This September, homeowners and public officials who had signed contracts for locked-in heating oil prices during the price spike began to feel the sting of buyer’s remorse. Prices continued to fall in October, and are currently at the lowest levels of the year. People in locked-in contracts are unable to take advantage of the historically-low prices, and are frustrated. How did this happen? If a heating oil consumer is currently in a locked-in price contract, what can he or she do about it?

Understandably, many heating oil customers were alarmed by soaring prices in July, when crude oil hit its peak price of $147 a barrel. They wanted to protect themselves from from a seemingly endless escalation of prices, and turned to locked-in price contracts as a solution. Locked-in contracts are essentially a gamble–a bet that heating oil prices will move higher over the time period covered by the contract. This gamble can be risky, mostly because “there are too many variables at play,” as an article on 27east.com explained. Accurate predictions of the movements heating oil prices, or any commodity for that matter, are effectively impossible.

Although some people are blaming heating oil retailers for now-unfavorable locked-in contracts, the truth is that when heating oil companies enter into a contract with a customer, they make the same contract with their wholesale heating oil provider. In fact, as ConnPost.com reported on December 3rd, Connecticut state law requires that retailers purchase wholesale oil immediately after a customer signs a locked-in contract, ensuring that the retailer will have enough oil to cover that contract during the heating season. When customers locked in high retail prices over the summer, retailers locked in high wholesale prices. While it may seem like heating oil retailers are reaping big profits from their customers’ high priced locked-in contracts, they cause the dealer to suffer in the same way the customer does. TimesUnion.com reported on December 3rd on one dealer who strongly discouraged his customers from signing price-lock contracts. Of the customers who demanded he lock in their prices, he said, some of them have now called to ask him to release them from the contract.

So if a person has signed a contract that obliges him or her to pay a locked-in price that is higher than the current market price, is there a way out? The answer is yes–but for a price. Contracts, if drafted correctly and put in writing, are legally-binding for both parties involved–neither side can decide to nullify or amend the contract because prices have changed. Most contracts, however, do include an escape clause that involves the customer paying a fee of $500 or more to get out of it. It is a hefty price to pay, but is really the only option. Some smaller dealers have already been put out of business by locked-in contracts this season, as too many of their customers have opted to pay the fee and cancel their contracts. In most cases, the cancellation fee does not cover the wholesale cost of the oil that the retailer purchased when the contract was signed, leaving him with an obligation to buy wholesale oil that he can’t sell and therefore can’t pay for.

The best course of action for customers locked in at high prices is to first examine their written contract to make sure it is complete with the lock-in price, delivery methods, and the cancellation fee. If consumers think their contracts are incomplete or inaccurate, they should contact their State Attorney General’s office. Assuming the contract is complete and legal, the customer should, as Connecticut Attorney General Richard Blumenthal advised in the ConnPost.com article: “calculate how much product they used heating their homes last year, multiply that by the difference in the current market rate versus the contracted rate, then calculate whether that amount exceeds the potential contractual penalty.”

The unpredictability of heating oil prices is the main reason why HEAT USA only offers automatic delivery contracts at a discounted price that is tied to the daily price of heating oil. HEAT USA President Andrew Heaney commented on this year’s high priced lock-in contracts, and encouraged conservation as a sure-fire way to save money when he was interviewed by BusinessWeek T.V. in late October.

Customers who desire to cancel their price-lock contracts should contact HEAT USA at 1-888-HEAT-USA (1-888-432-8872). An Outreach representative can provide assistance in calculating whether or not it is to each customer’s advantage to pay his or her contract’s cancellation fee.

For more news coverage of this topic, visit:
Courant.com
Newsday.com
LoHud.com

The most recent statewide price averages released by the New York State Energy Research and Development Authority (NYSERDA) once again showed big savings for HEAT USA members.  HEAT USA per-gallon prices came in 40 to 50 cents lower than the posted average for all nine regions of New York State.

Presiding Officer William Lindsay Image: Newsday.com

William Lindsay, presiding officer of the legislature for Suffolk County, NY, recently introduced two bills that would affect heating oil contracts between retailers and consumers in the county.  The first bill would declare void any heating oil supply contracts that were not agreed to in writing.  The second bill would create a county website listing the wholesale prices paid by heating oil companies and the retail prices they charged their customers.

Lindsay cited many county residents finding themselves locked into “unfair” contracts with high cancellation fees as reason to enact the legislation.  He believes that some consumers may have been confused by the terms of a contract they agreed to over the phone, and suggested that requiring written contracts would prevent such confusion.  “Getting locked into a contract they don’t understand over the phone is just wrong, and I want that practice to end. Consumers need to understand what they are getting into and requiring written contracts is the best way to do that,” Lindsay said, quoted in The East Hampton Press and The Southampton Press (article available at 27east.com).

Lindsay also asserted that the online price information site would give local residents a better idea of price ranges for heating oil and help them find the best deal available in their area.

