Vineyard Propane maintains status quo in AmeriGas merger

Ralph Stewart

Vineyard Propane’s parent company merged with AmeriGas on January 12. For the time being, it’s business as usual.

“Both companies will continue to operate on Martha’s Vineyard,” AmeriGas Propane vice president Bill Katz confirmed in an email to The Times last week. “We have no plans to change operations and customers will not be impacted in any way.”

When asked whether there are price differences between the two companies, Mr. Katz said he was not familiar with specific pricing at the two Island locations “However, I can tell you we have no plans to change how business has been done in the past by either location,” he said.

Vineyard Propane and AmeriGas are located in the Martha’s Vineyard Airport Business Park, as is their competitor, Island Propane Inc. (IPI). Mr. Katz said the sites for both would be retained, as would their staffs. “We have no plans to reduce the number of employees of either company on Martha’s Vineyard,” he said.

AmeriGas Partners of Valley Forge, the country’s largest propane distributor, paid $2.9 billion to acquire Vineyard Propane’s parent company, Heritage Operating and Titan Energy Partners, from Energy Transfer Partners L.P. of Dallas. AmeriGas serves 1.3 million customers with 1,200 propane distribution facilities in all 50 states.

On Martha’s Vineyard, however, Vineyard Propane is the bigger supplier. With the merger, Vineyard Propane manager Cliff Karako said his company combined with AmeriGas would now serve about 89 percent of the Island’s propane customers.

Comparing apples to apples

Since the two companies are operating separately, Mr. Karako said there might be some slight deviations in pricing between them, but it would be close. When it comes to comparing Island propane prices, he suggested it is best to compare Martha’s Vineyard retailers to each other.

Although the U.S. Energy Information Administration website, for example, provides propane price comparisons nationwide, Mr. Karako said it would be unfair to use those to gauge Island prices.

“The operating expenses for retailers off-Island is totally different from here,” he said. “It all starts from the beginning.”

Transportation to the Island is a big cost factor. Mr. Karako said he gets five to seven transports a day, delivering 10,000 gallons of propane each, at a cost of $740 per roundtrip on the Steamship Authority (SSA). That does not include the hauler’s expense.

Given the Island’s unique factors, he suggested that the best way for propane customers to compare prices is between their local retailers.

This week, for example, an Island customer with a company-owned or leased tank consuming 1,000-1,500 gallons of propane is paying $3.70 per gallon at Vineyard Propane, $3.90 per gallon at Island Propane, and $4.03 at AmeriGas, according to information obtained by phone calls to the three.

Prices vary according to the size of a tank and whether the customer owns it, usage, and payment plan. A household that uses 1,000 gallons of propane for heating, hot water, and cooking will get a better price than one that uses 200 gallons for cooking only, Mr. Karako pointed out.

“Keep in mind the truck that’s delivering it costs over $100,000, plus the liability costs and everything else, including the employee,” Mr. Karako said. “I pay more to my employees than is paid on the mainland because it’s the nature of the beast of where we live. So all of that’s got to be factored in.”

Although a lot of decisions related to the merger remain, Mr. Karako said AmeriGas is taking a methodical approach to integrating the two companies. “The company is evolving, to what extent I don’t know,” he said. “There have been a lot of changes, and AmeriGas is looking at the best of both practices, and making decisions about what’s best for the business and for the consumer. We did a lot of good things at Heritage, and those may very well evolve into the system.”

Future site and storage concerns

Although Vineyard Propane and AmeriGas both plan to remain at the Martha’s Vineyard Airport Business Park, Mr. Karako said airport manager Sean Flynn told him their locations might be subject to change.

The subject came up when Mr. Karako applied to the Martha’s Vineyard Airport Commission to add two additional 30,000-square foot storage tanks at Vineyard Propane’s facility in January 2010.

“We deferred his request for evaluation, to see if it was something we should do individually for that particular lot or look at the business park overall for storage, long-term,” airport manager Sean Flynn said in a phone call with The Times Tuesday.

Mr. Flynn said he turned Mr. Karako’s request over to Deb Potter, airport administrator for landside and security, to begin the review process. “We determined it doesn’t fall within our expertise, so we’re going to roll it into an airport master plan update for the evaluation of aviation property,” he said. “That would be the appropriate place for that discussion to take place.”

Mr. Flynn said he expects to receive funding for the master plan from a grant this spring.

Trucks pick up propane for Martha’s Vineyard at a shipping terminal and are transported by SSA freight ferries. The Island’s storage capacity for propane has not increased in 16 years. During harsh winters in the past, SSA freight ferries often made emergency runs to deliver propane.

“We put the burden on the Steamship Authority,” Mr. Karako said. “And unfortunately, that’s not a constant. There can be a disruption, especially with winter weather, and with a disruption there could be a problem for the Island.”

Additional storage would not cut down the number of SSA trips made by propane trucks, Mr. Karako said. The main advantage is that it would buy time for propane retailers when there is a disruption in ferry service.

“In a real winter, I’m day to day,” Mr. Karako explained. “There are a lot of times my trucks are empty, waiting for transports to come in the morning to start their day. That’s how bad it is. So someone might say, Vineyard Propane and AmeriGas are merging; he’s picking up an extra tank.

“It doesn’t work that way,” he added. “Because he’s got 2,400 customers over there that’s pulling from that tank already, and he’s in the same boat. All three of us are in the same boat.”

Propane storage is especially challenging overall, because it must be kept under pressure and requires tanks 20 times thicker than gas tanks, according to Joe Rose, president of the Propane Gas Association of New England. “We don’t have abundant storage in this country, so what’s happened is that over the last three years, the United States has become a huge exporter of propane, to Eastern Europe, as well as to growing markets in China, India, and Africa,” he said.

Mild winter bad for business

This winter, however, supply and storage has not been an issue. Mild weather has been good for the consumer but bad for the propane business. Mr. Karako said he has talked to propane retailers off-Island whose business is off anywhere from 25 to 40 percent. “In the eight years I’ve been here, I’ve never had a winter like this,” he said.

One of the financial impacts is a loss on deposits he made on SSA reservations. Mr. Karako said he books ferry reservations six months out for propane delivery trucks, based on demand last year and a three-year average. “I just found out there’s a provision in the Steamship Authority rules you can only cancel out up to 20 percent of your reservations, and they hold a deposit against your reservations,” he said. “We’ve already gone beyond the 20 percent, so I’m losing my deposits, and that’s a big hit.”

Mr. Karako said he put a call in to Marc Hanover, Martha’s Vineyard’s SSA member, to discuss the issue.

What is propane?

Propane, also known as liquid gas, is derived from oil refining and natural gas processing. Currently, propane ranks third behind oil and natural gas as the most used residential heating fuel, according to government statistics. It is used in thousands of Island homes to varying degrees, from cooking to complete heating and hot water systems.

At one time about 60 to 70 percent of propane produced came from refining oil, Mr. Rose said. Now, about 65 to 75 percent comes from processing natural gas. “As natural gas production continues to expand, and more and more propane comes from it, we’re hoping our benchmark in the future will not be the cost of a barrel of crude oil,” he said.