Industry Committee on June 11th, 2007

[Richard Taylor]

I'm not sure of the exact number. If you look at the spikes when they're up at 25¢, it depends when you.... The Conference Board found that the margin was around 11¢. If you look at 2007 to date, it is high. If you look at 2005, it's 14¢ and 15¢.

So you can always look at little periods like this spike--the most significant shortage ever in the U.S. of refined gasoline. The EIA called it unprecedented, and that spiked the prices up and our oil companies priced it at market.

Don't forget, we are the largest single supplier of gasoline now to the U.S.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I note, Madam Commissioner, your comments with respect to the wholesale margin of gasoline being anywhere from 6¢ to 10¢ a litre for a 10-week period as being normal to reflect what's happening in the United States. I recognize that when there's a crisis south of the border, we tend to pay 4¢ to 5¢ a litre more than they do.

This brings me to my point, Mr. Taylor, about your reference points in which you're comparing gasoline. No doubt Montreal will be compared to Burlington, Toronto to Buffalo, and so on, right across the border. The irony for some of us who have studied this is that none of those communities have refineries. They are simply price takers and they're literally, in terms of their size, in terms of their through-put, in terms of their thresholds, the proverbial tail that wags the dog.

Maybe I could ask you, when you do your analysis...and I presume you're doing it the way I am. In about 20 minutes I'm going to get tomorrow's wholesale prices from all the companies, which are, ironically, identical in every community across the country as a reflection of competition—

[Richard Taylor]

Across the country they're identical?

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

No, no. In every region you have one player who'll set the price and the others simply follow in a micro-second, as you know, Mr. Taylor.

Bloomberg, I would suggest, you may perhaps also want to look at. I'm not exactly sure how you get your information. It's far more vast than my poor little computer here. Platts might be the other means of doing this.

This brought us to a resolution on this committee some years ago as to being able to provide an independent, transparent oil monitoring agency that would not only look at the relative prices, as you in Ontario do and others do with respect to border cities, but in fact looking at wholesale prices, rack to refinery, tank terminals or refinery racks, comparing one to the other.

I want to ask you this. If Toronto has, for instance, a wholesale price established on Friday of 65.3¢, Ottawa 65.2¢, and there is no variation in the wholesale market, where and how would you propose we restore competition in this industry so that Canadians can once again be assured that we're being provided competitively priced gasoline--and our impact from the United States.

You've talked about utilization rates being very high, 95% to 98%. One would argue that the number of mergers that have taken place under the watchful eye of this Competition Act, made in 1986, left us in a situation where we are seeing the potential for hazards that cause Canadians to have to pay and reach deeper into their pockets for months on end. How do you propose to break up that monopoly in price that we see at four o'clock every day, which consumers pay and which everybody thinks, miraculously, they know what the price is going to be the next day because we can predict all the other values to a t?

[Richard Taylor]

I think one observation is that you don't actually know what price. We do, because we've looked at some of the data. You don't know what discounts Canadian Tire gets off rack, and you don't know what—Loblaws and Costco and now Wal-Mart get off-rack prices, so that's an important consideration. All you see is published prices. But depending on how much you buy, you can get significant discounts. I'm not at liberty to tell you what they are, but they're significant. So that's the first point.

In terms of Ottawa, there are at least four suppliers you can take out of the rack down on Hunt Club, in the industrial park, and there are at least five suppliers you can take out of the rack in Toronto. Now, in most markets four or five suppliers—We only have two airlines, WestJet and Air Canada, and even they engage in price wars. So the notion that we have four suppliers—Let's keep in mind that Imperial—

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I only have a few minutes.

[The Chair, Conservative, James Rajotte]

You have 30 seconds left.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Mr. Taylor, I know a little about the airline industry. It was my recommendation that made predatory pricing specific to this industry, that allowed that competition to thrive well after.

Let me ask you point blank, then, this question on the wholesale price: whether they're discounts or not, why is it that the industry maintains that those prices always have to be higher than in the United States? In the instance of last Friday, wholesale prices were 5¢ higher than were rack prices in the United States, not the same as you contend.

[The Chair, Conservative, James Rajotte]

Can you can do that in seven seconds?

[Richard Taylor]

Well, when you look at one day's price, I'm reminded that the oldest person in Canada is 107, but I wouldn't spend my money on the high; I'd go on the average, which is 76.

