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COAL AND PETROLEUM PRODUCTS COMMISSION (BRITISH COLUMBIA) Volume I. Report of the Commissioner The Honourable… British Columbia. Legislative Assembly 1937

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 COAL AND PETROLEUM PRODUCTS COMMISSION
(BRITISH COLUMBIA)
Volume I.
Report of the Commissioner
The Honourable Mr. Justice M. A. Macdonald
relating to
The Petroleum Industry
(Being Paragraph 2 and part of Paragraph 3 of the
Terms of the Commission)
October 21st, 1936
VICTORIA, B.C. :
Printed by Chakles F. Banfield, Printer to the King's Most Excellent Majesty.
1937.  To His Honour the Lieutenant-Governor in Council:
May it please Your Honour:
I, the undersigned Commissioner appointed under Your Honour's Royal Commission dated
the 28th day of November, a.d. 1934, to cause inquiry to be made into and concerning the
matters therein referred to, have the honour to report finally on the subjects referred to in
Paragraph 2 thereof, with additional incidental references arising thereout more Strictly
referable to Paragraph 3.
In due course a further final Report will be submitted on the matters referred to in Paragraphs 1 and 3 respectively of Your Honour's Commission.
I have the honour to be,
Sir,
Your humble and obedient servant,
M. A. MACDONALD,
Commissioner.
Victoria, B.C., October 21st, 1936.  "PUBLIC INQUIRIES ACT."
His Honour the Lieutenant-Governor in Council has been pleased to appoint the Honourable Mr. Justice M. A. Macdonald, one of His Majesty's Justices of Appeal of British
Columbia, a sole Commissioner under the " Public Inquiries Act" to inquire into the following
matters:—
1. The following matters respecting coal mined in or imported into British Columbia
and used for fuel purposes in British Columbia:'—■
(a.)  The cost of production:
(6.) The manner and cost of preparation for the wholesale and retail trades respectively :
(c.)  The cost of transportation:
(d.)  The cost to dealers in British Columbia:
(e.)  The cost to consumers in British Columbia:
(/.) The profits made by persons or corporations owning or operating coal-mines in
British Columbia:
{g.) The profits made by persons or corporations engaged in the business of buying
and selling coal in British Columbia.
2. The following matters respecting petroleum products, that is to say, gasoline, fuel-oil,
lubricating-oil, kerosene, and other petroleum products imported into or refined or produced
in British Columbia and used or designed for use therein for fuel purposes, lighting purposes,
or in the operation of internal-combustion engines:—
(a.)  The cost of importation or production:
(6.)  The cost of refining or preparation for use:
(c.)  The cost of transportation:
(d.)  The cost to dealers in British Columbia:
(e.)  The cost to consumers in British Columbia:
(/.) The profits made by persons or corporations engaged in the importation of
petroleum products into British Columbia, or in refining, producing, or supplying petroleum products for use in British Columbia.
3. Generally, all matters tending to show the comparative value of coal and petroleum
products for economic use as aforesaid in British Columbia, and the value to the economic
welfare of British Columbia of the development of industry based upon the production of the
fuels enumerated, or tending to show whether or not the prices charged for coal and petroleum
products respectively are unjust or unreasonable; and all such further matters as the Commissioner may consider to be incidental to any of the foregoing matters of inquiry.
Provincial Secretary's Office,
November 29th, 193U.
A. W. GRAY,
Acting Provincial Secretary.  PREFACE.
This volume is confined to a final report on questions outlined in Paragraph 2 of the Commission relating to oil and petroleum products, except that incidentally and for convenience
as occasion arose in discussing specific topics deductions were drawn and conclusions stated
more strictly referable to Paragraph 3. The Terms of the Commission will be found on the
preceding page.
To me the task was assigned with expert assistance to find, inter alia, the cost of production of a large variety of petroleum products in use in British Columbia, naming some of
them specifically in the order of their importance—viz., gasoline, fuel-oil, lubricating-oil,
kerosene, and other petroleum products. It was necessary to ascertain among other things:
(1) If each product is carrying its own proper load of costs without shifting it to other
products and to another class of consumers; (2) if these products are manufactured and distributed at a reasonable profit or at a loss; (3) if a fair relation is maintained between cost
and selling prices; and (4) if the costs of production and of wholesale and retail marketing
and distribution are unreasonably high.
Resolutions passed by public bodies (and filed as exhibits) disclosed the view, without
definite data to support it, that users of gasoline in British Columbia were paying too much
for that product. It was also felt that fuel-oil produced from imported crude in competition
with coal produced at home was sold at uneconomic prices, with losses, if any, recouped by
higher selling prices for gasoline. The Oil Companies have two major products—namely,
gasoline and heavy fuel-oil for sale, the latter competing with or displacing coal. They might,
therefore, by charging excessive prices for gasoline, sell fuel-oil either at a loss or at such a
price as to constitute unfair competition with coal. It would follow, too, that if sold at a
loss, or at an uneconomic price, the large body of consumers of gasoline throughout the Province would, if excessive prices for that commodity were exacted, be virtually paying a bonus
to industries using heavy fuel-oil.
It was therefore important, if the inquiry was to be of any value, to obtain the actual
costs of production of the different petroleum products, more particularly the two major
products—gasoline and heavy fuel-oil. It was not expected that these costs would be secured
with minute scientific accuracy, but rather with reasonable certainty. Although it is not
possible to say with exactitude what percentage, for example, of executive overhead, to take
one illustration only, should be assigned to the separate products produced from crude, yet
substantially accurate costs can be obtained and ought to have been produced.
It was found that real costs were not presented. The financial statements produced were
at first thought to contain actual costs, but it was found on further study that they could not
be accepted as such. A bookkeeping system is followed by the Oil Companies known as the
Sales Realization method, wherein the selling price of products is taken as the basic factor in
ascertaining the costs of each individual product. It seemed to me—and I so stated at the
outset when this method was first advanced—that it appeared to be an illusory system of
cost accounting, but I preserved an open mind on the subject. After further consideration,
however, that view was adhered to. The Tariff Board of Canada, in an inquiry conducted
this year of similar import in so far as the need of obtaining basic costs were concerned, and
in which they had for their consideration as part of its record the evidence taken in this
Inquiry (Mr. O'Halloran, Chief Counsel, acting on behalf of the Provincial Government before
the Board), refused for their purposes to accept this method of ascertaining costs of individual products.
If we had accepted the Sales Realization method it would have been better to close the
inquiry at that point and to report accordingly, because under such a system high prices could
be justified irrespective of the real costs. By this method costs fluctuate with changing
realized prices. If, for example, the retail price of gasoline to the consumer should be
increased, the cost of its production would also be increased (in the books only), keeping the
selling price virtually in the same relation to costs as before the advance. And yet the real
costs of production might not be changed at all. A House of Commons Committee in 1932,
inquiring into gasoline prices and accepting their auditor's report, which was based on Sales
Realization, reported to Parliament that " the price of gasoline to the Canadian consumer
is not unreasonably high."    In my opinion, if I may say so with the greatest respect, that PREFACE.
conclusion was erroneous because their auditor's report was based on the method of bookkeeping referred to.
This Sales Realization method was rejected, therefore, for reasons fully disclosed in
Chapter I. as useless for the purpose of this inquiry. It was then necessary to resort to
other methods to ascertain indirectly and with reasonable accuracy costs not revealed directly
by the company methods. In doing so the expenditure of a large amount of time and labour
(and, I fear, expense) was unavoidable. A reason, it was said, accurate costs of separate
products could not otherwise be obtained (and that therefore the Sales Realization method
had to be used) was because of multiplicity of products produced from crude oil. The fact
is that with the Imperial Oil Company, and to a greater degree with the Shell, the two main
products from British Columbia refineries—namely, gasoline and fuel-oils—comprise 97.07 per
cent, of the whole output volume.
Having, therefore (because of this impasse), resorted to other methods to find production
and other costs with reasonable accuracy, it was felt to be fair, instead of contenting ourselves with stating conclusions without supporting data, to fully set out each successive step
taken with detailed evidence and full reasons for conclusions, as the basis for, and a background to, the compilation of tables of costs finally prepared and found in Chapter XII. In
this way, one who cares to study in detail- (and intensive study is necessary) the facts presented in this report will be in a position to criticize or support it wholly or in part. It was
also felt that, in addition to stating clearly the basis for conclusions, the amount of research
undertaken with the help of many advisers might be useful in the future if fully recorded.
For this and other reasons complete references in the greatest details will be found in the
evidence and the exhibits filed upon which conclusions are founded.
Because of the facts stated—namely, absence of actual costs and the necessity of resorting to indirect methods—this branch of the inquiry was necessarily greatly prolonged and
involved the expenditure of a considerable sum of public money. It was essential in an investigation of this nature, with ramifications that could not be foreseen, but which when disclosed
had to be followed, that I should have the assistance not only of competent counsel (and I was
most fortunate in that respect), but also of chartered accountants, chemical, combustion and.
other engineers, as well as others technically qualified throughout the whole course of the
inquiry. It was necessary to have this technical assistance at hand constantly and to employ
others for special work. I also thought it necessary and advisable to have chartered accountants carefully scan and check all the figures and the numerous tables set out in this report.
