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26 octobre 2005
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HANSARD

NOVA SCOTIA HOUSE OF ASSEMBLY

COMMITTEE

ON

PUBLIC ACCOUNTS

Wednesday, October 26, 2005

LEGISLATIVE CHAMBER

Service Nova Scotia and Municipal Relations and Department of Finance

Printed and Published by Nova Scotia Hansard Reporting Services

PUBLIC ACCOUNTS COMMITTEE

Ms. Maureen MacDonald (Chair)

Mr. James DeWolfe (Vice-Chairman)

Mr. Mark Parent

Mr. Gary Hines

Mr. David Wilson (Sackville-Cobequid)

Mr. Graham Steele

Mr. David Wilson (Glace Bay)

Mr. Keith Colwell

Mr. Michel Samson

In Attendance:

Ms. Mora Stevens

Legislative Committee Clerk

Mr. Roy Salmon

Auditor General

Mr. Alan Horgan

Audit Manager

WITNESSES

Service Nova Scotia and Municipal Relations

Mr. Greg Keefe

Deputy Minister

Mr. Mike Duda

Acting Director Corporate Development

Ms. Anne James

French Language Services Coordinator

(Former - Director Business and Consumer Registration)

Department of Finance

Ms. Vicki Harnish

Deputy Minister

Ms. Liz Cody

Assistant Deputy Minister

Mr. Michael Davies

Senior Tax Policy Analyst

[Page 1]

HALIFAX, WEDNESDAY, OCTOBER 26, 2005

STANDING COMMITTEE ON PUBLIC ACCOUNTS

9:00 A.M.

CHAIR

Ms. Maureen MacDonald

VICE-CHAIRMAN

Mr. James DeWolfe

MADAM CHAIR: I would like to call the committee to order. At the outset I think we have to do a sound check for Hansard, so I would start first with the witnesses who are here this morning, if you would please identify yourselves, and then the members will identify themselves.

MR. MICHAEL DAVIES: Michael Davies, Department of Finance.

MS. LIZ COADY: Liz Coady, Department of Finance.

MS. VICKI HARNISH: Vicki Harnish, Department of Finance.

MR. GREG KEEFE: Greg Keefe, Service Nova Scotia and Municipal Relations.

MR. MIKE DUDA: Mike Duda, Service Nova Scotia and Municipal Relations.

MS. ANNE JAMES: Anne James, Service Nova Scotia and Municipal Relations.

MADAM CHAIR: I'm Maureen MacDonald, I chair the committee and I'm the member for Halifax Needham.

[The members introduced themselves.]

1

[Page 2]

MADAM CHAIR: Good morning to you all. The procedure that we use in the committee is generally a brief opening statement of approximately five minutes or so from each of the departments, and then we will move to the members to have rounds of questioning that is about 20 minutes in length for each caucus. We have a tight schedule here today, so we shouldn't take the time chatting about procedure. We'll start with opening comments from Service Nova Scotia and Municipal Relations.

MR. GREG KEEFE: Thank you for the opportunity to make some opening comments. Service Nova Scotia and Municipal Relations is as diverse a department as it gets. Our spectrum ranges from issuing driver's licences to negotiating tri-party infrastructure funding agreements. We mediate landlord/tenant disputes, and we operate the province's land registration system.

Ours has also been the lead department on the gasoline pricing file. Concerns about the price of gas and the survival of rural gas stations has been an issue for years, but it has intensified throughout this year. We began discussions with the industry, wholesalers and retailers, to learn as much as we could about gas retailing in Nova Scotia. Unfortunately, we were getting contradictory and anecdotal information from the industry. What we needed was objective, unbiased information for government to base its decisions on. To that end, Bill No. 79 gave us the authority to hire a consultant to examine the retail gasoline industry in Nova Scotia. On September 30th, Gardner Pinfold Consulting Economists Inc. presented its report. Staff are currently reviewing the options included in that report.

Another important part of the Service Nova Scotia and Municipal Relations mix is administering the Keep the Heat program. Keep the Heat, as we know it today, grew out of a low-income fuel assistance program that was first offered in Winter 1999-2000. The original program offered a rebate of $50 to low-income Nova Scotians who heated their homes with oil or propane. Furnace oil prices in Winter 1999-2000 were in the 62 cents to 67 cents per litre range.

The program was not offered the following Winter, when furnace oil was retailing for 40 cents to 48 cents per litre. Assistance was again offered in Winter 2002-03, and because of relatively stable prices, was not in place the following Winter. Last year government wanted to do more than simply help with the cost of fuel. It wanted homeowners to reduce their heating and year-round energy costs.

In November 2004, Keep the Heat was unveiled. Keep the Heat not only offered a rebate of $200 to those who qualified, it also provided for some long-term energy savings. A furnace that is serviced each year will heat a home more efficiently and use less fuel throughout the year, unfortunately, many low-income Nova Scotians, who are faced with difficult choices every day, spending $80 or $100 on a furnace cleaning is simply not an option. The Keep the Heat program provided eligible applicants with a voucher that could be redeemed for a professional cleaning and tune-up of their furnace. It also included a kit

[Page 3]

with a number of a do-it-yourself energy efficient items, such as weather stripping and low-wattage light bulbs.

From my administrative perspective, Keep the Heat was not a tweaking of what was already offered, it was a completely new program and represented a considerable challenge to get off the ground as government had directed. First of all, the increased income limits meant the number of applicants would also increase. This program was considerably more generous than previous versions. The cash assistance had quadrupled to $200, other features such as the voucher for the furnace cleaning and energy kits would make the program much more attractive to applicants. It would also make it that much more challenging to administer.

We had to budget and plan for a completely new program without the benefit of any precedent as to what the take-up rate might be or what the administrative requirements, such as staffing, would be. We decided to plan for the maximum and, if required, we could adjust as we went along. For the most part, that strategy worked. There was a huge surge of applications in the early weeks of the program. We hired temporary staff and borrowed staff from other parts of our operation to help out. During this period, the turnaround time from receiving an application to mailing out a cheque was in the average of four to six weeks.

We later refined our operations so that the turnaround time was reduced to two weeks. I should caution, though, that the two weeks was the norm, provided the applicant included all the information we asked for. If information, such as a fuel bill, was missing, the process would be delayed while we contacted the applicant. More often than not these were the cases that resulted in phone calls to you from your constituents.

Again this year, the program has changed significantly from last year. Income levels are higher, the rebate is 25 per cent higher, and for the first time people who heat with wood, electricity, coal and natural gas are eligible. We are often asked why people must apply for this program. Believe me, no one would be happier than I if there was a database with all the information of everyone who was eligible for Keep the Heat so we could safely direct deposit a cheque to their bank accounts, but there isn't.

The Canada Revenue Agency can tell us how many Nova Scotians are under any income level, but they can't tell us whether they heat with oil or if they pay for the oil or burn wood, use electricity, they don't have that information. Nova Scotia Power can tell us by a customer's annual kilowatt consumption if they heat with electricity, but that doesn't help us to determine their income eligibility. Even our own database from last year is of limited use as people's circumstances change from year to year.

[Page 4]

So until there is a reliable source of all the information we require, people will need to apply for the program. We'll do our best to reach them. Applications will be sent to the almost 26,000 who were eligible last year. Applications will be sent to all MLA offices and Access Nova Scotia centres. Community Services caseworkers will also distribute them, and of course they'll also be available on the Web site.

Last year the Keep the Heat site alternated between our first and second most-visited parts of the government Web site for much of the Winter. We spent about $70,000 in advertising last year, and we're prepared to spend much more this year, again to reach Nova Scotians who need this help. I want to close by saying how proud I am of my staff at Service Nova Scotia and Municipal Relations who rose to the challenge last year and are doing so again this year. Implementing a program of this magnitude is no easy task, but it is one these people are more than up for. Thank you.

MADAM CHAIR: Thank you very much. Now we'll hear from Ms. Harnish.

MS. HARNISH: Madam Chair, you invited us here today to address the Public Accounts Committee on the question of taxes on motive fuels and, specifically, the issue of so-called double taxation on fuels. Joining me, for those who missed the introductions earlier, are our Assistant Deputy Minister Liz Coady, and Michael Davies from our Taxation and Fiscal Policy Division.

As I'm sharing my time with my colleagues from Service Nova Scotia and Municipal Relations, I will be brief in my introductory remarks today. First of all, Madam Chair, it's important to point out that Nova Scotia, like most other provinces, is not in a position to give up substantial tax revenues. All provinces have to cover the cost of programs and services that our citizens depend on without taking on new debt to do so. The current tax system allows us to do that.

Our tax system today is based on many different policy choices made in good faith by governments past and present. Members of the Legislature have done their best to see that Nova Scotians share the tax burden fairly in ways that will cover the cost of everything from health and education to protecting our forests and maintaining our highways. The Legislature's place is to debate the wisdom of those decisions. Our role, as staff, is to ensure our elected officials have a full understanding of all the facts involved so that they can make informed public policy choices.

Madam Chair, there are a few key facts about taxation that do not change no matter who forms the government of the day. First, you generally can't give up tax revenues without adjusting something else to compensate on either the revenue or the spending side. The most obvious way is to reduce or curtail spending, and for substantial changes you have to scale back or eliminate programs or services. While this may seem easy to do on paper, in every

[Page 5]

case there will be an individual or a group of Nova Scotians who feel considerable pain when their cherished program goes away - the very first often being the workers involved.

Another option is to replace the lost taxes with another source of revenue; the choices here are pretty limited. If you are determined to reduce a sizeable portion of one kind of tax, or indeed a whole category itself, it usually comes down to raising taxes in another area, and this doesn't always make sense from a public policy point of view. You may choose to take the province further into debt if you don't have enough money to cover your bills; in other words you borrow money to cover your lack of revenues.

We don't believe Nova Scotians support this course of action anymore; in fact, we found that most of them understand the value of reducing Nova Scotia's very large debt. To do that, people and their elected representatives have to get used to the idea that finishing a fiscal year with a modest surplus is a good and necessary thing. Having money to spare at the end of the year is not a signal that we should have spent more or, indeed, reduced taxes - it's what we have to do to start taking down the debt.

Aside from the consideration of how much to tax and what kind of taxes to levy, government must be conscious of the practical realities of taxation; in short, no matter what tax system you have, you will need an efficient and affordable way to collect and process these taxes. Whatever collection system you use should not be more expensive than the taxes themselves and, more importantly, it shouldn't be so complicated the taxpayers and businesses find it difficult to apply. The tax system must be appropriate and workable, which leads me to the issue you would like us to address - the so-called tax on tax related to the HST on fuel. You were referring here to the fact that motive fuel taxes are included in the price of fuel and, as a retail product, then subject to HST.

