Order No. P.980212-4A
IN THE MATTER of the Petroleum Products Act, R.S.P.E.I. 1988, Cap. P-5.1;
- and -
IN THE MATTER of an application filed under Section 32 of the Petroleum Products Act, supra, by Irving Oil Limited for amendments to its schedule of propane cylinder and tank rental charges.
Thursday, the 12th day of February, A.D., 1998
BEFORE
Wayne D. Cheverie, Q.C.
ChairDebbie MacLellan, Commissioner
Clayton Bulpitt, Commissioner
Decision and Order
Further to the Commission's Order No. P.970522-1, Kelli Lester, Pricing Representative of Irving Oil Limited, filed with the Island Regulatory and Appeals Commission (the "Commission") on 17 November 1997 an application under Section 32 of the Petroleum Products Act for amendments to its schedule of propane cylinder and tank rental charges.
A Notice of Hearing dated 20 November 1997 with respect to this application was published in the Guardian on 26 November 1997 and in the Journal-Pioneer on 27 November 1997.
A public hearing into this matter commenced as scheduled at 9:30 a.m. on 12 December 1997 for the purpose of hearing evidence relating to this application, which proposed increases in four categories of its authorized propane cylinder and tank rental charges. The Applicant had not requested any changes to the current rates for tanks larger than 420 lb. capacity.
The hearing panel consisted of Wayne D. Cheverie, Chair; Debbie MacLellan, Commissioner and Clayton Bulpitt, Commissioner. Witnesses for the Applicant, Irving Oil Limited, were Kory Arthur, Pricing Representative and Darren Gillis, Heating Division Manager. No member of the public was present.
Seven documents were entered into the record as "Exhibits" by Commission staff. Supporting cost-related evidence was presented by the witnesses for the Applicant with respect to each of the four categories of cylinders for which an increase was sought. In addition to this cost analysis, evidence relating to the useful life of these cylinders was given, as well as information with respect to costs of installation, delivery, and refurbishing versus replacement costs. The Applicant’s witnesses responded to questions by Commission members and staff, and were requested to submit additional information in writing relating to customers who may not presently be paying cylinder or tank rental fees (including seniors) for the information of the Commission. In addition, the Applicant agreed to file additional information relating to the total number of tanks of each size which are currently used throughout the Prince Edward Island system, and the number of customers paying rental charges under each category.
The Commission reviewed the specific information provided in a letter dated 18 December 1997 from Kory Arthur of Irving Oil Limited, and noted that the information provided was filed as confidential. The Applicant requested that it not be released without its consent. However, without revealing the total number of customers involved or the categories of each, it was noted from this letter that of the Applicant’s total number of customers, there were a significant number of customers not paying any rental charges. As a result of this information, the Commission sought further specific data relating to this matter.
On 5 January 1998, Kory Arthur responded generally as follows:
"In situations where more than one tank has been installed, we plan on charging for the use of the first tank only.
All of our customers are classified as either commercial or residential.
We are not able to provide accurate information concerning the number of customers not being charged a cylinder rental as a result of being designated a senior. However, incomplete file maintenance is primarily responsible for customers not being charged a rental fee. It is our intention to charge all customers a cylinder rental fee for 1998.
The 200 lb. cylinders are being replaced with the 420 lb. cylinder as the tanks become due. All 200 lb. cylinders will be replaced within the next 5 years."
The Commission reviewed this correspondence and once again requested more precise information relating to the classes of customers not being charged rental fees and the total number of tanks required to serve each classification. This information was supplied by Kory Arthur in his letter to the Commission dated 27 January 1998, and once again, the specifics of this information were deemed to be confidential.
The Commission has reviewed the application and supporting evidence with regard to the request for increased cylinder rental charges. It was given in evidence that the existing cylinder and tank rental charges have been in effect since 1982, were filed with the Commission in 1987, and have formed part of all approved rate schedules of the Company and its predecessor, Atlantic Speedy Propane Limited, issued by the Commission since that time. The Commission is of the opinion that acquisition and refurbishment costs of propane cylinders and tanks should be predominantly recovered through rental rates rather than having extra costs being added to the per litre rate, and also notes that sufficient information has been provided which demonstrates that increased propane cylinder and tank rental charges are justified in order to predominantly recover the acquisition and refurbishment costs of propane cylinders and tanks as referred to in the application. Due to the fact that up to this time, rental charges have been assessed against only some of the customers involved, it would appear that once this matter has been rectified, the matter of appropriate product prices should be revisited.
After a thorough review, the Commission has determined that the proposed increases from $2.50 per month to $3.00 per month ($36.00 per year) for a 33 lb. portable cylinder and from $10.00 to $36.00 per year for a 100 lb. portable cylinder are just and reasonable.
These determinations are based not only on the capital cost of the actual cylinders amortized over time, but because the evidence shows that the cost of servicing customers with portable cylinders is higher than those costs related to fixed installations. Firstly, the company must have double the number of cylinders in order to replace empty cylinders with full ones, while fixed cylinders are filled on site from bulk trucks. Thirty-three pound (33 lb.) cylinders are made of aluminum, have gauges and more sophisticated valves ("spit-valves") and are therefore even more expensive than are 100-lb. cylinders. The cost of servicing customers using 100-lb. cylinders, however, is higher than that of the 33-lb. cylinders due to the fact that they take up more space on the truck, for example. The actual cost of transporting a 100 lb. cylinder was purported to be $10.90, counting all costs (vehicle, driver’s salary, operation and maintenance costs, manual loading and unloading costs, etc.) against the number of cylinders actually delivered.
With respect to the increase requested for customers using the 200 lb. fixed cylinder, however, it was determined that the existing rate of $15.00 per year should increase to only $30.00 per installation rather than the $39.00 per installation per year requested for the period of time during which this size of cylinder remains in the system, or until otherwise ordered by the Commission. With respect to the 420 lb. cylinder, the Commission has reviewed the request to double the annual charge for this type of fixed cylinder, and has determined, based on the information provided, that an annual charge of $40.00 per installation would be just and reasonable.
The Commission determined that all customers are to be charged in accordance with the approved schedule which is appended to this Order effective 1 March 1998. As noted earlier, this is the first increase in cylinder and tank rental charges in sixteen years, and is just and reasonable based on all the evidence presented.
Order
THE COMMISSION HEREBY ORDERS THAT the propane cylinder and tank rental charges to be charged by Irving Oil Limited, effective 12:01 a.m., Sunday, 1 March 1998, be in accordance with those contained in Appendix "A" to this Order, and remain in effect until otherwise ordered by the Commission.
DATED at CHARLOTTETOWN this 12th day of FEBRUARY, A.D., 1998.
BY THE COMMISSION:
Chair
Commissioner
Commissioner
APPENDIX "A"
IRVING OIL LIMITED
PROVINCE OF PRINCE EDWARD ISLAND
(EFFECTIVE: 1 MARCH 1998)
Yearly Rental on Cylinders and Tanks 100 lb. portable cylinder $36.00 per installation 200 lb. fixed cylinder $30.00 per installation 420 lb. fixed cylinder $40.00 per installation 334 gallon fixed tank $40.00 per installation 500 gallon fixed tank $75.00 per installation 1,000 gallon fixed tank $125.00 per installation 1,750 gallon fixed tank $175.00 per installation 2,000 gallon fixed tank $175.00 per installation Monthly Rental on Carburetion Cylinders
$3.00 monthly rental per company-owned portable cylinder ($36.00 per annum)
