Assessment Rate Increase To Help Fund Consumer Ed

To help fund its new consumer education program, along with its Partnership With States program and commercialization projects, the Propane Education & Research Council (PERC) at its meeting July 12 and 13 in Napa, Calif. approved an assessment rate increase from 0.4 cents/gal. to 0.45 cents. The increase is part of PERC’s 2017 budget.

Council president and CEO Roy Willis said the Nov. 1, 2016 effective date for the new rate will allow the council to collect the assessment during a typically high-demand season rather than wait until the beginning of 2017. Willis stressed that the council was “deliberate” in only keeping “must-haves” in the budget, rather than approve an assessment rate higher than 0.45 cents/gal. The additional revenue is projected to be about $3 million for programs in 2017.

Funding the new consumer education campaign, with a dog named “Blue” as “spokesperson,” was the main reason for the assessment increase. Because PERC just launched the campaign in late June, Willis noted the council has “precious few measures” so far about how well this campaign is achieving its objectives to improve consumer favorability toward propane and increase consumers’ willingness to switch to propane appliances in the home. In the fall, the council will conduct a survey of about 2000 homeowners in rural territories to measure their familiarity and favorability of propane and their willingness to switch. PERC conducted a pre-campaign survey in February.

“Until we see how the campaign is impacting consumers, we’re essentially planning a steady-state budget for the campaign in 2017,” Willis said, adding that PERC could increase the budget for the campaign if it sees favorable results from the consumer research. “Then we have the option to come back and provide our plans and budget for the campaign. But right now, we’re taking what I think is a very sensible, prudent approach to the campaign.” PERC is also focusing on other major programs that need funding, including its Partnership With States program, safety and training initiatives, commercialization strategies, and research and development. “All of those are integral parts of our overall budget,” Willis stated. “The [consumer education] campaign is a fairly new addition after six years of restriction without any advertising campaign whatsoever.”

The 2017 budget includes $1.5 million for the Partnership With States program, in which PERC matches state rebate funds for various state propane gas association programs. PERC funding for the program was $1.8 million for 2016. The council will examine the types of activities that will continue under the Partnership With States program.

“I think there are eight or nine programs, the principal one being the appliance rebate program, which I’m a real fan of,” Willis noted.

Also at its Napa meeting, the council approved the formation of an industry outreach committee to review the Partnership With States program.

Council chair Tom Van Buren noted during the meeting that council members in earlier budget discussions mentioned the need for dialog between PERC and the states “to optimize our resources and relationships.” That led to the formation of the new committee. Bob Barry of Bergquist will serve as committee chair, and Randy Doyle of Blossman Gas will serve as vice chair. State propane gas association executives Steve Ahrens in Missouri, John Jessup in North Carolina, and Derek Dalling in Michigan, as well as Pat Hyland, Tucker Perkins, and Kristen Rice at PERC, and former PERC chair Paula Wilson will also serve on the committee, which will work with the council, its advisory committee, and other state propane gas association executives to optimize the rebate program, Partnership With States, and other programs.

Van Buren also noted that the council has discussed overall strategy now that the new consumer education program is in place. In 2015, the council developed the following list of goals: To enhance consumer awareness; to grow gallons; to promote safety and training; and to engage the industry in enhancing consumer awareness.

“They are fantastic aspirational strategic goals; however, we all realized over the last year we need to be more specific by category, having a top two or three, if you will, and spending time on product development and strategic discussions,” Van Buren said. Drew Combs, PERC vice chair, will chair a new task force to focus on those goals.

The partnership between PERC and the National Propane Gas Association (NPGA) was also a focus of the Napa meeting. NPGA chairman-elect Jerry Brick addressed the council, noting that the PERC/NPGA partnership is strong. “It will get even stronger as we work together on a few key programs underway now,” he predicted, adding that the partnership is successful because of the personal involvement of the officers of both organizations. He noted that integration between NPGA, PERC, and 37 state and regional associations is the central focus of the term of current NPGA chair Stuart Weidie.

Brick noted that working against natural gas expansion into rural propane territory is a main benefit of that integration. Preventing taxpayer-subsidized geothermal installations is another. Integration between PERC and NPGA is necessary to conduct what Brick described as “critical research to demonstrate the value of our product and the economic folly of some of our competitors. That’s where we see the strongest bond between the role of NPGA and PERC.” Results would be less impressive, Brick added, if not for NPGA’s advocacy work combined with PERC’s ability to produce rapid-response credible analytics, and the state associations’ ability to engage at the state level.

NPGA president and CEO Rick Roldan provided another example of the benefits of the partnership. The U.S. Department of Transportation recently published a final rule on bobtail requalification (see p. 10), extending the interval from five to 10 years. The extension might have saved the propane industry $15 million and would not have happened without PERC research. “That’s what the partnership is all about,” Roldan noted.

