Prime to Disrupt

Ideal Gas: 100 years in the making- the propane gas industry is about to change

Thousands of homeowners and businesses rely on a steady supply of propane to do everything from taking a hot shower in their home to cooking a pizza at their favorite restaurant. What started as an industry with hundreds of suppliers in Florida has over time consolidated to mostly large players that are obligated to deliver results for shareholders. That pressure hasn’t always translated to good customer service and has even led to documented questionable business practices.

For residential customers, propane tanks are often installed for free with the agreement that the tank belongs to the propane provider. In exchange the customer pays a rental fee. On the surface this sounds like a fair arrangement, but look deeper and the situation is far less clear.

Who owns the tank?

Since tanks have a long useful life, homes with tanks are bought and sold, and there have been multiple mergers and acquisitions in the propane industry. Years later it can be unclear on who actually owns the tank. A home purchaser assumes they own the tank on the property, but the propane supplier may disagree. It’s unclear the right answer because the lease agreement paperwork may have  been lost many mergers ago. Most homeowners blindly keep paying a rental fee because they are sent a bill.  To be clear, a bill does not confer a responsibility to pay a rental fee.  If the proof of tank ownership cannot be produced by the propane provider, a homeowner is entitled to free themselves of the bondage of the arrangement the propane company unilaterally assumes to have.

Usually, a gas company is able to recoup the cost of the tank in about 18-24 months, after that rental fees becomes pure profit particularly because the tanks are virtually maintenance free. Because tanks last 20 years or more, it is a very lucrative business.

Furthermore, gas companies can charge whatever they feel like the customer will tolerate. According to the Department of Agriculture (regulating body for propane), the company owner of the tank is the only one allowed to fill it. This has led to multiple attorney general investigations.

Sure you can refuse service, but be prepared to pay a fee to have the company come get their tank and go without service for a few days. The next company you do business with will likely have the same lease arrangement because this is how business is done in the residential propane industry. However, one company is looking to change that.

Michael Siegel and Doug Brady see an opportunity to disrupt an entire industry and put negotiating power back in the hands of consumers. Siegel is no stranger to the propane business. In 1934, Maxt Siegel bought a Ford truck with $500. Earning business one handshake at a time, he delivered Kerosene in South Florida. That business evolved into Ideal Gas based in St. Augustine and it’s still owned by a member of the Siegel family.

Disrupting the Norm

With Brady and Siegel at the helm, they were looking for a way to grow the business faster. What they decided to do is the opposite from the rest of the industry. For residential customers, they decided to sell, not lease propane tanks. “It was a bold decision at the time” says Brady,  “we were sacrificing long-term residual revenue, but we also felt it was the right thing to do for the customer. For an average buried 250 gallon tank the cost is about $2500 to install and own, but if you plan to be in your home more than 3 years, you will be better off owning.”

Chief Operating Officer Leo Kirby adds, “What this means is because a customer owns the tank, they can choose their provider based on cost and service just like any other product. It puts the power back with the customer. What customers don’t understand is, propane is not a utility like electricity or sewer. Customers can shop around every time they need a refill if they like. Just call and place and order. But this only works if the customer owns the tank,” he stresses.

It’s a strategy that seems to be paying off. Ideal Gas is among the fastest growing propane suppliers in Florida largely because consumers are figuring out how they may have been taken advantage of over the years.  Ideal Gas expects to pump several million gallons of propane by 2018. While this is still small in comparison to publicly traded competitors, Ideal Gas plans to continue with the sale vs. lease strategy for now and disrupt how customers are served in Florida.

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