This work occupied many weeks. These figures and tables, therefore, have been authenticated by chartered accountants and appear in the form now submitted with their approval.
I would not take the responsibility of signing a report without this close scrutiny of tables
of basic value in reaching conclusions upon which the chief value of the report depends.
With their assistance, coupled with the advice and direction of chemical engineers, not on a
few problems but on all relevant points, and with the invaluable assistance of Mr. O'Halloran,
to whom I am greatly indebted for painstaking care and detailed assistance of the highest
value, I feel that I may commend the report with confidence; without it I would not do so.
I do not suggest that it is wholly free from error. Error is possible where so wide a range
of inquiry is undertaken in respect to highly technical subjects. There was difficulty, persisting throughout, in defining terms with precision to assure that the same meaning was given
to the subject-matter under discussion by the witness and the questioner. I am convinced,
however, that on all fundamental questions of a basic nature from which conclusions are
drawn and findings made the report is as free from error as close study and attention to
details could make it, aided as we were by technical advisers on each conclusion arrived at.
I do not say that the views of advisers were accepted in all cases. I thought it necessary,
where differences of opinion arose among technical advisers, to call in other professional
assistance, and having secured their views formed my own final conclusion.
All these features necessarily added to the cost, already considerable, from the ordinary
and usual outlay for stenographic, legal, and chartered accountants' assistance. It was my
duty to control the scope of the inquiry and also to see that the investigation was thorough
and exhaustive having in view the terms of the Commission. Any inquiry less thorough would
be useless and misleading. The report discloses that consumers have been paying excessive
prices for gasoline notwithstanding that by reason of water transportation and proximity to PREFACE. ix.
crude-oil resources it should be cheaper in British Columbia than elsewhere in Canada.
These prices ought to be reduced to the point outlined in the Report, and if so, based on the
1934' consumption and the 29 cent per gallon price prevailing when this Commission was
issued a saving of $4,672,816.00 annually would be effected. Handicaps suffered by fruitgrowers and fishermen as revealed in the report in the payment of excessive gasoline prices
in relation to their competitors should be removed. Large fuel-oil gallonage differences
referred to in the report reveal, certainly the possibility, if not (as it would appear) the
actual fact, of serious losses of Provincial revenue in the collection of the fuel-oil tax and
substantial loss of Federal revenue in Customs duties. By exempting legislation passed in
1932 (chapter 51, B.C. Statutes) railways do not pay the V2 cent fuel-oil tax on consumption
in locomotives within the Province. This involves an apparent loss of revenue of $194,295.79.
Benefits should also accrue to the coal industry and to consumers of gasoline if heavy fuel-oil
is made to carry its own burden of costs. Every tub should stand on its own bottom. In
these and other directions savings may be effected, local industries assisted, further revenues
obtained, and additional purchasing power left in the hands of consumers of gasoline.
A great mass of material filed as exhibits in the form of contracts and statements was
submitted and tentatively received as confidential. I stated on several occasions that, if it
became necessary to refer in the report to these documents and exhibits to properly carry out
the Terms of the Commission, I would do so. With the rejection of the Sales Realization
method, no alternative remained except to use all the evidence before us, including the exhibits
referred to. However, wherever practicable, statements and contracts are used as data, not
in their entirety but in such a form (i.e., taking extracts therefrom) that the full tenor
thereof is not necessarily exposed to the scrutiny of others. It must, of course, be remembered that this and similar investigations are carried on under a " Public Inquiries Act,"
not a Private Inquiries Act. However, due to the methods of cost accounting by the companies (Sales Realization) and the paramount necessity of carrying out the Terms of the
Commission, it was impossible to avoid use of this material to the extent disclosed in the
report. It does not follow that these exhibits deposited with the Government will be open
to the inspection of all who may wish to examine them.
I am greatly indebted to the following for assistance in this inquiry:—
Dr. W. A. Carrothers, Chairman, Economic Council, as Economic Adviser; Kenneth
Moodie, Combustion Engineer, Provincial Department of Public Works; W. F. Seyer, Associate Professor of Chemistry, University of British Columbia; R. R. West, Lecturer in
Mechanical Engineering, University of British Columbia; J, P. Hogg, Associate Counsel
to the Commission; G. F. Gyles, C.A., of Messrs. Price, Waterhouse & Company, and staff;
J. H. Young, C.A.; H. G. Hinton, C.A.; H. B. Pratt; G. U. Clark, C.A.; L. S. V. York,
of George A. Touche & Company; and Smith, Emery & Company, Engineers-Chemists,
San Francisco, California.
I also wish to testify to the invaluable aid given by Mr. R. W. Hartley, Victoria barrister,
as Secretary to the Commission. Apart from his purely secretarial duties, he became conversant with all branches of the inquiry and proved to be of the greatest assistance on a
variety of questions constantly arising. His work throughout and in the preparation of this
report was most efficient.
For convenience, a general summary to the report will be found in Chapter XV.
A further synopsis in skeleton form based on the more detailed summary in Chapter XV. will
be found at the first of the report.
M. A. MACDONALD,
Commissioner.
Victoria, B.C., October 21st, 1936.  SYNOPSIS OF THE MAIN FEATURES CONTAINED IN THE
SUMMARY FOUND IN CHAPTER XV.
1. No crude-oil hitherto has been produced in British Columbia. We are therefore
dependent upon foreign sources of supply which might conceivably in emergencies be withheld.
2. That type of crude-oil is imported by the refineries into this Province having a heavy
fuel-oil content and a light gasoline content; that is, a crude that will produce comparatively
much of the former and little of the latter.
3. There are four refineries in British Columbia—Imperial, Shell, Home and Standard—
with a capacity of 12,000, 3,500, 1,000 and 2,000 barrels of crude per day, respectively.
4. Union Oil refinery is only used to compound and blend lubricating-oils. Its gasoline
and fuel-oil is largely processed by the Imperial and sold to the Union, after which the Union
sells it to the public.
5. There is no substantial difference in the quality of gasoline sold under different names
and labels, and costly advertising is not based upon real differences in quality.
6. Heavy fuel-oil is the main objective of refineries in this Province, with gasoline
secondary. As fuel-oil is the rival of coal, and we have abundant coal resources, it would
appear that gasoline should be the primary requirement and fuel-oil the secondary.
7. Heavy fuel-oil is sold in British Columbia at uneconomic prices and does not carry its
own fair load of costs. These costs are unjustifiably shifted to gasoline, with, however, a
net profit on the crude oil.
8. Consumers of gasoline have for many years been paying excessive prices for gasoline
to enable oil companies to sell heavy fuel-oil at a loss. Gasoline users have therefore been
paying in effect a bonus to heavy fuel-oil users, not to benefit, but to impair the local coal
industry.
9. On the other hand, furnace and lighter fuel-oils are sold at a profit.
10. The oil companies have two major products, heavy fuel-oil and gasoline. They may
and do sell heavy fuel-oil at a loss. The Tariff Board recently, in confirmation, with the
evidence in this inquiry before it, said in its Report that the contention of British Columbia
that refineries in this Province sell fuel-oil in competition with coal at cost or less than cost
and that as a result gasoline carries the load was not successfully refuted by the oil companies.
11. Gasoline is sold and distributed by wasteful and extravagant methods to a marked
degree.
12. Gasoline should be reduced in price to not more than 18 cents a gallon in Vancouver,
inclusive of the 7 cent Provincial tax. It should be cheaper in British Columbia than elsewhere in Canada, because of geographic position and water transportation.
13. Even with present wasteful methods of distribution, the retail price of gasoline
should be reduced at once to not more than 23 cents per gallon in Vancouver, based upon
1934 conditions (evidence as to 1935 conditions was not complete until too late in 1936 to
be of use).    Speaking generally, 1935 conditions were not materially different.
14. In all other points in the Province only freight should be added to the Vancouver
price. SYNOPSIS OF THE MAIN FEATURES.
15. When this Commission was issued the retail price of gasoline in Vancouver was
29 cents. A reduction to 18 cents on the 1934 sales would mean a saving of at least
$4,672,816.06 annually.
16. The Canadian Tariff Board, having before it as part of its record the evidence taken
in this inquiry, said that the Vancouver retail price of gasoline (then 29 cents) was wholly
out of line with prices on the Pacific Coast, and that there was no reason why the price of
gasoline should be higher than in Seattle.
17. The retailing of gasoline should be conducted independently of the oil companies.
At present this branch is a medium for advertising and part of a costly price structure.
18. The method of cost accounting followed by the oil companies (Sales Realization)
did not reveal true costs of the various petroleum products and other methods had to be
pursued.
