Rising land costs largely to blame for Vancouver's high gas prices: report

Jul 12 2019, 2:44 am

Almost two months after BC Premier John Horgan asked the BC Utilities Commission (BCUC) to investigate the reasons behind the “high, volatile gas prices” in the province, a new report has found that “rising land costs and credit card processing fees” may be mostly to blame.

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The report, from Vancouver-based management consulting company The Deetken Group, looked at the wholesale price of fuel in Vancouver and Kamloops, as well as Edmonton and Seattle, which supply BC, as well.

Prices in the Vancouver area “have experienced a more significant increase when compared to an average of prices found in other Western Canadian cities,” the report said.

Additionally, “gasoline retail margins in BC and to a greater extent in the Vancouver area have risen above the average found elsewhere in Western Canada.”

In determining the retail margin differential, the report says that “a number of factors” were analyzed, which included:

  • Average throughput by station
  • Costs of labour
  • Competitive environment
  • Rising land costs
  • Credit card processing fees

The report said that credit card processing fees have an impact on prices “due to the fact that processing fees are applied as a percentage of a total transaction.” This means that the processing fees are higher in jurisdictions where retail prices are already higher than surrounding areas.

And with current and former gas station sites in the city being sold for redevelopment, the rising cost of the land in which current stations still sit is factored into the price as well.

“Vancouver has had rapid growth in both commercial and residential real estate prices since 2015,” the report said. “Given these correlations and the expected economic relationship between land costs and retail margins, it appears plausible that the rising land costs are increasing the retail margin in Vancouver.”

However, the report said that even after all these factors are taken into account, “a
portion of the differential observed in 2019 remains unexplained.”

The findings are part of the second phase of the overall report by the Deetken Group, and oral submissions are to begin next week.

The terms of reference require the final report to be delivered by August 30, 2019.

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