It is a fact that Nova Scotia's fuel taxes are pretty similar to those in most other provinces - some are slightly higher and some are slightly lower. It is also true that the HST is not a significant component of the cost of fuel, particularly compared to the relatively violent fluctuations in global crude oil prices. The provincial portion of the HST on gasoline represents about six cents per litre. The provincial tax-on-tax component of this is just over one cent per litre.

It's very common in most tax systems to apply a value-added tax to a retail or other product that may already contain some components of taxation. It's done with alcohol and tobacco, for example. It was done under the provincial sales tax in Nova Scotia, long before the HST, for a variety of products. Before the HST there used to be 13.5 per cent manufacturers' sales tax on many products, and then provincial sales tax was applied on top of that. It's also standard practice in most places in the world that there are value-added taxes on fuel and other products. Most have something akin to a motive fuel tax and most charge a value-added tax on top of this. The reason for this is practical. It's done for purposes of administrative simplicity.

[Page 6]

Those are the facts, and we'll be pleased to take questions on this, of course.

MADAM CHAIR: Thank you both for keeping inside the time limit. We'll start now with an opening round of questioning from the NDP caucus.

Mr. Steele.

MR. GRAHAM STEELE: I'm going to use the opening round to talk about the Keep the Heat program, and then in the second round I'm going to get to this issue of tax on tax.

This year again we have a new Keep the Heat program. I don't want to talk about the program that is about to happen, what I want to talk about is last year's program because I want to explore what went right and what went wrong with last year's program so that we can figure out whether this year's program is going to work or not.

[9:15 a.m.]

So, Mr. Keefe, I'm going to address my questions to you, but if you feel one of your staff is in a better position to answer it, then I'll leave it up to you to refer the question to them. Has there ever been an audit, internal or external, of the Keep the Heat Program?

MR. KEEFE: No, not to my recollection.

MR. STEELE: Has there been a management review?

MS. JAMES: Actually during the Spring, Keep the Heat was audited as part of the process.

MR. STEELE: If you have that audit with you today, I would like to ask you to table it. If you don't have it with you today, I would like to ask you to give it to the clerk of the committee so that it can be distributed to committee members. Who did that audit?

MS. JAMES: Grant Thornton.

MR. STEELE: Not the Auditor General?

MS. JAMES: No.

MR. STEELE: What were Grant Thornton's conclusion?

MS. JAMES: Grant Thornton made some recommendations on some process improvements, some security improvements, and just flow of the work so that we had better controls around the system.

[Page 7]

MR. STEELE: I don't mean this as criticism, but it would have been helpful if we had known that before we got here today rather than after. It would have been helpful for all the members of the committee to have had that audit in order to use the audit for questioning today. Has there been a management review of the program where management looks at the program to see what's working well and what's not working so well?

MR. KEEFE: Yes, there has been.

MR. STEELE: And do you have that document with you today?

MR. KEEFE: No, I have a summary here of some improvements we've made this year but, no, we could also have that document made available.

MR. STEELE: Okay, thank you. At the beginning of last year's program a departmental spokesperson estimated that 60,000 Nova Scotia households would be eligible for the program. Can you confirm that the final number of applicants who received a cheque was just in the neighbourhood of 24,000?

MR. KEEFE: Yes, I believe that number is close to correct - 25,500.

MR. STEELE: Okay, 25,500 was the final. So the obvious question is that if at the beginning of the program you estimated that 60,000 Nova Scotia families were in need and qualified, why, in your view, did only 25,500 actually apply?

MR. KEEFE: There could be a number of considerations there. One, of course, the most obvious is that our estimate was off. How we came up with that number, of course, we took the total population in that income range, and again that was an estimate. The numbers we had were the number of people earning under $25,000, and the number under $20,000 in our targeting was in between. So, number one, we had to make an estimate of that. We then reduce that number by the average percentage of Nova Scotians who own their own or who rent. So what we were left with was the population who owned their own homes and that income bracket, of course, that percentage could vary from the overall average. So there's another area where our estimate could be off.

MR. STEELE: There are other possibilities about why the estimate and the actual were so far different and there is another reason other than that the estimate was off, isn't there?

MR. KEEFE: I don't believe so. I think they could be easily in our estimates. Some people have said the program is too complicated to access. So people who were entitled to it didn't apply because of the complications of accessing. That's another thought that's out there.

[Page 8]

MR. STEELE: It is a thought, but it's not one you've ever examined in any kind of a systematic way?

MR. KEEFE: Yes. This year we've been trying to make it easier, again by mailing directly to those who applied last year, by trying to get applications in the hands of as many people as possible. We're also significantly increasing our advertisement budget to make sure that folks are well aware of the program.

MR. STEELE: Okay, because I will suggest to you that the reason why your department thought there were 60,000, but only 25,000 ended up taking it up, was precisely because any program that requires the paperwork application is going to discourage some applicants. I'll also suggest to you that people who are most in need, on the whole, tend to be those who are the least connected with advertising, who are least likely to read a newspaper, who are least likely to be educated to a level of receiving government paperwork, filling it out, and sending it back in - that is, in fact the reason why more than half the people who were eligible didn't even apply. Has your department ever studied that to see if that's actually true because if it is true, that's a real concern. That's a problem, that's a big problem.

MR. KEEFE: It is a challenge to reach those people. Unfortunately, as I explained in my opening remarks, we do need to get the data to try to determine the eligibility for the program. So we're struggling with how can we do that more simply. The data simply isn't available for us to reach, we had to ask the people for it.

MR. STEELE: For last year's program the government set aside a budget of $16 million. Can you confirm that the final amount that was actually spent was in the neighbourhood of $7.8 million?

MR. KEEFE: No, the final number that we would have now would be lower than that. I believe it's in the $6 million range.

MR. STEELE: Okay, so you have a program where $16 million is set aside for Nova Scotia's most needy families, and you underspend it by $10 million.

MR. KEEFE: Yes.

MR. STEELE: Do we have a problem?

MR. KEEFE: Yes, but again I'm struggling with what the solution would be. How do we reach those people? We try to make it as easy as possible. We have a lot of Access Centres and, as I say, we're leveraging Community Services, we've been talking to the Senior Citizens' Secretariat. It's still a challenge of how do we get out and reach those people so that we can get the information from them. We try to make it as simple as possible. We understand they may not keep their paperwork, their receipt from CRA for their notice of

[Page 9]

assessment and so on. So we do make it available, and all they have to do is give us permission and we'll go directly to CRA to confirm their income. We try to make it as simple as possible. Again, we're limited by the fact that the qualifications for this program are income and whether or not you used, last year oil or propane - this year it's broader.

MR. STEELE: Yet, when this year's program was announced, the government is again giving the very large number - which I would suggest is done for purposes of making the program look as good as possible - and the number, I believe I'm right in saying that when this year's program was announced the government said 73,000 families would be eligible this year, and yet it doesn't sound to me like the department has come to grips with the problem about making the connection between the number of families who are theoretically eligible and those who actually apply. If the department hasn't come to grips with the problem, why has the department again announced that it's going to be something like 73,000 families who are eligible? Why is the department not announcing a more realistic number and coming up with a plan to solve the very real problem that is evident from last year's program?

MR. KEEFE: What the more realistic number would be is again hard to say. This year, obviously, we have more heating fuels involved. So again, if part of the reason for the error of our estimate was that for low-income people the percentage who heat their homes with oil is different for the general population, we should see some correction in the numbers this year because we've included the other fuel types, and these people will be applying.

MR. STEELE: I'm assuming it's not the department's position that these tens of thousands of families who didn't apply for the rebate, I'm assuming it's not your position that those families don't actually want the money?

MR. KEEFE: No.

MR. STEELE: So how are you going to get it to them?

MR. KEEFE: Well, again perhaps, like I said, the reason is in the estimates. These are fairly low-income people. The average from Nova Scotia I believe is somewhere in the neighbourhood of 60 per cent of folks own their home, and that's one of the percentages we're using. I suspect for the low-income people the percentage who own their home is probably a lower number, which is one of the reasons for the error in our estimates.

MR. STEELE: The one department of government that does have a pretty good database with a great deal of information in it is the Department of Community Services. Has there been any discussion with the Department of Community Services about using the information that they have to get the money to people who need it?

[Page 10]

MR. KEEFE: They have certainly been part of the team.

Mike, I don't know if you could add to how they added to our estimates on that?

MR. DUDA: They have been part of the team. They only reach a certain segment of the population, of course. There are those over and above income assistance who are eligible for our program who aren't part of their program, but we are actively looking this year at taking a more proactive approach with the income assistance folks, but that hasn't been worked out as of yet, but it could be a component of an enhanced program this year to reach out to those folks.

MR. STEELE: Last year's program also included a furnace tune-up voucher which was stated to be worth $80.50, taxes included. About 12,000 of those vouchers were given out last year according to departmental spokespeople - how many of those vouchers were actually used?

MR. KEEFE: About 4,500.

MR. STEELE: Is that a problem? It sounds like a problem. Do you think it's a problem?

MR. KEEFE: Yes, and that one I have no answer for. One of things - Mike correct me if I'm wrong - we've done this year is extend the amount of time people can use to turn that voucher in. The program was announced about a month later into the year last year, perhaps some people had already had their furnaces cleaned - I don't know. This year we've announced the program a little bit earlier and the time that they can use that voucher has extended.

MR. STEELE: To me the key thing that you just said is, I don't know. I assume the department hasn't done any follow-up on this to find out why the take-up rate for these furnace tune-up vouchers is about one-third.

MR. KEEFE: No, we have not.

MR. STEELE: Do you think you should?

MR. KEEFE: Yes.

MR. STEELE: Because this year's program also includes a furnace tune-up voucher, but we haven't dealt with the problem from last year so is there any reason to think that this year's program is going to work any better?

[Page 11]

MR. KEEFE: Again, we're early into the year on the program and people have a longer period of time in which to use that voucher.

MR. STEELE: Last year's program also included a draw for 6,000 energy saving kits. Applicants were told the draws would take place in January, February and March. Did that happen?

MR. KEEFE: I believe so, yes. Yes.

MR. STEELE: Were 6,000 kits distributed?

MR. KEEFE: Yes.

MR. STEELE: How were they distributed?

MR. KEEFE: By mail.

MR. STEELE: Did the department do any follow-up to find out the take-up rate on those kits and what happened to them?

MR. KEEFE: No, we did not.

MS. JAMES: There was a survey done by our call centre and it was quite a successful program where I think about 90 per cent of the people reached were very, very positive about receiving the kits and quite thankful that they had and were able to use them in their households.

MR. STEELE: Okay. Tell me more about this survey done by the call centre. Did it focus on these kits or was it a bit broader than that?

MS. JAMES: It focused on the kits.

MR. STEELE: So, if you were able to use the call centre to do a survey on the kits, why didn't you use it to do a survey on the furnace vouchers?

MS. JAMES: I'm not sure.

MR. STEELE: And, why didn't you use your call centre to find out why people who were eligible for the program didn't apply?

