PHH Report - Fuel Price Update - August 2012

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 2012 based on a comprehensive review of costs as presented in the "Reimbursement for Business Use of Personal Vehicles Model Year 2012 Update" dated December 2011. 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, July, and August 2012. For reference, fuel pricing from the 2012 Annual Update is also shown.

Fuel prices since the 2012 Annual Update last December have shown a slight increase overall, which ranges from $0.000 (no change) to $0.082 per litre in all locations except New Brunswick and Newfoundland, where prices decreased slightly by $0.012. Global demand for oil has eased since the last update, but markets are optimistic about economic stimulus measures policymakers in the EU, China, and the US will put in place to counter slowing demand. This optimism, together with increased market anxiety around Iran's threats to block oil transports through the Strait of Hormuz, is balancing against the decreased demand to keep prices largely unchanged. Ongoing concerns to oil prices are the pace of worldwide economic recovery and the EU's current economic situation, China's weakening exports and the possibility of slower-than-anticipated growth there, and potential supply disruptions in major oil producing countries. Crude oil prices were around US$94/bbl in mid August. The average retail price for regular gasoline during the third week of August 2012 was $1.304 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 $0.023 per litre higher on average than those for the 2012 Annual Update, which resulted in either no change or a slight increase in the recommended reimbursement rates for all locations other than Newfoundland and New Brunswick, where rates held steady or had a slight decrease.

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 either held steady or increased slightly across the board from the 2012 Annual Update, except for slight decreases in the Commuting rate in Newfoundland and the Travel rate in New Brunswick. The following table shows our recommended reimbursement schedule based on current fuel prices, along with those for the 2012 Annual Update.

For both the Commuting and Travel reimbursement rates, the changes from the 2012 Annual Update (reported in December 2011) were either no changes, or increases or decreases of only $0.005 per kilometer in all provinces, with the exception of the Travel rate in Manitoba where it increased by $0.010. Neither the Commuting nor the Travel rate changed in Northwest/Nunavut, and both rates increased by $0.015 in Yukon. 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.