March 23, 2006

North Carolina Propane Dealers Enjoy 25 Percent Price Drop

By John Murawski, The News & Observer, Raleigh, N.C.

Mar. 23--Propane dealers in North Carolina are enjoying a 25 percent price drop since October. But residential prices remain at near record-high levels in North Carolina on average, government data shows.

The average residential rate dropped by just 3.4 percent since it peaked in January, showing that the retail price recovery hasn't yet caught up with the nearly 400,000 North Carolina households that use propane for home heating, according to the U.S. Department of Energy.

The state's 500 propane dealers, who serve 13 percent of the state's households, stocked up for the winter when prices were breaking records. A mild winter reduced heating demand, leaving dealers with unsold inventory.

Today's high propane costs reflect prices dealers paid at the wholesale level months ago, said Ann Rey, editorial director of "Butane-Propane News," a trade publication in Arcadia, Calif.

"Last year when they were buying the gas, they were paying the much higher price," Rey said. "They have to stock up at certain points of the year."

Natural gas customers, meanwhile, have been getting relief for months. The price of natural gas -- which heats one in four North Carolina households -- has dropped precipitously since the price peaked this winter. PSNC Energy, which serves 230,000 customers in the Triangle, has reduced the price it charges customers by 26 percent since December.

Natural gas is regulated in North Carolina, meaning that the gas utilities can change their prices no more than once a month and only with approval from state officials.

"We insist that our companies not make any profit on the cost" of natural gas, said Jeff Davis, director of the gas division of the Public Staff, which is the Utility Commission's consumer advocacy arm. "Propane is not regulated, and their price reflects what the market will bear."

Regulation is not the only possible explanation for the decrease in natural gas prices charged to homeowners. Natural gas utilities such as PSNC typically don't store large quantities of the gas, Davis said. Instead, they rely on hedging and contracts to ride out market price crests.

Because propane prices traditionally ease each spring, some propane dealers are already urging customers to refill or top off their home tanks. Ferrelgas, which serves 50,000 customers in the state and 2,000 in Raleigh, is in the midst of a mail campaign to boost propane sales.

The price charged by Ferrelgas to some customers has dropped from about $2.25 per gallon this winter to about $2 per gallon now, a 11 percent reduction, said spokesman Scott Brockelmeyer.

"We're asking consumers to pick up the phone now," Brockelmeyer said. "This is the time that consumers start seeing some [price] relief."

Competition discourages propane dealers from revealing when their prices will drop. Propane dealers are notoriously averse to discussing their prices. Heritage Propane and Suburban Propane declined to comment.

In a freewheeling competitive business sometimes compared to daily price fluctuations at gasoline stations, next-door neighbors can end up paying widely divergent costs for the same fuel.

Propane dealers charge a range of prices, depending on the amount bought, and whether the customer is on a regular refill schedule or requests propane on demand. Propane dealers also offer seasonal deals, giving customers the opportunity lock in prices months in advance.

The Department of Energy figures average propane prices charged in the state. According to the federal government, the average price paid by households this month was $1.96 per gallon. Because propane is not regulated, dealers don't have to make their prices public.


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