MS. JAMES: Well, I guess looking at a list and determining whether people are eligible or not would be difficult because they're not supplying us with income information

[Page 12]

to make the call. Whereas if they actually sent in income information we wouldn't be invading their confidentiality or privacy rights.

MR. STEELE: Okay, but the net result is the department really has no idea why eligible families aren't applying. All any of us can do is speculate. Isn't that right?

MS. JAMES: It's anecdotal, yes.

MR. STEELE: But, as somebody said to me recently, the plural of anecdote is not policy. So why is it that for such an important program that is supposed to give money to Nova Scotia's most needy families, all we have are anecdotes?

MS. JAMES: Again, we've tried to reach the people. We distributed the applications last year to all the previous applicants. We sent applications to all the MLA offices, all the Community Services offices around the province, the Registry of Motor Vehicles, the Access Centres. We sent them to food banks where they could be distributed to the senior citizens - again, that seemed to be covering a good solid base within the province. But, as to why the take-up rate was not there, I can't speak to that.

MR. STEELE: Food banks are kind of a sore spot with me right now because the food bank that covers my area closed down recently and it hasn't been able to reopen.

On the question of income cut-offs, how were the income cut-offs chosen? Does the department start with a budget and then work backwards to the income cut-offs or is there some other rationale for where the income cut-offs are placed?

MR. KEEFE: Last year we used the low income cut-off from Statistics Canada. I believe we used the one from metro - that varies somewhat across the province, what exactly that number is.

MR. DUDA: It was an average between rural and urban low income cut-offs for a two person family.

MR. STEELE: I just want to make sure. I'm going to repeat that just to make sure I understand - you took the Statistics Canada low income cut-off for rural and urban areas and you averaged it. Those are the levels you chose, whatever the budget implications were, those were the levels you based it with.

MR. DUDA: No question that we built up the budget from data around these thresholds and take-up rates and so on and so forth.

[Page 13]

MR. STEELE: One of the issues that was raised in an editorial - I forget which paper it was, but it was somewhere down the South Shore - a very thoughtful editorial, the best I've seen on this subject - I think it was in the Lighthouse, but I'm not sure - raised the question about why there's such a difference between the income cutoff for single and couples. One of the funny things about space heating is that it doesn't matter if there's one person or two people or four people in the space, it costs the same amount to heat. Did the department consider that when they were setting the income cutoffs?

[9:30 a.m.]

MR. DUDA: No, we didn't.

MR. STEELE: I represent a fairly densely-populated urban area, unlike other ridings, like Argyle, which have almost no multi-unit residential buildings. I have a lot of large buildings. In fact, most of the people most in need in my constituency live in rental accommodation, they don't live in houses. Some do, but most of the most-needy people live in rental units, typically large rental units.

Many of my constituents who are very much in need don't actually qualify for this rebate, but they do pay for higher fuel prices indirectly, principally through higher rent but also in other ways. Why are renters left out of this program?

MR. KEEFE: I can't really answer, except that the policy direction government gave was for the folks who paid a direct heating bill, so that was the program we designed.

MR. STEELE: Let me ask the question this way rather than making a statement, according to the minister on December 12, 2004, "We've developed this program to help the most needy in our society to deal with these increased costs and stay warm this winter." How did the department go about deciding who in our society was the most needy?

MR. KEEFE: We used the low-income cut-off.

MR. STEELE: But they also had to be in a stand-alone home where they were filling their own fuel tank.

MR. KEEFE: Yes.

MR. STEELE: That was another criteria. Do you see the problem, especially for those of us who represent urban ridings? It leaves out a lot of people who have higher costs, but don't directly put the fuel into their own fuel tank. Isn't that a problem?

MADAM CHAIR: Mr. Steele, you have about one minute remaining.

[Page 14]

MR. STEELE: Let me ask you the question this way, in your view, in your department's view, which part or parts of this program worked the least well last year? And what has the department done to fix those problems for this year?

MR. KEEFE: Obviously we've had the discussion about the difference between the estimates and the actuals. I still believe a large part of that is a problem with the estimates, given the data we need. The other part, though, was the wait times early in the launch of the program. We tried to launch last year very quickly after the announcement, we were still staffing up as applications were coming in. So we got behind the ball very early, and then it takes a while to catch up again. This year we're ahead of the curve on that. We're staffing up much earlier, getting ready for when those applications start coming in in mid-November. Hopefully those wait times will be shorter.

MADAM CHAIR: The time for the NDP caucus has expired, and now we'll go to the Liberal caucus.

Mr. Colwell.

MR. KEITH COLWELL: How much time do we have?

MADAM CHAIR: You have 20 minutes, until 9:54 a.m.

MR. COLWELL: I'm going to have a few questions on the economics of the Nova Scotia gasoline market study that you did with Gardner Pinfold. What exactly was the cost of the winning bid?

MR. KEEFE: It was $170,000.

MR. COLWELL: What was the second-highest bid?

MR. DUDA: Mr. Colwell, the lowest bid was not accepted. I can't recall exactly the price, but I believe it was in the $150,000 range, but it was deemed not to be a qualified bid. The next highest bid was from Gardner Pinfold at $170,000. There was a third bid. I believe it was over $200,000.

MR. COLWELL: Can you give the committee those exact numbers? So there were three bids in total received?

MR. DUDA: Yes, there were.

MR. COLWELL: One of the conditions in the tender process was that the winning bid had to meet, contact, face-to-face, 10 interviews of retailers and wholesalers. Was that done?

[Page 15]

MR. DUDA: That was done and exceeded.

MR. COLWELL: Could you give us a list of all the people who were contacted, as well?

One of the partners in the Gardner Pinfold study was MJ Ervin & Associates, which I understand is one of the foremost authorities on gasoline pricing in the country. There's no argument about that.

MJ Ervin was known in the industry, from my understanding, for being against regulation. Not that I'm for or against regulation, but that's an industry standard. Studies the company or Mr. Ervin have done in the past is that they are against regulation for all kinds of reasons and that's fine. Was one of the factors that the government was potentially against regulation that Gardner Pinfold Consulting's bid was awarded to them?

MR. DUDA: I'm not sure what Mr. Ervin's position is on regulation. He was a sub-contractor. He only provided certain information to the report - pricing data and so on. The sections around regulation were developed by Gardner Pinfold Consulting firm and I have no idea what his stand is on regulation - his personal philosophy on that. I think if you look at the report, it's a very objective treatment of regulation. My understanding is, Ervin had no involvement in the regulatory side of the report.

MR. KEEFE: The information requested of the dealers that were interviewed, that is in the research binder that was done here. It's Appendix D of the report.

MR. COLWELL: The department did confirm these people were contacted?

MR. KEEFE: No, I don't believe so.

MR. COLWELL: Could you give that confirmation back to the committee?

MR. KEEFE: Okay.

MR. COLWELL: There's also an issue - I might have read this thing wrong when I went through the report, a former report put out by MJ Ervin previously for another study they did - the first part of this report and the first part of the other report was very similar. Very, very similar actually, almost just a few words changed here and there and a few things changed. Were you aware of that?

MR. KEEFE: No. Another study MJ Ervin did?

MR. COLWELL: Yes, a previous study.

[Page 16]

MR. KEEFE: No, I'm not aware of that, no.

MR. COLWELL: Okay. It's one thing maybe you should look at and just review that and see. Afterwards I can give you the details of that. It just makes you wonder because I believe part of the tender process was that they had to justify the hours and time that went into the project, as would normally be in one of these processes. If they just re-wrote or regurgitated part of the report, based on a report they did before, that's something you shouldn't pay for at a high rate, let's put it that way. It should have been at a substantially reduced rate which I would think would reduce $170,000 contract that was awarded. I would ask you to review that and maybe report back to the committee too, if you would, after I give you the information.

MR. DUDA: We did understand that was, given the nature of the topic - global and national petroleum product markets - that would be a fairly standard template and when we saw the costing for that, we did review how much they were asking for that and did indicate that was not as important a component of the study and it shouldn't be a high priced component of the cost of the total proposal. So we did certainly consider that issue and we certainly would expect that that first section of the report would be fairly standard because those markets don't change very much over time.

MR. COLWELL: Maybe you're missing the point I'm making. There was a report done by MJ Ervin in the past and basically a large section of that was used in this report, which is fine, there's nothing wrong with that, but we shouldn't pay the full amount of $170,000 for something that was already done. Where you've had bids at $150,000 and $200,000, that would have probably had to redo those because they didn't have the access to the MJ Ervin report. Not that I'm saying there's anything wrong with his report, don't get me wrong here, but it just comes down to costs.

MR. DUDA: Well, again, we did point out to the consultant that we did not want a lot of time or expense on that portion of the study, that he should concentrate more on the Nova Scotia market and, particularly, the retail segment of the market - the interviewing, the analysis of the local market, rather than the national and international markets. So we did identify that when we were first discussing this with the consultant.

MR. COLWELL: Were all three bidders made aware of that, because it would drastically change their tender?

MR. DUDA: The terms of reference specified that we wanted certain areas covered in the report, in the analysis, but it was quite clear that the focus of the report was to be on Nova Scotia markets, particularly the retail segment of the market and, in particular, retail margins. So I think it was very clear in the terms of reference what the focus of the study was; but for the reader, for the person not so knowledgeable about these markets, we wanted that first two sections of the report that discussed markets in general, just for knowledge.

[Page 17]

MR. COLWELL: In the report it indicated that the retail margins were between 4 cents and 5 cents and the average market share of margins. It has changed a little in the last five years, maybe increasing slightly in the past year, but my information indicated by dealers themselves who operate and work at this say that it's considerably lower than the report. They say it's between 2.5 cents and 3 cents per litre range, and margins in that range don't cover operating cost unless these dealers operated at higher volumes, or generate convenience stores, or whatever, they just can't survive. You see a lot of them going out of business, and many of them went out of business since the inception of this report.

What information did Gardner Pinfold supply to indicate that this was - when the industry itself is saying the margin is between 2.5 cents and 3 cents and they say they're between 4 cents and 5 cents, that's a big difference. So either they didn't talk to enough people in the business or the people who have the margins of 2.5 cents to 3 cents are not telling us the truth. I have no reason to believe that they won't, because from meetings we've had here, and people whom we've talked to, they indicated that's pretty well the average - 2.5 cents to 3 cents. That puts a different approach that government could take on this report. So it brings into question the whole validity of the report. Are there any comments on that?

MR. DUDA: I think you would have to ask Gardner Pinfold for exactly where they got that data. My understanding is they heard anecdotally from some retailers that the margins were lower. The data that they actually collected from the industry, the hard data, indicated what they found - 4 cents to 5 cents. We are currently initiating a data collection process within our own department to try to validify those findings to determine what exactly are the wholesale and retail margins in the market today. So we have a concurrent process going on to do just what you've indicated. As to the findings of the report, I think you would have to speak to Mr. Gardner about that.

[9:45 a.m.]

