Gas price jump in Nova Scotia explained by Wilson Fuel Co. VP

After weeks of plummeting prices, there was a jump at the pump in Nova Scotia overnight after the Utility and Review Board invoked the interrupter clause at midnight.

That pushed the price of gas up by 6.4 cents per litre in Halifax — it now costs 99.8 cents per litre in the Halifax region and may be higher outside the city.

The Nova Scotia Utility and Review Board considers using the interrupter clause for petroleum products when the market price for that product fluctuates by six to eight cents per litre versus the weekly price set by the board.

So what is the interrupter clause? And is it fair? Dave Collins, the vice-president of Wilson Fuel Co., a petroleum wholesaler, answered a few questions for us:

What is the interrupter clause?

The interrupter clause is used when prices move significantly from where the board set them. So, each week the board sets the price that we all pay in Nova Scotia.

They use a mechanism called forward averaging. In other words, they kind of guess where the right price is going to be. Not kind of a guess, they just simply guess where they think the price is going to end in the next week and that price will be fair to retailers, wholesalers and consumers.

We have a significant number of bureaucrats trying to guess what that price is going to be week to week. What ends up happening is that it works for quite a while and then they make a wrong guess, which is really what happened. And so when the price moves more than six cents a litre from where the set it, they invoke the interrupter clause to reset it either up or down.

Why did it fluctuate this week?

What ended up happening is that when prices move this hard, a lot of retailers would be suffering negative margins. They would be buying at one price and selling it to the motorists for less than what they bought it for. There's recognition that that's fundamentally not fair. So that's what they do.

Is the interrupter clause fair?

It doesn't feel fair. It doesn't feel right. To give you an idea: in this last interrupter clause there were 11 people in the Nova Scotia government involved with this price change.

I would rather have 11 teachers or 11 nurses than 11 bureaucrats trying to guess a price. But that's just me.

It begs the bigger question: 99 per cent of people in North America buy gasoline without all this work and effort and cost of having a regulator guess where the prices are going to be. And we pay for that in Nova Scotia, about $1 million a year.

Really all the regulation does, and was designed [to do], is protect rural dealers in Nova Scotia. Of which, just so people get a quantum here, the number of rural dealers that are affected by this is 20 to 30 rural, remote dealers.

We're paying millions of dollars to support rural and remote dealers. This is the mechanism and this is what's been going on.

This is what was reviewed internally, but I guess internally they were more concerned more about keeping their jobs than trying to do what's best.

There's a short answer to this. The short answer is, I don't know why we do it, I've never understood why we do it. It just cost us all money.

Who are the winners and losers?

Retails tend to be the winners on these ones. When it goes up, retailers are the winners. When it goes down, consumers are the winners.

What does the clause mean for a company like yours?

We're a wholesaler, so it really doesn't matter much. We just keep moving prices along as the market changes anyway. It's just retailers find their margins terribly squeezed or retailers get relief in this case.

How often is it used?

It gets used roughly, on average, once or twice a year.

Do you think we'll ever see it taken off the books?

If they want to save money, if they want to save consumers money and they want to save the government operating costs, they'll take it off. I guess that's up to the government.

How many provinces use the interrupter clause?

In North America, the four provinces in Atlantic Canada are very unique. Less than one per cent [of North America's population] gets the price set this way. The rest of the people get it done for free and let the market do it.