Debates of February 3, 2006 (day 22)

Thank you, Mr. Speaker.

WHEREAS the Legislative Assembly has recently instituted a number of changes to its budget review process to improve public access, transparency and efficiency;

AND WHEREAS in recent years the sitting hours of the Legislative Assembly during the winter budget session are frequently extended;

AND WHEREAS the Legislative Assembly is committed to remaining accessible and transparent to all residents;

NOW THEREFORE I MOVE, seconded by the honourable Member for Frame Lake, that "designated budget days" be implemented on a provisional basis;

AND FURTHER that Monday, Tuesday and Wednesday of each week be "designated budget days;"

AND FURTHER that the House shall commence sitting at 11:00 a.m. on "designated budget days;"

AND FURTHER that the time of adjournment on "designated budget days" shall be 6:00 p.m.;

AND FURTHER that notwithstanding Rule 34(6), the time allotted for Ministers' statements on "designated budget days" shall not exceed 10 minutes;

AND FURTHER that notwithstanding Rule 38(4), on "designated budget days," when a Minister answers an oral question, only two supplementary questions per Member directly related to the same subject may be asked;

AND FURTHER that notwithstanding Rule 27(2), the daily order of business in the Assembly on "designated budget days" be amended on a provisional basis to remove the items: replies to opening address, reports of standing and special committees, and motions;

AND FURTHER that notwithstanding Rule 4(1), the House shall not sit on Friday, February 17, 2006;

AND FURTHERMORE that the "designated budget days" provisional rules be effective Monday, February 6, 2006, until the prorogation of the Fourth Session.

Thank you, Mr. Speaker.

Speaker: MR. SPEAKER

Thank you, Mr. Braden. Motion is on the floor. Motion is in order. To the motion.

Thank you, Mr. Speaker. Briefly, this is a motion that, of course, I moved it, I'm speaking very much in favour of it. It is consistent with initiatives and efforts that all Members agree would be desirable for the efficiency and the improvement of our business. But I think, Mr. Speaker, the biggest advantage that I see in giving these new rules a try is that it will make us more accessible to the general public through the media, through the provision of doing our business more during hours that are more accessible to the public.

I remember very much the hours spent in this Assembly, Mr. Speaker, after 6:00 p.m. when most people are doing other things with their family, the media's not here, the cameras are turned off, and yet we continue with our deliberations and our debates. We might get our business done, but I think the interests of the public in knowing, and listening, and hearing what we're doing is lost. This is an attempt to bring us more in line, and I hope make our business more engaging and more interesting for people to watch and listen. Thank you, Mr. Speaker.

Speaker: MR. SPEAKER

Thank you, Mr. Braden. To the motion.

Question.

Speaker: MR. SPEAKER

Question is being called. All those in favour? All those opposed. The motion is carried.

---Carried

ITEM 19: CONSIDERATION IN COMMITTEE OF THE WHOLE OF BILLS AND OTHER MATTERS

I would like to call Committee of the Whole to order. The first order of business is Bill 13, An Act to Amend the Financial Administration Act. I would like to start by asking if the Minister responsible for the Financial Administration Act, the Honourable Floyd Roland, would like to introduce the bill.

I am pleased to introduce Bill 13, An Act to Amend the Financial Administration Act. This bill was introduced to allow the government and, more specifically, the petroleum products revolving fund, to use commercial financial instruments, such as fuel swap transactions, when prudent, to limit the impact of movements in fuel prices.

The petroleum productions division of the Department of Public Works and Services administers the petroleum products revolving fund under the authority of the Revolving Funds Act and the Financial Administration Act. PPD provides fuel sales, dispensing and delivery services in 15 NWT communities. PPD's costs to purchase fuel are determined by the Edmonton rack or spot market price at the time of delivery. The fuel market is very volatile and prices change frequently. This price volatility creates uncertainty for financial planning and budgeting.

Fuel purchases are PPD's main expenditures. A one cent per litre change in the rack price has a $250,000 impact on PPD's financial operations. PPD has difficulty predicting its financial position because it does not know the cost of fuel until after it has received delivery of fuel into its tanks.

Purchasing fuel on the spot market exposes PPD to the risk of sudden price increases. The use of commercial financial instruments, such as fuel swap transactions, when prudent, can limit the impact of fuel price movements.

