Propane customers face huge spikes, limited options

With such a hard winter, Thad Kirk wasn't surprised that he had to pay more than usual to refill his propane tank early this month. But he was still shocked by the price AmeriGas charged him: nearly $5.09 per gallon, more than 50 percent higher than three competitors he called immediately after the delivery.

Kirk was angry enough to complain to the Bureau of Consumer Protection at the Pennsylvania Attorney General's Office. The bureau and the Public Utility Commission are already investigating nearly 6,000 complaints each from electric customers, mostly from those stunned by variable rates more than twice as high as usual - in some cases, more than four times as high.

Kirk, a retired commercial insurance broker, has an underground tank outside his home in Glen Mills, Delaware County. Since AmeriGas owns the tank, he can't simply call up a different supplier. His concern was that AmeriGas was taking advantage of him as a "captive customer."

"Basically, they said: 'That's our price. So be it,' " Kirk recalls.

"I told them, 'I don't mind you making a profit, but I don't want you gouging me,' " he says. "When other people are charging $3-something and AmeriGas is charging more than $5 a gallon, something is haywire."

It sounded haywire to me, too, so I took a closer look. It turns out the problem consumers face with propane prices is a lot like the one with variable-rate power prices, with one extra feature: even less transparency.

Power customers have been stuck because of contracts that apparently allow suppliers to raise retail rates based on wholesale prices. Some customers believed they were on fixed-rate plans, and learned belatedly that their terms shifted to variable rates as contracts expired.

PUC spokeswoman Jennifer Kocher says many report paying about 20 cents per kilowatt-hour, compared with Peco's price-to-compare of 8.5 cents. "We've seen a few that have gone as high as 40 cents," she says.

Even if those prices accurately reflect this winter's wild swings in spot prices for wholesale power, it doesn't necessarily mean companies are just passing on their costs.

"It's hard to say what a retail supplier would have been paying for the supply they bought," says Tanya McCloskey, the state's acting consumer advocate. "That would depend on how they chose to manage the risks."

The same is true for propane retailers such as AmeriGas, a subsidiary of King of Prussia's UGI Corp. and, with more than two million customers, one of the fuel's top distributors. But AmeriGas spokesman Simon Bowman declined to discuss its risk-management strategies - or even to tell me this winter's range of retail prices. Nor are its prices posted online. Customers can call and ask, or await their bills.

"We have over 2,000 locations nationwide, and the price varies depending upon the wholesale price we pay for the gas and the cost we pay for transportation," Bowman told me.

U.S. Energy Information Administration data shed some light on the propane price spike this winter, when cold weather came on top of unexpected demand for propane needed to dry an unusually wet bumper crop of Midwestern corn.

On March 3, Pennsylvania's average retail price for propane was about $3.96 per gallon, up nearly a dollar since October. On the other hand, wholesale prices have recently declined. March 3's retail price was $2.15 above the average wholesale price for the fuel, compared with a $1.77 spread a month before.

Though Bowman wouldn't talk prices, AmeriGas recently told analysts it faced an unprecedented scramble for supplies. But one thing is clear: While energy companies have more tools to manage price risks than their customers do, consumers can take some steps to protect themselves.

One is to lock in a fixed price - something Kirk usually does for power but skipped this year for propane. Another is to buy back a tank from a supplier, an investment Kirk now plans.

It remains to be seen whether any energy companies will stand formally accused of price gouging. But in the world of propane deliveries, it's clear that suppliers like AmeriGas hold too many cards to gamble against.