CFS Report - Fuel Price Update - February 2014

Reimbursement for Business Use of Personal Vehicles

Study prepared for The Treasury Board of Canada Secretariat

by Corporate Fleet Services

1       Fuel Price Update Synopsis

Corporate Fleet Services (CFS) has been mandated by the Treasury Board of Canada Secretariat to perform the Annual evaluation of per-kilometre reimbursement rates for government employees required to use their personal vehicles while performing government business. Furthermore, the periodic impact of varying fuel prices was to be evaluated quarterly by producing three additional ‘Fuel Price Updates'. The present document represents the Update for February 2014.

The Annual study established reimbursement rates for each Canadian Province and Territory after performing a comprehensive analysis of all vehicle operating expenses. These rates were presented in the ‘Reimbursement for Business Use of Personal Vehicles Report', dated November 2013.

The present Update reflects the impact of current fuel prices on the recommendations made in the Annual report with a focus on average pump prices of gasoline by Province or Territory. The prices were averaged for each Province or Territory for the three months prior to the release of the current Update (the months of December 2013, January and February 2014). All prices are given in dollars per litre.

This Update also presents up-to-date recommended rates of reimbursement for consideration by the Treasury Board Secretariat in dollars per kilometre. Federal and provincial sales taxes were also investigated to determine if there were any recent changes that could have had an immediate impact on the total costs of vehicle ownership and operation.

Fuel expenses represent 23% of the total cost of vehicle operation or a Canadian average of 12 cents per kilometre. The present update identified only small variations in average gasoline prices which in turn led only to slight to moderate changes in the reimbursement rates, ranging from a decrease of 1.5 cents per kilometre to an increase of 0.5 cents per kilometre.

2       Fuel Prices

2.1     Energy market context

World growth as measured by the Gross Domestic Product (GDP) has not been significant in the last quarter of 2013. Crude oil demand has nonetheless increased only slightly during the same quarter. Oil supply from OPEC countries has decreased throughout the year. An OPEC study projected that oil demand growth will not increase significantly in 2014, particularly in China and USA, because of the shift towards a service-oriented economy and growing concern about pollution in China as well as a gradual shift towards natural gas in the USA.

In North America, demand for crude oil decreased in November of 2013 which raised the inventory level and decreased the price of crude. However, oil production increased, which subsequently led to a decrease in the price of oil. In December 2013, demand and export increased, particularly in Canada. The United States increased their demand for Canadian oil. The cold temperatures encountered in December limited the extraction of oil in Canada. Production increased but not enough to offset the increasing demand. The price of crude oil, therefore, increased in December. However, Canada is expecting to increase its production of crude oil in 2014 by expanding pipelines and refinery capacity. For example, Suncor announced it will be investing $200 million in 2014 to increase its production by 10%, which in turn should contribute to a decrease of oil prices. A new pipeline (TransCanada Gulf Coast pipeline) will also be effective in 2014 which will increase oil export capacity to USA.

2.2     Gasoline prices across Canada

Overall, increased production of crude oil in Western Canada led to lower gasoline prices in the West at the end of 2013 and the beginning of 2014. This was most evident in the Yukon and Manitoba (with decreases between 8 to 9 cents per litre), but also noticeable in Alberta, British Columbia and Saskatchewan (decreases between 3 to 5 cents per litre). On the other hand, the Northwest Territories have suffered from increasing gasoline prices between November and February due to lower crude oil production, brought about by significant investments in infrastructure and harsher than usual weather.

Eastern Canada, which is significantly more reliant on oil imports, has experienced a decrease in oil supply at the end of 2013, which in turn led to an increase in overall gasoline prices. This trend was consistent across Ontario, Quebec as well as the Atlantic provinces, with increases in gasoline prices at the pump of between 1 to 3 cents per litre.

Prices of gasoline at the pump, in Canada, include all applicable taxes. Prices vary significantly across the country, mainly due to the difference in the types and amounts of taxes being charged on fuel in different Provinces and Territories. The present Update extracted the average prices of regular gasoline charged at the pump. The fuel price data was primarily obtained from Natural Resources Canada, based on weekly published fuel prices for 60 locations across Canada. This data was verified against an additional database made available by MJ Ervin and Associates that similarly tracks fuel prices all across Canada as well as information available through other popular gasoline price reporting websites.

Consistent with the methodology of the Annual study, when determining average gasoline prices per Province or Territory, we have used weighted averages according to population in order to better conform to reality. In this manner, metropolitan population centers account for a greater portion of the total than smaller towns.

The following is a table with average regular gasoline prices for all Canadian Provinces and Territories, in dollars per litre:

Fuel price data was extracted for a period of three months (December 3^rd to February 18^th 2014) in order to reflect current gasoline price trends. Subsequent fuel update reports will focus on three-month periods following the period covered in the present study. Average gasoline prices per Province or Territory were found to vary between $1.066 in Alberta to $1.386 in the Northwest Territories, with a Canadian average $1.263, a decrease of 1 cent from the Annual report.

2.3     Sales taxes

For the current Update research was performed to see if there were any relevant changes to federal and provincial sales taxes that could have an immediate impact on the reimbursement rates. As to the date of this Update, no changes were observed in sales taxes anywhere in Canada. Moreover, no changes are foreseen at this time for the immediate future.

3       Impact of Fuel Prices on reimbursement rates

3.1     Fuel consumption

In calculating the fuel costs contribution to the total vehicle operating costs, the methodology employed in the Annual study was strictly adhered to. Fuel consumption for every vehicle model studied was thus combined with average prices per Province or Territory to determine the fuel portion of operating costs, based on an average of 20,000 kilometres per year.

3.2     Updated reimbursement rates

The following table provides updated evaluations for both the Travel and Commuting rates, as well as rates previously calculated for the Annual study, for comparison:

2014 February Fuel Update Reimbursement Schedule (in dollars per kilometre)

Note: All figures were rounded up to the nearest half-cent.

The impact of gasoline prices on the reimbursement rates was minimal for the present Fuel Update versus the previous Annual report. Both the Travel rate as well as the Commuting rate only saw variations of a maximum of 1 cent per kilometre for the Provinces and 1.5 cents per kilometre for the Territories. Canadian weighted averages stayed the same for both the Travel and Commuting rate at 52 cents per kilometre and 21 cents per kilometre respectively.

Fuel contributes on average 12 cents per kilometre to total operating costs, ranging from 10.1 in Alberta to 18.5 in the Northwest Territories. At the present time there is no indication that fuel prices will change considerably for the next three months. However, any changes will be reported in the next Fuel Update report.