19. The major oil companies control all branches of the industry from the oil well to
the service station, thus narrowing the field of competition. This is known as the integrated
system.    It enables them to fix, control and maintain prices in all branches of the industry.
20. The retail price of gasoline is set from time to time by the Imperial Oil (controlled
by the Standard of New Jersey) and these prices are followed by the other companies.
21. The oil companies own, control, or hold, under 100 per cent, agreement, approximately
93 per cent, of the gasoline retail outlets in the Province. In the main, service station
operators conduct their business, including sales of accessories, as the oil companies dictate.
22. The cost of gasoline is increased by special contracts between oil companies and
jobbers and large purchasers and between oil companies.
23. Extravagant wholesale and retail costs are mainly due to company ownership and
control of service stations and to the integrated structure of the oil companies.
24. There are about five times too many service stations and retail outlets in the Province
of British Columbia.
25. Reductions in the number of service-stations made to promote economy and business
efficiency, leaving more purchasing power in the hands of the people, while involving temporary re-adjustments, would result in economic gain.
26. With exceptions .mentioned in the Report, the sale of gasoline should be confined to
garages as incidental to that general business; and to bona fide independent service-stations
equipped with competent motor mechanics, and which are in effect small garages.
27. In the State of Iowa, through State legislation, there has been a gradual diminution
of company-owned and controlled service-stations, and features of it have been adopted by
the oil companies elsewhere.
28. The service-station as now conducted is an uneconomic and wasteful method of
marketing and distribution, and is in effect a means of price regulation and advertising for
which the consumer should not have to pay.
29. In country districts gasoline pumps operated in conjunction with some other main
business are a necessity, but the number should be reduced. SYNOPSIS OF THE MAIN FEATURES.
30. In Nova Scotia, through legislation, the number of pumps up to date were reduced
from 4,000 to 2,000.
31. The differences in the retail price of gasoline between Vancouver and up country
and up Vancouver Island points are not justified. These differences are much larger than
those prevailing between Seattle and other equi-distant points in the State of Washington.
For example, Kelowna prices (September 15th, 1935) were 11 cents higher than at Oroville,
Washington, immediately south. The margin between Vancouver and Kelowna should be no
greater than between Seattle and Oroville except for small freight differences. Excessive
and unwarranted prices exist at outlying points.
32. The price of gasoline to fishermen and to Okanagan fruit-growers is excessive and
unwarranted. It is wholly out of line with that paid by competitors elsewhere, and a serious
handicap in competition in world markets because of increased costs of production.
33. A fisherman's gasoline costs him 9.30 cents more per gallon in Vancouver than in
Seattle; 8.50 cents more in Prince Rupert than in Ketchikan, Alaska; and 8.60 cents more
in Port Alberni than in Neah Bay, Washington.
34. The Okanagan fruit-grower pays 8 cents per gallon more than the Annapolis, Nova
Scotia, fruit-grower; 10.30 cents more than the Wenatchee, Washington, fruit-grower; and
11 cents more than the Niagara, Ontario, fruit-grower.
35. British Columbia, despite its small population and its great coal resources, consumes
a much greater volume of heavy fuel-oil than any other Province in Canada. Canadian railways, for example, for various uses consumed (1934) 79,758,043 gallons in British Columbia,
compared with a total of 36,867,427 in all the other Provinces of Canada combined.
36. Of 41,815,587 gallons (1934 figures) used by Canadian railways as fuel for locomotives in all of Canada, 38,859,159 gallons or 92.9 per cent, thereof were used by railways in
British Columbia.    In Quebec railways used only 6,475 gallons and Ontario 230,201 gallons.
37. In 1934 this Province alone consumed 3% times as much fuel-oil as Belgium, twice as
much as Holland, and 1% times as much as Australia; Japan and Italy, with respective
populations of 68,194,900 and 42,217,000, consume respectively only 3% and 1-% times as
much fuel-oil as this Province. In fact, in 1934 there were only twelve countries in the
world which consumed more fuel-oil than this single Province.
38. The Union Oil, wholly owned subsidiary of Union Oil of California, although it does
not manufacture any fuel-oil or gasoline itself (purchases principally from Imperial and
also fuel-oil from Shell), sells 59.12 per cent, of the total heavy fuel-oil sales. The Imperial,
which produces 78.37 per cent, of the total of heavy fuel-oil produced in the Province, sells
34.68 per cent, after deducting inter oil company sales.
39. The contract between the Union Oil of California and the Imperial enables the
former to act as a fuel-oil and gasoline broker. It is as if these two companies, who sell
93.79 per cent, of the total heavy fuel-oil in the Province, were branches of one large
organization.    This is one of the reasons why heavy fuel-oil is sold at an uneconomic price.
40. Low priced fuel-oil is encouraged by the waiver and rebate clause in the " Fuel-oil
Tax Act" (sec. 3, chap. 51, 1932), whereby in respect to fuel-oil used in railway locomotives
the % cent a gallon tax thereon is not paid. For 1934 the gallonage was 38,859,159, involving
a loss of revenue of $194,295.79.
41. There is a % cent a gallon Customs duty on the importation of fuel-oil as such. On
1934 figures there were some 86,385,328 gallons of heavy fuel-oil produced from imported
fuel-oil crudes, which involved an apparent loss of $431,926.64 annually in Customs duty. SYNOPSIS OF THE  MAIN FEATURES.
42. A grand total of 164,061,123 gallons of light and heavy fuel-oil was produced and
imported into the Province in 1934, compared with sales of 126,775,719 gallons. After making
all allowances it appears that 20,379,523 gallons are unaccounted for. In the absence of
explanation it would appear that in 1934, great as was the fuel-oil consumption, some
20,379,523 gallons of fuel-oil were consumed in excess of what the records available to the
Commission disclose, involving a possible loss of revenue of at least $101,897.61. (See
paragraph 28, Chapter XV.)
43. The importation of gasoline in the past has been discouraged by the application of
a dumping duty applied in a manner not warranted by the Statute. Had that not been done
it could have been imported and sold for a price much less than that prevailing in this
Province. On the other hand, with respect to fuel-oil, as to which the dumping duty ought
to have been applied, it has not been applied. It has been imported into the Province in large
volume for years at an unfair market value price within the precise terms of the Statute.
44. The practical working out of the tariff situation in this Province appears to be that,
on the one hand, the 1 cent a gallon duty on imported gasoline, ostensibly for the protection
of gasoline refining in Canada, is taken advantage of by the oil refineries to import, in effect
free of duty, some 36.69 per cent, as much gasoline fractions as they distill from imported
crude. On the other hand, the V2 cent a gallon duty on imported fuel-oil ostensibly for the
protection of coal is taken advantage of by the oil-refineries to import in effect a large volume
of fuel-oil free of duty in the form of crude oil; in short, the tariff provisions appear
to have been used to accomplish the direct opposite to that intended. (For fuller details see
paragraphs 45 and 46, Chapter XV.)
45. All petroleum products, particularly gasolines, diesel-oils, furnace-oils, stove-oils,
lubricating-oils and heavy fuel-oils, should be tested and graded according to the purpose of
use and priced and sold by such grades accordingly.
46. The capital structures of the oil companies give an indication of profits in many
forms and reserves accumulated throughout the years. Comparing subscribed capital with
their present investments, the oil companies have made huge profits in the past twenty years.
The dividend ratio over a period of years is not an indication of the profits actually made.
47. The huge outlay in refineries and in wholesale and marketing facilities are in excess
of market requirements. Depreciation and other reserves arising thereout, coupled with
incidental maintenance and operation costs, adds greatly to the price of products.
48. The fact that oil companies have recently erected refineries in this Province where
they can only hope to get a share of an existing market indicates the opportunities for profit
under the integrated system.
49. The major oil companies, with probably some slight exceptions, do not function as
purely British Columbia companies. They are in effect sales agencies of California corporations. The Imperial's operations in British Columbia are governed to a considerable extent
by its contract with the Union Oil of California.
50. British Columbia's supply of and prices of petroleum products depend largely on the
type of crude-oil imported and the manner in which it is processed here. Under the integrated system these matters are controlled principally in California by the major oil companies operating there. As constituted, the oil industry by its integrated nature lends itself
to monopoly, with control of crude petroleum, products thereof and prices. Profits resulting
from British Columbia operations may have no relation to profits or losses shown in British
Columbia. It is not in the public interest that products of vital necessity should be controlled
as to price and supply in this manner. GENERAL INDEX.
Page.