MR. COLWELL: I requested that they come today and evidently we couldn't get to them in time, unfortunately, because I think it would have been an interesting discussion. Wasn't Gardner Pinfold Consulting supposed to go back 10 years and see what the average was over 10 years? On the margins, were they not supposed to go back 10 years, by the tender, and review the prices for 10 years, which would have accurately given them this information if they had access to it? If they didn't have access to it, they should not have had the contract.

MR. KEEFE: Yes, there are a couple of ways in the report that they looked at margins. One, of course, is using industry averages and publicly available data and I think you'll find in the report that they look at margins going back as far as 1991. There's another table in the report, Annex A, where it lists the results of a survey they did by where they asked - I believe they got 73 respondents back, going back over five years - what they thought their margins were. So they used several data sets to come at that.

[Page 18]

MR. COLWELL: Why is the industry telling us when they did all these data sets, the industry is still saying there is 2 and a half to 3 cents, and they said around 4 to 5 cents? There is something wrong here with the report. The thing I'm worried about with this is we need the accurate number. You need the accurate number to make sure when you recommend to government what they're going to do, that it's the right thing to do for Nova Scotians and if this isn't correct, we have some serious problems here. Very serious problems and that's what I'm worried about. There seems to be a difference of opinion and opinion comes from the people in the business and the consultant says one thing. You have to get this straight because if you don't get it correct, you could make a decision that could have a really negative impact on Nova Scotian consumers and the retail gasoline business, especially the independents.

So this is a serious problem. So when the retailers are telling us one thing and a report that the government paid $170,000 for says another, there's something wrong here, desperately wrong.

MR. KEEFE: I agree getting a hard handle on what those numbers really are is quite important. If you did scan down that table in the report, you see that there are dealers who did report their margins from the 2.9, 2.3, 2.0, I even see a 1.5 there, but there's others that reported 6, 7, 5, so I think the margins vary greatly from station to station and this is probably part of what we are seeing, so there may be some retailers whose margins are quite short. There are other retailers where their margins are better, depending on the arrangement they have with the industry. But getting at that information, I think, is vital. Bill No. 79 did give us the authority to go out and demand that information. That's now in place so we can start collecting that transaction level data from the industry so we can get a much better handle on what those margins really are. They vary over time as well. I mean a dealer gets a drop in the tank, he pays a certain price for that tank, which he then sells over three or four days. As we're all well aware these days, that price can fluctuate quite a bit in those two or three days. So even that one tank load there isn't one margin. There are a range of margins as that gas is sold. So it's very difficult to pin down what the number is. You have to look at long averages.

MR. COLWELL: The other problem with the report too, and correct me if I'm wrong with that is, it didn't really take into consideration credit card and debit charge costs on these things. Sometimes if you get around the 2 and a half cent range, and you get particularly credit cards, at the end of the day you probably lose money on your sale. If you're running 1 million or 2 million litres a year, which I know one independent dealer that is doing that and actually by the time he factors in his credit cards, he's losing money on every litre he sells. So that really has to be factored in and unless I missed it in the report, I did not see that in the report and that's an important factor. Again, you pay $170,000. All this should be taken into consideration when the report comes back to government because it gives a slanted view of what the profit is and the margins are for business. Did I miss something in the report?

[Page 19]

MR. KEEFE: The report was looking at the gross margin, not the profit. So really what they're looking for is a difference seeing what the gas costs and what they sold it for. What that margin has to do is pay all the costs, plus hopefully leave a profit for the business. There is a table in the report where some service stations actually gave them some financial statements. I believe it's on Page 42, and on there you can actually see there's a difference obviously between the gross margin and whether or not any profits dropped out of it. Some of them they did, some of them they didn't. They operated at a loss. I certainly understand the credit card issue significantly more for them because it's a significant amount of sales and probably an increasing amount of sales are paid for by credit card.

MR. COLWELL: And the issue is a credit card, it's a direct cost on the sale. It's not like your rent or your taxes, or anything like that, that is averaged over all the sales you do. The credit card costs are directly attributed to the sale of that particular product at that time. It's a direct cost because when you do your profit and loss statements, you look at direct costs and you look at indirect costs. Indirect costs, you usually average across all your sales and direct costs you put directly towards a product. So that's the way this should be looked at, because, if indeed, they're getting large fees which they have to pay for by credit card, then their margins are actually lower and it is a direct cost. So you can't use the analogy that it's part of the profit because it isn't. It's a direct cost for that and then you have to review your costs using standard accounting practices on your gross margins.

MR. KEEFE: Yes (Interruption) And as Mike just pointed out to me, that is addressed on Page 41 of the report.

MR. COLWELL: And these margins, when you get through the whole arguments - then they start talking about rural areas. Basically what they say in the report is, in rural areas, everyone is within half an hour. It's a blend between the cost of driving to a location with a higher price gas in a rural area or going to another area that may be a little bit further away at a lower price for gas.

Well, that's fine, but in rural areas people like to support their local independent business, who is probably a friend of theirs or a family member, whatever, but they won't spend the extra money - quite frankly because they probably can't afford to at today's costs. Every time one of these stations closes, that means that a few jobs come out of the community. There's a service that's gone because maybe they do some mechanical work or a convenience store, or whatever they have to do to survive. Now, some of the retail outlets have been good at doing that and some haven't been able to because of their geographical location.

So when you go through this, how many of the retail independent dealers agree with the findings of the report that indicate people will go there anyway? If it's basically to a rural gas station rather than go, you know, another say 20 minutes, or whatever the number would

[Page 20]

be, to a lower priced one - maybe in a bigger centre where they will then also buy other products that would maybe hurt the local service station. I mean there just seems to be some holes in that argument they've got there.

MR. KEEFE: Well, I think on average the evidence shows that people are doing exactly what you're saying. They're driving to the larger centre and purchasing their gas there, likely because it's also where they're going to get their groceries, or anything else, and filling up while they're there. Nonetheless, when you get a situation, the further you are away from that major centre, it obviously becomes a cost once you start having to drive 20 kilometres or 30 kilometres to get your gas. There's a cost to go get the gas that I'm sure people will balance and, therefore, the more remote, the station can charge the extra margin because the customer has to pay the costs.

It certainly is one thing we are quite concerned about. We refer to it as the last man standing scenario - but we don't want communities where - I mean if there's one service station left, well, there's no competition, but at least there's gas. If there's no service station left, that is a major issue. So we are analyzing where are the risks of that. Even in a situation where you drop down to one, it's certainly not pleasant for the individual involved. If you had two 300,000 litre-a-year stations serving a community and one leaves, you then have a 600,00 litre station serving that community which is much more viable into the future than the two were before.

MADAM CHAIR: The time for the Liberal caucus has expired. We'll now have a 20-minute round from the PC caucus. Mr. Parent.

MR. MARK PARENT: Thank you for your presentation and your presence here. I want to just go through the Keep the Heat Program again, and just go through the statistics. So, last year, 24,000 homes received the rebate that was given, is that correct?

MR. KEEFE: It was 25,504.

MR. PARENT: So, 25,000 homes and about 4,000 furnaces were tuned up as a result of that?

MR. KEEFE: Yes, 4,500, yes.

MR. PARENT: And how many kits were distributed - the efficiency kits?

MR. KEEFE: We got requests for almost 19,000 - 18,900 - but we had that limited, it was a pilot, so it was limited to 6,000 and we did draws.

MR. PARENT: So 6,000?

[Page 21]

MR. KEEFE: Yes.

MR. PARENT: I'm fairly impressed with the statistics for a new program. Of course, we could do better on it and that was the point of my colleague. However, I hope the criticism that he makes is not simply of the department for not doing better, but of us as MLAs. As MLAs, I think we all have the responsibility to inform our constituents of programs like this and to try to make sure that the upkeep is as high as possible. I know I did that in my riding and I would assume, knowing he's a good MLA, he did that in his riding. I just want to point out that the responsibility of these programs lies not only on your shoulders, but on our shoulders as well. I think that's important to state. So I look forward to the new program, the expanded program. Impressive statistics the first time around, and I hope they're even more impressive the next time around.

My Liberal colleague stated that many gas stations went out of business since the Gardner Pinfold report was commissioned - is that true? How many stations went out of business since the report? Do we have statistics on that?

MR. KEEFE: Do you have that number, Mike?

MR. DUDA: No, we don't collect that data on a monthly basis. That's collected yearly by the Department of Environment and Labour, through their licensing process. We would only know, anecdotally, whether stations closed in the last few months or so.

MR. PARENT: The comment really has no statistical weight behind it.

MR. DUDA: I'm not sure who the comment came from or where they may have gotten their information, but as far as government is concerned we don't track that data on a monthly basis.

MR. PARENT: My understanding is that the statement which was made by my colleague just recently, earlier in the conversation, that actually the reverse may well have been true, that there may have been a small net gain in stations, but certainly we don't have the statistics to buttress his negative claim that many stations have closed. I guess I'm belabouring this a little bit because it's important in these important discussions on energy, the cost of gasoline, home heating, that we have accurate statistics and that we base our policy on accurate statistics, which I think is what the department is trying to do - I know it's what the government is trying to do.

I want to go on to the federal tax money on gas, and maybe Ms. Harnish could enlighten me on this one. My understanding is that the provincial tax money on gasoline goes to highway maintenance and construction, that the two columns match up - in fact more money goes to highway maintenance and construction than we take in in gas money. Is that a fair statement?

[Page 22]

MS. HARNISH: That's accurate. We do a reconciliation each year, as we are budgeting, to ensure that there is sufficient allocation to the Department of Transportation and Public Works to more than compensate for the amount of motive fuel tax taken in.

MR. PARENT: Could you tell me what is the case with the federal gas tax money that is raised off gas, how much of that comes back to the province for roads?

MS. HARNISH: I don't have that percentage. We know it's a very low number, of course. Historically, we've not been a very large recipient of federal monies for infrastructure related to highways.

MR. PARENT: At a forum put on by the Nova Scotia Chambers of Commerce in Truro, that I attended, the figure was given that $6 million was all that came back from the federal government, which is absolutely scandalous.

MS. HARNISH: Yes, I've seen that number as well.

MR. PARENT: To me it's breathtakingly scandalous that the federal government would take that much money from us in taxes and return that little money for roads, when we know we need roads. In fact the statement was made there - I asked or someone asked the federal representative why we weren't getting this money and why the federal government wasn't putting money into roads in Nova Scotia, and the only response he could give is that they put it in New Brunswick because their roads were worse than ours. We just sort of sat there with our mouths open at the wisdom of that sort of policy initiative.

Now there has been a lot of comment about the HST being dropped, not just on gas - you addressed that, Ms. Harnish, in your comments - there's been a lot of comment about the HST being dropped on home heating. There are different opinions. I understand that even my colleague from the NDP, the member for Halifax Fairview, didn't think it should be dropped on gas, because our provincial money goes, as you stated, to roads.

