Defining propane as a utility

January 1, 2006 By    

Beware of propane systems masquerading as a utility. The general consensus is that propane systems are treated as an unregulated form of energy in the marketplace.

 John McCoy
John McCoy

There are some distinct advantages to being an unregulated source of energy. We can remove our tanks when customers don’t pay their bills. We are usually not subject to statutory fines for failure to perform certain types of inspections and we have fewer reporting requirements to state and federal governments.

There are also practical reasons propane systems are not classified as a utility. We compete on the open market for business with other propane marketers and other forms of energy such as home heating oil. We don’t get a monopoly over certain service territories like utilities.

Several years ago, a local electric utility failed to inspect an unlocked power box in a timely manner. A young child was electrocuted and the utility was required to pay three times the damages incurred by the child because of its slow response. The ultimate payment exceeded $25 million. These types of penalties don’t exist for non-utility concerns.

There are times when propane systems can be treated in the eyes of the law as a regulated utility.

The threshold for converting a propane system to regulation as a gas utility is the number of units being served with propane from a common source.

The most common system that is subject to scrutiny would be a tank that serves a series of 10 or more homes or buildings from a common tank. Some examples could be trailer parks, new subdivisions for homes that have service off a common tank and line and an industrial or commercial operation that has 10 or more units running off the same tank.

The common service number of 10 is set out in federal regulations. Individual states may also have separate regulations that adopt the federal rule of 10 or they can set a lower threshold at which a gas system is subject to regulation by the state as a utility.

Check your state public utility service to find out what the threshold is for your state.

If your company has any accounts of this type or is planning to begin service to this type of account you are likely subjecting that particular account to state and federal regulatory oversight. You will be required to perform certain monitoring of that system to meet the regulations imposed on gas systems that fall within its scope of jurisdiction. This should be factored into the pricing of the service of this account.

It will also impact discontinuation of service for nonpayment of bills. Utilities cannot turn off systems during winter months unless certain guidelines are met and the customer is offered hardship assistance. Unregulated propane systems are not generally subject to these rules.

You will need to proceed with more caution when your propane system is classified as a utility. Beware.

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