Thousands of heating oil consumers throughout the Northeast have felt the sting of price cap or price lock-in contracts they entered into over the summer, when heating oil prices peaked along with the price of crude (covered here on September 26th and October 23rd).  Startled by the rapid rise of heating oil prices in July and August, many consumers locked in prices at $4 to $5 a gallon or higher for fear of an endless upward price spiral.  Heating oil prices began to fall in September, and retail prices in most areas of the Northeast are now around $3 a gallon.  Several state and local officials have addressed the issue, including Maine Attorney General Steven Rowe, who in November reminded Maine residents that written heating oil contracts are legal documents and signers of the contracts are legally obligated to honor their terms.  He also explained that retailers purchase oil as soon as contracts are agreed to, which means that most dealers paid comparably high wholesale prices for the oil that consumers are paying locked-in retail prices for.  Such written contracts in Suffolk County would likely not be affected by the proposed legislation, which applies to unwritten oral contracts.  Senator Charles Schumer (D-NY) and Westchester, NY County Executive Andrew J. Spano both called for government help for residents locked into unfavorable contracts, but no new policies or legislation have been enacted since their statements in October.

The Press publications articles report apparent widespread support for the bills in the Suffolk County legislature.

New York State from space Image: WorldMapsOnline.com

New York Attorney General Andrew Cuomo’s office issued a press release yesterday to announce the creation of the Oil Efficiency Pilot Program.  The program will provide financial assistance to needy families in New York State to help upgrade old heating systems and increase home energy efficiency.  The program will receive $1.9 million in funding as part of a $75 million settlement that Cuomo secured last year from American Electric Power, the nation’s largest energy company.  The company was fined for its coal-fueled power plants that were operating in violation of the federal Clean Air Act.

The pilot program, as part of the comprehensive HeatSmart NY program, is expected to extend assistance to 500 of the neediest 3 million New York families who rely on oil for heat.  The Attorney General’s Office also touted the program’s environmental benefits, saying it will help to reduce greenhouse gas and other polluting emissions.

New York residents who are interested the program should call 1-877-NYSMART.

Today, the New York State Energy Research and Development Authority released its data for average heating oil prices across New York State from last week.  HEAT USA prices for four regions were significantly lower than the NYSERDA average.  HEAT USA member prices were $0.40 to $0.80 lower per gallon in New York City, on Long Island, in the Lower Hudson Region, and the Western Region.

Members, contact the HEAT USA Membership Service at 1-800-660-4328, 9 am to 9 pm weekdays, to find out your dealer’s price for the day.  Non-members, call 1-888-432-8872 to find out more about how you can save on heating oil with HEAT USA.

Sen. Chuck Schumer Photo: nypost.com

Senator Chuck Schumer (D) of New York called a press conference Sunday, during which he stated that heating oil prices are not falling as fast as crude prices, and that greedy Big Oil is to blame. Citing his own research (most likely done by his staff), Schumer noted that the price for a barrel of crude oil has dropped by 50 percent since its peak price in July, while the price of heating oil has only dropped 12 percent in the same period of time (source: newsday.com).  He also noted that gasoline prices had dropped more than heating oil prices (23 percent since July), but that gas prices are “still not where they should be.”  He called for the Federal Trade Commission to warn oil companies across the country to lower their heating oil and gasoline prices to match crude prices or face “stiff penalties.”

Schumer has been a longstanding ally of heating oil consumers. No matter your politics, you must acknowledge that he has brought heating oil issues to the fore of national discussion on more than one occasion, and has been instrumental in securing additional HEAP funds for low-income households in the State of New York.  In this case, his statistics shed light on a frustrating reality: the price of crude has dropped tremendously over the last four months, and heating oil and gasoline prices have only declined modestly.  While oil companies’ hunger for profits is certainly one explanation for this situation, it is not the only one.

Heating oil and gasoline tend to follow the same price trends as crude because crude is the main ingredient in both fuels, but the correlation among the three is not directly proportional or even consistent.  It is important to remember that crude, heating oil, and gasoline are all traded as separate commodities on the New York Mercantile Exchange, and therefore go through independent buying and selling cycles.  Furthermore, heating oil and gasoline have opposite demand seasons, with demand for heating oil trending upward in the winter and demand for gasoline trending upward in the summer.  Also, the production and distribution channels of heating oil and gasoline are very different.  Huge multinational oil companies manufacture heating oil from crude and then sell the heating oil to local distributors around the country, who then sell the oil at retail prices to consumers.  Gasoline is a different story–”Big Oil” companies like Shell and Exxon control the gas from the crude pumps all the way to the gas pumps–the producer, manufacturer, and retailer are all the same company.

Decades of collective experience have taught the HEAT USA price team that today, the only dead-certain prediction in the price of heating oil is uncertainty.  It’s this uncertainly that led HEAT USA to create the Fair Price Protection Program, which limits how much heating oil providers add to the wholesale price when setting daily retail prices.  HEAT USA members are assured that, if the market price of wholesale heating oil drops, their retail prices drop immediately.  Under Fair Price Protection, heating oil retailers’ profit margins are fixed to a specific number of cents per gallon.

Whether or not Senator Schumer’s call for action is heeded by the FTC, the crude oil and heating oil markets will continue to bounce up and down in the coming months, and the best and most reliable support for consumers is the support of large buying groups like HEAT USA and the guarantee of fair prices that they provide.

Newsday published a report last night on falling gasoline and heating oil prices in New York.  The article quoted the average price for heating oil on Long Island, determined by the New York State Energy Research and Development Authority (NYSERDA), as $3.617 per gallon.

HEAT USA price experts reported the average price per gallon for HEAT members on Long Island to be $0.50 lower than the NYSERDA average in the Newsday report.  Members can call HEAT USA Member Services at 1-800-660-4328 for specific price quotes for their area.