- The Washington Times - Wednesday, December 24, 2008

HARRISBURG, Pa. — A growing number of the heating-oil customers who signed fixed-price contracts as costs spiked over the summer are now attempting to back out of those deals as the price of oil collapses.

Some of the customers who have read through the fine print are finding buyout clauses that can cost hundreds of dollars but that provide a relatively cheap escape from contracts signed at the peak of an energy crisis.

Heating-oil dealers, many of them mom-and-pop operations, never imagined the price of oil could drop so steeply and stand to lose a lot of money - perhaps even entire businesses.

As a result, relationships between dealers and customers have grown strained across the Northeast, where nearly two out of five households heat with oil. There are even newspaper advertisements from competitors encouraging consumers to buy out their contracts in exchange for new, less-expensive offers.

When the price of crude oil peaked in June and July, the wholesale price of heating oil was above $3.70 per gallon, according to government figures. In November, those prices hovered around $1.80 a gallon.

Prices for light sweet crude have fallen 73 percent since July, and Tuesday they dropped 93 cents, to $38.98 a barrel for February delivery. Heating oil for January delivery is down to about $1.30 a gallon.

Including the cost of delivery, a customer who signed a contract for 1,500 gallons of fuel over the summer would pay well over $6,000 for the entire winter. At today’s spot prices, customers would pay perhaps half that.

Dealers say the vast majority of customers have not dumped contracts. Some consumers, however, say they have no choice.

Tekla Andruchiw’s tab of $4.69 a gallon for heating oil translated into an eye-popping $530 bill last month.

“I just couldn’t believe I got myself in such a big mess,” said Mrs. Andruchiw, a widow who lives on Social Security in Jamison, Pa.

The suburban Philadelphia retiree had already borrowed money from her daughter and son-in-law to pay the bill. When she saw a TV ad from Martz Oil promising rock-bottom prices, she borrowed another $395 to break her contract.

At Martz Oil’s new customer price of $2.09 per gallon, Mrs. Andruchiw will begin saving money by mid-January.

Customers are lighting up the phone lines of state attorneys general, welfare agencies and consumer advocates in search of help. They are being advised to look for a buyout clause in the contract or to try negotiating with their dealers.

But dealers signed contracts with wholesalers based on demand over the summer and so might be loathe to let a customer out of an agreement. No one predicted the collapse of the heating-oil market, and some dealers agreed to opt-out clauses for as little as 30 cents a gallon.

“Some might put it at 50 cents a gallon because they assume, ‘Hey, oil prices aren’t going to drop 50 cents,’ ” said Matt Cota, executive director of the Vermont Fuel Dealers Association. “Well, they did.”

Last year, many dealers offered fixed-price contracts for around $2 per gallon. By winter, the spot price rose to more than $3 a gallon and kept moving upward well into summer.

Just as most people began renegotiating contracts with dealers, crude prices spiked to an unprecedented $147 per barrel and heating oil spiraled past $4 a gallon. With people worried the price would climb even higher, dealers say they were under pressure from customers to provide the fixed-price contracts that are now being bought out.

Volatile energy prices have made smaller dealers even more vulnerable to competitors.

Mrs. Andruchiw’s new provider, Martz Oil of New Castle, Del., has taken out advertisements encouraging people to switch. One advertisement that ran on a local newspaper’s front page earlier this month read: “You may be able to lower your heating bill by switching suppliers! (even if you have a contract).”

Martz also put up a Web site, www.lowermyheatingoilbills.com, to help people calculate the potential savings of buying out a contract. The site was getting 60 to 90 hits a day, and Martz is getting more new customers this time of year than it usually does, said President Tom McBride.

As many as 60 percent of the customers at HL Fuel Co., a dealer in New Lebanon, N.Y., have fixed-price contracts. If those contracts are bought out, it could mean bankruptcy.

“Something like this is devastating to us,” owner Harry R. Hicks said. “We’re not large-cap businesses. We can’t say, ‘Oh, well, we lost $500,000 this year, we’ll make it back next year.’ ”

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