Fixed price propane for 2009-2010 heating season - good idea?


Hi all,
My gas company just sent me a letter offering to sign up for a fixed price (@ $1.949/gallon) of propane until April 30, 2010. I don't remember them sending any such letter last year which got me thinking maybe they anticipate a price drop? I realize that no one has a crystal ball (a working one :-)) but what is the collective wisdom of this group saying - is it a good idea to sign up for $1.949/gallon fixed propane (in PA) until next spring?
Thanks!
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info_at_1-script_dot snipped-for-privacy@foo.com (DA) wrote:

My theory on all these 'fixed price' deals, both oil & propane, is that the dealer probably knows more about the market than I do. He is in business to make money.
My fuel oil company has offered me a deal for the past 5 years. I've passed every year, but I check the numbers in the spring. They won every time, save one. [especially last year] The first 2 yrs have a $200 'contract fee' which includes a cleaning. The other years were $100 'contract fee.
From this year back- Contract    actual 2.59    2.39 [so far] 4.95     3.01 2.80    3.52 2.94    2.92 2.14    2.56
If I had put $100 up front, and contracted for 100 gallons more than I use, I would have 'saved' 72cents per gallon in the 2007-8 season. I used 318 gallons so I would have come out $120 ahead.
What this buys the dealer is customer loyalty. [I've stuck with the same folks for 25yrs anyway because they are reliable.] In the one year I would have saved, when they sent me the plan at the beginning of the next year I might have bitten because I already had a 100 gallon credit-- and that was the year they were nearly $2 off.
In 2005 it looks like I saved a bit- but I only used 270 gallons that year. $113 save- $100 fee- and for some bizarre reason they wanted me to contract for 621 gallons that yr.. So I'd have been tying up an extra $700 that I'm sure I saved $13 on somewhere.
How much propane will you use in a season? Can you buy a tank big enough to hold it? Then shop in the summer and buy from whoever gives you the best price.
Jim
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DA had written this in response to http://www.thestuccocompany.com/maintenance/Re-Fixed-price-propane-for-2009-2010-heating-season-good-397636-.htm :
Jim Elbrecht wrote:

Well, that's pretty much my line of thinking, too. I've yet to see a for-profit business that had betterment of the client as their primary objective. Besides, my gas company does not need to buy my loyalty - they already have me by my ... bills - they have exclusive rights in this development and actually own the tank. There are no strings attached to the fixed price offer (at least from what I can read in the letter) but, like I said, in this case they probably don't even need any.
I did some research online about propane pricing but all the data seems way off (based on last year's prices) - in $2.50+/gallon in which case the offer would make no sense whatsoever to the gas company. So, they must know something general public does not in order to come up with the offer.
My hopes are that someone in this group might follow heating costs trends closer than my amateur self and can possible share their finds here.
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On Thu, 01 Oct 2009 16:24:30 +0000, in alt.home.repair, info_at_1-script_dot snipped-for-privacy@foo.com (DA) wrote:

They have their own best interests at heart, but there are at least two ways to do that...and one of them makes *both* of you happy....

Who signed away your right to do business with the vendor of your choice? You got an HOA on your back?
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I more or less agree with Jim.
I know nothing about propane.
In May I got one of those offer for $9.00 per MCF of natural. Last March the delivered price was 14.80 something. Current price at that time was about 10.80. Price has dropped even more since then.
Did a little research online and found out the bottom had fallen out of the market and the well head price was about $4.50. There is about a 90 day delay in price adjustments for stuff in the pipeline.
I ignored the offer. My current bill reflects a delivered price of 3.61 per MCF. Gee! I could have been locked in at $9.00
Our budget amount went from $144 per month last year to $72 this year.
I suspect propane will follow the general market.
Colbyt
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DA wrote:

and not only did it never reach the capped price, they were selling to new customers at a lower price than mine. They are now my ex oil supplier.
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DA wrote:

Just to show you the difference in geographical locations, I recently contracted my 2009/2010 propane for $1.299/gallon in SE Iowa. I figure that there is more upside risk on my part than downside risk thus I went for it. To get this price I had to prepay it all upfront which is fine because interest rates are so low I could have not made much on the money anyway.
Don
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And I was happy to get mine in NY for a 2yr low of $2.59. [no contract for me]

Have you looked at the bargain basement prices on the DOW lately? I'd bet you could make 20% over the winter on your money without breaking a sweat.
Jim
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Jim Elbrecht wrote:

Yeah, I look several times a day and I would not put a penny in that market. I think that you had a false rally that is beginning to falter. Through Darby-Direct you can get a three year Step Up CD at 3, 4, & 5 percent with a penalty free chance to get out at the end of each anniversary. No anything great but a hell of a lot better then most.
Don
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-snip-
Rule #1-- Don't watch the DOW- especially several times a day.
I'll put your money where my mouth is.<g> Open a $500 Scottrade account, buy 38 shares of Alcoa. Today it is trading at $12.80. Don't look at it until the heating season is over. Lets say April 1st.
If my 20% is good Alcoa will be trading above $15.36 by April 1 2010. [and you'll be more than $100 ahead]
Jim
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DA wrote:

Maybe, maybe not, if you're looking only at the money.
The general rule is to trade an existing variable expense for a fixed one at every opportunity. This allows better budgeting, forcasting, and planning. No surprises is good. Very good.
This notion can be overwhelmed by a significantly lower price, but not often.
Suppose you sign up for $1.95/gallon deal. That means that the propane is worth that much to you irrespective of what someone else might pay. You should be economically indifferent (though perhaps not intellectually) if there ends up a 50% price swing either way - you've already budgeted the amount and have moved on.
The alternative to a futures contract, is to adjust your behavior based on price swings: If the price goes up, you put on a sweater, if the price goes down you sell some of your propane to the fool who locked in a higher price.
I'd be reluctant to ascribe some malevolent intent to your supplier. The theory that he has some secret knowledge and it using it to rip-off his existing customers is not a good business strategy - and he knows it. He's probably just trying to hedge the uncertainites of the future. That is, he's probably been offered gas at $1.85 and he's trying to determine how much to contract for (based on what he knows he can sell at $1.95).
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