A fuel swap is a fuel price risk management tool that would allow PPD to balance prepaid versus spot market fuel prices, potentially lowering the overall costs of fuel products purchased by PPD.

Under current legislation, however, PPD does not have the authority to enter into this type of financial transaction. The amendment proposed in Bill 13 would authorize transactions of this nature that are in accordance with regulations and guidelines to be approved by the Financial Management Board. A consequential amendment to the Revolving Funds Act will allow PPD to make expenditures for the purposes of settling financial agreements made under this section of the Financial Administration Act.

Regulations and guidelines will be developed and submitted to the Financial Management Board for approval, to provide the necessary checks and balances for those staff authorized to engage in such transactions.

At the appropriate time, I would be pleased to answer any questions that Members may have.

Thank you, Mr. Roland. I will now go to the chairman of the Accountability and Oversight committee, Mr. Menicoche, for the committee’s comments on the bill. Mr. Menicoche.

Thank you, Mr. Chairman. The Standing Committee on Accountability and Oversight met on December 9, 2005, to review Bill 13, An Act to Amend the Financial Administration Act. Following the clause-by-clause review, the motion was carried to report Bill 13 to the Assembly as ready for Committee of the Whole. This concludes the committee’s general comments on Bill 13. Individual committee members may have questions or comments as we proceed. Thank you, Mr. Chairman.

Mahsi, Mr. Menicoche. I would like to now ask the Minister if he would like to bring in witnesses.

Yes, Mr. Chairman.

Thank you, Mr. Minister. Does committee agree?

Agreed.

Committee has agreed. So, please, Mr. Minister, bring in your witnesses.

Does committee agree that the Minister introduce his witnesses?

Agreed.

For the record, Mr. Minister, please introduce your witnesses.

Thank you, Mr. Chairman. Mr. Chairman, joining me today are the acting deputy minister of Public Works and Services, Mr. Mike Aumond; the deputy minister of Finance, Ms. Margaret Melhorn; and, as well, we have from Justice, Ms. Patricia Gall.

Thank you, Mr. Minister. That was Patricia Hall? Gall. I will now open up the floor to comments by committee members. Mr. Menicoche.

Thank you, Mr. Chairman. With respect to how fuel is handled in the communities, particularly gasoline, that’s been operated by our government in the communities and the cost of that gasoline, as an MLA, it’s always a concern in the smaller, remote communities, such as Trout Lake and Nahanni Butte, that they are stranded. Our government does provide fuel to the communities and sometimes we allow individuals, not only in the band corporations, to run those products. However, it’s not really like a free market situation in the small communities. I know that we are providing a service. We are buying the fuel to put in there. Particularly of late, Mr. Chairman, the communities are saying that because early in the fall the gas prices were climbing and our government didn’t want to get caught short this year, I think we added an extra allowance and increased the cost of the fuel in anticipation of rising costs. Now I am just wondering how this new act would make it more flexible for the gas prices to come down?

For instance, in Jean Marie, they are still paying $1.40 per litre and that is September or October prices. That’s what they are saying. What is going on, Kevin? Why is the government sticking to this when everywhere else in the world the price of gas is declining? Yet, we are stuck with this. It’s a catch-22 for Jean Marie. Because their gas storage is $1.40, they are not going to be buying gas there. They will be driving out and buying their fuel from Fort Simpson, Hay River or even Checkpoint, which is a 15-minute drive outside the community. So now we are stuck with stranded gas that is $1.40. I don’t know how long that is going to sit there. We are probably going to have to take a hit. They are concerned about how we do that pricing. Even though they topped off the tank, they know darned well -- they aren’t specialists in oil and gas, or economic experts -- that that tank was half full. If they just topped it off, why is all the gas worth $1.40? They are saying it doesn’t seem right.

The fact is how do we make it more flexible and more responsive to market prices in the small communities? Smaller communities often say that just because we are here, doesn’t mean we have to be penalized. That’s the way they feel, Mr. Chairman.

I know I have the Minister’s opening remarks here, but I wonder if the Minister can detail how these new changes will roll out in the small communities and how they will be more responsive to their needs. The cost of living is quite a burden on them. I don’t know how they’re doing it today, Mr. Chairman, because they’re paying for the heating fuel costs, which is also fixed, too, in the smaller communities by our government. So just with that, Mr. Chairman, I’d like to hear a response from the Minister and his staff.