INTRODUCTION   1
Sec.   1.—Canada's Position in the Petroleum World  1
Sec.  2.—British Columbia's Position in the Fuel-oil World  3
Sec.   3.—-Amount of Gasoline and Fuel-oil sold in British Columbia  4
Sec.   4.—Oil Companies operating in British Columbia  6
Sec.   5.—Method of Distribution of Gasoline and Explanation of Terms used  7
CHAPTER I.—REVIEW OF COST METHODS OF OIL COMPANIES APPLICABLE
TO MARKETING AND DISTRIBUTION WHEREIN IT IS SHOWN THAT
THE SYSTEM OF BOOKKEEPING FOLLOWED BY THE OIL COMPANIES FAILS TO REVEAL NET PROFIT AT THE REFINERY AND
NET PROFIT OF MARKETING AND DISTRIBUTION, AND THAT CONSEQUENTLY ACTUAL COSTS OF PRODUCTION AT REFINERY,
ACTUAL COSTS OF WHOLESALE MARKETING AND DISTRIBUTION,
AND ACTUAL COSTS OF RETAIL MARKETING AND DISTRIBUTION
ARE NOT REVEALED        9
Sec.   1.—Actual costs are not available       9
Sec.   2.—The Manner in which the Lack of Production of Wholesale Costs by the
Oil Companies has been surmounted     13
Sec.   3.—Some Outstanding Difficulties     13
Sec.   4.—Explanation and. Discussion of the Sales Realization Method of computing
Costs     13
Sec.   5.—Illustrations  to  show  some  Reasons   for   Rejection  of   Sales   Realization
Method      14
(a.)   Applied to Transportation of Crude-oil to Refinery       14
(6.)  Applied to Investment in and Operation of Service-stations     14
(c.)  Use by other Oil Companies     15
(d.)  Increase in Gasoline Price thereby Increases Cost     15
(e.)   Reasons for Rejection by Tariff Board, Ottawa     16
(/.)  Reference to Clarkson Commission, Ontario       17
(g.)  Reference to Banking and Commerce Committee Parliamentary Inquiry,
1932      17
(h.)  Not used by McColl-Frontenac Oil Co., Ltd .     18
(i.)  Actual Cost can be obtained     19
(j.)  Analysis  of Use  of  Method by  United  States  Tariff  Board  and  same
distinguished      19
(...)   Not  applicable  to  British  Columbia   Conditions  and  Analysis  Text-book
Authority thereon      20
(..)   Commission's  Duty to  ascertain  Actual  Cost  of  Fuel-oil  Negatives   Use
of the Method     21
(m.)   Recent   Statement  of   Oil  Industry  Leaders   repudiates   principles   upon
which the Method is founded      21
(n.)  Helps shifting of Losses and Acceptance of Wasteful  Expenditures  as
Proper Costs     22
CHAPTER IL—THE WHOLESALE COST OF THE MARKETING AND DISTRIBUTION OF GASOLINE    23
Sec.   1.—Oil  Company  Statements based on  Sales Realization Method are of no
Assistance        23
Sec. 2.—Evidence as to certain Contracts for the Wholesale Distribution of Gasoline
from Refinery Door or Importation Point to Service-station, showing the
Spread under which it is carried out successfully    25
Sec. 3.—Certain Evidence (other than Contracts) relating to the Wholesale Cost
of the Marketing and Distribution of Gasoline from the Refinery Door or
Importation Point to Service-station      26
(a.)  In Seattle, Washington    26 GENERAL INDEX.
Page.
CHAPTER IL—Continued.
Sec.   3—Continued.
(6.)  In Buffalo, N.Y  27
(c.)   Based on Vancouver Tank-ear Price  27
(d.)  Fuel-oil Comparison   27
(e.)  Evidence of an Importer  28
(/.)   Should not cost more than Two Cents per Gallon  28
(g.)  Analysis Imperial Oil Figures  28
(h.)  Analysis Shell Oil Figures  29
(i.)  Analysis Union Oil Figures  29
(/.)  Analysis Home Oil Figures  29
(fc.)  Reference to Banking and Commerce Committee Evidence  30
(I.)  Grounds for Rejection of Oil Company Statements  30
(ra.)   Need for  Limitation  of Depreciation,  Advertising and Sales  Promotion
Costs, chargeable to Consumer  31
(n.)   Further Reference to Banking and Commerce Committee Evidence  31
Sec.   4.—Other Features adding unnecessarily to the Wholesale Cost of marketing
and Distributing Gasoline  31
(a.)   Duplication of Bulk Storage-stations and Agents  31
(6.)  " Free Deliveries " of Gasoline coupled with Direct Sales by Oil Companies
to Consumers   32
(c.)  " Free Service "  33
(d.)  Leasing Service-stations to Operators at Cost or Low Rentals  33
(e.)  Expensive Equipment   34
(/.)  Frequent Painting of Signs and Service-stations    34
(g.)  Accessories  34
(h.)  Lighting   34
(i.)  Buying Real Estate and erecting Stations and General Observations  34
CHAPTER III.—THE RETAIL COST OF THE MARKETING AND DISTRIBUTION
OF GASOLINE  37
Sec.   1.—Evidence concerning Multiplicity and Duplication of Costly Service-stations
as the Cause of High Cost of Retail Distribution  37
(a.)   Statements of Oil Companies  37
(6.)  Statements of City Councils and Public Organizations    37
(c.)  Service-station   Dealer   Statements  37
Sec.   2.-—-Investments of Oil Companies in Service-stations owned, leased and controlled by them  38
Sec.   3.—Number of Service-stations and Dealers     39
Sec.   4.—Gasoline sold through Service-stations  41
Sec.   5.—" Spreads"  allowed  Retailers  operating  Company-owned  Service-stations
or under 100 per cent. Agreement with some Comparisons  43
Sec.   6.—Company-owned Service-stations cannot make Ends meet—Reasons therefor   45
Sec.   7.—Contention of Service-station Operators that they cannot make Ends meet
and Reasons therefor  48
(a.)   Too  Many  Service-stations  48
(6.)  The " 100 per cent. Agreement" and " Split Accounts "  48
(c.)  Additional Price Discounts and Rebates  50
(d.)   Sales direct to Consumers by Oil Companies  50
(e.)   Oil Companies' Invasion of the Retail Field  50
(/.)  " Free Service " and Long Hours    51
(g.)  Repair work at Service-stations  51
(h.)  Retailers Loss from shrinkage of gasoline  51
(i.)  Suggested Method of preventing Shrinkage Losses  52
(j.)  Analysis of Representative service-station Dealer's Financial Statements.... 52
(k.)   Retailers' spread elsewhere than in British Columbia  52 GENERAL INDEX.
Page.
CHAPTER III.—Continued.
Sec.   8.—Inroads   of   the   Service-station   into   the   Business   of   the   Garage   and
Automobile Dealer and the Effect thereof     56
Sec.   9.—Summary of Evidence relating to Retail  Costs     57
CHAPTER IV.—SALE OF GASOLINE FOR MARINE, FARMING AND LOGGING
PURPOSES  59
Sec.   1.-—Gasoline Sales to Fishermen and other Marine Sales  59
Sec.   2.—Gasoline Sales to  Farmers  and Fruit-growers  61
CHAPTER V—WHY THERE ARE SO MANY SERVICE-STATIONS AND RETAIL
GASOLINE OUTLETS AND WHY THE WHOLESALE AND RETAIL
COSTS   OF   MARKETING   AND   DISTRIBUTION   HAVE   BECOME
" UNREASONABLE "      63
Introduction to Chapter     63
Sec.   1.—Integrated Companies—their Set-up, the Reason for their Existence, and
the Dominant Role they play in the Gasoline price Structure     63
Sec.   2.—Oil  Company Explanations  of the  System of  Distribution which  entails
Wasteful Expenditures      65
Sec. 3.—The Wasteful System of Marketing and Distribution results from the
Oil   Companies   finding   that   the   most   Effective   Way   to   keep   up   the
Wholesale Price is through keeping up Retail Prices by:—     67
(a.)  Fixing and maintaining Retail Prices     67
(6.)   Owning and leasing Service-stations     72
(c.)   The 100 per cent. Contract     74
(d.)  Interference  with  Continuity  of   Supply  of  Gasoline  of  Retail  Dealers
who attempt to reduce Retail Prices      74
Sec.   4.—Effect  of Iowa  Legislation  upon  the  Integrated  System  as  Applied  to
Service-stations      76
Sec.   5.—Summary of this Chapter     77
CHAPTER VI.—ANALYSIS OF THE GASOLINE PRICE STRUCTURE     79
Introduction to Chapter      79
Sec.   1.—The Tank-wagon Price (Definition Section 5—Introduction) is stated by the
Oil Companies to be the Starting Point in any Price or Cost Discussion     79
Sec. 2.—The Vancouver Tank-wagon Price is based on Price at Refinery-door in
Mid-Continent Field (Texas, Oklahoma) plus Freight, Duties and other
Charges laid down in Vancouver, and is not (as it should be) based on
the Cost at.Vancouver of Crude-oil and refining Gasoline and Delivery to
Service-stations   in   Vancouver     79
(a.)  Table   23,   Comparison   Vancouver   Tank-wagon   Price,   1932,   based   on
Hamilton  Price     80
(6.)   Table   25,   Comparison   Vancouver   Tank-wagon   Price,   1935,   based   on
Mid-Continent Refinery-door Prices      84
(c.)   Table 26, Comparison Posted Retail Prices, Canadian and U.S. Cities     87
Sec. 3.—Evidence that Canadian Gasoline Price Structure arrived at by adding
the Freight from Mid-Continent Refinery-door plus Duty and other charges,
as set out in Tables 23, 24 and 25 above and explained in Section 2  (a),
(6) and (c) of this Chapter     88
(a.)  Hamilton Example     88
(&.)  Halifax Example    89
(c.)  Winnipeg Example      89
(d.)  Winnipeg-Vancouver Example      89
(e.)  Regina Example    90
(/.)  Assistant Dominion Appraiser's Evidence _______     90
(g.)   Has there been a Change in Price Structure Policy?     91
(/..)  Mr. McCloskey's Statement     91
(i.)  Shifting the Rail Freights to Refinery-door Price when expedient     92 GENERAL INDEX.
