- Associated Press - Sunday, February 8, 2015

WATERBURY, Conn. (AP) - Falling oil prices have been a boon for drivers at the gasoline pump, but not for some heating oil customers who locked in prices late last summer.

With oil’s dramatic plunge over the past few months, homeowners who prepaid to lock in a price they thought was a good deal now are likely lamenting the decision.

Back in July, the statewide average price for home heating oil was $3.81 per gallon; this past week, the average was $1.09 lower, at $2.72 per gallon, according to a weekly survey by the state Department of Energy and Environmental Protection.

Average prices in Litchfield and New Haven counties were even lower, at $2.70 and $2.67 per gallon, the state survey shows. Some local heating oil dealers, meanwhile, advertised prices as low as $2.29 per gallon in Friday’s Republican-American.

In contrast, last year at this time the statewide average price was $4.13 per gallon, according to state data.

“I am a contract customer,” said Chris Herb of Naugatuck, who also is president of the Connecticut Energy Marketers Association, a Cromwell-based organization that represents 600 home heating oil dealers in the state. “Over the years, it cost averages out in your favor.”

That’s not true this year, he admits, while adding that consumers locked into a price need to understand what they did, and how it works.

“Consumers who buy heating oil on a contract are looking for budget certainty,” he said. “They want price predictability, which is exactly what you get with a contract. If you buy a contract to save money, you’re buying for the wrong reason.”

According to Herb, the number of heating oil customers who sign contracts to lock in a price has fallen to about 20 percent of all customers. “At one time, it was more than 30 percent, but it’s lost favor,” he said.

Under such a contract, the heating oil dealer agrees to a set price for the consumer, who in turn agrees to buy a set amount of oil at that price for the season. According to the state Department of Consumer Protection, the heating oil dealer is then required to purchase at least 80 percent of the volume of oil it has contracted for with customers to deliver at the set price.

Because dealers are required to buy the majority of that oil ahead of time, customers must honor the contract price or it could adversely affect the dealer, a state official said Friday.

“We do audits on the companies all the time,” said Frank Greene, director of the Consumer Protection Department’s Food and Standards unit. “They have to purchase stocks of oil to cover these contracts. … They’ve already paid for oil that’s higher than they can get it for now, so if they do give a customer a break, it comes out of their pocket, and we’ve got to worry about companies that are already financially unstable.”

Greene said that, as far as his department is aware, no heating oil dealer is making “a windfall” on prepaid contracts because they have already purchased the majority of oil at the higher price.

The department has a page on its website offering tips for buying heating oil and propane, and notes that so-called “pre-buy” contracts are risky, “since you don’t know if the price will drop in the near future.” It adds that “cap price plans, which set a maximum per-gallon price for the season, are less risky than pre-buys.”

Peter Aziz, president of Bantam Home & Energy, in the Bantam section of Litchfield, says pre-buy contracts are a gamble for both the customer and the business.

“The company is hedging the risk,” he said. “If the price goes up to $5 a gallon, the company was able to buy it cheaply, but is obligated to sell it to you cheaply. If the price goes down, the company still has to buy it above the current market, but can sell it above market. The company doesn’t benefit when the price falls, it is merely executing a choreographed stance both parties entered with both eyes open.”

Aziz said Bantam Fuel, which does offer a price-cap plan, has “very, very few” customers with pre-buy contracts.

“We just don’t want to do them, because it can damage the precious relationship we have with our customers,” he said. “Even the customers who knew full well the nature of the agreement, some of them are bitterly unhappy right now that they are buying oil at significantly higher than the current market price.”

Herb’s advice for heating oil customers is to make a decision each season that “is in the best interest of their family and scope of their budget.”

Since heating your home in winter is a necessity, he said, don’t try to guess what oil prices will do.

“Don’t speculate with keeping your family warm,” he said.

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