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Propane Economics
Why
"Keep-Full" and "Credit Card on File" are good,
and gimmicks are
bad
The research of this subject is why
Ray started the Propane Club. If you'll spend a few minutes reading it, it
could -- like it did Ray -- save you
thousands of dollars.
It is divided into two equally important sections, "Economics" and "Keep-Full."
Economics
Propane companies are in
business to make money and they have it down to a science. It's a very
competitive business, as the winners can make a lot of money. Propane
companies aren't always known for having the best business practices, so be
careful who you use. We've seen multiple instances of what we considered
to be deceptive practices. We don't have those issues with our provider.
Just as gasoline rises during the
summer driving season (or any other reason they can fabricate), propane has
seasons, too. As most consumer propane is consumed to heat homes, the bulk
of consumption in our area is mid-December to mid-March. During the
summer months, very little is used, the wholesale price drops, and many
companies buy as much as they can afford (or store) during that season.
This often gives them very cheap propane going into early fall, which they use to hook
customers. They'll offer great prices, but they're often limited to the
first fill-up or even the first 100 gallons.
They try to get you to rent a tank,
because then you can't buy propane from anyone else unless you swap tanks.
During the winter season, most
propane companies are running at maximum capacity for their trucks and drivers,
so they do several things to increase their profits:
-
They increase their profits.
If the wholesale price goes up $1.00, they may raise their retail price $2.00
(or more). It's supply and demand, most do it, and they get away
with it. (If you're a
Propane Club member, and have a lock-in,
they cannot raise your price at all.
If you are on "cost-plus,"
they may only raise your price by how much their cost went up -- in this example,
$1 instead of $2, saving you $1 per gallon.)
-
If they have the manpower, they may
only partially fill your tank. Most add delivery and hazmat fees, so the
next week than can come do it to you again. Your
price-per-gallon increases
considerably when you add fees,
especially if they don't put many gallons in your tank at a time.
If for any reason they are running
low on propane, they may do the same to increase their
revenue even more and to get them past their shortage. Or, they may do it
to increase their
profits.
(Our supplier is not allowed to charge any additional fees.
This is one of the reasons we no longer use one of the suppliers we previously
used.)
-
Many propane companies will
fill anyone who owns their home and leave them a bill. Bad debt is a cost
of doing business, and that cost has to be passed on to those who pay their
bills. They don't care where they collect it, as long as they do.
Unless you believe in re-distribution of wealth, you'd probably prefer not to
pay for other people's propane.
(Our providers require a
credit card on file (or comparable arrangement) to get the Propane Club discount. That way, we're
paying for our propane, not someone else's. If you would like to
voluntarily contribute to the propane costs of those less fortunate, we can
assist.)
-
If they are running at maximum
capacity, they will typically not take-on new customers ("I only need 100
gallons" customers are left in the cold).
(Propane Club members are always priority, and our supplier has their own
supply tank. See more about this below.)
In all the scenarios above,
the consumer loses.
And, perhaps freezes.
Most propane companies have a 100
gallon minimum. Some people have 100 gallon tanks, which will only hold 80
gallons (tanks fill to 80% max). If they have 5 gallons left, they can
only get 75 gallons, but they'll get charged for 100 gallons, plus delivery and
hazmat charges (usually about $11), by most companies.
At $3 per gallon, that's $311
for 75 gallons, which is $4.15 per gallon
(a hidden increase of $1.15
per gallon). Even 100 gallons at $3
per gallon, with delivery and hazmat fees of $11, is $3.11 per gallon
(a hidden increase of 11 cents
per gallon).
If you have a 100 gallon tank, our
supplier,
Poor Boys LP Gas,
LLC, will generally charge only what they put in it, assuming it's almost
empty when they come, even if you're not a Propane Club member. Please
contact them for more details.
Keep-Full and Keep-Warm
|
... the non-member pays
$411 for 100 gallons, while the Propane Club member pays $81 less
for 50% more. This obviously makes no sense, but it
happens almost every winter. (example below) |
The only reservation we hear
about "keep-full" is because some say they can't afford to fill their
tanks. While we now offer "will-call," "Keep-full" is important for various reasons, including keeping you
warm in the winter and
saving you money.
It typically provides an additional 10 cent per gallon discount off the club
rate, plus it qualifies you for their
24/7 service at no extra charge
during winter months if they are negligent and let you run out.
The Jack Benny "I only need one gallon" approach is used by many, but it is NOT
in your best interest. Unfortunately, this is commonly the mentality of
seniors and it is seniors who are most often the greatest victims.
First, let's look at not freezing.
Propane companies are going to take
care of their own customers first, and our supplier gives priority to Propane
Club members because of our buying power. Several years ago, there was a
prolonged ice storm in Texas -- it lasted about a week.
Most small companies buy their
propane from a competitor. So, when there's a shortage, they run out
first. Our provider has their own tanks, and they even sell to some of
their competitors. In a shortage, they're going to take care of their
customers, not their competitors'.
Most propane comes to our area from
the Houston area, and is delivered to the local dealers by transport trucks.
During our big ice storm, the DPS prohibited propane transport trucks from driving, due
to the increased danger of having a wreck while transporting propane.
Local suppliers were limited to what they had on hand, so they took care of
their regular customers.
"Shop around" and "I only need 100
gallons" customers were left in the cold.
Propane Club members had no trouble whatsoever. The local delivery trucks
were allowed to deliver, and, since our provider has their own storage tank, our
members were taken care of.
Second, let's look at
economics.
Let's look at some simple math.
If you have a 250 gallon tank, it will hold approximately 200 gallons. 20%
(a little less in cold weather) must be left empty for expansion. 20% on a 250 gallon tank means you have 50 gallons
left. You need 150 gallons, but some want to order only 100 gallons at a
time to save money (and maybe freeze if there's a shortage and companies refuse
to deliver less than a full tank).
The 2012-2013 lock-in was $2.20.
As of November, 2012, we'd had only one minor cold front, but propane was
already running $3 (retail) per gallon.
(In January, 2014, some were selling
propane for $4.60/gallon.) If a Propane Club member received 150 gallons, the cost
was $2.20 per
gallon, or $330. If someone bought 100 gallons at the then current retail of $3
per gallon and had to pay $11 in fees, they paid $311, or $3.11 per gallon;
that's 91 cents per gallon more.
For an additional $19 dollars, the Propane
Club member received 50 gallons more propane. That's like paying 38
cents per gallon for the extra 50 gallons. Why wouldn't someone want
an extra 50 gallons for $19?
Let's assume the tank is almost empty and will
hold 200 gallons. The Propane Club member would have paid $440.
The non-club member would pay $611, an
additional $171.
It gets worse. Propane went to
over $4 per gallon during the cold of winter. The Propane Club member
still paid $440, but the non member paid $811 --
an additional $371.
With the 150 gallon scenario above,
but with retail at $4, the Propane Club member would still pay $330. But,
the "I only want 100 gallons" person would pay $411 retail.
That's right, the non-member pays
$411 for 100 gallons, while the Propane Club member pays $81 less for 50% more. This obviously makes no sense, but it happens almost every winter.
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