Forward Averaging and the Price of Regular Self Serve Gasoline in Nova Scotia
Dr. Pyare Arya

Abstract
Nova Scotia and New Brunswick regulated the price of gasoline, using formulae which are tailored to their needs, in July 2006. Nova Scotia sets the maximum and minimum regulated price of self serve gasoline while New Brunswick sets only the maximum price and leaves minimum price to be determined by the market forces. Nova Scotia regulator uses "forward averaging" in its pricing formula, the amount of which depends on the judgement of the regulator. New Brunswick does not have forward averaging in the formula. The forward averaging is used to counter the effect of fluctuating international gasoline prices on the regulated wholesale margin in Nova Scotia. The use of discretionary forward averaging amplifies fluctuations in prices. Consumers in Nova Scotia often complain that the regulated gasoline price increases at a higher rate when international price rises and falls at a slower rate when international price of gasoline falls. People in New Brunswick have no such complaint. An attempt is made in this paper, by taking data from New Brunswick and Nova Scotia, to quantify the magnitude of fluctuations in self serve regular price of gasoline and assess whether forward averaging element of the formula is needed.

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