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OLR Research Report


March 17, 2009

 

2009-R-0141

REGULATION OF PROPANE DEALERS

By: Meghan Reilly, Legislative Analyst

You asked for information on existing and proposed laws regulating propane dealers.

SUMMARY

Propane dealers must register annually with the Department of Consumer Protection (DCP). DCP must make the list available to wholesalers. DCP may revoke or suspend registration certificates.

The law requires propane dealers to disclose the terms and conditions of contracts and specify (1) the amount paid by the consumer under the contract, (2) the maximum number of gallons committed, and (3) that performance in secured. A dealer must obtain security in the form of futures, forwards contracts, financial commitments, or a surety bond, and report that information to DCP.

Although propane pricing is not regulated, the Office of Policy Management (OPM) monitors and distributes information relating to market prices to the public. Furthermore, both OPM and the Home Heating Oil Planning Council report to the General Assembly on the status of the propane market in the state, with recommendations.

Several bills have been proposed in the 2009 session to further regulate propane contracts, require greater disclosure of contract terms and pricing, and remove dealer security requirements.

REGISTRATION OF PROPANE DEALERS

Under current law, a person, firm, or corporation must obtain a certificate of registration from the Department of Consumer Protection (DCP) to legally engage in the retail sale of home heating oil or propane gas (CGS 16a-23m(a)).

Dealers must annually apply for a certificate of registration with the DCP and pay a $100 registration fee. Applicants must provide evidence of (1) general liability insurance coverage and (2) insurance to cover any potential environmental damage related to fuel oil spills or propane gas leaked. The coverage must be at least $1,000,000. Dealers must providence evidence of renewals or changes to the coverage within five days of renewal or change (CGS 16a-23m(b)). A dealer's insurance company must notify DCP upon cancellation of the required insurance, and DCP must revoke the registration of a dealer lacking the necessary coverage (CGS 16a-23m(d)).

DCP may suspend or revoke any registration for gross incompetence, malpractice or unethical conduct, false, misleading or deceptive representations regarding the work, or violations the contract requirements or any regulations adopted to implement these statutes. Before suspending or revoking a registration, such holder must be given notice and opportunity for hearing (CGS 16a-23p).

DCP must establish a list of all registered home heating oil and propane gas dealers and make the list available to all wholesalers of Wholesalers may only sell to the registered home heating oil or propane home heating oil or propane gas dealers on the list doing business in the state (CGS 16a-23s).

CONTRACT REQUIREMENTS

Contracts for the retail sale of home heating oil or propane gas that offering a guaranteed price plan, including fixed price contracts and any other similar terms must be in writing. The contracts must disclose the terms and conditions (1) in plain language, (2) immediately following the language concerning the price or service that could be affected, and (3) in at least 12-point boldface type of uniform font (CGS 16a-23n(a)). No contract may require a consumer commitment for a period of more than eighteen months (CGS 16a-23n(d)).

Security. Dealers must meet two conditions to enter into, renew, or extend a prepaid home heating oil or propane gas contract or a capped price per gallon home heating oil contract. Failing to do so is a class A misdemeanor.

The dealer may obtain and maintain heating oil or propane gas futures, forwards contracts, or other similar commitments, at amounts allowing the dealer to purchase, at a fixed price, heating oil or propane gas of at least 80% of the maximum number of gallons or amount that such dealer is committed to deliver pursuant to all prepaid home heating oil or propane gas contracts entered into, renewed or extended by such dealer or that such dealer estimates is committed pursuant to all capped price per gallon home heating oil or capped price per unit propane gas contracts, respectively.

Alternatively, the dealer may obtain and maintain a surety bond in an amount not less than 50% of the total amount of funds paid to the dealer by consumers pursuant to prepaid home heating oil or propane gas contracts or that the dealer estimates will be paid to the dealer by consumers pursuant to all capped price per gallon home heating oil or capped price per unit propane gas contracts, respectively. The dealer must maintain the futures, forwards contracts, commitments, or surety bond for entire effective period of the contacts, although the total amount of such futures, forwards contracts, commitments, or surety bond may be reduced to reflect any amount of home heating oil or propane gas already delivered to and paid for by the consumer (CGS 16a-23n(c)).

Dealers must inform the DCP commissioner in writing that the dealer is entering into, renewing, or extending such contracts and identify any entity from which the dealer has secured futures or forwards contracts or other similar commitments. Dealers must notify the commissioner if at any time the total amount of such secured futures, forwards contracts, or other commitments is less than 80% of the maximum number of gallons or amount that such dealer is committed to deliver or that the dealer estimates it is committed to (CGS 16a-23n(f)).

Anyone from whom a dealer has secured a futures or forwards contract or other similar commitment must notify the DCP commissioner, in writing, of the cancellation of such contract or other similar commitment within three business days of the cancellation (CGS 16a-23n(g)).

Contract terms. Any prepaid home heating oil or propane gas contract must indicate (1) the amount of paid by the consumer under the contract, (2) the maximum number of gallons of home heating oil or maximum amount of propane gas committed by the dealer for delivery to the consumer, and (3) that performance of such prepaid home heating oil or propane gas contract is secured. The contract must include information that the contract price of any undelivered home heating oil or propane gas owed to the consumer under the contract, on the end date of such contract, will be reimbursed to the consumer within 30 days of the contract end date unless otherwise agreed (CGS 16a-23n(d)).

