Gas Prices

The complainant, Ron Young, sent a question to CBC New Brunswick asking why local gasoline prices were higher than in neighbouring Nova Scotia. He thought the answer provided by CBC’s “Gas Guru” couldn’t possibly be right. Or…could it?

COMPLAINT

You were skeptical about analysis you heard on December 7th, 2018 on Information Morning Moncton.

The segment in question is a popular weekly feature of the program called “The Gas Guru”, in which reporter Bob Jones discusses the latest information on gasoline prices in the province. New Brunswick has a system in which each week a provincial regulator sets the maximum price retailers are allowed to charge.

You had submitted a question that week asking why gas prices in New Brunswick were at that moment “... about 6 cents a litre higher than they are in Nova Scotia, even though the gas tax is the same in both provinces and the fact that Nova Scotia does not have a major refinery like New Brunswick does.”

Mr. Jones replied on-air by saying, “A lot of people have complained about that and Nova Scotia regulates like New Brunswick does, uses the same New York numbers that we use but their formula operates differently. They set prices on Friday instead of Thursday and when you have prices going down that makes a bit of a difference, but the big difference is that they put more emphasis on the final day of trading so they kind of accelerate reductions but they also accelerate increases. I put it this way, Jonna, it’s like we’re on a roller coaster, they’re the first car, New Brunswick is in the last car. Everything happens to them first, up and down, but essentially we’re all on the same track, get the same prices in the end.”

You thought that reply was misleading and made no sense, arguing that it would have required a massive fluctuation in the New York benchmark price, something you had not observed. You suggested that a better explanation for the discrepancy in prices was “the lack of real competition in NB and the dominant position of Irving Oil in the marketplace. Lower prices in NS are due to more real competition in that province.”

In email exchanges with CBC New Brunswick, you suggested that you also believe that their coverage is subservient to the needs of Irving Oil.

MANAGEMENT RESPONSE

Darrow MacIntyre, Executive Producer for CBC News Brunswick, responded to your complaint, writing:

Bob makes his weekly gasoline price predictions using the formula the provincial regulator uses to set prices. His explanation for the provincial pricing differences was based on knowledge gained from long experience covering the energy industry and gasoline pricing regulation in both New Brunswick and Nova Scotia.

He rejected your request for an apology or correction, and denied that CBC journalists distort their work in favour of Irving Oil.

REVIEW

In order to understand the situation better, I spoke to the regulators that set gas prices in New Brunswick and Nova Scotia: The New Brunswick Energy and Utilities Board, as well as the Nova Scotia Utility and Review Board.

While there are many parallels in the way they do their work, there also are discrepancies between them, which means that gas prices in the two provinces do not move in lockstep. The explanations are complicated and difficult to distill in a few seconds as Mr. Jones did, but his analysis was, fundamentally, correct.

Here’s what I learned:

Both provinces set their base price according to market prices in New York. They currently use precisely the same benchmark, but that is a new phenomenon this year. In early December, at the time of your complaint, they were using different benchmarks which created some disparity, and caused Nova Scotia’s price to be lower.

In addition, Mr. Jones is correct that the two provinces set their weekly prices on different days. This does not mean that the New York market price on any single day is the only factor; rather, each province has a formula which is based on the average of closing prices for the preceding week. What’s more, those averages are not calculated in the same way. Nova Scotia takes the week’s 5 trading days and divides them by 5. New Brunswick, on the other hand, considers the Friday closing price to be worth three days (because it stays the same on Saturday and Sunday) then divides by 7 to calculate the average. On this particular week, that Friday price was the highest of the week, so its impact led to higher prices in New Brunswick than it did in Nova Scotia.

Next, Nova Scotia’s pricing formula includes a feature that doesn’t exist in New Brunswick’s legislation - something called “forward averaging”, which is intended to stabilize pricing and balance the needs of consumers and the industry by anticipating how the market is moving compared to historic records. You can read a fuller explanation of that process here. In that first week of December, forward averaging pushed prices in Nova Scotia down by 2.6 cents.

There are other differences in the formulas as well. For instance, Nova Scotia sets a minimum price as well as a maximum; New Brunswick sets only a maximum. As well, New Brunswick sets a uniform price across the province, while Nova Scotia divides the province into zones, and prices often vary.

All those factors can potentially have an effect, which means that even with the same New York market price as a base - and even with the same taxes involved - gasoline prices in the two provinces can move at a different pace. Indeed, if I read correctly, the maximum prices in Nova Scotia for unleaded gasoline this week are higher than New Brunswick, not lower.

When Mr. Jones gave his explanation, he appeared to have had it right. The day of the week made a difference, and what he called the “emphasis on the final day of trading” was meant to be a reference to “forward averaging”. It might have been difficult for listeners to recognize the technical points underlying his analysis, but I can empathize with a reporter, speaking extemporaneously, trying to take a complicated formula and craft 30 seconds of explanation that the audience can absorb. I do not find fault with what Mr. Jones said on the air, and I also find his roller coaster metaphor helpful in understanding the lag in timing between the two provinces, which is caused by their different formulas.

As for whether there is a systemic bias at CBC in support of Irving Oil, you offered no evidence, nor could I find any.

Mr. MacIntyre, in his response, quoted from CBC’s Journalistic Standards and Practices on the subject of journalistic independence:

We are independent of all lobbies and of all political and economic influence. We uphold freedom of expression and freedom of the press, the touchstones of a free and democratic society. Public interest guides all our decisions.

Those words reflect an imperative for any news organization in a democracy, and in particular for a public broadcaster. So although your skepticism appears unwarranted at this time, if there is something concrete to examine in the future, it is something I would take extremely seriously.

Sincerely,

Jack Nagler
CBC Ombudsperson