LP Gas

Competing against electricity

Some propane retailers spend too much of their resources trying to beat up on the competitors who don’t matter, instead of coming up with the right fight plan for electricity.

Fighting to switch the heating oil market to propane seems like beating up a defenseless old man. That old man has a lot longer lifespan left than some of you might think, but heating oil consumers will continue to migrate gradually to other energy choices such as propane. Propane retailers should take advantage of that migration, but they should not spend a lot of resources on an imaginary “War on Heating Oil.”

Fighting to switch your propane competitor’s customers to buying propane from you seems like beating up your brother. It feels good at the time, but he is going to retaliate. Stealing your competitor’s customers does not expand the use of propane in the marketplace and tends to perpetuate the deliverable-fuels myths of poor service, high prices and unstable supplies. Instead, spend your resources on being the best-in-class propane provider and market those capabilities, and propane consumers will beat a path to your door.

Propane fighting the subsidized expansion of natural gas is really about David beating up Goliath, and our battle with natural gas can have a similar outcome. I will save that fight plan for a future article.

Now comes the fight with electricity, and it should last three rounds or fewer. The fight preparation for Round 1 is training yourself to know how much electricity truly costs in your marketing area and how that cost compares to propane.

I buy my electricity from a rural electric coop, and my monthly electric bill, shown above, is a typical example of a misleading published rate for electricity, in this case being about 8 cents per kilowatt-hour (kwh). But adding in all of the monthly fees and surcharges brings the per-kwh cost to over 24 cents per kwh. Make sure you are comparing with the magnified cost of electricity when stepping in the ring to fight.

So, you know how to figure the magnified cost of electricity and now you need a way to compare the cost of propane and electricity directly.

Consider that 1 gallon of propane produces the same amount of energy (Btu) as 27 kwh of electricity. Multiplying the magnified cost of electricity on your electric bill by 27 will result in a dollar figure equivalent for a gallon of propane that produces the same amount of useable energy.

Using my electric bill example, multiply the magnified electricity cost per kwh of .2449 x 27 = $6.61 per gallon for propane with the equivalent amount of useable energy. That price per gallon will be either greater than or less than the price you are charging for a gallon of propane. In this example, propane will be cheaper than electricity if it is selling for less than $6.61 per gallon. That’s why I have seven appliances in my home running on propane instead of electricity.

Of course, your electricity provider will point out that most propane appliances operate at less than 100 percent efficiency. If you feel the need to address that point, see the chart on page 20, with a different multiplier (rounded to simplify) that you can use for those appliances with different annual fuel utilization efficiency (AFUE) ratings.

In my case, the boiler that heats my home is rated at 95 percent AFUE, so I would multiply my magnified cost of electricity by 26 instead of 27, taking the equivalent price of propane to electricity down to $6.36 per gallon. Considering what I really pay for propane, it is still a clear winner over electricity by a knockout.

If you couldn’t land the knockout blow with the energy cost comparison in Round 1, come out of your corner in Round 2 with the performance advantages of a propane appliance over an electric appliance. Use the superior propane water heater performance (no cold showers) as an example to punch electricity in the nose.

I doubt that electricity will still be standing for Round 3, but, if it is, you can land your final blows with the environmental benefits of propane over electricity, considering that a high percentage of electricity in most parts of the country still comes from coal-fired power plants.

Think of energy consumers as fight fans. They are watching you fight electricity, and the outcome of that fight will help those fans determine if they want to become your propane customers or continue to follow electricity.

Remember, you really only have one competitor. Are you ready to fight?


Tom Jaenicke is vice president of propane marketing services for Warm Thoughts Communications. He can be reached at tjaenicke@warmthoughts.com or call him at 810-252-7855.