Oil purchase plans gain popularity Customers have many choices

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BANGOR – As the summer heats up, people are being asked now to think about how they are going to warm their homes next winter.

Within the last couple weeks, heating fuel companies have been making pitches to their customers – and soliciting new ones through mass mailings – to sign up for a payment plan for next year’s supply.

“Open immediately,” reads an envelope from Irving Oil Corp. “Lock in your price today! Complete details inside.”

“I’ve received them as well,” said Judy Pelkey of Pelkey Oil in Glenburn, whose company will be sending out mailings next week to its customers.

“There’s a big demand,” said Tim Spellman, a dispatcher with R.H. Foster of Hampden who answers questions from customers calling about pre-buy plans. “It’s become the big thing now.”

Last year, about 60 percent of all heating oil customers purchased their oil months before winter started through purchase plans, according to suppliers. That’s up from about 25 percent in 1999.

“We had so much interest we had to extend [the program],” Pelkey said about last year’s sign-ups.

Last winter in Maine, the highest statewide average price for heating oil was $1.60 in the second week of December, according to figures from the State Planning Office. The lowest that week was $1.45. For most of the winter, prices stayed above $1.50. The average price of oil this week was about $1.26. Payment plans being offered start from as low as $1.25.

Next winter’s weather could be warmer and heating oil prices should remain stable or go down, according to a short-term forecast released Thursday by the Energy Information Agency of the U.S. Department of Energy.

“We expect it to be really subdued,” said Michael Morris, an EIA short-term energy forecaster, about the weather. “The prices will still be on the high side, but coming down from the records of last year.”

According to the short-term energy outlook, retail heating oil prices nationwide should remain stable at about $1.32 from October through March. That’s below the national average of $1.40, the highest price paid last winter during the last three months of the year.

“The fourth quarter was humongously cold for that time of year,” Morris said. “People were really frightened. That’s when prices started going through the roof.”

But people are scared to sign up for payment plans right now, too, Spellman said. They’re wondering if they are doing the right thing by choosing one of the many purchasing plans available now, rather than waiting. If they agree to a price now, he said, they are afraid they will get stuck with that high price if heating oil prices go down.

“With any commodity, it’s always a gamble,” said Patti Aho, executive director of the Maine Petroleum Association. “Those sorts of programs will help reduce some of the gamble.”

What’s different with programs now than years ago is the number of purchasing options available to heating oil consumers, said Gene Guilford, executive director of the Maine Oil Dealers Association.

Like any buying decision, he said, “You’ve got to be careful.”

“While you have lots more choices, you have to do lots more thinking … about what’s best for you,” he said.

The MODA, he said, cannot give advice on which programs or companies consumers should choose.

“Go with someone you trust,” Guilford said.

The Energy Information Agency does not expect a shortage of heating oil this winter, said Morris, the forecaster. Inventories could be tight, but not enough to force a spike in heating oil prices or require the federal government to tap into the New England strategic reserve, he said.

“Nobody ever has run out of fuel,” Morris said.

At Hamel Fuels in Brewer, president Scott Kimball said the company already has secured most of its heating oil for next winter.

“We already own over a million gallons of next year’s oil,” Kimball said. “We’ve already taken care of our customers.”

Hamel is among the many heating oil suppliers that now are offering customers a choice of purchasing plans.

But he said consumers should not choose a supplier because they may have the lowest price.

“Most of the dealers are going to be competitive,” Kimball said. “But whenever people are making purchase decisions, price is only one issue.”

Other issues are reliability of deliveries and service to the heating equipment.

A number of heating oil purchase options are now available, but not all suppliers offer all of the options. Some may not be offering any at all. Prices vary among the suppliers and among the plans.

The plans are:

. Pre-pay or pre-buy: A customer tells a supplier how much oil he estimates he will use during the winter, and the supplier provides a price per gallon. Usually suppliers require that customers buy at least a minimum amount, such as 400 gallons. The customer pays for the entire amount, and a delivery schedule is established.

If more heating oil is needed after the estimated amount runs out, the customer will pay the new price, whether it’s higher or lower, for more.

If the price of heating oil goes down anytime during the pre-pay contract time, and the customer has not used all the heating oil he estimated he would, the customer remains locked in at the higher price.

“There’s no way out of it,” Spellman said. But people would bank on this plan if they expected prices to go up.

. Budget plan with price cap: Under this option, the price of heating oil generally is about 10 cents more a gallon than under the pre-pay plan. The customer again tells the supplier how much they estimate they will use, and the supplier gives them a price that the company will cap.

If during the 11 months of the budget plan the price of heating oil is lower than that cap the next time the customer needs a delivery, the customer will be charged the lower price per gallon.

If prices go up during those 11 months, the customer will be charged the agreed-upon cap price and not the higher rate.

The customer pays for heating oil over an 11-month period. If a customer estimates he will use 1,000 gallons and the price is capped at $1.349, his total bill – assuming no decline in prices – will be $1,349. Each month the customer is billed $122.69 whether that much heating oil was used that month or not. Any credit is carried over to the next month, with interest, but the customer still keeps paying the $122.69 each month.

“In January, most homeowners get two deliveries,” Spellman said, noting that any credit from the previous months is applied to those deliveries instead of the customer making two payments that month.

Without the budget plan, he said, some consumers had to make some tough decisions as to which bills to pay that month.

“They’re putting off something else, either a car payment or a home payment, because they’re making their heating oil payment,” Spellman said.

. Budget plan with price fixed: Similar to the budget plan with a price cap with one exception. If prices go down, the customer remains locked in to the higher price.

Consumers should make sure to ask suppliers whether they have secured an adequate heating oil inventory from their wholesalers, Kimball said.

Two years ago, a New Hampshire man solicited business in Maine telling customers he had enough supply in storage to meet their needs. He offered prices as much as 30 cents per gallon less than other companies in the state.

In the end, customers didn’t get their heating oil and he owed suppliers more than $800,000, Guilford said.

Even in the state, some companies in the past have not honored their contracts, Kimball said. They locked in a price and then had to charge more because they had not secured their inventory, he said.

“Those are things we hope don’t happen because it gives the industry a bad name,” he said.