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Policy: Environment & Energy

Soaring propane costs spur calls for scrutiny

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News,Business,Energy and Environment

OMAHA, Neb. (AP) — Propane prices in Nebraska, Iowa and much of the country have soared in recent days, leading consumers, retail suppliers and political leaders to ask whether there is more at play than supply and demand.

"I've never seen this type of price gouging going on," said Terry Davis, who owns and operates Country Propane, of Milo, Iowa. "Yes, I call it price gouging. And it's not coming from the retailers. ... It's coming from upstream someplace."

The skyrocketing cost has left many rural households that rely on propane wondering how they'll be able to afford to take hot showers and keep warm as the frigid winter of 2014 drags on. Meanwhile, the volatile pricing has led many propane retailers to stop quoting prices to customers until they're ready to deliver it.

Agriculture operations also rely heavily on propane, for everything from heating poultry and livestock housing to harvesting and drying grain and running equipment to manage farm waste. The national Propane Education and Research Council estimates that nearly 900,000 farms in the U.S. use propane, while about 6 million households use propane as their primary heating fuel.

The spike has been blamed on a supply problem caused by farmers using propane-fueled equipment last fall to dry wet grain in a late harvest, persistent and bitterly cold temperatures that have siphoned more propane to keep homes and businesses warm, and the temporary shutdown of a major supply pipeline in December.

A news release from the Propane Education and Research Council on Wednesday rejected the theory that short supply is the problem, saying that increased demand has created problems in transporting propane from where it's stored to the states where it's needed. But federal officials have approved for most states the suspension of rules limiting truck drivers to driving no more than 11 hours in a day and working no more than 14 hours as a way to help meet the demand for propane.

Still, the price has continued to soar, puzzling consumers, retail suppliers, politicians — even industry insiders.

"We're all asking the same question: What's going on here?" said Deb Grooms, executive director of the Iowa Propane Gas Association.

Davis said his typical residential customer with a 500 gallon tank would have paid about $800 to have it filled two weeks ago.

"Today, you're looking at paying $2,000," he said. "Lord knows what you'll pay tomorrow."

U.S. Sen. Chuck Grassley, R-Iowa, sent a letter Thursday to the Federal Trade Commission asking for oversight of the propane market. Grassley noted, as have many retailers, that the price for propane at Conway, Kan. — one of two primary propane storage sites in the United States — has been significantly higher than the price at the other site, in Mont Belvieu, Texas.

"I request that the Federal Trade Commission remain vigilant in overseeing the propane market to prevent possible anti-competitive behavior or illegal manipulation, and to ensure that any supply shortages are not created artificially," Grassley said in his letter.

A Missouri state lawmaker has asked that state's attorney general to investigate the recent surge in propane prices, and in Wisconsin, Gov. Scott Walker called an emergency meeting with propane dealers and stakeholders.

Spot prices for propane at Mont Belvieu on Thursday were $1.50 a gallon. At Conway, which supplies most of the Midwest, prices surged Thursday to nearly $5 a gallon — up more than $1 a gallon from Wednesday. Some retail suppliers reported paying $5 a gallon on Friday at Conway.

Phone messages left for officials at National Cooperative Refinery Association of McPherson, Kan., which operates the Conway propane hub, were not immediately returned Friday. A spokeswoman for CHS Inc., of St. Paul, Minn., which owns nearly 75 percent of National Cooperative Refinery Association, said Friday she was unable to find anyone at the company who could comment on the rising propane prices at Conway.

Davis, whose business delivers propane to about 4,500 customers in central Iowa, said Thursday that he has suspended offering price quotes to customer over the phone. Because the price is rising so quickly, he said, he has begun waiting until his propane loads are delivered before setting prices.

But he said he's also doing what he can to help his customers. He has suspended minimum delivery requirements until prices go back down.

"We will drop in, essentially, whatever you want and try to get you through to warmer weather," Davis said.

Many retailers are even suggesting homeowners use wood-burning fireplaces or plug in an electrical space heater, when possible, said Lynne Schuller, director of the Nebraska Propane Gas Association.

"I know we have suppliers that are telling customers that if they can stretch supply and make it last longer, then maybe they can ride it out on the propane they have until the prices come down," Schuller said.

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