I want to focus in on home heating oil, fuel oil, because the statement has been made by the NDP that this is what should be done, it should be dropped. There are certain problems in that. One is, if you drop it on home heating, why not drop it on wood, electricity - where do you stop once you start dropping tax money?

[10:00 a.m.]

The second problem with that, in my opinion, is that when you drop it on certain commodities, the people who use that commodity most, the people who are most able to pay for it benefit the most. I always find it very frustrating that the NDP claim to stand up for those who have little money, little resources, and yet come up with policies that would actually benefit those who have more money.

[Page 23]

The main argument, I understand, why the HST on home heating oil would be difficult to drop is you would need two provincial governments and the federal government to agree on it. Is that true?

MS. HARNISH: If we were to change the tax base, under the agreement that we have with the federal government and the other two Atlantic Provinces in the HST agreement, unanimity is required to make a change to the tax base that has a net impact of a certain magnitude. The magnitude of the tax reduction that would flow from eliminating HST on home heating fuel alone would be sufficient to trigger that requirement. So yes, changes . . .

MR. PARENT: In your considered opinion, having been in your job and had experience dealing with the other governments, what would be the likelihood of getting unanimity on that?

MS. HARNISH: There is almost no likelihood of receiving unanimity on that based on any conversations we would have had with colleagues in the federal government or other provinces.

MR. PARENT: So we have a Party stating a policy initiative that they couldn't fulfill if they were in power?

MS. HARNISH: Certainly under the SUTCA agreement, the policy agreement we have right now with the other provinces and the federal government, a change to the tax base of that sort would not be something that we could effect without the unanimous agreement of the other parties.

MR. PARENT: So the only option that the Party who makes this policy would have would be to tear up that agreement and throw the whole relationship on tax money with the other Atlantic Provinces and the federal government, throw it into some sort of chaos. That would be the only option.

MS. HARNISH: We would have two options. We can give notice and withdraw from the agreement with an 18 month notice provision, we could refer it to the committee that has been set up to deal with requests of that type and we could enter into discussions. I think they would be long and arduous discussions because our understanding is the other partners have little interest in that at this point in time.

MR. PARENT: One can see the federal government not wanting to cut HST in the Maritimes because then they'd have to cut it across the country.

MS. HARNISH: Well, we do have a common base which is applied right across the country. It's GST, certainly, in all of the other provinces, other than the HST provinces, and

[Page 24]

we have piggybacked on the same tax base for our own provincial tax component under the harmonized agreement.

MR. PARENT: So in the best of all possible worlds, this policy couldn't be enacted before 18 months, even if everything fell into place?

MS. HARNISH: Certainly as long as we stay within the agreement, it could not be. That's right.

MR. PARENT: Thank you. Back to you, Mr. Keefe. One of my constituents - and this may be a psychological thing, we notice when prices go up, we don't notice when prices go down. One of the constant criticisms they have about gas pricing is when it goes up, it goes up instantaneously; when it comes down, it comes down slowly. Was there any evidence to that or is that just a psychological thing, when prices go up of course you notice it, when they come down you sort of overlook it. Is there any evidence to that?

MR. KEEFE: Yes, we tend to notice. We call it, rocket up, float down. It seems the price goes up very rapidly and comes down in steps.

MR. PARENT: So there is some truth in that?

MR. KEEFE: I suspect that's the nature of the market, yes.

MR. PARENT: So that's dependent on the market coming down, the stock market in New York, not on retailers making that decision?

MR. KEEFE: In looking at some numbers we've been seeing lately it seems that the retail price at the pumps does lag New York a bit coming down, so I assume they're making sure that's the direction it's going before they make that commitment to their own price.

MR. PARENT: They go up fast.

MR. KEEFE: They go up very fast.

MR. PARENT: There's a problem here. Is there something the province can do to ensure that? I mean is it a global commodity; no one is arguing that we can change the price of gas globally - a province of a little more than 900,000 - but we can ensure that it goes up and down following that global market, can we not?

MR. KEEFE: Possibly. Certainly you are seeing the local market, the local prices are tracking closer and closer these days to the NYMEX market for gasoline.

MR. PARENT: So, it's getting better?

[Page 25]

MR. KEEFE: It's getting better, no question. They also use an inventory system, last in, first out. So the price they're showing today is really, they're looking at, what do I need to replace that litre of gas. What's that price going to be as opposed to what maybe was their actual cost. You can even see their point in this situation in a market like they were in, in September, where the price was increasing tremendously. The cost of that next tanker of a significant amount more than the previous one so they had to manage their cash flow that way as well. Yes, that's something we're looking at and again it's why we want that data, more accurately, right at the transaction levels so we can find out exactly what's going on in the timing of when they pass on the reduced prices.

MR. PARENT: I have lots of other questions, but I have colleagues who have questions too, so I'll turn it over to my colleague for Waverley-Fall River-Beaver Bank.

MADAM CHAIRMAN: Mr. Hines.

MR. GARY HINES: Madam Chair, in opening my statement I would like to thank the former chairman, our colleague, Mr. Steele for the reign that he had over the committee. He did a fine job and we look forward to the same kind of performance with you as the new Chair. Congratulations.

I'd like to move and go a little bit further on the discussion regarding removal of the HST. I know that to the public, reading headlines like, NDP suggests removal of the HST from heating fuels, it's dramatic, warm and fuzzy, and something that the average Nova Scotian can relate to. You've already outlined the difficulties of that being something that's viable and something that we can . . .

MADAM CHAIR: Order, please. It's hard to hear if there are additional conversations going on. I would ask the members to bring themselves to order.

MR. HINES: So it's difficult and to be timely because we're constantly criticized for our program for the returns not being timely when, in fact, there could be returns as early as the end of November on applications that have been submitted. I think it's a bit far fetched to suggest that the removal of the HST would be timely, at this point.

I would like you to make a comparison. The $250, what would that relate to in terms of total fuel sales, if it were the HST component?

MS. HARNISH: I think what you're asking me is, what is the provincial HST on the annual bill of a typical homeowner?

MR. HINES: Yes. I guess what I'm asking is, $250 would be the HST portion on somewhere around $3,000 worth of fuel, would it not? I'm trying to relate and compare the

[Page 26]

two because there is some suggestion that our program is light. I would suggest that our program probably in terms of recognition of $250 would be on the average, heavy.

MS. HARNISH: Based on some quick calculations that we would have done on the typical homeowner, the provincial portion of the HST for a homeowner for an annual basis is, maybe $175 to $200 per year.

MR. HINES: Yes. I would like to move now to the family-owned or home-owned or independent retail gas outlets. My colleague alluded to the fact that there may be a net gain of two. That's the figure that I've heard that there were some stations closed, but were also some that opened, making a net gain of two as of two months ago. What has happened in the last two months, I haven't heard. Are not a lot of the problems that the independent retailers have in the agreements that they have with the oil companies? Can you explain to me why we're getting immediate price increases where there's a change in the oil barrel prices? Is it not the fact that many of these contracts and agreements, that the fuel that's in the tanks does not belong to the station owner, therefore he's dictated to by the wholesaler as to when the prices will change? Is that true?

MR. KEEFE: There are a wide variety of models out there. Some of the independents do indeed work on consignment. They do not own the gas. They merely pump it for the major oil company that does own the gas. In that case the major oil company does indeed set the price because it is their gas that is being sold. Others though do operate on a buy and sell. So they buy the gas, they own it in the tank and they're free to set their own price. Some, from what I understand - actually it's one of the things I noticed in the report or in talking to the consultant - there are some contracts out there where the price of the fuel, the wholesale cost is actually tied to whatever the retail market is that day, which tends to fix our margin.

So there's a wide variety of models out there, probably almost as many as there are independents it seems, various methods of contracting, so the different wholesalers have their own way of trying to support, or not, their dealer network.

MR. HINES: So, many of the problems that exist for the retail gasoline outlets, privately owned gasoline outlets, are of their own doing in contract agreements, they're not something that we as a government could step in and change - would that not be a fair statement?

MR. KEEFE: Yes, some of them are just the business deal they struck, but the overall market is changing as well.

MR. HINES: Why do gas prices rise just before long Summer holidays and long weekends? Is that, again, something that the wholesalers have been able to do because of contractual agreements?

[Page 27]

MR. KEEFE: Now this is not something we've seen because, up until recently, we certainly hadn't the data fine enough to see that, the data gathered weekly. We are not aware of anybody who has the statistical evidence that can demonstrate that. Again, with the data we'll be collecting over the next several months, we'll get a much better handle on whether or not that's really happening.

MR. HINES: Are there price setters and price followers in the Canadian oil industry, in your opinion?

MR. KEEFE: I would think so. I've heard that said, that there are price setters and price followers.

MR. HINES: What role does supply and demand play in the petroleum product price fluctuations?

MR. KEEFE: Pardon?

MR. HINES: Can you explain the role that supply and demand plays in the petroleum product price fluctuations? The price is controlled, is it not, on the world market, and therefore supply and demand plays a role in the pricing? How does that work?

MR. KEEFE: The price of crude is certainly on the world market, that's a worldwide commodity and that tends to sit a floor below which gasoline/diesel prices won't go. Gasoline and diesel themselves, though, are commodity markets above and beyond the price of crude. As we saw in September, there became quite a gap between the price of gasoline and the price of crude, because there were supply/demand issues with gasoline caused by a lot of refinery capacity going off line. There are really two operating independently there, and the one that is dominating right now is the commodity market for gasoline, because the shortage of supply has driven it well above the crude.

MR. HINES: What are the benefits and the drawbacks - and I know I only have a short time left - of government-regulated crude oil prices or pump prices? What are the benefits of regulation?

MR. KEEFE: The benefits of regulation - well to begin with there are a lot of different models of regulation. There's everything from regulating some behaviour, in other words the way the contracts between the retailers and the wholesalers can exist, and there are things like below-cost selling models that exist in Quebec, and there are models like P.E.I. and Newfoundland and Labrador where it moves right up to the retail level.

[Page 28]

The main benefit we've seen from the P.E.I. model is that it smooths out the day-to-day variations in fuel. They tend to be once a month rather than every couple of days. But again, we as saw in September, because of that very unusual situation, P.E.I. had to change a lot more frequently just to maintain the viability of their industry.

That's the principal benefit I can see, it puts that out. It does guarantee a margin for retailers, obviously, because that's the way the price is set. However it hasn't seemed to prevent the disappearance of independent retailers in P.E.I. at approximately the rate they have in every other province. So, it does guarantee the margin, but it doesn't seem to help with the viability.

MADAM CHAIR: The time for the PC caucus has expired. We'll now have a final round of 11 minutes for each caucus, and we'll go back to the NDP caucus.

Mr. Steele.

MR. STEELE: I do want to turn to the question of tax on tax, but before I do that I just want to say two things about what the member for Kings North was saying.

