Many propane consumers will contact local propane suppliers during the summer months to set-up a propane price contract that fixes or limits his/her propane price through the winter season. Some propane suppliers refer to programs with fixed propane prices as ‘propane pre-buy’, while programs that limit the propane price per gallon may be referred to as a ‘propane price cap’. In many cases, programs with fixed propane prices can be a cost-saving measure for homeowners. However, it is important to remember that propane price contracts typically do not guarantee lower propane prices resulting in a lower heating cost during the term of the agreement.
In other words, although the plan may include fixed propane prices, the price of propane may drop during the winter heating season – resulting in some programs with fixed propane prices being locked in at a higher propane price per gallon. The same risk can apply to propane price-cap plans. If the price of propane drops during the winter heating season, the cost to lock in a propane price cap may result in a non-productive expense.
While these risk factors may concern some propane consumers, other propane consumers may dismiss these risks as having a locked in propane price or a price-cap may result in peace of mind that a serious propane price increase will not cause a significant increase in household heating expenses.
How can you determine if you made a good decision by signing-up for a propane price contract that fixes your propane price through the winter heating season? The best way
is to perform multiple mid-winter propane price surveys showing the difference between your current contract price vs. the current non-contract propane prices charged by all local propane suppliers. While each winter can include wide swings in weather and wide swings in available propane inventory, it makes sense to determine if your decision to participate or not participate in plans with fixed propane prices during the middle of the winter.
Make a note of two or three days on your calendar to check your propane prices during the heating season. You may decide to conduct your propane price survey on December 15th, January 15th and again on February 15th, for example.
When your propane price check dates arrive, look at your propane pricing file to become familiar with your current propane contract price. Contact each propane supplier, including your current supplier, to request a current propane price per gallon quote for a customer not participating in a pricing plan that uses the approximate volume of propane that your household consumes on an annual basis. After completing your propane price survey, view the current propane price quotes provided by each local propane supplier. Calculate the propane price per gallon difference between all local suppliers and your current propane contract price. Make a note of the various propane prices by supplier to reference during your next propane price check. Also, be sure to convert any annual fees that you may have paid to obtain your propane price contract into a propane price per gallon value – by dividing the fee by the average number of gallons consumed in your home on an annual basis.
At the conclusion of the winter heating season, you will have a better understanding of how your current contract price compares to the current non-contract propane prices that were charged by all local suppliers at various times throughout the heating season. Although propane pricing contracts typically do not guarantee propane heating cost savings, your propane price survey data will provide valuable historical information as you consider propane pricing agreements in future years. One option to limit the risk may be to add a supplemental heating system i.e. wood burning or a pellet stove to reduce propane contract expenditures in future winter heating seasons.
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