Co-ops fight propane price hike

If you are a rural resident concerned with the potential price of propane for heating and other purposes this winter, you can rest assured your supplier is concerned too.

And if your supplier is a cooperative, it may be involved in unprecedented activities in an attempt to stabilize prices for itself and for you.

All over Kansas, cooperatives have been forming alliances in the propane business. These cooperatives have to look to your interest in a competitive market that might see propane taken away from Kansas to other states, or plastic companies or even to foreign nations.

One example is Flint Hills Energy, LLC, headquartered at Council Grove, supplying propane to a large area, including customers in Marion County, and managed by David Fox.

Fox began the basic propane business when he purchased it in 1990. He sold it to Flint Hills Rural Electric Cooperative in 1998.

In June, Agri Producers, Inc., cooperative, with headquarters in Tampa, joined with Flint Hills Electric to form Flint Hills Energy with 30 percent owned by Agri Producers and 70 percent owned by Flint Hills Rural Development, a “wholely owned subsidiary” for-profit of FHREC.

Fox said the original business went predominantly east from Council Grove to Lyndon in Osage County where storage tanks were maintained.

He said the new alliance company meshed the two areas east and west of Council Grove with the Tampa-Durham area, giving new thrust to picking up more customers in the more densely populated areas around Marion and Hillsboro.

Originally, an alliance was considered that would have included cooperatives border-to-border the width of Kansas, but Fox said the cooperatives chose to split differently.

Impetus to the alliances was given by giant cooperative conglomerates Farmland Industries and Cenex joining to form Country Energy for propane supply.

“They were instrumental in getting grain co-ops and rural electric co-ops to come together in the propane business,” Fox said. “The grain co-ops were really focused on their agricultural business, and they were running the propane business mainly as a convenience to customers.

“Our main business now is to take care of existing customers during this transition with as little interruption as possible, and then to pick up new customers.

“We have a full-time driver and service personnel out of Council Grove, and we’re able to have Darren Makovec out of Durham under contract with Agri Producers. We have added 8 percent to the customer base we started with in June.”

Although almost everybody would like to see lower propane prices, Fox said the ultimate goal of alliances is to stabilize prices.

To help, he said, “We offer several different payment options. We’ll contract with a customer any time of the year even though it’s traditionally done in the summer when prices are low. But if somebody has a huge demand at mid-winter, maybe something like an asphalt company that needs propane for six weeks, we’ll contract with them.

“We also want to get into metering to help stabilize things,” he added. “Customers would pay only what goes through a meter as they use it at the tank. This would allow us to keep customers’ tanks full as well as tanks here to give us additional storage. It would also help landlords with tenant houses with people moving in and out who would only pay for what they use.”

Fox said propane for FHE is purchased from Farmland and also from suppliers at Clay Center and McPherson.

He said, “We don’t feel in today’s world that it’s good to rely on only one supplier.”

As far as supplies this winter, Fox said, “It’s not going to be good, and it could get ugly.”

He said suppliers don’t want to see it get over a dollar a gallon.

“But some say don’t be surprised if it gets to $1.50,” Fox said. “I don’t think it will go over $1.25, but I could be wrong. It could be very tough on a lot of people. We have retired people, retired farmers, and farmers who have had bad prices. It could really hurt them.

“It depends on the kind of winter we have,” he added. “Propane follows natural gas closely, and that’s high now, and they say it’s going through the roof.”

Fox said it also depends on sales out of the large salt dome cavern storage areas west of here at places like Conway and Bushton. Propane is stored there, and pumped out by forcing it to the surface with brine water, he said.

Even though that kind of storage seems that it ought to make the supply good in Kansas, Fox said, “They say Conway is several million barrels (45 to 50 gallons per barrel) below normal.

“They shipped it by rail and transport from here all the way to the Carolinas and Virginia last year. They sent it by pipeline to Bellview, Texas, where it was exported to countries like Mexico and China.

“Mexico has a lot of industrial growth, and propane is a good choice for growth in China because they can bring in a tank and set it up instead of waiting for pipelines. It’s supply and demand.

“The petro-chemical industry is using propane in the production of plastics, and they can take 300,000 to 350,000 barrels a day. Most in that industry can use propane, natural gas or butane, whatever is most cost effective for them at the moment.”

Fox said FHE is providing the option of leasing propane tanks to customers which helps somebody not having a tank to meet the high cost of a new tank. Customers may choose between tank colors of white, tan or the more traditional silver-aluminum.

Fox said, “I’m really enthused about the alliance. It’s a good deal to have Agri Producers in it. We’ll be fighting to keep it under a dollar.”

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