ADVERTISEMENTS

Registered dealers must display their registration number in all advertisements or other prepared materials (CGS 16a-23m(c)). A home heating oil or propane gas dealer offering plumbing or heating work service must submit evidence when registering, that the registrant subcontracts with or employs only persons licensed or registered to perform such work. The registrant must attest, when applying for registration as a dealer, that all plumbing or heating work service shall be performed in accordance with the law. Any registrant under this section who offers such plumbing or heating services must display the state license number of the subcontractor or employee performing such work for the registrant on all commercial vehicles used in their business and display such number in a conspicuous manner on all printed advertisements, bid proposals, contracts, invoices and stationery used in the business (CGS 16a-23o).

A home heating oil or propane gas dealer that advertises a price must offer it for at least 24 hours or until the next advertised price is publicized, whichever occurs first (CGS 16a-23n(b)).

VIOLATIONS

A violation of the statutory provisions regarding registration, contracts, or advertisements is an unfair trade practice (CUTPA), which prohibits businesses from engaging in unfair and deceptive acts or practices. CUTPA allows the DCP commissioner to issue regulations defining what constitutes an unfair trade practice, investigate complaints, issue cease and desist orders, order restitution in cases

involving less than $5,000, enter into consent agreements, ask the attorney general to seek injunctive relief, and accept voluntary statements of compliance. Individuals may also sue. Courts may issue restraining orders; award actual and punitive damages, costs, and reasonable attorneys fees; and impose civil penalties of up to $5,000 for willful violations and $25,000 for violation of a restraining order (CGS 16a-23r).

TRANSPARENCY AND OVERSIGHT

Office of Policy Management

The Secretary of OPM is responsible for collecting, monitoring, and distributing information concerning home heating oil in a manner to provide transparency of market prices to the public. The secretary must establish indices of those prices so as to provide transparent market prices to the public. The indices must be updated on a weekly basis and posted on the OPM's web site (CGS 16a-23t). The secretary must monitor and analyze the information collected for evidence of market activities that impair the free and fair operation of the home heating oil market and refer the evidence, together with any other information or recommendations, to the relevant state, federal, or local administrative, regulatory, or law enforcement agencies (CGS 16a-23t(e)(1)).

Information, analysis, or work product developed by the secretary for market transparency is not public record. Transparency information referred by the secretary will be public record with 60 days of referral unless law enforcement protects the information from disclosure pursuant to law. Any transparency information that the secretary determines not to refer will be public record within 30 days of the determination (CGS 16a-23t(e)(3)). The secretary must notify the joint standing committee of the General Assembly having cognizance of matters relating to energy of every referral of information, including recommendations for addressing the conditions identified, including, but not limited to, any recommendations for legislation (CGS 16a-23t(e)(4)).

Home Heating Oil Planning Council

The Public Utilities Control Authority chairperson, the Commissioner of Social Services, the Connecticut Energy Advisory Board chairperson, and the Secretary of the Office of Policy and Management, must sit on a Home Heating Oil Planning Council to address issues involving the supply, delivery, and costs of home heating oil and state policies regarding the future of the state's home heating oil supply (CGS 16a-23t(f)).

The council must monitor and analyze the information collected for evidence of operational or infrastructure conditions that should be addressed to enhance the reliable, free, and fair operation of the state's home heating oil market and submit a periodic report to the joint standing committee of the General Assembly having cognizance of energy on the status of the state's home heating oil market, including, but not limited to, its recommendations for addressing any negative conditions identified and recommendations for legislation (CGS 16a-23t(g)).

PROPOSED LEGISLATION

Energy and Technology Committee Bills

Proposed Bill 506 prohibits any home heating oil or propane gas dealer from offering any residential customer a guaranteed, prepaid, fixed, or capped contract on or after July 1, 2009.

General Law Committee Bills

Proposed Bill 5394 limits the length of propane contracts to two years. At least 90 days before the expiration of a contract, the dealer must mail the consumer a letter notifying the consumer of the expiration and renewal option. Any contract renewal must be in writing and signed by the consumer.

Proposed Bill 5404 requires propane dealers to disclose all delivery and material charges as separate items on their bills and to disclose all such charges at the time of contracting with a customer. A violation is an unfair trade practice.

Proposed Bill 5994 requires propane dealers to disclose to residential customers the current price per gallon of propane.

Raised Bill 6500 was folded into Committee Bill 6470, which requires parties entering into an agreement for the retail sale of fuel oil or propane gas for residential heating to execute a written or qualifying contract containing the terms and conditions for delivery and any potential fees, charges, or penalties. The bill restricts the fees a retailer may charge and limits potential liquidated damages. The contract must also allow the customer to purchase the propane tank for fair market value at the end of the contract. A violation of these provisions is an unfair trade practice.

The bill also amends the written residential disclosure report to include, if applicable, a statement disclosing the existence of a propane tank in excess of 20 gallons, the name of the tank owner, and the related contract.

The bill creates a definition of “guaranteed price contract” to include all forms of prepaid and fixed price heating oil and propane contracts. It adds physical supply contracts and a letter of credit as acceptable forms of security to ensure delivery and requires that the commitments obtained through futures or physical supply contracts be at least 80% of the maximum number of gallons that the dealer is committed to deliver. It requires any holder of a futures contract, surety bond, physical supply contract, or letter of credit to notify the Department of Consumer Protection (DCP) of any cancellation.

MR:ak