Maryland propane distributors facing regulation

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Propane distributors in Maryland might find themselves in a regulated industry for the first time since the early 1990s, with the Maryland Public Service Commission opening hearings to see if there is enough competition to support continued deregulation.

The PSC is revisiting how much control it has over centralized propane distribution companies — those that distribute propane through a pipeline network. There are 14 such companies in Maryland. The industry is regulated for safety standards, but not for pricing. The commission notified the companies that hearings would be forthcoming and that they needed to submit pricing, competition and other information.

The hearings were prompted by residents of communities hooked into propane systems. It was determined in the 1990s that sufficient competition existed from dealers that sell propane in individual tanks to warrant deregulating the industry.

“The idea was that bottled propane offered a competitive alternative,” said Paula Carmody, head of the Office of the People’s Counsel, which represents the interests of consumers in utility cases before the PSC. “And now, the commission is raising the question about whether that is competition or not.”

Propane is classified as a liquefied petroleum gas, and is a colorless, odorless by-product of petroleum refining.

Carmody said the distributors operate closed systems that connect homes to the pipeline system. Sometimes, homeowners are also required to buy propane only from a central distributor.

“In effect, it can be like a little monopoly in those neighborhoods,” Carmody said. “You can’t use anyone else to get propane, and there is no price regulation.”

The National Propane Gas Association has taken a stance against regulation. The association said it is unnecessary because propane sales differ from other regulated industries.

“While propane may be viewed as a necessity of life by some customers who use it as a fuel for heating and cooking, that fact alone does not justify its regulation,” the organization wrote. “Other fuels which are sold and distributed in a fashion similar to propane [such as fuel oil, coal, wood, kerosene, and others] are not said to be affected with the public interest and have not been subjected to regulation. Food, clothing, gasoline and housing are also necessities of life, but these industries are not regulated as public utilities.”

Chesapeake Utilities, in Dover Del., operates the Sharp Gas subsidiary that is one of the 14 distributors that could be affected. Sharp has more than 34,000 customers in Maryland, Delaware, Virginia and Pennsylvania.

According to a filing with the Securities and Exchange Commission, Sharp’s propane sales accounted for $68.5 million in revenue in 2010. The company said it sold 32.6 million gallons of propane during the year.

Chesapeake Utilities did not return calls for comment.

The City of Crisfield Housing Authority is one of the 14 distributors named by the PSC. Its director, Charles Goldsborough, said, though, it is unlikely the regulation effort would extend to the city’s system. Goldsborough said the housing authority runs 330 apartments in the city that are hooked up to the propane system.

“We don’t sell the propane, we just use it in the apartments,” he said. “Residents have an allowance for propane based on the season and the size of the apartment. If they go over that than they pay what we pay for it.”