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Propane pinch prompts Missouri, Kansas, other state investigations into rising prices

Updated: 2014-02-04T16:41:46Z

Staff and news service reports

Greg Noll in Topeka has more than 30 years of experience in the propane business but has never seen the price volatility that has rocked consumers in Kansas and other states this winter.

Retail propane prices briefly tripled last month to more than $5 a gallon before settling down to around $3 — still considerably higher than a year ago.

“This has been a challenging year,” said Noll, executive vice president of the Propane Marketers Association of Kansas.

Indeed it has, and propane, which normally doesn’t get as much attention as natural gas and heating oil, has found itself in the spotlight.

State attorneys general, including in Missouri and Kansas, have launched an investigation into the rising prices, looking for any evidence of price gouging.

Officials in some states are also trying to boost aid to low income consumers. On Monday, Missouri Gov. Jay Nixon said he was making $15 million available to help lower-income residents cope with the rising prices.

The funds will come from the federal government’s Low-Income Home Energy Assistance Program. Nixon is also doubling the amount each household can receive for propane assistance. His office estimates that 245,000 Missourians use propane to heat their homes.

In Kansas, Gov. Sam Brownback told his state agency processing heat aid applications to give top priority to requests from propane users, and he eased some restrictions on operating hours for trucks carrying propane.

Suppliers including the says the high costs are due to increased exports, “polar votex” deep-freeze spells, and higher-than-expected crop yields, since propane is used to dry grain.

And propane dealers have been working to help customers who could have to pay more than $2,000 to fill up their storage tanks.

In Dodge City, AV Energy told customers they had the option of partially filling their 500-gallon propane tanks, and many are doing so. Letters were also sent to customers warning them about the volatile prices, said Chris Klein, general manager of the dealership, which serves 11 counties.

AV last month paid about $5 for a gallon of propane but said its wholesale prices are now down to around $2.60 to $2.80.

“I thought it (the $5 price) was an overreaction,” Klein said, adding that he had enough propane to meet demand.

Retail residential propane prices nationally averaged $2.30 a year ago, which was about where they were in October. But the next month things began to change.

There was a boost in demand from farmers, who used the fuel to dry corn so it can be stored. A late harvest in wet weather required more moisture to be removed from the grain. Propane supplies needed to be replenished, but a pipeline that delivers propane was out of service from late November until Dec. 20. Then came the “polar vortex” which increased demand for heating.

“It was a perfect storm,” said Tancred Lidderdale, an analyst for the Energy Information Administration.

There are critics, however, who believe the propane industry should have done more to prevent the price spike.

“The industry as a whole should have been prepared for this,” Missouri state Sen. Mike Parson said last week. “We should be able to figure out what our supply and demand is.”

Missouri lawmakers are considering resolutions that would ask the Department of Justice to look into possible price gouging. And state Attorney General Chris Koster said, “Missourians are justifiably concerned about the dramatic increase in propane prices, affecting their ability to heat their homes and care for Missouri-based livestock.”

There are fears there won’t be enough propane, but the recent drop in prices suggests that concern is easing.

In the second week of January, the Energy Department said propane supplies fell to their lowest on record for that time of year.

The Missouri Propane Gas Association said the rising costs were caused by higher exports besides increased domestic demand from colder weather and large, late crop yields. It said propane production has risen because of improved fracking technology, which caused companies to seek more overseas buyers. That leaves less available domestically.

About 5.5 million homes are heated with propane, mostly in rural areas.

Kentucky’s attorney general was granted an injunction against a major propane supplier that had stopped delivering to commercial customers in several states. The court order allows customers of Paducah-based United Propane Gas to get their tanks refilled from other sources without seeking permission from the company. .

Officials in Minnesota and Wisconsin earlier this week boosted aid for low-income residents who have been unable to refill tanks as prices spiked. Georgia Gov. Nathan Deal signed an executive order prohibiting suppliers from price-gouging, and Indiana Gov. Mike Pence on Thursday asked farmers and other propane users to return unused portions to suppliers. Lawmakers in Illinois were drafting legislation that would help low-income families buy propane by increasing the number of families eligible for energy assistance.

Dozens of states also have loosened transportation rules to allow for extended hours for propane haulers to make deliveries.

“Our sense is that it’s slowly moving in a positive direction,” said Mollie O’Dell, a spokeswoman for the National Propane Gas Association. “A lot of these immediate fixes take a little bit of time to get moving.”

The shortage is forcing some residents on an American Indian reservation in the Dakotas into public shelters to keep warm. Standing Rock Sioux Tribe Chairman Dave Archambault II said about 90 percent of the reservation’s 5,500 homes are heated with propane.

“Many families don’t have enough resources to heat their homes when propane costs rise above $3.50,” Archambault said, adding that the price has been about $4 a gallon. “When the price of propane reaches $6 there’s going to be a dire need — life or death.”

The Missouri resolution sponsored by Parson would also ask the Justice Department to look into the price disparity between propane storage facilities and the “inaccessibility of propane to the citizens of Missouri.” A Senate panel was expected to vote on the resolution next week.

Lee Garrett, the owner of Dallas County Propane in Buffalo, Mo., said the high prices have had a devastating effect on his business and his customers.

“From a customer-relations standpoint it has been absolutely devastating,” he said. “We are in a particularly poor county and our customers just can’t afford the prices.”

Garrett said his wholesale price went up $3 in a single day last week.

The Kentucky propane supplier, UPG, sent a Jan. 21 letter to its commercial customers in several states saying it was ceasing deliveries, but customers could acquire a waiver to seek propane from another source. When business owners complained that they weren’t able to reach the company to get a waiver, the attorney general’s office intervened and sought a court order.

“It baffles me why a company would not put the needs of its customers first, especially with the recent weather conditions we’ve been experiencing in Kentucky,” Attorney General Jack Conway said in a release.

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