Mahsi, Mr. Menicoche. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, the bill that’s before Members will give us some flexibility in how we go and get our fuel. But ultimately what we’re faced with is paying the price of the product when it is delivered in the tanks, and beyond that there is no more flexibility because the policy we have set in place now is that we have to pay for the actual product that is delivered. We’re still not charging for the capital that’s there, the tankage and so on. But for the product delivered, we’re having to recover actual costs. So that’s what the Member’s communities are feeling.

All communities served by the petroleum products division is the fact that we have to pay for the actual landed costs in communities when it is delivered. So those communities that receive it by barge, once it’s soft-loaded off the barge into the tanks, we’re given a bill. Those that are by ice road, again it’s delivered from the trucks into the tanks. What we’ve been faced with in the past, and even felt it more so this past fall, was the fact that the prices were climbing considerably and by the time we were delivered into our facilities, there were some significant jumps in previous years. There’s good and bad to that, I guess one can say. The fact that if you’re in a private sector community there’s some fluctuation, as their tanks are emptied and refilled, that they can lower their prices to compete; whereas, in our situation, we have to pay the actual cost of the product. We have a very small margin of flexibility when it comes to carrying over any surplus or over-expenditure.

What we’re hoping to do with this bill is that when we go out to get the product, if we see that the market is fluctuating quite significantly, we can do some fuel swap transactions as laid out and potentially have some savings there by pre-purchasing fuel on future markets that would allow us then to have a savings when we actually have it delivered. So that’s the one thing this can help us in delivering the product to communities and hopefully creating a somewhat more stable environment than we are faced with today, because today’s practice is it’s a rack price and it’s at the time of delivery and we have to bill for the fuel that is delivered at that time.

The concern about Members knowing that there is some fuel still in some of the tanks and when we refuel we increase our price, what happens is there’s a measurement. We know how much fuel is in the tanks, when they’re refuelled and that fuel at the old price is blended with the new price. So there’s an average between the two. It’s not automatically just paying the higher cost for the full volume. It is blended. Thank you.

Thank you, Mr. Minister. Mr. Menicoche.

Thank you very much, Mr. Chairman. I’m still not too clear how this change in the legislation would help a community like Jean Marie, whose stuck today at a fuel cost of $1.40 and that product’s not going to move very quickly because it’s at $1.40 and they can just drive 15 minutes down the road and get their product for $1.09. So does this mean that the Ministry will have the flexibility to drop that price because it’s not being moved? How is that going to work there, Mr. Chairman?

Mahsi, Mr. Menicoche. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, this bill will not give us the flexibility of lowering the price if the product isn’t moving. The policy we have in place is that the department has to recover its full cost of fuel delivered. So unless there’s a private sector company that steps into a community and starts delivering fuel, we have to recover the cost of the actual fuel delivered.

What this bill will do for us is give us somewhat more certainty than we have right now in our ability to purchase the fuel. Instead of paying the right rack price, which can jump significantly in short periods of time, we can, if we see a trend occurring, buy on the future markets at a certain price and have that delivered and have some savings potentially there, and that savings would be passed on then to the customer. But it would not allow us to change the price from week to week, or month to month, that you would find in private market communities. Thank you.

Thank you, Mr. Minister. Mr. Menicoche.

Well, Mr. Chairman, I’m not quite sure how the Minister intends to bring the smaller communities in line. Like the gas prices aren’t going to rise anytime soon back to $1.40 where it will be marketable in communities to buy fuel at the storage tanks again. So that fuel is going to be stranded for awhile. I think the communities were looking for a solution. What they do in the free market, too, is they have sales. So it could be the communities are looking for a Floyd’s blow-out fuel sale in the smaller communities here, just so we can readjust and get these fuel prices back to levels in the smaller communities that are comparable with the rest of the world. So that’s what they’re looking for. They’re looking for solutions. We’re saying we’re a global village, yet we like to penalize people for living in isolated communities and they’re saying that’s not fair. We’ve got to build and design a system that’s more flexible and how do we do that? I’m not quite sure, but we’re going to have to do something. We cannot keep that gas there for $1.40 because it’s just going to stay in those tanks and people are not going to buy it. So, you know, they got caught up in this whole rising prices and everybody knew it wasn’t sustainable. So now we’re down back at more normal levels. It’s still higher than, of course, a year or two ago, but in the communities they’re really extraordinary costs on gasoline prices and it affects every venue of their lives. So that’s one issue there. But it’s just not clear to me how this amendment will help address those concerns, Mr. Chairman.

