In the Know: Safety concerns with customer-owned tanks

In the Know is a monthly partnership between LP Gas magazine and Propane Resources. Our focus this month is on safety, addressed by financial consultant and business valuations and sales expert Tamera Kovacs.

Q. What are the biggest safety issues propane retailers face with customer-owned tanks, and how can retailers overcome those issues?

A. The company owning the tank at customer locations is not only a key to building long-term value in the business, it also gives the retailer an advantage when it comes to safety. Most retail propane marketers serve customer-owned tanks in addition to the tanks they own. The key is implementing systems to keep the customer (and the company) safe. The problem is that not every company in the industry has the same safety requirements or value systems. You have to do what is right for you.

When considering the safety aspects of tanks owned by the customer, we need to be careful and not place all of these customers into the same stereotype. Some customers who own their tank are model customers and appear much like a company-owned account. The customers who want control and are price focused pose the higher safety risk.

Not having custody of the tank poses a major concern. A customer who owns his tank can have anyone fill it. This can be a serious safety concern, as you do not know the last time the tank was filled, leak tested or had any type of service or maintenance performed on the system.

To keep your company and customers safe, require a leak check and document all appliances before a delivery is made. It is often difficult to get a price-conscious customer to pay for the leak test, but it will protect you from possible unjust claims and it gives you the chance to inspect the system for leaks and visually inspect all appliances for proper installations. But if the customer refuses to pay for the leak check and visual inspection, do you eat the cost to gain a price-focused customer who’s likely to find someone else next time?

Because these customers own the tank and are price conscious, most of them do not perform the proper maintenance on it. Many of the tanks are old and have out-of-date regulators, old systems and, in some cases, lack a data plate. Most tank owners will resist investing in their tank, regulator or system. The litigation risk for servicing a tank or system that is not up to code can be catastrophic in the event of an accident. In the eyes of the law, you, the retailer, are the expert.

Explain to the customer the cost to “correct” the violations or update the system. Follow that by offering the customer the opportunity to lease a tank from you, and explain the benefits of leasing. In the end, the customer chooses whether to make any changes, but you must determine the risk involved and whether you should service that customer.

Another risk factor many companies do not consider with the “problem” customer-owned business is lost opportunity costs. Consider the amount of time and expense it will cost to gain the “price shopper” as a customer (for this delivery) compared to what can be made from servicing “good” customer business. Is this a customer you will keep for multiple deliveries or will it be a one-and-gone customer? Could you spend your staff’s time and expenses better – someplace where you’ll actually make money?

You have to develop your customer-owned tank policy and know what you will and will not accept. Each member of your staff should know this policy. Safety should be the first priority, as there isn’t a dollar value to someone’s life. If a customer chooses not to conform to your policy, explain the safety concerns and know you have done all you can.

Retail propane is a free-market business. You set the terms and conditions required to be your customer, and you make the choice as to whom you accept as customers. Know which customers are profitable and which have too much risk. Keep in mind, your best defense is a good offense. 

Tamera Kovacs is a financial consultant and industry expert in business valuations and sales with Propane Resources. She can be reached at tamera@propaneresources.com or 913-262-0196.