be considered anytime there is a change in average fuel prices of at least four cents per litre sustained over a five-day period.

IRAC already making changes

In her review, MacAdam said there was a lack of documentation in seven of 10 instances to show a formal review took place when the triggering criteria were met.

In a statement released Friday attributed to CEO Scott MacKenzie, IRAC said it had already implemented five of the auditor general's seven recommendations.

"IRAC is committed to working in a fair and responsible manner on behalf of Islanders," MacKenzie said in the statement. "We make changes to prices ... to ensure that consumers are being charged a fair price for petroleum products while ensuring that retailers receive a reasonable rate of return. We are also working to improve our communications so that the public has a better understanding of petroleum pricing."

Meanwhile a statement from the P.E.I. government said it would follow up in writing with the arm's-length commission to "share its expectations that IRAC ensure this work is undertaken and that transparency is improved."

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