PHH Report - Fuel Price Update - June 2011

Reimbursement for Business Use of Personal Vehicles Fuel Price Update

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 March through May 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 $0.259 per litre. The major uncertainties currently driving oil prices are continued unrest in oil-producing countries, OPEC-member countries' response to the global increase in oil demand due to economic growth, fiscal issues facing national and sub‐national governments, and China's continued efforts to address growth and inflation. Crude oil prices were around US$105/bbl in mid May (down from around US$116/bbl in mid April & early May). The average retail price for regular gasoline during the last week of May 2011 was $1.281 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 $0.228 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. PHH Arval 2011 2

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 $0.020 or $0.025 per kilometer in the provinces. The Commuting rate increased by $0.035 in Northwest/Nunavut and by $0.030 in the Yukon Territory. The Travel rates increased by $0.030 in all of the Territories. 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.