Pre-Buy Propane: Is it really a good deal?
When preparing for the season, some propane customers consider to Pre-Buy their propane. The idea of locking in a fixed price before the season begins can seem appealing, offering a sense of security and potential savings. However, it’s important to fully understand the terms of these programs, as hidden costs and/or restrictions can turn what seems like a great deal into the more expensive option for propane. Most times the old saying “If it sounds too good to be true, it probably is” applies here.
What is a Pre-Buy Program?
A Pre-Buy Program for propane requires you to pay upfront for a set number of propane gallons at a fixed price before the season. The idea is that by purchasing in you are paying a lower price.
While the concept sounds simple, some important details often go unnoticed. Along with the per-gallon price, there may be administrative and additional delivery fees that can quickly add up, plus restrictions on on the gallons or timeframe the price is applicable. This can reduce or even eliminate the savings you thought you’d be getting on propane.
Additional Costs to Factor into the Price Per Gallon
Delivery/Safety/Compliance Fee
If you are considering switching propane companies, compare how much their delivery fees are to your current provider. If they are higher this will add to your overall cost per a gallon. In some cases, companies may deliver propane more frequently than is necessary, racking up additional delivery fees that can significantly increase your overall cost for the season. The unnecessary deliveries may be because they’re in your area that day or they are trying to meet gallon quotas for the month.
Administrative Fee
Are they charging an administration or setup fee? This just like the additional or higher delivery fees will increase your overall cost per a gallon of propane. These can range in amounts and further reduce any possible savings.
How Do You Know How Many Gallons to Pre-Buy
It’s impossible to gauge how many propane gallons you’ll need nor control how many gallons will be delivered at each delivery to match your pre-bought gallons. Making the equation even more complicated is that pre-buy gallons have to be delivered during a specific timeframe to get be at the special fixed price. Because of this there is no way to know really what your average overall cost per a gallon is going to be.
Seasonal Weather Fluctuations
There is no way to accurately gauge how much propane you’ll use for the season as it changes each year depending on the weather.
House Heating: If the winter is warmer than what you based your estimates on you will have overbought; if it is colder you will have not purchased enough gallons.
Pool Heating: If it a warmer season than what you based your estimates on you will have overbought, if it is colder you will use significantly more and have underbought. With pool heating the main weather factor in determining usage is the not necessary the temperature during the day but what it drops to at night.
Program Time Period
When does the the pre-buy gallons have to be delivered by to be at the rate you purchased them at? Once that date passes the price isn’t fixed anymore and you will be paying their current market rate for deliveries.
Financial Considerations
You may not want to lay out all the money in advance for your homes propane usage to cover the whole season and only buy a portion of the gallons upfront.
What Happens if You Bought Too Little, Too Much, or the Pre-Buy Expires
Didn’t Buy Enough Propane Gallons
If you bought too little gallons for the program period, you will be paying their regular market rate at the time of delivery for the additional gallons you need to make it through the season. There is no way to know this price in advance so you are taking a gamble.
Bought Too Much or They Haven’t Delivered All The Gallons before Program End Date
Most companies will not refund you for the gallons you overbought for the program period, but will apply a credit on your account for future deliveries. However these future deliveries will be at their regular rates not the special pre-buy price. You are now forced to purchase gas from them at whatever rate they feel like charging you at that time.
Committed to Buy From Them Without Knowing Their Regular Rates
This can significantly cut into the savings you expected. If you bought too much or they haven’t delivered all the gallons in the specified program time period you are forced to use your credit with them and the price you will pay per a gallon is completely up to what they feel like charging you at that time. This can completely wipe out any initial savings and end up costing you substantially more than what you’re currently paying with your current provider.
Example Scenario: How a Propane Pre-Buy Program Can Cost More
Let’s break down a hypothetical situation to see how the costs can add up.
- Pre-Buy Agreement:
- You pre-buy 400 gallons at a fixed rate of $2.19 per gallon.
- There is a $70. pre-buy administrative fee.
- Their delivery fee is higher and they deliver more frequently than necessary $90.
- Your Last Fill on the Pre-Buy:
- On your last fill under the pre-buy they deliver 250 gallons to fill your 500 gallon tank. However only 50 gallons remain from your pre-buy, so the additional 200 gallons are billed at their regular rate of $3.95 per gallon.
Here’s how it all adds up:
Calculate Your Overall Cost Per Gallon of Propane:
- Pre-Bought 400 gallons @ $2.19/gallon = $876.00
- Administrative Fee = $70.00
- Delivery Fees = $90.00
- Last fill Additional Gallons to Fill Tank 200 @ $3.95/gallon = $790.00
- Total Pretax Cost = $1,826.00
- Calculate Realized Cost per gallon: $1826.00 / 600 gallons = $3.04
In this example, although the pre-buy price was locked in at $2.19 per gallon, the actual realized cost for 600 gallons is $3.04 per gallon. That’s significantly higher than what you it initially appeared to be!
Is a Propane Pre-Buy Program Right for You?
With Pre-Buy Programs, it’s crucial to ask the right questions and weight the pros and cons before signing up. Be sure to inquire about what happens when the gallons run out on the Pre-Buy, how many deliveries will be made, and what are the fees. This will all affect your bottom line, and in many cases, it’s better to skip the program entirely and choose either a fixed price or a variable rate without any commitments.
Get a Fixed Price Without All the Strings Attached
At Propane Depot we offer fixed price programs without requiring you to pre-buy and pay up front for the gallons. Plus, there are no administrative fees nor gallon restrictions. We believe in straightforward pricing and offering options that are designed with your best interest in mind. This is just one of the many reasons we are Long Island’s top rated family owned propane company.
Call us at 631-400-SAVE or if you don’t have an account yet, click here for a quote.