I have here an article from the Kentville Advertiser which, I think, is in his constituency, dated December 3, 2004. The executive director of one of the service agencies in his constituency had raised the issue of the fact that most of the people who are in need of help don't actually qualify for the Keep the Heat program, to which the member for Kings North replied, "Parent said Wednesday he'd raise the question of expanding their eligibility for the service in the Legislature." As far as I know we're still waiting for him to do that.

[10:15 a.m.]

On the question of the HST, of course - now, if I had an energy strategy like the government, I, too, would focus on the federal gasoline tax and on HST rather than talking about the program they actually have in place. What they overlook is that the answers coming from the Deputy Minister of Finance are very carefully coached, and they are true on their own terms, which is if you're going to change the HST agreement, here's how it would be done. Of course everybody knows that that's not the only way of doing it, and if the members on that side had so much of a problem with changing the HST agreement, they should have mentioned it to their Energy Minister when he got a blaze of publicity in August when he said the government was considering doing exactly that. Of course that was when we all thought we were on the eve of an election, and it seemed like a good idea at the time when there was an election on the horizon.

[Page 29]

Okay, let's turn to the question of tax on tax. I'll direct my question to the deputy minister, and if you think one of your staff is better placed, you can direct it to them. Deputy, you said that it's not a lot of money, which of course is true. This is the HST on top of the excise tax, and you said in your opening remarks that it amounted to roughly 1 cent per litre, it's 1 cent and a fraction, I think, but for the sake of argument let's call it 1 cent per litre. That's all true. Of course when you sell many millions of litres of motive fuel every year, it adds up. Just on the tax on tax, how much money are we talking about in a year in Nova Scotia?

MS. HARNISH: Well, I'd like you to recognize our data constraint first, and that is that HST and information of that type is always collected based on the total amount of revenue accruing on all products sold, so we don't have product-specific data. What I can't tell you is how much of the HST, for example, is returned to industry through the input tax credit system. Sometimes individuals tend to forget that business and industry does not pay any HST. It forms the basis of an ITC, an input tax credit, which is reimbursed to those businesses and industry. So some of the volumes that we are dealing with are not subject to HST at the end of the day, only the volumes that would be used by the end user not for production of a good or service, of course, are subject to tax.

That being said, you then have to understand that what I'll give you is a very maximum figure which will be reduced proportionately by the amount of business use of that volume. If every litre of gasoline and diesel was used by a final end user, your maximum amount would be in the area of $19 million, but of course we know that's not true.

MR. STEELE: So that's just the tax on tax? It adds up to $19 million?

MS. HARNISH: What I'm saying is that if you applied the actual tax-on-tax component, the provincial, for every litre of motor gasoline and diesel sold, your total would be just about $20 million, but a lot of that, in fact, doesn't occur because a large portion of that volume would be used by business and then rebated in the form of ITCs.

MR. STEELE: How much is a lot? Is it 10 per cent, 20 per cent, 30 per cent?

MS. HARNISH: I can't tell you. We do know, roughly, the split between gas and diesel is 75 per cent gasoline, 25 per cent diesel. One can judge that the largest portion of the diesel is used by business and industry, and the largest portion of the gasoline is used by end users.

MR. STEELE: Just for the sake of completeness, how much are we taking in this year, or do we project to take in this fiscal year from HST on motive fuels?

[Page 30]

MS. HARNISH: HST on motive fuels, well, the maximum, again, provincial component would be $77 million on gasoline. If all diesel was sold to end users the maximum would be $25 million. I think that $25 million is very high. It would be closer to $80 million to $90 million, I would suggest, in total.

MR. STEELE: But $77 million and $25 million don't add up to $80 million, they add up to $102 million.

MS. HARNISH: What I'm saying is that $102 million is before input tax credits.

MR. STEELE: Okay, so now you're saying that with the input tax credits, we're talking something in the range of $80 million to $90 million.

MS. HARNISH: Yes.

MR. STEELE: The problem with tax on tax is not so much that it's a lot of money, 1 cent per litre, when gas prices are where they are, 1 cent per litre here or there is not an awful lot. It's very difficult to track the individual slices of what you're paying at the pump. The problem is that it has a symbolic value, as I'm sure you're aware. In a society where most people, if asked, would probably say that they're overtaxed, the idea of a tax on a tax is like waving a red cloth in front of a bull. It's purely symbolic of what people feel is wrong with the taxation system. It is technically feasible, is it not, not to charge the tax on tax?

MS. HARNISH: No, not under our tax collection, our SUTCA agreement, it is not feasible for us to do that.

MR. STEELE: So we can put a man on the moon, but we can't not charge tax on tax.

MS. HARNISH: So long as we're a member of the agreement and we made a policy decision in 1996 to sign that agreement. So as long as we're in the agreement.

MR. STEELE: I'm not talking about policy. I'm talking about technical feasibility. We can program the pumps to not charge tax on tax. I'm talking about technical feasibility.

MS. HARNISH: There would be an extra cost, as you can appreciate, which I have no idea what it would be, to the retailers of the product if they were in fact to reprogram their pumps. Anything is possible technically because you can put a man on the moon, as you say. However, we are living under the spirit and intent of this policy agreement at this point in time.

MR. STEELE: What do you think would be the cost to retailers of reprogramming their pumps?

[Page 31]

MS. HARNISH: I'm sorry, I have no idea.

MR. STEELE: Do you think it would be as much as $19 million?

MS. HARNISH: I wouldn't even speculate. I don't know.

MR. STEELE: Do you think it might be close to $19 million? Or, do you think it might be a whole, awful lot less than that?

MS. HARNISH: I don't know.

MR. STEELE: Okay. So when you say that you could do it but it would cost retailers and not doing it brings in a maximum of $19 million, but you don't know what one side of the scale is. You say you don't want to do it because there's a cost, but you don't know what the cost is. Surely to heavens, reprogramming the computers isn't going to cost $19 million. Anyway, I know you said you don't know, but I can't imagine it's anywhere even close.

So it's technically feasible. I guess the point is simply that it's a choice we make and that's what you were getting to earlier. It is a policy decision that governments have made that they will do it this way. They don't have to, but they do and they do rather enjoy the revenues they get as a result.

MS. HARNISH: Yes, and as I've said in my opening remarks, certainly if you are to eliminate one source of revenue or significantly reduce it, you have a couple of choices and it's all about those policy choices if that were to happen.

MR. STEELE: In other words, we need the money.

MS. HARNISH: Yes.

MR. STEELE: One of the other issues around fuel prices that always concerns me is this issue of the connection between price and consumption. For years, as long as I've been in this business - which is now going on over seven years - the government says one thing to the complaint that the government is reaping an unexpected windfall when fuel prices go up. The government's answer for seven years has been, oh, no, we're not because when prices go up, consumption goes down. But, it's not true, is it?

MS. HARNISH: It is true in the case of motor gasoline, it's very accurate.

MR. STEELE: But it's not, is it? I mean the last time, when Neil LeBlanc was Finance Minister and he made this claim before the election, when the data actually came out, consumption had gone up because there is not a direct correlation between price and consumption.

[Page 32]

MS. HARNISH: There is in the case of motor gasoline.

MR. STEELE: So when the price goes up 30 per cent, you're saying consumption goes down 30 per cent?

MS. HARNISH: It's not a direct relationship. There is a price elasticity factor. Generally, we can say that based on studies that we have reviewed, as well as our own experience and our own data, tends to validate this, when prices go up about 10 per cent, you see a 1 to 1.5 per cent reduction in the volume consumed.

MR. STEELE: But the government gets more money in the end because consumption doesn't go down by as much as the price goes up, does it?

MS. HARNISH: We actually lose in motive fuel taxes because motive fuel taxes are a fixed amount in cents per litre. We would get additional revenues from the HST component on the product sales, however, what we tend to see is the fixed pot of HST overall.

A lot of people don't really understand this, the actual HST revenue accruing to the province is a proportion of the Canadian pool of GST and HST actually taken in. So in other words, what you spend here, the money doesn't exactly get recorded as HST being generated in Nova Scotia. There's a large Canadian pool of GST and HST. Nova Scotia's share is the proportion that is calculated by models which look at a number of things. We find that overall the pool of HST and GST revenue tends to be a fixed amount because consumers only have so much money to spend on goods and services. What they spend in motor gasoline when prices rise usually translates into somewhat of a reduction in spending on other commodities. Most individuals don't have a lot of flexibility in their spending. So what we gain in HST that would be generated through the gas pumps tends to be offset by reductions in HST that would be generated through sales for other commodities.

MADAM CHAIR: The time has expired now for the NDP caucus. Mr. Samson for the Liberal caucus.

MR. MICHEL SAMSON: Madam Chair, I'm wondering if the Deputy Minister of Service Nova Scotia and Municipal Relations could tell me since Bill No. 79 has been passed by this House, outside of the report that was done, what else has been done as a result of that bill being passed by the House?

MR. KEEFE: We set up a system to collect data, some of the sections gave us the authority to ask for a lot more information from the industry that we didn't have the authority to before. Through the Summer we did our spot base in three or four days to get it up in a hurry. Now we're asking for that information in much more detail.

[Page 33]

MR. MICHEL SAMSON: Could you tell me since that bill was passed by the House, has your department kept track of how many gas service stations have closed in the province?

MR. KEEFE: No, we have not.

MR. MICHEL SAMSON: Why not?

MR. KEEFE: To begin with, again we don't have access to that data. Environment and Labour do licence the tanks and annually we track the number of openings and closings.

MR. MICHEL SAMSON: So you're telling me Environment and Labour can tell you when a gas station closes. They can pick up the phone and say, by the way, another one is gone?

MR. KEEFE: I'm not sure if they can.

MR. MICHEL SAMSON: Have you asked?

MR. KEEFE: Mike might know better.

MR. DUDA: We have asked. They only license on an annual basis. They don't license from month to month so they only know that data approximately. They start collecting in January and February. They know in June what changes have occurred over the year, but they don't track data on an ongoing basis. It's an annual licensing process.

MR. MICHEL SAMSON: So you're telling me that when a gas station closes in Richmond County, your government only finds out one year later that it has actually taken place - right at the end of the fiscal year?

MR. DUDA: We have other sources of finding out, but they are not official. They are anecdotal. We may hear it from the RGDA, but that is not official when we don't keep that statistic on a monthly or regular basis. It's just once a year. If you're asking for regular official statistics, we only do that once a year.

MR. MICHEL SAMSON: So recognizing the debate we've gone through, recognizing the issue this has been and the impact that it has had on Nova Scotia, you're telling me today that with the passage of Bill No. 79, you have not kept track of how many stations have been negatively impacted and have closed since that time? That is your answer?

MR. DUDA: Since Bill No. 79 we have started keeping a closer watch of that through co-operation with the RGDA.

[Page 34]

MR. MICHEL SAMSON: Okay, so by keeping a closer watch, could you tell me today, that bill was passed a number of months ago, how many stations have closed since that bill was passed?