Mahsi, Mr. Menicoche. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, the bill that’s presented would allow us to deal with the impacts of fuel prices before we get it delivered into the tanks. There is no provision in the act itself to deal with the fluctuating costs throughout the year. The policy that we’ve been directed to fulfill is to recover actual costs of product delivered into those tanks. In some cases, that can work in a positive way for some of the communities because if we can get a price product delivered at a time of year when the prices are somewhat lower and as they increase throughout the year, other places with private markets would adjust their price upward, ours would be locked at the same price. But right now, I mean, we’ve not really had this happen to us before where we went out and bought at a higher price and then it’s worked its way down. The Member is correct; in a lot of the other communities where prices were $1.30, 40 cents a litre, even in Yellowknife, I believe, it was as high as $1.20 or in that range for a short period of time. It’s worked itself down, but because we purchased a price at rack price, we’re stuck with that price for that product. What I’ll commit to do is find out the volume sales and what’s happening out there. But what I’m informed as average right now across the board that the communities were involved with, we’re actually selling more fuel now than we’ve done in the past year.

But for the particulars there, this bill will not give us the flexibility of taking a loss on fuel product sales. That’s what we’d have to look at, is if we’re going to drop the price of the product in the tankage, then we’re going to have to account for a loss of revenue and potentially, if that continues to happen, we’re going to have to come to this Assembly for a write-off for some of that. Thank you.

Thank you, Mr. Minister. I have Mr. Braden next. Mr. Braden.

Thank you, Mr. Chairman. I’ll speak in favour. My position is in favour of this bill. I think if we can take advantage of a technical way of doing something better, minimizing our exposure to, as the Minister said, the volatility in any market, especially the fuel market, then it’s a good one and we should proceed with it. I guess what I’d like to do, though, Mr. Chairman, is just get a sense of the scale or the scope of the dollars that we’re talking about here. I don’t need a huge, detailed picture, but what are the volumes and perhaps the dollar values that PPD deals with on an annual basis? The very big picture, Mr. Chairman. Just tell me; give a sense of the volumes and quantities we’re talking about. Thank you.

Thank you, Mr. Braden. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, if you look at the process we’re involved with on an annual basis, we’ve now worked with the Power Corporation and are pulling them into this solution where there’s bulk buying with savings for both sides. Initially, just with PPD, the communities we served, it’s in the area of -- and I believe it’s in the budget documents -- $12 million annual sales. As I stated in my comments, a one cent change in price per litre can affect us by $250,000. So on one hand, if we can get this through and be able to buy on a future market and save ourselves two or three cents, that’s a significant amount of dollars we can save, and in a sense that would be directly passed on to the consumer. Just as if the price is high, we’ve had to pass on that extra cost. Thank you.

Thank you, Mr. Minister. Mr. Braden.

Mr. Chairman, has the vision run any scenarios? Again, I’d just like to get a sense of if we had this instrument and we had this practice in place, say, over the past fiscal year, given the volatility and the conditions of the market, do you have a scenario…Does the division have a scenario or even some good estimates of what we may have saved if we’d had this in place? Again, Mr. Chairman, just to give me an idea of the scale and the scope of the kind of money we’re talking about here. Thank you.

Thank you, Mr. Braden. Mr. Minister.

Thank you, Mr. Chairman. Mr. Chairman, I don’t have a scenario to present to Members about the actual impacts of litres that were purchased and how much potential savings there are. All I can go towards right now is if we had this tool available when the prices started to go up and if we were able to purchase on the future market, just looking at the percentages that have happened, we’ve had some products go up by almost 50 percent from what the price was. So if we were able to buy just as it were starting to climb, we could have saved a significant amount of dollars. We had some large increases in communities in this last year that we probably would have been able to save anywhere to half of the actual increases. But, unfortunately, that’s not available to us; that tool isn’t there. That’s why that thought was there. But looking at the legislation, we were not permitted to do so and that’s why we’ve come forward for that now. Thank you.

Thank you, Mr. Minister. Mr. Braden.