So we look at average prices, we don't look at the price....There can be differences in Toronto, a few cents between them and Buffalo; there can be differences. But NRCan have the data, and if you look at the Toronto and Buffalo rack prices over this year, there's not a significant difference between them, other than perhaps two or three pennies, which is not going to explain the price increase we've had, which is probably due just to transportation costs.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you very much, Commissioners, for being with us.

One of the things I've read from the former commissioner, back a couple or three years ago, is that we've never found any kind of collusion except at the very local level. That's always a concern. I don't know where the focus is. Is it easier to focus on the local market people than it is the large multi-giants? When was the last collusion trial that had any convictions, not just from the local small stations that are coming together, which are easy to pick off in our communities, but when was the last conviction in terms of the major oil companies?

[Sheridan Scott]

This is a question of proof and evidence. We need proof; we need evidence in order to act. We consistently communicate with the public to say, please tell us anything you can and we will be happy to investigate. There's nothing we like more than having the necessary information so we can investigate successfully. It's not that we choose to focus on local markets; it's just that that's often where the evidence is made available to us.

Because we try to track this market and because the sorts of frustrations you're sharing we hear frequently, we've independently decided to carry out research projects. We don't have any evidence that there is anti-competitive behaviour, but we do these comprehensive research projects trying to see if there are some grounds for us to take action, because there could be a national conspiracy. We've done six of these studies since 1990. We come at them with a fresh set of eyes every time we do them, and we've not yet found evidence of a national conspiracy that some people are concerned might exist.

So we will continue to act where we have evidence. We have the examples we've given of the last 13 prosecutions that we've carried out, and we're in the process of conducting an inquiry as well right now.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Are those local ones, basically?

[Sheridan Scott]

No, we're investigating regional conspiracies right now.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

How does a public get evidence? It's good to say, well, the public needs to bring evidence, so you have the local constituents—I get the letters and the e-mails—and you say, well, they need to bring the evidence. If I tell them to bring the evidence, all they can think about is that we can maybe deal with the local gas station. They're not going to deal with Esso or one of the large companies.

How do you approach that in terms of getting the evidence?

[Sheridan Scott]

Again, let's just keep in mind that we don't have jurisdiction to respond to price gouging. I would say far and away the most complaints we receive at the bureau relate to price gouging and not to price fixing.

With respect to price fixing, we would welcome, as I said, evidence from the public, and it's extremely difficult for them. There are a couple of other things we can do, though. We have an immunity program, which is extremely powerful. This is where one cartelist will come in and provide evidence against fellow cartelists in exchange for getting off scot-free from any criminal sanctions or any financial sanctions.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

How is that working?

[Sheridan Scott]

It's extremely successful. Now, we have not had anyone come forward from the oil and gas industry. We have had many people come forward from many other industries. Last year we had record domestic fines with respect to price fixing in the fine-paper industry. We had Domtar, Cascades, and Unisource, which each paid $12.5 million in fines because they engaged in price fixing. So we have a considerable amount of success in this area, both domestically and internationally.

No cartelist has come forward from the oil and gas industry. We would be pleased to receive that evidence if it was tendered.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Can you initiate an investigation?

[Sheridan Scott]

We can if we have a reason to believe there's been a contravention of the legislation.

Another source for us to get surprisingly good information is through the media. We have an investigation going on right now, which I can't talk about in detail. But I can tell you it was media reports, and not an immunity applicant, that allowed us to launch a fairly comprehensive investigation that's going on right now. People will sometimes say things like, “My competitor won't respect that agreement that we reached to charge the same price.” We read that in the newspaper, and we're on it right away.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I've heard it takes the Minister of Industry to initiate an investigation—

[Sheridan Scott]

Absolutely not.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

—and what you're saying is that is not the case. It can be open to the public.

[Sheridan Scott]

In fact, it is highly unusual for the minister to suggest this. We act on an independent basis. We can begin inquiries in one of three ways. It is possible for the minister to ask for an inquiry, but that occurs in very few circumstances. We can take action ourselves when we have reason to believe there's a contravention of the legislation. There's a process called the six-resident complaint, where six residents in the country can sign a complaint where they outline how there could have been a contravention to our legislation, and we then take a look at it.