MR. DUDA: I don't know since Bill No. 79. I do know in the last year or so that there has been about 50 to 60 closures.

MR. MICHEL SAMSON: Okay, I'm just curious, which one of your staff was involved in the preparation of Bill No. 79? Just for example, Deputy Minister, were you involved?

MR. KEEFE: Yes.

MR. MICHEL SAMSON: Do you back up the statements made by your minister in the House of Assembly regarding Bill No. 79?

MR. KEEFE: Which statements would you be referring to?

MR. MICHEL SAMSON: Statements, for example, the speech made by the minister on May 18, 2005, do you endorse those comments made by the minister of your department?

MR. KEEFE: I don't know which comments you're referring to.

MR. MICHEL SAMSON: Okay, well, let me read you a few comments. On May 18, 2005, the minister, Mr. Barnet, regarding Bill No. 79, said, "It's a bill that will provide protection for the interest of Nova Scotians, it's a bill that will provide protection for rural Nova Scotia business, and that's what the bill is all about." Now, before I go any further, do you support those statements?

[10:30 a.m.]

MR. KEEFE: Yes, that bill gives government the authority to pass regulations.

MR. MICHEL SAMSON: No, it says it's a bill that will provide protection for rural Nova Scotia business. Do you support that statement?

MR. KEEFE: I'm not sure. The bill itself sets up and allows for regulations.

MR. MICHEL SAMSON: Okay, let me read a little bit more for you. Regarding Nova Scotians it said, "What they need is a real solution and the real solution exists in Bill No. 79". Could you tell us what that real solution is that the minister was referring to?

[Page 35]

MR. KEEFE: No, but I do know that the bill allows for a wide range of regulatory models that could be put in place.

MR. MICHEL SAMSON: Okay, let me read you a bit more, it said, "but these are small businesses, the businesses that we need to protect, the businesses that the members on this side of the House are committed to, the businesses that Bill No. 79 will ensure stay alive and vibrant and provide a valuable and much-needed service for people here at home, for people in Yarmouth, Argyle and Cheticamp." Is it your position that Bill No. 79 is going to ensure that gas retailers stay alive and vibrant in this province?

MR. KEEFE: It does give government the authority to act in that area, yes.

MR. MICHEL SAMSON: Will it ensure, as the minister has said? Do you back up the statement by your minister that it will ensure, meaning no other stations should close after the passage of Bill No. 79?

MR. KEEFE: I don't know if that's what he meant. I can't read his mind.

MR. MICHEL SAMSON: Okay, let me read a little bit further. I said, "as I have indicated we've seen a decline", referring to decline and the closure of stations, and then he says, "Bill No. 79 will stop that decline". Could you explain to me how Bill No. 79 is going to stop that decline and do you support that statement?

MR. KEEFE: No, I can't explain how Bill No. 79 is going to stop that decline.

MR. MICHEL SAMSON: Why would he have made such a statement if you as deputy minister are not aware of how the bill is going to stop that decline?

MR. KEEFE: I will obviously have to ask him why he would make that statement.

MR. MICHEL SAMSON: Okay. Do you pay attention to what the minister says in this House?

MR. KEEFE: I don't watch the House every day, no.

MR. MICHEL SAMSON: Do you have any of your staff who watches what your minister says? I guess if the minister says tomorrow that he's going to give free gas for a year, would you be aware of that as deputy minister?

MR. KEEFE: Yes. I assume he would tell us.

[Page 36]

MR. MICHEL SAMSON: Okay, so when he tells Nova Scotians in this House that Bill No. 79 is going to stop the decline of rural gas stations closing, do you not believe as deputy minister that you should be aware and either indicate whether you support that statement or not?

At the end of the day, you are the deputy minister, and the minister is relying upon you to back up his statements. He told Nova Scotians in this House that Bill No. 79 would stop the closure of rural gas stations. Do you support that statement and can you tell us as deputy minister, whether your staff is going to give Nova Scotia an indication that Bill No. 79 will stop the closure of rural gas stations.

MR. KEEFE: What we would be doing is trying to find out why those rural gas stations are closing . . .

MR. MICHEL SAMSON: With all due respect, he said it will stop the decline. He didn't say it would start to get information or data. He said it will stop that decline. He said it a few times. Do you support that statement?

MR. KEEFE: The bill by itself, no.

MR. MICHEL SAMSON: Okay, if I were to tell you that there have been closures of rural gas stations since the passage of Bill No. 79, would you agree with that?

MR. KEEFE: It wouldn't surprise me, no.

MR. MICHEL SAMSON: It wouldn't surprise you? Your minister says that that bill, if passed, would stop the decline, yet you're not surprised when I tell you that it hasn't?

Okay. By nodding your head I'm assuming that you agree with that. Just at the end the minister ironically finishes by saying to the members of the Opposition, "do the right thing. Don't confuse Nova Scotians with political rhetoric". If you are here telling me that Bill No. 79 is not going to stop the decline of rural gas stations. It's not going to keep those communities vibrant and ensure their survival. How are we to assume that this wasn't just mere political rhetoric from the minister, being that you're not prepared to back his comments?

MR. KEEFE: I really don't know how to respond to that.

MR. MICHEL SAMSON: No, and I don't blame you, but thank you for your honesty.

I'm just curious, with the federal program that has been announced regarding home heating rebate, have you had any consultations with federal officials as to how their program is going to work and how many Nova Scotians are expected to receive this?

[Page 37]

MR. KEEFE: No, but we've looked at the material they released on the program, so we understand what the nature of the program is, but we haven't talked to them about their application in Nova Scotia, no.

MR. MICHEL SAMSON: Okay. If I'm not mistaken, I think you indicated that last year over 25,000 Nova Scotians applied for the program. Your department figures about 60,000 should have been eligible for the program?

MR. KEEFE: Yes.

MR. MICHEL SAMSON: How do you figure out this 60,000 figure?

MR. KEEFE: We took an estimate of the number of people who were at the income amounts, we reduce that by the average percentage of Nova Scotians who rent as opposed to own, and then we further reduced that by the average Nova Scotian who heats with oil and propane versus other types and that's where we came up. Although we had to add on a few for the Guaranteed Income Supplement people.

MR. MICHEL SAMSON: So basically less than half of Nova Scotians who qualified, actually applied for this program?

MR. KEEFE: Yes.

MR. MICHEL SAMSON: Do you consider that a success?

MR. KEEFE: No, but again, we don't know whether or not all those 60,000 actually could qualify because they are all based on estimates.

MR. MICHEL SAMSON: Prior to this, when you had this home heating program was the percentage any better than what you had last year?

MR. KEEFE: I can't remember.

MR. MICHEL SAMSON: Let me submit this to you.

MR. KEEFE: I know the numbers that did, but I can't remember what the actual budget was at that time.

MR. MICHEL SAMSON: We were in government in 1999 and we had put out a similar type program and the results were dismal that did come back. At that point I remember we told the new government, if you try the same programs we did, you're going to get similar results if you make Nova Scotians apply for this kind of rebate. Unfortunately, either they're not aware or they don't take the time to do it, and the money is not making its

[Page 38]

way there. We could say that because we had experienced it. Could you explain why the government continues to go with this kind of program when, the results, you're getting less than 50 per cent of who you're assuming would qualify for this? Why has there been no change or is this government's way of saying here's how much money we're willing to put out, knowing that Nova Scotians aren't going to take them up on that total.

MR. KEEFE: I don't know the mind of government, but I do know the program has had some changes over the years.

MR. MICHEL SAMSON: Just going back again to Bill No. 79. One of the aspects of Bill No. 79 was to give consumers some sort of warning of price hikes that were going to take place. What happened to that?

MR. KEEFE: I think you're going back about a year and a half now, if memory serves, and while that isn't specified in the bill, that's the type of activity the bill would allow government to pass regulations for.

MR. MICHEL SAMSON: And could you explain to me why that hasn't been done?

MR. KEEFE: No, I can't.

MR. MICHEL SAMSON: Is the government . . .

MR. KEEFE: The government hasn't decided to do it.

MR. MICHEL SAMSON: Is it ready to go?

MR. KEEFE: We could do that fairly quickly, yes.

MR. MICHEL SAMSON: How quickly - tomorrow, a week?

MR. KEEFE: Well, not tomorrow, but several weeks to get that system in place.

MR. MICHEL SAMSON: How long has it been ready to go?

MR. KEEFE: No, it's not ready, but it wouldn't take us long to, you know, we would have to set up the administration to put that in place. So I suspect we could do that in weeks, it's not that complicated.

MADAM CHAIR: The time for the Liberal caucus has expired. Mr. DeWolfe.

[Page 39]

MR. JAMES DEWOLFE: Thank you, Madam Chair, and good morning, ladies and gentlemen. It's nice to have you here, Anne. Just on this Keep the Heat program, I go back to that since my colleague was on it and, you know, I can tell you that my constituents are very pleased about this program. I was out of town the last few days, away Friday and Monday from my local office, and I was talking with my constituency assistant last evening and she said the phones have been ringing off the wall, literally, over this. We're taking names and addresses and so on so when these applications are available, we'll send them right out from our office. There seems to be a great interest and I can say, on her behalf, that there's nothing that we've done in the last eight years that created so much interest. So I think that's a very positive thing.

It is my understanding, although I don't know all the details, you know, I was briefed on it like my other colleagues, but there is something there for just about everyone in the province if they choose to go that route. Isn't that the case? Like the wood pellet stove rebate, the high efficiency furnace - that doesn't have an income restriction attached to it, does it not, or perhaps you could explain that a little more. Mr. Keefe, perhaps you could give me some details on that.

MR. KEEFE: Yes. The government announced a combination program this year in addition to Keep the Heat, which we administer, I understand Energy also has a series of initiatives that are broader reach. Some of them are income tested but I do believe some of them are not. I believe the wood stove is one. I can't remember if our rebate leans into that one or not. So I'm not familiar with the details of that because that is operated by Energy, but I believe, you're right, there are aspects of that program that are not . . .

MR. DEWOLFE: Yes, I realize it's piggybacked by Energy but, nevertheless, it is energy related. It's a good news story for rural Nova Scotia, particularly the area that I represent because there are a lot of low income people in my area, sadly, and this is going to be certainly beneficial to each and every one of them, I'm sure.

I'm just going to bounce around a little bit, but I want to go back to some of the findings of the report. I have to admit, I don't know a lot of details about the report, but I am concerned about the so-called mom and pop operations and so on, and gas stations in decline. I'm wondering if there's any - I do understand that, yes, some stations closed across the province, but there were also stations that opened so it's my understanding there was actually a net gain. That doesn't make the owners of the stations that had to close feel any better, there's no comfort there for them. But, I'm wondering in the recommendations, is there anything to support our local retailers?

