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OLR Research Report


August 10, 2009

 

2009-R-0296

PROPANE ISSUES

By: Kevin E. McCarthy, Principal Analyst

You asked for background on the laws governing propane dealers. You were specifically interested in learning (1) whether Connecticut law bars consumers from buying large (100 gallon or larger) propane tanks, (2) whether it is legal for propane dealers to charge more per gallon for deliveries to small tanks, (3) if the law governs whether a dealer can fill a tank rented from another dealer, and (4) whether it is legal for a consumer to buy a tank in Massachusetts and have it installed in Connecticut. This office is not authorized to issue legal opinions and this memo should not be considered one.

OLR report 2009-R-0141 (enclosed) discusses bills introduced this session affecting propane dealers, none of which were adopted. The House did pass HB 6470, as amended by House “A”. Among other things, this bill would have (1) generally required contracts between propane and heating oil dealers and their residential purchasers to be written; required the contracts to include all terms, conditions, and charges and to be in plain language; (3) restricted the types of fees a fuel dealer could charge and limited potential liquidated damages; and (4) under certain conditions, required the contract to allow the customer to purchase an underground propane tank at a commercially reasonable price.

The Department of Consumer Protection (DCP) has a guide to buying propane and heating oil, available at www.ct.gov/dcp/.

SUMMARY

The law requires propane dealers to register with DCP and imposes a number of consumer protection requirements on them. These include requirements for retail contracts, particularly with regard to prepaid contracts. In addition, Department of Public Safety regulations govern how propane is stored and transported, and regulate who can fill propane tanks. Under the regulations, a dealer can only fill a tank rented from another dealer with that dealer's consent.

On the other hand, the state does not regulate how dealers set their prices and a dealer may charge more per gallon for deliveries to small tanks than for large tank deliveries and may have different prices for different contractual relationships. In practice, dealers typically lease rather than sell tanks used for home heating, and the law does not preclude this practice. While the law does not bar a consumer from buying a tank in Massachusetts and having it installed in Connecticut, DCP staff believe that this would be difficult to accomplish in practice.

DEALER REGISTRATION

The law (CGS 16a-23m) requires propane dealers to register with DCP to sell to residential customers. Propane dealers must register and sell under the same terms as home heating oil dealers. A dealer who sells propane and home heating oil needs to register only once to engage in the sale of both products. Registrants must show that they have general liability coverage and insurance of at least $1 million to cover environmental damage due to propane gas leaks. They must notify DCP of insurance renewal or coverage changes; insurance companies must notify DCP if they cancel a dealer's insurance coverage. Dealers must display their registration numbers in all advertisements.

The DCP commissioner must keep lists of registered propane and home heating oil dealers. The lists must be made available to wholesalers, who may sell their products only to DCP-registered dealers (CGS 16a-23s).

Dealers may not require their regular customers to accept deliveries of a minimum amount of propane or oil (the law does not define “regular”). The minimum is the lesser of 100 gallons or 75% of the size of the primary tank (CGS 16a-22a). They cannot impose a delivery surcharge for deliveries of 100 gallons or more, unless the delivery is made outside of outside of the dealer's normal delivery area or business hours, or if extraordinary labor costs are involved (CGS 16a-22b).

In addition to these requirements, large dealers (those who sell at least 1 million gallons annually) must register with the Office of Policy and Management and the office can require smaller dealers to register (CGS 16a-22d). Registrants that sell more than 500,000 gallons of propane per year must report information on how much propane they have in storage (CGS 16a-22h).

CONTRACTS

Dealers selling propane for residential heating must disclose in writing all of the purchaser's costs, including the unit price and any delivery surcharge, when purchaser enters into or renews a purchase contract. The seller must make these disclosures when the buyer places an order if there is no contract (CGS 14-329). In addition, dealers selling propane for residential heating must place the price per gallon, the number of gallons sold, and the amount of any applicable delivery surcharge on the delivery ticket at the time of delivery. The dealer cannot charge more than this price (CGS 16a-21).