Page.
CHAPTER VI.—Continued.
Sec.   4.—Comparison of  Gasoline Prices in Victoria and  Ottawa, with  Analyses
thereof     93
Sec.   5.—Summary of the Discussions in Sections 2, 3 and 4 of this Chapter     94
Sec.   6.—Price Structure of Gasoline throughout British Columbia     95
(a.)   Gasoline   Prices   in   British   Columbia   Centres   on   October   31st,   1934;
October 21st, 1935;   and November 22nd, 1935     96
(6.)   Gasoline   Prices   outside   Vancouver   are   not  based   on   Vancouver   Base
Price plus Freight from Refinery as alleged      98
(c.)   General Remarks thereon   100
Sec.   7.—Some findings  of the  Tariff  Board which  explain  further  the  Gasoline
Price Structure in British Columbia  101
Sec.   8.—Jobbers' Special Contracts and Principles underlying  104
(a.)  Explanation of Imperial Oil, Ltd  104
(6.)   Considerations arising thereout   105
(c.)   Application   and   Analysis   of   Principles   underlying   above   Discussions
concerning Prices to Jobbers or Large Purchasers  106
(d.)   Certain Results that follow from the Discussions in  (a),  (b)  and  (c)  of
Section 8 of this Chapter  107
Sec.   9.—" Special Prices " and " Discrimination "  107
Sec. 10.—The Result in British Columbia as it affects the Price the Consumer pays
for Gasoline and Coal  108
CHAPTER VII.—THE PRICE OF GASOLINE TO THE CONSUMER IS TOO HIGH . 109
Introduction to Chapter   109
-Comparison with Gasoline Prices in the State of Washington  109
-The British Columbia Consumer pays too much for Gasoline considering
the Price at which it can be imported and sold here  111
Evidence of Mr. C. C. Labrie  111
Shell Company's Importations in 1931  112
Gasoline from Los Angeles—Domestic and Export Prices  112
Dr. E. R. Lederer on Gasoline Price at Refinery  113
Importations of Gasoline from Seattle  113
-Vancouver Price compared with Montreal, Toronto, Hamilton and Ottawa _ 114
-History  of the  General  Trend  of  Gasoline  Prices  in  the  United   States
and Canada  1  115
(a.)  Graph No. 1—San Francisco Wholesale and Retail Prices, 1911 to  1934
and Remarks thereon   115
(b.)   Graph No. 2—Average Price, California Crude-oil, 1911 to 1933  116
(c.)  Inferences   from   the   Two   Graphs   and   Factors   to   be   remembered   in
studying Statistical Data relating to Gasoline and Crude Prices  116
Sec.   5.—Relation of Gasoline and Crude-oil Prices  116
(a.)  The Manner in which the Crude-oil Price in relation to Gasoline is arrived
at in the United States  117
(6.)  Inclusion in Price of Crude-oil of Pipe Line  Charges which materially
differ from Actual Transportation costs  119
(c.)   Interstate Commerce Commission Report on Pipe Line Charges carrying
Losses in other Branches  120
(d)   Summary of Section 5  120
Sec.   6.—History of Gasoline Prices in British Columbia  121
CHAPTER   VIIL—EVIDENCE   RELATING   TO   ATTEMPTED   REMEDIES   AND
SUGGESTIONS MADE TO THE COMMISSION FOR IMPROVEMENT  125
Sec.   1.—Appeals to City Councils  125
Sec.   2.—Efforts made by Oil Companies  125
Sec.   3.—Remedies suggested to the Commission  125
Sec.   4.—The Necessity for the Grading of Gasoline  126
Sec.
1.-
Sec.
2.-
(a.)
(b.)
(c)
(d.)
(e.)
Sec.
3.-
Sec.
4.- GENERAL INDEX.
CHAPTER VIIL—Continued. PAGE'
Sec.   5.—Some General Suggestions made during the Course of the Commission  127
(a.)   Uniform price of Gasoline throughout British Columbia  127
(6.)  Meter on Tank-wagons  128
(c.)   Provincial Tax and Shrinkage Loss and Gasoline used in Testing Motors  128
(d.)   Gasoline Sales by General  Merchants  128
(e.)   Repairs by Unskilled Mechanics  128
(/.)   Sales of Gasoline direct from Wholesaler to Consumer :  128
CHAPTER IX.—THE PRODUCTION, TRANSPORTATION AND PREPARATION
FOR USE IN BRITISH COLUMBIA OF CRUDE PETROLEUM AND ITS
PRODUCTS  129
Sec.   1.—Hydro-carbons—their Nature and Characteristics as they affect Gasoline,
Fuel-oil and other Petroleum  Products,  and the  refining and suitability
thereof for Use  129
(a.)  Hydro-carbons  129
(6.)  Natural or "Blending" Gasoline  129
(c.)   How the characteristics of the Hydro-carbons affect the Refining of Gasoline 130
(1.)   Straightrun Distillation  130
(2.)  " Engineknocking "  130
(3.)   Difference between Straight Chain and Cyclic Hydro-carbons  130
(d.)  The Reasons for Cracking  133
(e.)   Gasoline Requirements of To-day  133
(/.)  How Fuel-oils are affected by the influence of Hydro-carbon Characteristics
upon  Gasoline  134
(g.)  Diesel-oil  134
(h.)  Light Fuel-oils   134
(i.)  Heavy Fuel-oil  134
Sec.   2.—No Crude-oil is produced in British Columbia  135
(a.)  Refineries in the Province  135
(6.)  Petroleum Product Importations   136
(c.)   Short Reference to Crude-oil Handling  136
(d.)  Considerations in Purchase of Crude-oil  136
(e.)   Fuel-oil Market developed in British Columbia  136
(/.)  Reasons for Purchase of California Crude-oil  137
(g.)   Posted Crude-oil Prices at Well and Gravities  137
(h.)   Availability of Gasoline Crudes  138
(i.)  Blending and Mixing of Crudes  138
(j.)  Influence of Gravity on Price, etc  139
(fc.)   Gravity means Little Commercially  140
(I.)  Gravity is not the most Significant Factor  140
(m.)   No Regular Relationship between Gravity and Cost  141
(n.)  Relation A.P.I, and Gasoline Content  141
Sec.   3.—Production of Crude-oil  141
Sec.   4.—Pipe Lines _•_  142
Sec.   5.—Transportation of Crude-oil to British Columbia—Tankers  142
Sec.   6.—Methods of Refining   143
(a.)   General Principles involved in Refining Process  143
(6.)   Further  References  thereon    144
(c.)   Several Ways of producing Gasoline used in the Province  145
(d.)  Use of " Casinghead " Gasoline  146
(e.)  Instance of much Lower Gasoline Recovery than Evidence Indicates  147
(/.)  Tethra-ethyllead  147
Sec.   7.—Production of Gasoline in British Columbia, 1934  148
Sec.   8.—Costing Methods of Oil Companies  148
(a.)   Citation of Dominion Tariff Board Evidence  148
(6.)   Costs of Production furnished are of no help to the Commission  150
(c.)   Essential Factors in ascertaining Cost  150 GENERAL INDEX.
PAGE.
CHAPTER IX.—Continued.
