PHH Report - Fuel Price Update - September 2011

Reimbursement for Business Use of Personal Vehicles

A Study prepared exclusively for

The National Joint Council of the
Public Service of Canada

by PHH Business Analytics

Fuel Price Update

The National Joint Council establishes reimbursement rates for business use of personal vehicles and periodically considers the impact of changing fuel prices on those rates. Rates were established for 2011 based on a comprehensive review of costs as presented in the "Reimbursement for Business Use of Personal Vehicles Model Year 2011 Update" dated December 2010. This update reflects the impact of recent fuel price changes on the recommendations made in the Annual Update. Current representative fuel prices by Province are given in dollars per litre in the following table. These represent pump prices for regular gasoline for June through August 2011. For reference, fuel pricing from the 2011 Annual Update is also shown.

Fuel prices since the 2011 Annual Update last December have shown a dramatic increase, which ranges from $0.178 to $0.255 per litre. The China-led increase in global demand for oil and OPEC-member countries' decision not to increase production in the short term to close the gap, uncertainties around potential supply disruptions, the rate of global economic recovery, and fiscal issues facing national and sub-national governments are contributing to current oil prices. World crude oil prices were around US$105/bbl in the second half of August (unchanged from around US$105/bbl in mid May). The average retail price for regular gasoline during the last week of August 2011 was $1.271 per litre.

In general, fuel prices must change by approximately $0.047 per litre in order to affect a change of $0.005 per kilometer in the reimbursement rate. Pump prices for this update are $0.211 per litre higher on average than those for the 2011 Annual Update, which resulted in an increase in the recommended reimbursement rates for all locations.

Reimbursement Impacts

In developing operating costs, the current average pump price is combined with typical vehicle fuel economy to derive the contribution of gasoline to the per-kilometer operating cost. In order to account for the severe operating conditions prevalent in the Territories, we have adjusted the vehicle fuel efficiency in computing fuel expenses for these locations. Our computations continue to reflect an 80% increase in the rate of fuel consumption on a litres per 100 kilometers basis.

Based on these updated fuel prices, recommended reimbursement rates have increased across the board from the 2011 Annual Update, with adjustments indicated in all locations. The following table shows our recommended reimbursement schedule based on current fuel prices, along with those for the 2011 Annual Update.

For both the Commuting and Travel reimbursement rates, the changes from the 2011 Annual Update (reported in December 2010) were all increases of between $0.015 and $0.025 per kilometer in the provinces. Both the Commuting and the Travel rates increased by $0.040 in Northwest/Nunavut, and they increased by $0.030 in the Yukon Territory. Note that rate changes for the Commuting and Travel rates are not necessarily the same. When rounded to the nearest half-cent, the change in the contribution of gasoline costs to overall vehicle costs results in slightly different rounded total rates.