FTC complaint: Ferrellgas, AmeriGas coordinated on cylinder exchange

The Federal Trade Commission (FTC) issued an administrative complaint Thursday against Ferrellgas and AmeriGas, alleging the two companies illegally coordinated to reduce the amount of propane in their cylinders sold to Walmart. The FTC issues an administrative complaint when it has reason to believe the law has been violated and it believes a proceeding is in the public interest.

For Ferrellgas and AmeriGas, the administrative complaint marks the start of a proceeding in which the allegations will be tried in a formal hearing before an administrative law judge.

According to a press release, the FTC complaint alleges that, in 2008, Blue Rhino and AmeriGas each decided to implement a price increase by reducing the amount of propane in their exchange tanks from 17 pounds to 15 pounds, without a corresponding reduction in the wholesale price.

“This type of collusion may not be direct or visible to consumers, but can lead to higher prices or lower quality,” says Deborah Feinstein, director of the FTC’s Bureau of Competition. “So companies should be on notice that when we see this type of conduct, we will take action to stop it.”

Walmart, which purchased cylinders from Blue Rhino and AmeriGas, refused to accept the fill reduction from the companies. Faced with Walmart’s resistance, the FTC alleges that Blue Rhino and AmeriGas colluded by secretly agreeing that neither would deviate from their proposal to reduce the fill level to Walmart. The FTC says sales executives from the two propane companies communicated repeatedly for several months, by telephone and email, to update each other on their discussions with Walmart, as well as to work together to take the necessary steps to push Walmart to promptly accept the fill reduction.

This secret agreement between Blue Rhino and AmeriGas had the effect of raising the price per pound of propane to Walmart and, ultimately, consumers, the FTC alleges.

Ferrellgas released a statement in response to the FTC’s complaint, writing: “The company is disappointed by the commission’s decision to file an administrative complaint against Ferrellgas for allegedly agreeing with AmeriGas Partners LP to require Walmart to accept 15-pound tanks. These claims are without merit and we will vigorously contest them.”

AmeriGas also released a statement regarding the complaint: “AmeriGas denies that it was involved in any such collusion. While we were surprised and disappointed to see the commission move forward with this complaint, we respect the process and look forward to presenting our position to an administrative law judge later this year. We continue to believe that the claims against AmeriGas are without merit.”

This is not the first time Ferrellgas and AmeriGas have collectively faced complaints regarding reduced cylinder weights. Ferrellgas agreed to pay $1 million in penalties in an unlawful business practices case in California, while AmeriGas agreed to pay $800,000 for not displaying the reduced weight on cage signs. Ventura County District Attorney Gregory Totten announced the penalties in December.

According to a press release, Ferrellgas and AmeriGas agreed to post notices on propane cylinder enclosures informing consumers of the actual amount of propane in tanks.

On its website, Blue Rhino says it reduced the amount of propane in its tanks in 2008 from 17 pounds to 15 pounds to combat inflating costs of steel, diesel fuel and propane.