Sec.   9.—Cost of Production of Crude-oil at Well  151
Sec. 10.—Pipe Line Charges in relation to their Costs  159
Sec. 11.—Remarks  upon   Costing  Methods   in  the   Light  of   Crude-oil   Prices   and
Pipe Line Charges  159
CHAPTER   X.—THE   PRODUCTION   AND   CONSUMPTION   OF   PETROLEUM
PRODUCTS IN BRITISH COLUMBIA AND THE DOMINANT ROLE OF
HEAVY FUEL-OIL  161
Sec.   1.—Refineries  161
Sec.   2.—Crude-oil and Casinghead Importations into the Province in 1934  162
Sec.   3.—Sales of all Petroleum Products by Companies owning Refineries in the
Province in 1934  163
Sec.   4.—Petroleum Products produced in the Province in 1934  164
Sec.   5.—Gasoline Imports, Production and Total Sales in 1934 discussed  167
Sec.   6.—Casinghead  or  Natural   Gasoline   Importations   compiled  from   Company
Records  167
Sec.   7.—Fuel-oil Imports Production and Total Sales in 1934 discussed  167
(a.)  Comparison of Total Fuel-oil Production and Imports with Total Sales  167
(6.)  20,379,514 gallons of Fuel-oil unaccounted for  167
(c.)   Certain other Fuel-oil Discrepancies and Difference in Fuel-oil Gallonage
upon which Provincial Tax " waived and rebated "  167
Sec.   8.—Fuel-oil Gallonage Totals in the light of Exemptions from Customs Duty
and Provincial  Tax   168
(a.)  Imports in Bond   168
(b.)   Discussion, Tax-exempt Fuel-oil Gallonage  168
(c.)  "Waived and Rebated" Clause in "Fuel-oil Tax Act"  168
(c_.)   Apparent Loss of Revenue through  Fuel-oil  Exemptions  169
Sec.   9.—Kerosene    169
Sec. 10.—Lubrieating-oils    170
Sec. 11.—Greases   171
Sec. 12.—Percentage Recoveries of Products in Various Refineries  172
' Sec. 13.—Tables showing Fuel-oil Used in British Columbia compared with other
Provinces   173
(a.)   Petroleum Fuels marketed in Canada by Provinces, Table 52  174
(6.)   Comparative Summary of Fuel-oil Deliveries by Provinces, Table 53  175
(c.)   Specific Use of Fuel-oil by Provinces, Table 54  176
(d.)   Detail of Fuel-oil delivered for Domestic Heating, Table 55  177
(e.)  Canadian Railway Consumption of Fuel-oil for all Purposes, Table 56  178
(/.)   Fuel-oil Delivered for Rail and Water Transportation, Table 57  179
(g.)  Kerosene Deliveries, Table 58   179
(h.)  Gasoline Consumption by Provinces, Table 59  180
(t.)  Remarks thereon   181
Sec. 14.—Evidence References showing that Fuel-oil Market in British Columbia
determines the Type of Crude-oil imported and the Manner in which it
is refined, and that the Gasoline-recovery is not the Dominating Consideration as in Refineries elsewhere in Canada  181
Sec. 15.—Gasoline and Fuel-oil Production in Canada by Areas  184
CHAPTER XL—FUEL-OIL PRICES IN BRITISH COLUMBIA  185
Sec.   1.—Heavy Fuel-oil " Posted " Prices  185
(a.)  Heavy Fuel-oil Posted Prices in United States, Table 61  186
(6.)  Heavy Fuel-oil Posted Prices in British Columbia and Canada, Table 62.___ 188
Sec.   2.—Contract Prices   Igg
Sec.   3.—Comparison of " Posted " and Contract Prices  187
Sec.   4.—British Columbia Heavy Fuel-oil Contract Prices are too low compared
with California Prices   Igg GENERAL INDEX. xxi.
Page.
CHAPTER XL--Continued.
Sec.   5.—If the price of heavy Fuel-oil in this Province was not kept near its importation price from Seattle and California, the sale of heavy Fuel-oil
produced here would be jeopardized  189
Sec.   6.—Light Fuel-oil Prices  190
(a.)  Diesel-oil Prices  190
(6.)  Furnace-oil Prices  190
Sec.   7.—Reason Heavy Fuel-oil Prices are so low in British Columbia  191
Sec.   8.—The Leading Vendors of Heavy Fuel-oil   192
Sec.   9.—Summary of this Chapter  193
CHAPTER XII.—THE COST OF PRODUCTION OF GASOLINE AND FUEL-OILS
IN BRITISH COLUMBIA   195
Sec.   1.—Essentials for Consideration   195
Sec.   2.—Imported Crude-oil and the Manner of processing same, in View of Heavy
Fuel-oil being the Main Objective  195
(e».)  Discussion of Gravity of Imported Crudes  195
(6.)  Blending of Crudes  196
(c.)  Type of Crude and Method of refining based on Market to be supplied  197
(d.)   Cost of all Major Refined Products approximately the same  197
(e.)  Necessity for Adequate Distinction between Low Gravity Crude and Fuel-oil 197
(/.)  Tariff Provisions taken Advantage of to import Fuel-oil indirectly in the
Form of Fuel-oil Crudes  197
Sec.   3.—Cost of Gasoline increased by Importation of Fuel-oil Crudes  198
(a.)  Adding Blending Gasoline to Gasoline Fractions of Fuel-oil Crudes  198
(6.)   Fuel-oil Production Costs may be " loaded " on Gasoline  198
(c.)  Blending Gasoline costs more in California than Commercial Motor-gasoline 198
(...)   California Blending-gasoline Production   199
(e.)  Effect of Tariff Change in May, 1936, encouraging Production of Heavy
Fuel-oil   199
(/.)  Practical Working of Tariff Provisions shows their Objects defeated  199
(g.)  Tariff Provisions tend to increase Cost of Gasoline Production  200
Sec.   4.—Reasons Actual Costs of Production from Well to Product are not available 200
Sec.   5.—Results of Non-production of Actual Costs of Crude-oil at Well, Pipe Lines
and Water Transportation   200
(a.)  As to Well Prices  200
(&.)  As to Pipe Line Charges  201
(c.)   As to Water Transportation  201
(d.)   Summary of this Section  201
Sec.   6.—Reference to Processing Costs in British Columbia  201
Sec.   7.—Reference to Costs of Gasoline, Fuel-oil and other Petroleum Products in
British Columbia by Straightrun Distillation  201
Sec.   8.—The Apparent Cost of Gasoline, Heavy Fuel-oil, Light Fuel-oil and other
Petroleum Products as disclosed by Analytical Tables  202
Sec. 9.—Comparative Results from a Barrel of Crude-oil based upon (a) Gasoline
and Heavy Fuel-oil Costs of 4.96 Cents and 3.95 Cents per Gallon
respectively, compared with (6) Gasoline and Heavy Fuel-oil Costs of
4.14 Cents respectively, when applied against Gasoline and Heavy Fuel-oil
Refinery-door Prices of 10.47 and 2.51 Cents per Gallon respectively; the
Crude-oil being processed to obtain Gasoline-recoveries of 34.02, 18.87 and
25 per Cent, respectively, and Explanation of Figures and Terms used  204
(a.) Results from a Barrel of Crude-oil with 34.02 per Cent. Gasoline-recovery
without the Addition of Casinghead, showing a Profit of 42.0595 Cents
per Barrel, Table 73  205
(&.) Results from a Barrel of Crude-oil with 18.87 per Cent. Gasoline-recovery,
with Addition of 28 per Cent. Casinghead, showing a Profit of 14.9810
Cents per Barrel, Table 74  207 GENERAL INDEX.
CHAPTER XII.—Continued. page.
Sec.   9—Continued.