MR. KEEFE: No, that's a very difficult issue to get at because the underlying thing that's happening here is a change in markets and change in all our buying habits. It's not only the independent service stations. When I look around, I know there used to be a lot of independent stereo stores, independent hardware stores - they all seem to be disappearing

[Page 40]

into a new big box mode of operation. I think part of that's exactly what's happening with the retail - people tend to be buying at large centres today, rather than supporting the local businesses.

I think it's going to be quite a challenge for our gas stations to remain viable in a very small market, particularly if all they sell is gas. The money just isn't there. It has been suggested that the P.E.I. model with a fixed margin would help and I'm sure it would help, it may well slow it down a little bit. But, as P.E.I. has experienced, it doesn't stop it, it keeps on happening.

The other thing that happens, of course, there's no way we can guarantee a margin for small mom and pops without guaranteeing that same margin for everyone. Because, if we didn't keep the price the same at the large, obviously that's where people are going to buy. Of course, that puts a fair windfall profit in their pockets too.

So there's a lot of choices here and we're not really sure what would be the exact model that would pick them all up. I think that's the issue. We have some consumers who just simply don't like the absolute price of fuel, others don't like the fact it changes so much. Some of the independent retailers, they seem to complain more that it's a market behaviour issue between them and the wholesalers where for others the issue for them is pure survival. A lot of the solutions might help one piece of this but hurt another piece of this. This is the complexity of trying to get at the problem - how do you decide which of those is the biggest problem that you might want to address and how do you intervene there without making some other things worse?

One of the things we're concerned about in the P.E.I. model is by fixing it that way, one of the folks it puts pressure on is the wholesalers. I'm sure if those wholesalers were big oil, there's probably not a lot of people would worry about that a whole lot, but some of our wholesalers here in Nova Scotia, the small, independent wholesalers are the ones keeping that rural network viable. They're the ones that are willing to supply a service station in a remote location that's only selling 300,000 litres a year. If the model actually hurt that wholesaler, we might actually make the situation worse. There's a lot of things to balance to try to get at that situation.

MR. DEWOLFE: Interesting. Still the number one topic at the Tim Hortons in the mornings, you know, is gas prices. When I'm asked, I have difficulty in answering because I don't know if consumers are paying a fair price at the pumps these days. Are they, in your mind? I filled up at 98.9 last night, it was 96 in Ottawa so the prices aren't great. My brother complains about the prices in Alberta, so it's certainly a national and a North American problem right now.

[Page 41]

MR. KEEFE: What I can say is Nova Scotians are being treated as fairly as the rest of the consumers in North America.

MR. DEWOLFE: That's my impression too.

MR. KEEFE: Whether that other model is fair, that's a different question.

MR. DEWOLFE: I hear from our counterparts in the United States, from New Mexico to Maine, it's a big concern and some of these are oil producing states as well. I think that's a fair assessment. We're paying as fair as anyone else.

We talked about the sudden movements in the prices. Something that always bothered me was that the prices seemed to go up before a long weekend in the Summer and that's not by accident. What's your thoughts on that during the course of the studies and so on, to have this big price increase before a long weekend?

[10:45 a.m.]

MR. KEEFE: Again, I've seen no data to support that. I believe the Competition Bureau might have looked at that a few years ago and didn't find any hard evidence of it either. Of course with data fluctuating as much as this stuff does, it's very hard to pick individual trends out of that at any rate. I know the big thing that's changed in this market of course is the fact that over the last few years gasoline has become a commodity. Another big thing that's changed is that the U.S. now imports gasoline, not just crude oil, it imports refined product, especially here on the East Coast where those tankers very easily can move that product. It blocks us into their market. We become one large market. A large part of Imperial's product goes into the U.S., the same as the refinery in Newfoundland. That's where they send their product. So that's what locks us into that so, unfortunately, we are subject to the ups and downs of that market as well.

MR. DEWOLFE: When the price goes up with one company, it goes up with the other as well before the long weekend. Have you seen any evidence at all, even suspicious of predatory pricing at the wholesale or the retail level?

MR. KEEFE: No, I haven't, and actually as part of our research into this I went up last year to visit with the folks at the Competition Bureau to have a chat with them and try to understand how their rules apply and what evidence they've seen. They've looked at this issue several times. They had a report a few years ago, I think it was called The Final Fifteen Feet of Hose, referring to the hose to the car, and they updated that last year. They have found no evidence of that, but of course burdens of proof on that stuff are high too, so we keep watching them and working with them, but, no.

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MR. DEWOLFE: I just want to go for a minute to the recommendations of the report. I hope there is some recommendation to ensure that our rural communities can maintain these stations?

MR. KEEFE: The report, of course, didn't make any recommendations per se, but it did lay out a whole series of options. There are a few things in there we are certainly digging into. One is called, I believe, a uniform commercial code, a thing used in the U.S. to regulate some behaviour between wholesalers and retailers, we're exploring that. Certainly in remote locations we are trying to figure out where there's a situation where it's really a supply issue, just not a competitive issue, and trying to come up with some scenarios how we can address that situation to make sure that Nova Scotians can buy fuel.

MR. DEWOLFE: A quick question, what's your gut feeling about regulations, do you think it could benefit consumers if it's done at the retail or even at the wholesale level?

MR. KEEFE: Okay, obviously not my call, but no, I wouldn't expect to see much benefits from regulation.

MADAM CHAIR: Thank you, our time has expired for questioning. At this point, I would like to thank the witnesses and give you an opportunity to make a two minute closing statement if you wish to do so.

MR. KEEFE: No, I don't think so.

MADAM CHAIR: Ms. Harnish?

MS. HARNISH: I hope that the information that we brought today has been helpful.

MADAM CHAIR: Thank you very much. I would ask the witnesses if you would just remain seated for a few minutes until we adjourn. We have a couple of items of business that we will conclude relatively quickly.

I would ask the members to turn to the agenda. On the agenda we have two items. We have an outstanding motion left over from I believe, May, concerning the Freedom of Information Officer. Do you have that in front of you?

The motion reads, Therefore be it resolved that the Public Accounts Committee, supports the recommendation of the Freedom of Information and Protection of Privacy review officer that the position be made an Officer of the House of Assembly.

Is there any discussion on this? Would all those in favour of the motion please say Aye. Contrary minded, Nay.

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The motion is carried.

Did I hear a Nay? Mr. DeWolfe.

The motion is carried.

The next item on the agenda is the recommendations of the subcommittee with respect to agenda items. Is there any discussion on this? Mr. Steele.

MR. STEELE: I don't know how you want to deal with this, Madam Chair, whether you want to deal with the items en bloc or - my concern is over Recommendation No. 2. Do you want to deal with that now?

MADAM CHAIR: Well, perhaps we can deal with the recommendations in segments. Is there any discussion on the items listed under No. 1? Okay. So could I call for a recommendation that we accept the items under No. 1?

MR. STEELE: So moved.

MADAM CHAIR: Is there a seconder?

MR. SAMSON: I second it.

MADAM CHAIR: Would all those in favour of the motion please say Aye. Contrary minded, Nay.

The motion is carried.

Let's move to No. 2.

Mr. Steele.

MR. STEELE: This is a matter that arises from a meeting of the Public Accounts Committee on April 6th and involves how exactly this committee goes about getting certain information the committee would like to receive from Nova Scotia Business Inc. The NSBI declined to provide that information to the committee and I understand there have been some discussions ever since then about how exactly we are going to deal with the situation, where this committee has said it wants the information and the government agency has said, no or to be more precise, they have said no, unless certain conditions are met.

I simply wish to register my really serious concern at the idea that this committee will hold in camera meetings at all, other than briefings from the Auditor General. That is because if we have an in camera meeting then, in principle, none of us can talk about what we

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learned in the meeting. What is the point of an elected representative hearing things which they can't talk about? Then, it's just an additional layer of concern, the fact that the subcommittee is recommending that, in addition to meeting in camera, that there will be no transcript. I just think that this is an unfortunate precedent to be setting, because if we do it for one, other people will want it and it just is not a direction that I feel comfortable going in.

MADAM CHAIR: Mr. DeWolfe.

MR. DEWOLFE: Madam Chair, I think it is very important that we protect the interests of companies. It's certainly not our job to air private information relative to a particular case. I think, with regard to Mr. Steele's concern, I think it would probably - and I am quite sure that by attending this meeting - it will put any concerns that he has to rest.

We have a subcommittee appointed from within. The subcommittee has made a recommendation that these issues be held in camera for the protection of the companies. I would think that if Nova Scotia Business Inc. is going to be able to continue doing the job that they do in supporting industry and companies in this province, then we are going to have to follow the recommendation of the subcommittee. I hope that my colleagues to my left - having served in government in the past - would agree.

MADAM CHAIR: Mr. Colwell.

MR. COLWELL: Yes, I agree. The discussion we had on this is strictly related to private business between the government and a company, strictly related to that and nothing else. I, as our caucus does, want to see accountability by government, of course, and we want to see openness by government. But when it comes to an individual company that may affect them negatively in the marketplace, or in a competitive position with competitors within the province or outside the province, we feel that it is very important that those be held in camera, just those discussions.

Any other discussions that would relate to how the government gives loans, general information on how they do loans and anything to do with that, that's a different issue. But it's strictly with any information related to specifics with a very particular company that the company may not want to be made public for their own protection, and protection in a place. So we stand by the decision made by the subcommittee.

MADAM CHAIR: Is there any further discussion on this matter? Then in this case I think Mr. Steele has placed concerns on the record, but I would now entertain a motion with respect to the recommendation of the subcommittee's Section 2, moved by Mr. Colwell, seconded by Mr. DeWolfe.

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Are you ready for the question? Would all those in favour of the motion please say Aye. Contrary minded, Nay.

The motion is carried.

We can move now to Section 3. The subcommittee has received two written requests for specific witnesses to appear before PAC and are recommending AgraPoint International Inc. The Standing Committee on Resources discussed this as part of their agenda and if their agenda is unable to accommodate this, it will come to us.

Mr. Colwell.

MR. COLWELL: I sit on both committees and it was very clearly put by the Resources Committee yesterday at their meeting that they wanted it back here because they feel it's a financial matter and not to be handled by that committee, and it was unanimous.

MADAM CHAIR: As well, the Nova Scotia Liquor Corporation concerning the newly published Nova Scotia magazine, the standing committee had felt that that be referred to the Standing Committee on Economic Development. I don't know if anybody here has an update on what occurred with that or not. Mr. Steele.

MR. STEELE: I move adoption of the subcommittee's Recommendation No. 3.

MADAM CHAIR: Is there a seconder?

MR. MICHEL SAMSON: I second it.

MADAM CHAIR: Would all those in favour of the motion please say Aye. Contrary minded, Nay.

The motion is carried.

I would now ask for a motion for adjournment.

MR. DEWOLFE: So moved.

MADAM CHAIR: Thank you very much. The committee stands adjourned.

[The committee adjourned at 10:58 a.m.]