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Ferrellgas Partners LP Message Board

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  • surn_rules surn_rules Dec 23, 2009 6:24 PM Flag

    Spot price for propane

    <<its not all profit,they have to transport, store, payroll for the employees, medical etc. don't be so quick to call out the regulators. big diff between wholesale & retail. >>

    So do retail gasoline stations, and their markup is about 20%. They have all the same expenses as propane dealers.

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    • Sorry, wrong assumptions. Propane dealers face much more overhead than your corner gas station.

      First, you drive to the gas station to fill up. Propane dealers have to deliver the fuel to you, increasing the cost of payroll, vehicle expense, fuel, and insurance.

      Second, you own the tank on your car. Most propane companies have to purchase, maintain, paint, safety inspect and pay taxes on the storage tanks at customers houses. In addition to the tank at your house there is also the cost of the pressure regulators.

      Third, most customers pay in advance at the pump at the gas station. Propane customers generaly have up to 30 days to pay for their delivery, effectivity tying up capital and increasing the possibility of slow or no pay customers.

      There are many more factors to numerous to list ie. multiple phone lines, service departments, collection costs, increased accounting duties and so on.

      I am by no means defending FGP on their pricing policies as I believe that they use predatory tactics, offering below cost pricing to gain new business and above market rates to unsuspecting existing customers. I just wanted you to know that the comparision to gasoline stations was not acurate to use.

      • 1 Reply to mr.strikland
      • <<First, you drive to the gas station to fill up. Propane dealers have to deliver the fuel to you, increasing the cost of payroll, vehicle expense, fuel, and insurance.>>

        Which is offset by the fact that retail gas stations have to own or rent land on expensive busy urban intersections, while propane dealers rent cheap industrial land. Secondly, Ferrellgas charges its customers a "$7.99 gas surcharge" fee to offset the gas to deliver. This is another profit factor on top of the 200% markup which offsets the labor and gas to deliver the propane. FGP also charges a $5.99 "hazmat" fee for each delivery, sop there is a total $14 fee to the consumer, over and above the cost of propane.

        <<Second, you own the tank on your car. Most propane companies have to purchase, maintain, paint, safety inspect and pay taxes on the storage tanks at customers houses. In addition to the tank at your house there is also the cost of the pressure regulators.>>

        Ferrellgas charges its customers a $60 annual rental fee for the tank. Tanks costs $800, so they are making a 7.5% return on investment on those tanks.

        <<Third, most customers pay in advance at the pump at the gas station. Propane customers generaly have up to 30 days to pay for their delivery, effectivity tying up capital and increasing the possibility of slow or no pay customers.>>

        So you are saying the cost of capital justifies an increase from 20% over wholesale to a 200% markup for a 30-day lag in accounts receivable? Moreover, most gasoline purchases are on a credit card and the delay to the retailer is about 7 days from the point of purchase until the money is deposited in its account. So the receivable carry is only about 23 days.

        <<There are many more factors to numerous to list...>>

        They are all immaterial except for the one you forgot to mention. FGP carries $1 billion of debt on $1.4 billion of assets. It is a highly leveraged business, unlike the corner gas station. Ferrellgas customers are being gouged to pay the interest on their leveraged buyouts of local propane distributors all over the country.

        That is why the PUC needs to be involved.

 
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