(c.)  Results from a Barrel of Crude with 25 per Cent. Gasoline-recovery, with
Addition of 28 per Cent. Casinghead, showing a Profit of 29.8922 Cents
per Barrel, Table 75  208
(d.)   Object of these Tables  209
(e.)   Results shown by Tables 73, 74 and 75  209
Sec. 10.—Comparative Result from a Barrel of Crude-oil based upon (a) Gasoline
and Heavy Fuel-oil Costs of 4.96 Cents and 3.95 Cents per Gallon
respectively, compared to (6) Gasoline and Heavy Fuel-oil Costs of 4.14
Cents per Gallon respectively, applied against Gasoline and Heavy Fuel-oil
Refinery-door Prices of 17 Cents and 2.51 Cents per Gallon respectively;
the Crude-oil being processed to obtain Gasoline-recoveries of 34.02, 18.87
and 25 per Cent, respectively  210
(a.)  Results from a Barrel of Crude with 34.02 per Cent.  Gasoline-recovery
without the Addition of Casinghead, showing a Profit of 119.8122 Cents
per Barrel, Table 76  211
(6.)   Results from a Barrel of Crude-oil with 18.87 per Cent. Gasoline-recovery
without Addition of 28 per Cent. Casinghead, showing a Profit of 58.1084
Cents per Barrel, Table 77  212
(c.)   Results from a Barrel of Crude with 25 per Cent. Gasoline-recovery with
Addition of 28 per Cent. Casinghead, showing a Profit of 87.0297 Cents
per Barrel, Table 78  213
Sec. 11.—The Results of a 13.80 per Cent. Gasoline-recovery compared with 18.87
and 25 per Cent. Recovery in Previous Tables, Table 79  214
Sec. 12.—Comparative Results from a Barrel of Crude-oil based upon (a) Gasoline
and Heavy Fuel-oil Costs of 4.96 Cents and 3.95 Cents per Gallon
respectively, compared with (6) Gasoline and Heavy Fuel-oil Costs of
4.14 Cents per Gallon respectively, applied against Gasoline and Heavy
Fuel-oil Refinery-door Prices of 10.47 Cents and 4.71 Cents respectively;
the Crude-oil being processed to obtain Gasoline-recoveries of 34.02, 18.87
and 25 per Cent, respectively  215
(a.)   Results from  a  Barrel  of  Crude with  34.02  per  Cent,  recovery without
the Addition of Casinghead, showing a Profit of 87.8129 Cents per Barrel,
Table 80    217
(6.)   Results from a  Barrel of  Crude with  18.87  per  Cent  Gasoline-recovery
with Addition of 28 per  Cent.  Casinghead,  showing a  Profit of  67.6413
Cents per Barrel, Table 81  218
(c.)  Results from a Barrel of Crude-oil with 25 per  Cent.  Gasoline-recovery
with Addition of 28 per  Cent.  Casinghead, showing a  Profit of  77.8324
Cents per Barrel, Table 82  219
Sec. 13.—Summary of Tables 73 to 82  220
Sec. 14.—Conclusions from Sections 8 to 13 of this Chapter  220
(a.)  Application of said Tables  220
(6.)   Results disclosed by said Tables  221
(c.)  Cost of Gasoline Production in the Light of said Tables  221
(d.)   Further Discussion thereon   222
(e.)   Cost of Heavy Fuel-oil Production in the Light of said Tables  222
Sec. 15.—Further Comparison of the Methods of Refining,  indicating Additional
Costs incurred by Use of Casinghead  222
Sec. 16.—Evidence of Cost of Gasoline elsewhere  223
(a.)   Evidence of Dr. E. R. Lederer, of New York  223
(6.)  Reference to Cost of Importation as indicative of Cost elsewhere  224
(c.)  Shell Oil Montreal Importations, 1931  224
(d.)  Maple Leaf Oil and Refining Co., Coutts, Alberta  224
(e.)  Discussion, Expenditures relation to Costs  224
(/.)  Confirmation of Gasoline Cost arrived at in Cost Tables  224
Sec. 17.—Summary of previous Discussions  224 GENERAL INDEX. xxiii.
Page.
CHAPTER  XIII.—IMPORTATION   OF   PETROLEUM   PRODUCTS   AND   CONDITIONS WHICH AFFECT SAME, INCLUDING DUMPING DUTY  227
Sec.   1.—Importation of Petroleum Products  227
(a.) Importation of Gasoline   227
(6.)   Importation of Heavy Fuel-oil  227
(c.)  Importation  of Diesel-oil  227
(d.)  Importation of Kerosene and Lubricating-oils  227
Sec.   2.—Reasons Gasoline is not imported into Province in Competitive Volume  228
Sec.   3.—The Dumping Duty—what it is  228
Sec.   4.—Does the Dumping Duty exist?  228
Sec.   5.—Fair Market Value   230
Sec.   6.—Dumping Duty Statutory Provisions  231
Sec.   7.—Effect of Dumping Duty before the Amendment of Section 36 in 1930  232
Sec.   8.—Effect of Dumping Duty Amendments in September, 1930, and since  234
Sec.   9.—The Dumping Duty as interpreted can be successfully evaded by Integrated
Companies   235
Sec. 10.—The Dumping Duty has not been applied to Heavy Fuel-oil  235
CHAPTER XIV—THE EARNINGS OF OIL-REFINING COMPANIES IN BRITISH
COLUMBIA IN RELATION TO THE CAPITAL ACTUALLY EMPLOYED
AND THE CAPITAL STRUCTURE OF SUCH COMPANIES  237
Sec.   1.—Some Preliminary Considerations   237
(<x.)   No   Segregated   Profits  of   Manufacturing  or  Wholesale   Marketing  and
Distribution   or   Retail   Marketing   and   Distribution   available   from   Oil
Company Records   237
(6.) Reference to Financial Statements  238
(c.)  Reference   to   Primary   Elements   underlying   Study   of   Statements   of
Earnings and Profits   238
Sec.   2.—Capital Structure of Larger Oil Companies in the Province  238
Sec.   3.—Analysis of Investments in the Province, of Four Principal Oil Companies
and their Depreciation Reserves and Statements as to Net Earnings  241
Sec.   4.—Capital invested in Refineries in relation to Cost of Production and in
relation to Net Profits  246
Sec.   5.—Working Capital   247
Sec.   6.—Volume Production and its relation to Cost in View of Additional Refineries
built  249
Sec.   7.—Discussion of Cost Considerations  249
Sec.   8.—Capital structures  250
CHAPTER XV—
Summary  255
APPENDICES   271
Note.—Numerical index of exhibits filed will be found in each volume of the evidence. INDEX TO TABLES.
Table
Number. Subject-matter. Page.
1. World Crude-oil Production, 1935       1
2. World Survey of Petroleum Refineries by Countries as of December, 1935       2
3. Consumption of Petroleum Products by the Various Countries of the World, 1935       3
4. Gasoline sold in British Columbia, 1924-35       4
5. Amount of Gasoline Tax collected, and Collection Fee therefor, for Years 1929-30
to 1933-34      14
6. Fuel-oil Sales in British Columbia, June 1st, 1932, to January 31st, 1936       5
7. Gasoline sold in British Columbia during the Year 1934 by Companies       5
8. Fuel-oil sold in British Columbia during 1934 by Companies       5
9. Analysis of Gasoline Sales of Imperial Oil to Retailers, Home Oil Distributors, Ltd.,
and Union Oil (Sales Realization)     24
10. Analysis of Items making up Vancouver Retail Price on September 7th, 1935, and
November 22nd, 1935     27
11. Analysis of some Costs of Distribution of Imperial Oil, Shell Oil, Union Oil and
Home Oil Distributors, 1934    30
12. Investment of Oil Companies in Service-stations owned, leased and controlled by
them     38
13. Number of Service-stations in British Columbia, 1936     39
14. Analysis of Gasoline Sales, 1934, by Companies classified by Outlets     41
15. Comparative Data for Year 1934 on Gasoline Sales through Service-stations and
Companies' Investment in Service-stations     41
16. Analysis of Retail-price Structure of Gasoline as of September 15th, 1935   (cents
per gallon)        43
17. Analysis by Companies of Marketing and Distribution Costs;   Vancouver Retail
Spread;   Total Cost, Refinery Door to Motor-car   (per gallon gasoline, sales
realization, 1934)     47
18. Marine Gasoline Sales Analysis, 1934     59
19. Comparison  Retail  Price  and  Fruit-growers'  Price,  Kelowna;    Annapolis  Valley,
N.S.;   Wenatchee District, Washington;   and Niagara Peninsula, Ontario     62
20. Wholesale Gasoline-price Variations analyzed on the Basis of Vancouver Wholesale
Price plus Freight ex loco     70
21. Retail Gasoline-price Variations analyzed on the Basis of what Wholesale Price
should be (refer Table 20) plus Present Retailer's Spread     71
22. Retail Gasoline Price Variations analyzed on the Basis of what Wholesale Price
should be (refer Table 20) plus a 4 cent Retail Spread     71
23. Comparison Average Gasoline Tank-wagon Prices throughout Canada versus Hamil
ton (based on Group Three)     81
24. U.S. Motor Gasoline based on Piatt's Oilgram Quotations     83
25. Laid-down Tank-car Prices Gasoline from United States—with Duty and without
Duty—to Principal Canadian Cities vs. Imperial Oil Net Tank-car Prices same
Points     85
26. Comparison of Posted Retail Prices on Gasoline, United States vs. Canadian Cities
(October 14th, 1935)     87
27. Made up from Exhibits 235, 649 and 732.    Showing Wholesale Prices of Imperial
Three Star Gasoline according to price schedules of Oct. 31st, 1934;   Oct. 21st,
1935;   and Nov. 22nd, 1935 96-7
28. Comparative  Statement,  Gasoline  Prices,  British  Columbia  Cities,  with   Similar
Cities in State of Washington  110
29. Cost per Imperial Gallon of Gasoline from Los Angeles   (on Domestic and Export
" Posted " Price Basis)  112
30. Prices paid by Provincial Government for Gasoline at Vancouver  and Mission,
British Columbia  122
31. Data  respecting the  Date  of  Imposition  and  Varying  Amounts  of  the  British
Columbia Gasoline Tax  123
32. Data respecting Crude-oil and Gasoline Prices F.O.B. Winnipeg at Various Times... 123 INDEX TO TABLES.
Table
Number. Subject-matter. Page.
