Floating Margin Propane Pricing

Some propane suppliers offer a variety of propane pricing programs.  Popular propane price programs involve a fixed propane price per gallon and propane price programs that limit the upside propane price per gallon by establishing a propane price cap. Another variation of propane pricing involves a floating margin propane pricing program.  A floating margin propane pricing program may help a consumer lower total propane costs.

What is a ‘floating margin propane price program’?  Can a floating margin propane price program result in lower propane costs? The following paragraphs explain how a floating margin propane price program works.

A floating margin propane price program is basically a propane pricing formula that causes a propane consumers retail propane price per gallon to move in step, up or down, depending on the movement of a predetermined wholesale propane price index  selected by the propane supplier.

The propane supplier will select a wholesale propane index and tie the floating margin pricing program to that specific wholesale index.  For example, if the wholesale price per gallon is currently $1.00 per gallon, and the floating margin offered to the customer is 40 cents per gallon over the wholesale cost, the customers propane propane price per gallon is currently set to $1.40 per gallon.

During the effective date of this pricing program, the customers margin of .40 cents per gallon over the suppliers wholesale cost remains the same.  The customers propane price per gallon changes only when the index changes.  If the chosen index decreases to .90 cents per gallon, the customers propane price per gallon changes to $1.30.  If the suppliers wholesale propane cost increases to $1.10 cents per gallon, the customers price per gallon changes to $1.50 per gallon.

Some key components to consider before participating in this type of propane pricing plan:

  • The propane supplier must carefully monitor the established cost index on a daily bases to make sure that customer pricing is appropriately adjusted in a timely manner.
  • Some propane customers appreciate that their propane pricing is no longer controlled exclusively by the propane supplier.  Retail propane prices change only when wholesale index pricing changes.  The margin is identified and remains the same for the duration of the program.
  • Customers that participate in this type of propane pricing plan should request that the supplier provide evidence of changes to the propane price index established for the program.  Perhaps the actual index can be accessed online. If not, the customers on the program should request a printed history of the index changes on a quarterly basis.  Participating customers can then review this information and verify that actual retail propane pricing have been in alignment with the propane index.

It is important to note that this type of propane pricing plan is not offered by all propane suppliers and the suppliers that do offer similar propane pricing plans may offer the program to limited customers meeting certain qualifications.  The qualifications may include being classified as a commercial account and/or purchasing a minimum quantity of propane per year and/or having multiple locations requiring propane service.  Contact your local propane supplier to find out if this type of propane pricing program may be available.

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