Consumer Education Campaign

In other news at the meeting, PERC chief marketing officer Dennis Vegas provided an update on the new consumer education campaign, noting that the consumer website, www.proudlypropane.com, launched June 27. He noted that parts of the campaign featuring Blue the dog have appeared on national cable channels such as Animal Planet, CMT, Nat Geo Wild, HGTV, and DIY. The DIY promotion includes messages with a voiceover stating “Brought to you by Proudly Propane” at the end.

Vegas pointed out that the campaign can’t be successful without propane marketer engagement, and the council has already begun promoting the campaign at state association and industry meetings.

Market Challenges, Opportunities

Mike Sloan of ICF International gave a presentation at the meeting titled, “Propane Market Challenges and Opportunities in 2017: Setting Expectations for PERC Programs Driving Consumer Propane Demand.”

Looking at current market conditions, he mentioned three areas that affect the propane market and the PERC budget in 2017. The first is that the current low propane price environment is creating significant growth opportunity for the industry, particularly in markets where propane is competing against electricity. “The market right now is more favorable in that aspect than it has been in many years,” Sloan reported. “So the timing is really right for a concerted push into consumer markets, residential and commercial markets where propane is competing against electricity.” Electricity prices have been stable while propane prices are down.

But the greatest growth opportunities for the propane industry at the moment are in the engine fuel market, although changes in the energy market have made it a bit more challenging than it was two to three years ago. Diesel fuel prices and gasoline prices have fallen as much or more than propane prices have, Sloan noted, so the decline in autogas fuel prices hasn’t provided an incentive to switch to autogas. Lower fleet fuel costs overall mean less incentive for fleets to consider propane as a way to reduce budgets. “The current market environment means that the industry is going to have to work a little harder to continue to grow and penetrate that market over time.” On the broad propane supply side, a continuing relatively slow shift is occurring away from a market in which supply growth in the U.S. has exceeded the infrastructure to consume propane or export propane. Sloan added that when new facilities come online and international markets continue to develop over time, the U.S. propane supply market will be more fully integrated with the international market.

“I view that as likely to lead to a little bit of an increase in propane prices as international growth picks up and as we become fully integrated with the international market and also subject to a little bit more volatility,” Sloan predicted, adding that exports have not picked up as quickly as he anticipated six months earlier. “If we look ahead two to three years, propane prices will be not quite as favorable for growing the market as they are today. And that’s something to think about and consider in developing the PERC budget.”

ICF sees continued improvement in the housing market, and that’s projected to continue over the next couple of years before it levels off. Sloan is seeing a bit less conversion from fueloil to propane because of low fueloil prices, and he is also noticing a negative impact from the polar vortex winter of 2013-2014. The polar vortex didn’t have much of an impact on propane market share in 2014, but it did in 2015. “There’s about a year lag between the effect of what’s happening in the market and new propane construction. And that’s important when you’re thinking about the impact of the consumer education program.” He noted that PERC programs funded by the proposed 2017 budget are expected to lead to 120 million gallons in incremental propane sales in 2017.

Council Approves Engine Projects

The council approved $515,000 for an “Off-Road Engine Development Stimulation Project” that will support the development of one to five engines greater than 175 hp. PERC chief business development officer Tucker Perkins said no specific contractor has been chosen. The product would be used primarily for agricultural engines, but the project is not limited to that sector.

The propane industry’s engine portfolio includes a good representation of lower-horsepower engines, and its selection of middle-horsepower products has been improving.

“But people want to pump more water and want to pump it using higher-horsepower equipment,” Perkins said. “People are looking for higher horsepower applications, and this addresses that. It wouldn’t be limited to just irrigation—we may design a big rock crusher, for example.” He added that PERC will allocate some money to a potential project and then release the rest of the money after the manufacturer demonstrates it can sell a certain number of the engines. “I love that model because it brings to us focused organizations that know they’re going to sell.”

The council also approved a $1-million project with Cummins to develop an engine “optimized for high-efficiency propane operation suitable for application in the evolving medium-duty truck landscape.” The $1 million is the first payment on a total project cost of $12 million, with PERC and Cummins paying $6 million apiece. Perkins described the project as development of “an engine that doesn’t exist today,” which would have the same operating characteristics of today’s diesel engine in the area of fuel efficiency and emissions standards.

The Cummins project would be an engine for propane bobtails and other Class 7 trucks. Perkins hopes the technology would become “scalable,” to be used with smaller and much larger engines, such as Class 8 road tractors.

“I don’t want to minimize the importance of this,” Perkins stressed. “We see a well-respected manufacturer, Cummins, for the first time expressing significant interest in the propane industry. But maybe even more important than that, you see us moving forward to develop technology that really doesn’t exist today and that would give us a product that doesn’t have any equal for fuel efficiency, reduced emissions, and engine durability.” —Daryl Lubinsky