Ad campaign cutbacks loom

September 1, 2008 By    

Top propane officials already are bracing for the federal government to step in and whack the industry’s high-profile, multi-million dollar consumer ad campaign sometime in 2009.

The executive committees of both the National Propane Gas Association (NPGA) and the Propane Education & Research Council (PERC) met last month to hear the prognosis for the campaign, which is credited with adding 65,000 new residential propane customers and $118 million in revenue from 2001-07. The news wasn’t good.

Patrick Hyland
Patrick Hyland

When the U.S. Department of Commerce issues its next report on propane price increases through 2007, it most likely will order cuts in the program that accounts for more than a third of PERC’s total expenditures.

By law, PERC must restrict its work to research and development, training and safety matters if residential propane price increases outpace electricity, natural gas and fuel oil. The government uses a five-year rolling average composite index to calculate those comparisons. Restrictions are triggered if the ratio of propane price growth to that of other energy sources exceeds 1.10 (10.1 percent).

The threshold almost certainly will be breached once record-high 2007 pricing data is calculated in the next annual report, which could be available by year’s end.

That puts the industry’s entire $15 million to $20 million annual consumer education budget in the government’s cross hairs for indefinite slashing.

It also would limit expenditures for 36 states that are educating consumers with their PERC rebate dollars. Last year, 44 percent of the $9.4 million issued in state rebate funds was used for consumer advertising, work with builders, manufactured housing and appliance rebates.

The intent of the law is understandable. It is designed to prevent the campaign from stimulating product demand to the point where consumer prices soar. But when the law was written in 1999 – and crude was hovering around $20 per barrel – lawmakers could never have foreseen the ravages that $133 oil would have on propane prices.

The campaign certainly can’t be blamed for the record-high prices propane customers are paying. Yet PERC will be held accountable by the letter of the law.

Assuming that oil prices won’t come crashing back to earth any time soon to correct the market anomaly, it appears the only long-term remedy is to amend the statute. Industry leaders are talking to legislators about changing the formula to protect consumers against runaway prices AND verify that industry marketing efforts aren’t responsible for excessive rates.

The timing is lousy for hopes of a quick fix, however. Comprehensive energy bills remain mired in committee, and the presidential election means Congress won’t tackle any new issue lacking strategic political spin.

Adding to the challenge is the introduction of a new marketing and communications team to direct the campaign. PERC recently chose the Minneapolis agency Collie + McVoy to replace Porter Novelli. It marks the first managerial change since the campaign’s inception eight years ago.

It’s still too early to say whether the Energy Guys have filmed their last hot shower, power outage or backyard cookout spot.

Or if the trove of slick marketing materials used by propane marketers on billboards and in TV, print and radio ads across the country will be padlocked.

Or if NPGA will lose its primary sponsor for Propane Days.

Or if newly launched programs targeting homebuilders and members of the manufactured housing industry will be abandoned.

Or what PERC will do with the millions of unspent dollars it budgets each year for consumer outreach.

But it is clear that the industry stands to lose years of critical investment and market development momentum at the worst possible time if the campaign plug gets pulled.

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