Mr. R. C. MATTHEWS (Toronto East Centre):
Mr. Speaker, I beg leave to present the fourth report of the select standing committee on banking and commerce dealing with the price of gasoline. The report is as follows:
The select standing committee on banking and commerce begs leave to submit its fourth report as follows:
Your committee has had under consideration an order of reference, dated February 11, 1932,-
"That, in the opinion of this house, the price of gasoline to the Canadian consumer has for some time past been too high, and that this matter should be referred to the select standing committee on banking and commerce to investigate and report."
Your committee has held 22 meetings, and has taken viva voce evidence on oath of 20 witnesses. Numerous exhibits were filed by witnesses.
The aforementioned witnesses represented the following companies:
Imperial Oil, Limited,
McColl-Frontenac Oil Company, Limited,
British American Oil Company, Limited,
Shell Oil of Canada, Limited,
Eastcrest Oil Company, Limited,
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and also included individual importers and distributors, in some cases importing direct from the United States, and in other cases purchasing gasoline from Canadian refiners.
An officer of the White Star Refinery Company, of Detroit, Michigan, also gave evidence concerning the condition of the petroleum industry in the United States.
An official of the customs branch of the National Revenue department gave evidence respecting the appraisal of petroleum imports for duty purposes.
The Clarkson commission report of 1926 to the Ontario government, being a report of an inquiry into the prices of gasoline and oils sold in the province, is incorporated in the evidence taken by your committee.
A committee of the legislature of Saskatchewan was concurrently conducting a similar inquiry to that of your committee, but within the limitations of provincial jurisdiction, and presented a report of its findings and recommendations to the legislature.
The said Saskatchewan committee report is not within the order of reference from the house to your committee and therefore has not been considered by your committee but in view of the recommendations therein contained has been incorporated in the printed proceedings of evidence in order that the house may be informed of its contents.
Pursuant to authorization given by the house, your committee engaged the firm of George A. Touche & Company, chartered accountants. This firm was instructed as follows, namely:-
1. That the accounts of the Imperial Oil, Limited, be taken for the purpose of establishing the fundamental facts required by the committee.
2. That a basis of establishing the ascertainment of costs be mutually agreed upon between the auditors and the officers of Imperial Oil, Limited.
3. That for the purposes of the two preceding paragraphs, the investigation be specifically applied against
(a) The Sarnia and Halifax refineries as regards the elements entering into production costs as a 'whole and as applicable to proportionate distribution of these total costs against gasoline and other commodities refined from crude.
(b) The relative wholesale prices of gasoline and other commodities refined from crude in relation to costs of production at the Sarnia and Halifax refineries.
(c) The elements embodied in the selling, distribution and administration expenses, added to the costs of production, in relation to selling prices for Imperial Oil, Limited, as a whole and as specifically applied in the following marketing divisions-
(d) That such marketing divisions may be designated by your sub-committee.
4. That synonymous with this investigation by the auditors into the aforementioned cost and selling factors of the Imperial Oil, Limited, they secure from British American Oil Co., Limited, and from McColl-Prontenac Oil Co., Limited, statements in such form as will render practicable a comparison of the relative costs and selling prices of the three corporations, thus offering means of disclosing any major variations without entailing the additional expense of investigating the smaller oil companies operating in Canada.
The auditors were also directed to make an examination and audit of the books of the MeCdll-Frontenae Oil Company with respect to certain operations of that company.
The auditors' report was duly presented to your committee by Mr. 0. A. Matthews, a member of the firm of George A. Touche and Company, who explained in detail the clauses of the report as the same was read at presentation. Mr. Matthews was subsequently recalled, sworn and examined in respect to matters connected with the audit and report. Statements of figures abstracted from the books of the audited companies, and extended in the report, were duly filed.
A summary of the conclusions as set out in the auditors' report is as follows:
(a) That the company's records relating to 1930 operating costs charged to gasoline showed no evidence of "cost loading" by reason of affiliations in the United States and South America, or because of unfavourable accounting practices, but rather, that the gasoline costs, if anything, were understated because of the company's conservative policies in not loading into costs such matters as fire insurance premiums, depreciation rates, contingency reserve charges and inventory pricing.
(b) That the total costs for 1930 were free of charges for interest on capital invested, or such as might be related against funded debt or as a charge imposed by a parent company in the form of rental for use and operation of the refineries and marketing stations and equipment. In other words, the financing of Imperial Oil, Limited, has been effected through the sale of capital stock and the investment of a proportion of surplus earnings in extensions of plant and equipment facilities, without any issue of bonds or debentures upon which interest might be charged.
(c) That the 1930 marketing costs charged to gasoline whilst as a whole legitimate from an accounting point of view, were high in relation to total costs. The high cost of marketing is attributed to territorial and climatic conditions, and extreme competition obtaining in the distribution and marketing of gasoline in Canada. In view of the fact that the territorial and climatic conditions in Canada are not subject to human manipulation and change, a partial solution of the problem would seem to lie in a concerted action on the part of all distributing companies to eliminate as far as possible the present costly system of marketing.
(d) That variations in gasoline prices in 1929, 1930 and 1931 to consumers were not based directly upon ascertained refinery costs, but largely upon the variations in the market cost of crude oil with fluctuating additional charges for excise tax, sales tax, freight surcharge and exchange. It has not been demonstrated that any grounds exist for any allegations that the company has taken unfair advantage of either the specific or dumping duties in its gasoline prices to consumers during the period under investigation.
(e) That the reason for the unfavourable comparison at some points between United States competitive prices and those of the Imperial Oil, Limited, is due to the demoralized condition of the gasoline industry in the United States, caused by the over-production of gasoline and various tax evasion "rackets," which, in turn, result in the price of United
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States gasoline falling far below the relative movements in crude oil prices and other costs of production and distribution.
(f) That the zoning basis of establishing gasoline prices results in the spreading of transportation differentials' to the comparative disadvantage of gasoline consumers at centres of trade in proximity to some refineries, whereas the zoning price basis frequently operated to the advantage of gasoline consumers in the territories outlying from the refineries. It was also found that tank wagon gasoline prices are given to farmers and coastal fishermen both east and west.
(g) That in such outlying districts as have no dealer competition or where any dealer association arrangements exist, the spread between Imperial Oil, Limited, tank wagon prices and the prices to the consumer is entirely in the hands of the independent dealers.
(h) That apart altogether from the basis used in the establishing of gasoline prices, the spread between such selling prices and the combined costs of refining and marketing showed an average net profit of not exceeding 1-01 cents per imperial gallon of all gasoline sold by Imperial Oil, Limited, in the year 1930.
(i) That in view of the fact that the investigation of Imperial Oil, Limited, disclosed no improper accounting practices in the matter of costs or unstated profits, and because Imperial Oil, Limited, occupy the leading position in the gasoline industry in Canada, the auditors gave it as their opinion that the expense which would be involved in extending their investigation into the records of the British American Oil Company, Limited, the McColl-Frontenac Oil Company, Limited, and other oil companies in Canada, would not be justified in view of their findings on the average net profit per gallon of gasoline sold by Imperial Oil. Limited, in 1930.
From a consideration of the evidence and the auditors' report, it is the opinion of your committee that the price of gasoline to the Canadian consumer is not unreasonably high, and that the public interest would not be further served by a continuation of this inquiry.
Tabled herewith is a copy of the printed proceedings and evidence.
All of which is respectfully submitted.
Subtopic: REPORT OF FINDINGS OF COMMITTEE ON INQUIRY INTO PRICE OF GASOLINE