A contract for the retail sale of propane that offers a guaranteed price plan, including fixed price contracts, must be in writing and disclose the terms and conditions of the price plan. The disclosure must be in plain language and immediately follow the language concerning the price or service. The disclosure must in 12-point boldface type. The dealer must offer this price for at least 24 hours or until the next advertised price is publicized, whichever comes first (CGS 16a-23n).

A dealer may not enter into, renew, or extend a prepaid or capped price contract unless he has: (1) obtained and maintained futures or forwards contracts or other similar commitments which allow the dealer to purchase, at a fixed price, at least 80% of the maximum number of gallons he is committed to deliver under the contracts or (2) obtained and maintained a surety bond of at least 50% of the total amount of funds paid to the dealer by consumers under these contracts. The dealer must maintain the contracts or the amount of the surety bond for the period of time for which the prepaid or capped price contracts are in effect. However, the total amount of contracts or surety bond may be reduced during this time to reflect any amount of propane already delivered to and paid for by the consumer.

Prepaid contracts may not run for more than 18 months and must indicate: (1) the amount of funds paid by the consumer to the dealer under the contract, (2) the maximum amount of gas committed by the dealer for delivery to the consumer under the contract, and (3) that performance of the prepaid contract is secured by one of the two options described above. The contract must provide that the contract price of any undelivered propane owed to the consumer at the end of the contract must be reimbursed to the consumer within 30 days after the contract's end date unless the parties agree otherwise.

Each dealer who enters into, renews, or extends prepaid or capped price contracts must inform the DCP commissioner, in writing, that such dealer of his action and identify any entity from which the dealer has secured futures or forwards contracts. The dealer must notify the commissioner if at any time the total amount of such secured futures or forwards contracts held by the dealer is less than 80% of the maximum amount that the dealer is committed to deliver under to all of his prepaid contracts.

Each person from whom a dealer has secured a futures or forwards contract must notify the commissioner, in writing, of the cancellation of the contract within three business days after the cancellation.

DPS REGULATIONS

Propane is explosive and its storage and transportation are subject to Department of Public Safety (DPS) regulations (Conn. Agencies. Regs. 29-331-1 et seq.) that were adopted in 1997. Among other things, the regulations require that tanks be emptied, filled, transported by the tank's owner or upon the owner's authorization. The regulations impose the same restriction with regard to disconnections.

The regulations impose additional requirements in cases where a fixed tank (e.g., one used for home heating) is owned by the propane dealer. In these cases, the dealer must be notified in advance in order for it to disconnect its tank or regulator. The individual or entity requesting the disconnection (which can be another propane dealer) can then disconnect the tank or regulator. The owner of the tank or regulator must remove it from the customer's premises within 15 business days.

In case of an emergency such as a fire, a public emergency response agency can direct a dealer to immediately empty or disconnect a tank.

According to John Doucette of the Office of State Fire Marshal in DPS, part of the rationale for the regulations was to ensure that the old tank be removed when a homeowner switched propane dealers.

SPECIFIC QUESTIONS

Connecticut law does not bar consumers from buying large (100 gallon or larger) propane storage tanks. However, according to DCP staff, tank manufacturers choose to sell large residential tanks only to propane dealers, and dealers generally lease rather than sell these tanks to customers.

The law does not regulate prices. (The Department of Public Utility Control stopped regulating propane prices more than a decade ago.) As a result, a dealer may charge more per gallon for deliveries to small tanks, based on market conditions.

If a tank is owned by a propane dealer, only that dealer or a person authorized by him can fill the tank under the DPS regulations. Another dealer can only fill the tank with the tank owner's consent.

The law does not bar a consumer from buying a tank in Massachusetts and having it installed in Connecticut. However, DCP staff believe that this would be difficult to accomplish in practice. The consumer would have to find a propane dealer who was registered in both Massachusetts and Connecticut (there are only a few such dealers). The tank would have to be installed by a person licensed to do this work in Connecticut, e.g., a master plumber.

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