Brandon Scholz Updates On Propane Shortage

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Premiere Date: 
February 7, 2014

Brandon Scholz Updates On Propane Shortage

The managing director of the Wisconsin Propane Gas Association discusses the shortage.

Episode Transcript

Frederica Freyberg:

Turning from cash to cold, temperatures continue in the teens and single digits across Wisconsin, cold that keeps the thermostats ticked up a notch. For about 250,000 homes, mostly in rural parts of the state, propane gas is what keeps the heat on. And supplies of propane continue this week to be tight. What's the latest on what's already been declared an emergency in Wisconsin? For that we turn to Brandon Scholz, managing director of the Wisconsin Propane Gas Association. Brandon, thanks a lot for being here.

Brandon Scholz:

Pleasure to be here.

Frederica Freyberg:

So what is the latest on the supply of propane?

Brandon Scholz:

The latest is what's been going on for weeks and months and that is, supply is tight. There is propane out there. When you talk about a shortage, we made sure people understand that doesn't mean we're going to run out. Because production of propane continues at the pace that it has been. And in fact production is at some higher levels than it's been in years past. But because demand is so high and because the storage supply has been reduced, production can't serve the demand. And so that's why supply is very tight. It's also impacted prices, both from the production level to wholesale suppliers, to marketers and dealers, and then, eventually, to users.

Frederica Freyberg:

So what are those prices looking like in Wisconsin? I know we were up north last week and they were like $5.50 a gallon.

Brandon Scholz:

They're variable because they change on a-- Rather than a monthly and a weekly basis, they can change on a daily and sometimes hourly basis. So prices are high and they have been high. And I would expect that they would continue that way until we see the one factor that impacts this all, weather, change.

Frederica Freyberg:

How have the state's measures to ease this emergency helped consumers trying to get propane into their tank and pay for it?

Brandon Scholz:

Well, remember the one thing nobody can really do and that is increase supply. So take that out of the equation because nobody has that magic wand. The state and Governor Walker have stepped forward to deliver as much as the state can do, whether it's economic assistance or business assistance for dealers who are at their end in terms of their credit and borrowing money to stay in business. Because most of these dealers have to buy propane at that high price and-- in order to serve their customers. That in fact then goes to customers who, if they're not on a contract with the dealer, will have to pay a higher price, or if their contracts have changed will have to pay a higher price. Nobody wants it. Certainly dealers aren't making any money on it. They're essentially-- many of them are buying high-priced propane because it's a commodity and that price changes. And in fact they're still having to sell on lower-priced contracts. So there's a loss. That margin is pretty much dwindled.

Frederica Freyberg:

I know that some are calling on Washington to limit the export of propane. What role do these kind of hugely increased exports play in Wisconsin's shortage?

Brandon Scholz:

Well, I think, you know, we've seen that export number increase dramatically during this period and a little bit before that. I think the federal government will have to take a look at what prompted it, you know. It's not that complicated. Companies sell contracts to sell propane and other commodities at various times during the year. So this was when the deliveries came. There are those who want to look at whether or not you can scale back exports or put a trigger to it to say if supply reaches a certain level that you have to trigger exports. But there will be others that say, can you really determine our export policy based on this one-time occurrence when these things came together? Now, we have said, this isn't quite the perfect storm, because it could happen again. I think we'll look to the federal government and congress to take a look at export policy and how that's impacted domestic supply, and down the line to wholesalers, marketers, the dealers in Wisconsin and in the region, and then to customers.

Frederica Freyberg:

So you may not be able to kind of make export policy based on a situation that is dynamic, and yet is there any kind of emergency action? You know, is Washington listening to this?

Brandon Scholz:

Well, keep in mind, we've never been in this situation before. We'd have to go back to the mid-'90s to find a shortage supply and prices increasing, but at that time there was not an export situation. So there's really no playbook for this. Congress and the feds are going to have to look at it. But, you know, whether or not they can make a determination to change export policy or modify policy is going to be a deeper look than what we can just do in a couple of minutes.

Frederica Freyberg:

You know, some people have been wondering whether or not the industry is gouging the consumer. You know, this did not come as a surprise to them. They knew that the pipeline that was delivering the propane was upset, and then the harvest drying, people knew that was happening. Maybe the weather was the only thing, except for people maybe in the Farmer's Almanac, that came as a surprise to people. But what about that criticism and concern on the part of consumers who are paying so much to fill these tanks that they're just being gouged on purpose?

Brandon Scholz:

Well, first of all, they're not being gouged on purpose. If you look at how pricing develops. Pricing is going to start at the production level. They're going to produce and sell to suppliers. When across the country-- this is just not a Wisconsin problem. This is the Midwest region, the Northeast, almost 30 states around the country. All those wholesale suppliers are looking for product to serve their customers. We are looking at the basic laws of supply and demand. If somebody is willing to pay more to get that product to serve their dealers, to serve their customers, they're going to pay. Now, Wisconsin's price gouging laws are pretty strict. You can't increase your price more than 15% over the highest price that you’ve paid in the last 60 days. And you have to be able to justify everything. Whenever you're in a situation, whatever it is, with a commodity and prices increase, people are going to say, somebody's gouging, somebody’s making a buck. I can tell you that from the Propane Association's position of our members, their margins have dwindles, they're not making a buck. For those who might think to do so, whether they’re on the wholesale side or the marketer’s side, it's not worth whatever short-term financial gain you might pick up on that risk to lose your customers in the future. But I believe that people-- and I know there's a bill in congress and there's probably others that will look to see if somebody did gouge. And if they did, it will be to their detriment as a business.

Frederica Freyberg:

We need to leave it there. Brandon Scholz, thanks very much for the update.

Brandon Scholz:

Thanks for having me. 

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