32a. Percentage Constituents, Natural and Stabilized Gasolines  130
33. Graphical Representation of Molecular Structure of Cyclic and  Straight  Chain
Hydro-carbons  131
33a. Relation between A.P.I, and Gasoline Content of Fuel-oil Crudes  141
34. Production of Gasoline in British Columbia in 1934  148
35. Control and Capacity of certain California Refineries  148
36. Detail Averaged Costs per Barrel of Crude Petroleum, 1931-33  152
37. Unit Cost of per barrel Production of Crude Petroleum by Pools  153
38. Analysis of " General Overhead and Administration " Expense per barrel produc
tion in Table 36  154
39. Analysis " Operating Costs " in Table 36  155
40. Analysis " Operating Cost" per barrel production  156
41. Analysis of Daily Average Production of Wells in Los Angeles Basin, October 1st
to December 31st, 1933  157
42. Pipe line Charges, 1934  159
43. Refineries and Investments therein, 1934  161
44. Crude-oil Importations into British Columbia (Barrels), 1934  162
45. Casinghead Importations into British Columbia (Gallons), 1934  162
46. Petroleum Product Sales of all Companies owning Refineries in the Province in
1934  163
47. Production and importation of Petroleum Products in the Province during 1934
(Gallons)  164
48. Sales and Consumption of light and heavy Fuel-oil in the Province  (Gallons)   as
reported by Provincial Surveyor of Taxes  164
49. Statement of Petroleum Products Importations into Province in 1934-35 compared
with other Provinces of Canada  166
50. Lubricating-oils Production in Canada, 1934  170
51. Percentage Recoveries of Products in Various Refineries .  172
52. Petroleum Fuels marketed in Canada by Provinces  174
53. Comparative Summary of Fuel-oil Deliveries by Provinces  175
54. Specific Use of Fuel-oil by Provinces  176
55. Detail of Fuel-oil delivered for Domestic Heating  177
56. Canadian Railway Consumption of Fuel-oil for all Purposes _[  178
57. Fuel-oil Deliveries for Rail and Water Transportation _  179
58. Kerosene Deliveries  179
59. Gasoline Consumption by Provinces '.  180
60. Gasoline and Fuel-oil Production 1934 (Gallons) .  184
61. Heavy Fuel-oil " Posted " Prices _.  186
62. Imperial Oil "Posted" Heavy Fuel-oil Prices  186
63. Analysis of Net Contract Prices paid by British Columbia Cargo Customers  187
64. Comparisons derived from Tables 62 and 63 __M  187
65. Statement of "in Bond" Diesel-oil Prices, June 15th, 1935  190
66. Statement of Actual Diesel-oil Prices, January 1st, 1935 .  190
67. Statement of Furnace-oil Prices, July 1st, 1935  190
68. Analysis of Union Oil Company's Fuel-oil Purchases, 1934 (gallons)  192
69. Analysis of Union Oil Company's Fuel-oil Sales, 1934 (gallons)  192
70. Analysis of Imperial Oil Contract (Cargo) Fuel-oil Sales, 1934 (gallons) L 192
71. Total Union and Imperial Fuel-oil Sales, 1934 (gallons)  192
72. Result from a Barrel of Crude-oil, segregated into Various Products at Uniform
Cost of Production per Gallon, plus Individual Product Charges  203
73. Results from a Barrel of Crude-oil with 34.02 per Cent, of Gasoline-recovery without
the Addition of Casinghead  205
74. Results from a Barrel of Crude-oil with 18.87 per Cent. Gasoline-recovery with
Addition of 28 per Cent. Casinghead  207
75. Results from a Barrel of Crude-oil with 25 per Cent. Gasoline-recovery with Addi
tion of 28 per Cent. Casinghead    208 xxvi. INDEX TO TABLES.
Table _
Number. Subject-matter. rAGE.
76. Results from a Barrel of Crude-oil with 34.02 per Cent. Gasoline-recovery without
the Addition of Casinghead  211
77. Results from a Barrel of  Crude-oil with 18.87  per  Cent.  Gasoline-recovery with
Addition of 28 per Cent. Casinghead  212
78. Results from a Barrel of Crude-oil with 25 per Cent. Gasoline-recovery with Addi
tion of 28 per Cent. Casinghead  213
79. Results from a Barrel of Crude-oil with 13.80 per Cent. Gasoline-recovery with Ad
dition of 28 per Cent. Blending Gasoline or Casinghead, showing Net Profit of
5.2987 Cents per Barrel at Refinery  214
80. Results from a Barrel of Crude-oil with 34.02 per Cent. Gasoline-recovery without
the Addition of Casinghead  217
81. Results from a Barrel of Crude-oil with 18.87 per Cent.  Gasoline-recovery with
Addition of 28 per Cent. Casinghead  218
82. Results from a Barrel of Crude-oil with 25 per Cent. Gasoline-recovery with Addi
tion of 28 per Cent. Casinghead  219
83. Effect of Gasoline Percentage Recovery on Net Profit—1934 Basis—Heavy Fuel-
oil Price at Refinery 2.51 Cents per Gallon throughout  220
84. Effect  of   Heavy  Fuel-oil   Price  on   Net   Profits—1934   Basis—Gasoline   Price  at
Refinery Door taken as 10.47 Cents per Gallon  220
85. Effect of Methods of Refining used in Tables 73 and 74 on Refinery Net Profits
based on Present Operations  221
86. Effect of Methods of Refining used in Tables 73 and 74 on Refinery Net Profits with
certain Allowances giving a Refinery Price of Gasoline equivalent to 17 Cents — 221
87. Effect of Methods of Refining used in Tables 73 and 74 on Refinery Net Profits based
on  Fuel-oil  Price  of 4.71   Cents  per  Gallon  and  Present  Refinery   Price  for
Gasoline of 10.47 Cents  221
88. Gallon Cost of Production of each Product after deducting Casinghead Cost  222
89. Analysis of Methods of Refining used in Tables 73 and 74, showing Saving per
Gallon on Gasoline  223
90. Analysis of Dealers' Prices as of May 10th, 1935, from Exhibit 280  228
91. Investment of Four Major Oil Companies in the Province, 1934  241
92. Depreciation Reserves of Four Major Oil Companies, 1934   242
93. Book Value of Four Major  Company Investments  after  Depreciation  Allowance,
1934  242
94. Annual Depreciation 1932, 1933 and 1934, Four Major Oil Companies  243
95. Depreciation, Income Tax and Profits of Four Major  Oil  Companies,  1932,  1933
and 1934   243
96. Reserves  (other than Depreciation), 1934  244
97. General Summary of Four Major Oil Companies  245
98. " Working Capital " in relation to Capital invested in Refinery and also in relation
to Combined Investment in Refinery, Marketing and Distribution and Service-
stations  248
99. Capital Increases of Imperial Oil, Limited  251
100. Analysis of Total Investment in Imperial Oil, Limited, Business   (December 31st,
1934)  251
101. Total Assets and Liabilities of Imperial Oil, Limited (December 31st, 1934)  252
102. Analysis of certain Oil Companies based on Quotations on the New York Exchange
and Curb for the Week ended July 19th, 1936  253
103. Analysis of Net Earnings of Imperial Oil, Limited, in 1934, amounting to $25,771,-
653.69 or 95.73 Cents a Share  253
104. Certain Percentages based on the Net Profit of $25,771,653.69 of Imperial Oil,
Limited, in 1934  254
105. "Cash Resources" of certain California Oil Companies  254 INDEX TO APPENDICES.
Distinguishing
Letter. Subject-matter. *AGE-
" A."    " Posted Prices," page 226, " The Oil and Gas Journal," Issue February 27th,
1936—Exhibit 721  271
" B."    Counsel's Opening Address  275
" C." Comparative Statement re Car Population, etc., Various Centres in Province.. 279
" D."    Extract from Evidence of Robert James Jameson, pages  4446 to  4452  of
Evidence  281
" E."    Brief   of   Service-station   Division   Automotive   Section,   Retail   Merchants'
Association  285
" F."    Brief of Garagemen's Association of British Columbia  293
" G."    Prices paid for Gasoline by Commission between September 7th and 26th,
1935—Exhibit 611  297
" H."    Data relative to the San Francisco Prices contained in pages 108 and 109 of
Exhibit 223, "Petroleum  World,  1934;    Annual  Review  of  California
Oil   Industry "  299
" J."    Paper delivered by Messrs.  T.  A.  Boyd  et al. re Modern  Motor  Trends—
Extract, " The Oil and Gas Journal," June 30th, 1935  301
" K."    Posted Crude-oil Prices at Well—" The Oil and Gas Journal," April 4th and
November 14th, 1935, and January 23rd and May 7th, 1936  305
" L."    Fuel-oil Prices—" The Oil and Gas Journal," July 18th, 1935, and July 2nd,
1936  319
" M."    Conclusions of Alberta Motor Fuel Inquiry, 1931  327
" N."    Fuel-oil Prices—" The Oil and Gas Journal," July 11th, 1935  329
INDEX OF GRAPHS CONTAINED IN PETROLEUM REPORT.
Graph
Number. Subject-matter. Opposite Page.
1. San Francisco Tank-wagon and Service-station Prices from 1911 to 1934 (inclusive)   114
2. Average Price of California Crude-oil from 1911 to 1933 (inclusive)  116 

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