Issues that led to propane shortage remain unresolved
ST. PAUL -- When state lawmakers rushed to approve $20 million in emergency heating aid in February, there was lots of talk about coming back to address the deeper structural issues that contributed to the severe propane shortage and consequent price spike.
With two committee deadlines now come and gone, the bill that’s had the most hearings would protect consumers but would do little to avoid the shortages. Of the two other bills making headway at the Capitol, one simply calls for a study and the other’s fate is doubtful.
All of this comes as a critical milestone looms in coming weeks: the conversion of a pipeline out of Canada that will take away up to 40 percent of the propane used by Minnesotans.
If state lawmakers make no adjustments to affect the propane supply and distribution system this session, are we setting ourselves up for another emergency scramble in 2014-15?
“That’s really hard to say. Are we going to have an exact repeat of what we just went through, last fall and this winter? If we do, would we struggle? Absolutely,” said Roger Leider, executive director of the Minnesota Propane Association.
This winter has been historically bad, with a wet, cold fall that required significantly more propane to dry crops, followed by brutally cold weather that sent residential demand soaring.
The propane industry has been preparing for the upcoming loss of the Cochin pipeline, Leider said, including increasing storage capacity and rail capability.
Propane wholesaler CHS Inc. is expanding storage and rail handling capability in Rockville and more than doubling the size of its facility in Glenwood, Leider said.
In addition, a terminal in Benson served by the Cochin pipeline is in the process of being converted to a rail facility, he said.
Still, those industry efforts need some goosing from the state this session, said state Rep. Pat Garofalo of Farmington, the Republican lead on the energy policy committee.
“Otherwise, we’re playing with fire,” he said.
Officials must work to accelerate the development of infrastructure needed to deal with the changes, Garofalo said.
“Now that it’s warming up, and propane prices have gone down, the public is under the misunderstanding that the problem has been solved, and it hasn’t,” he said.
Garofalo recommends pushing to free up capacity in the rail system — in part by advocating for approval of the Keystone XL pipeline — along with creating incentives to boost storage and conversions from propane to natural gas.
Skepticism about solutions
But the chair of the energy policy committee, Rep. Melissa Hortman, DFL-Brooklyn Park, is skeptical both about the need for more storage capacity and the wisdom of converting from propane to natural gas.
“I don’t know that we have inadequate propane storage in Minnesota. ... I’m not saying that there could not be data out there, but it hasn’t really been presented to us,” she said.
This past winter was like an especially bad flood, Hortman said, in that the state should use it to get ready for potential extreme situations in the future.
“But the caution is you don’t want to overbuild, right? We don’t need a bunch of propane tanks all over the countryside and get to the point of overcapacity, where we’re subsidizing the distribution of storage that we will never need.”
And switching people from propane to natural gas, which supporters tout as more plentiful and tied in to a pipeline delivery infrastructure, is “like out of the fry pan into the fire” for Hortman. “When you’re talking about a delivered fuel, whether it’s delivered through a pipeline or a truck that brings it to your house, you are at the mercy of the commodity market for the price of that fuel,” she said.
Her preference is to spend money on weatherization, which she says will save the state money on heating assistance for low-income residents. She has proposed taking any unused money from the $20 million lawmakers approved for heating aid and spending it to weatherize homes.
Meanwhile, Mike Rothman, commissioner of the Department of Commerce, is recommending the federal government consider creating a regional propane reserve for the Midwest, similar to what was done for heating oil in the Northeast.
There are several proposals pending at the Legislature.
The bill with the most attention so far this session has been kicking around the Capitol in some form for a decade or so. It seeks to beef up propane consumers’ rights in an industry that officials say is unregulated and behaves in some ways like a monopoly.
It would enact protections related to price disclosure, payment plans, purchase contracts, nondiscrimination and other issues.
The Senate version was amended in mid-March to include two provisions supported by the propane industry. One would create a state-funded short-term loan program to help people who can’t afford to buy propane, and the other calls for the state to advance heating aid in the summer so tanks could be filled when prices are typically lower.
Rothman said the department is studying both proposals and hasn’t taken a position, but “I think that there are questions about feasibility.” The state would want to make sure the loan program didn’t add credit issues to the burden already borne by low-income people struggling to pay for heat, Rothman said.
The House version of the bill doesn’t contain the short-term loan program, and it was clear this past week that the industry and chief sponsor Paul Marquart, DFL-Dilworth, hadn’t reached a compromise. The bill was laid over March 26 in the ommerce committee and Marquart called its chances “very slim.”
State Rep. Paul Anderson, R-Starbuck, has a bill that would exempt propane tank purchases from sales tax. It would apply to businesses and farms as well as homeowners.
“A lot of farmers are looking at putting in bigger tanks for corn-drying,” Anderson said. “And if every farm doubled the size of its storage tank, that would give us a bigger supply ... and somewhat lessen this crunch when it comes.”
A similar federal program in the 2000s was successful in beefing up storage capacity, Anderson said. His program would be in effect for three years.
The state Revenue Department estimates Anderson’s bill would cost $190,000 the first year and $430,000 in fiscal year 2015.
Anderson said he was told the taxes committee would prefer he offer grants to buy tanks rather than a sales tax exemption, but a bill he drafted to do that failed to make the committee deadline. It got an information-only hearing last week.
Another bill making its way through the legislative process calls for a study of the feasibility of switching propane users to natural gas.
Leider’s view is that if that were economically feasible, the natural gas companies would have already run the lines. But he said it will be interesting to see what the study concludes.
Bottom line, “I think it’s going to be a combination effort that’s going to fix this,” Leider said.
“Anyone that thinks there is a single answer, a simple answer, or a silver bullet, is sadly mistaken. It just doesn’t work that way. We’re just not going to find that.”
The Pioneer Press is a media partner with Forum News Service.
Where found: Propane is produced from crude oil refining and from natural gas processing. A very small amount is produced in Minnesota, but most is brought into the state from Kansas and Canada by pipeline and rail. It is produced at a relatively steady rate year-round, so there aren’t easy ways to bump up production when supplies run low.
How much: Normal propane use for Minnesota is 350 million to 375 million gallons per year (July to July). This year it’s expected to be more like 450 million to 475 million gallons. An average residential user goes through about 750 gallons a year. The state has 213,000 to 250,000 propane users.
The cost: Propane prices spiked in Minnesota this winter to $6.67 per gallon. The average user’s 750 gallons would cost more than $5,000 at that rate.
Costly help: The federal government provided $115 million in heating assistance this winter in Minnesota, supplemented by $20 million in state money. Crisis benefits for Minnesotans using propane and heating oil jumped. Last year, the total was $7.5 million; this year it’s $19 million with April and May still to go.
Source: Minnesota Commerce Department; Minnesota Propane Association; U.S. Energy Information Association.