Lower Prices for Heating oil Not Good news For All

E.J. McCue decided not to lock in a fixed price for home heating oil this year, and he couldn’t be happier.

On Thursday, McCue filled the tank in his new four-bedroom, 3,000-square-foot home in Waterford for $2.29 a gallon. That’s a tidy savings of 43 cents a gallon when compared to the statewide average of $2.72 recorded last October by the Energy Management Unit of the state Office of Policy and Management.

“I’m just kind of rolling dice right now,” said McCue.

Heating oil costs have dropped in Connecticut to an average of $2.36, according to statistics on the OPM’s Web site.

Typically, customers either pay as they go; “pre-buy” their oil and service contracts for a fixed price; or sign a
contract for a “cap,” which limits how high the price can climb and rewards the customer with lower costs when
the price drops.

Customers like McCue, who are capitalizing on the recent drop in oil prices, are probably the exception, said
Eugene Guilford Jr., chief executive officer of the Independent Connecticut Petroleum Association.

Across New England, customers who banked on stable costs with a fixed pricing plan are complaining loudly, thinking the oil dealers put one over on them and arguing they should be able to renegotiate their contracts, Guilford said.

The association represents more than 459 independent Connecticut businesses, which supply most of the state’s 350 heating fuel dealers.

“What we try to emphasize, regardless of the price, is: Anybody who purchases a fixed-price option from the
dealer is literally fixing the price of their fuel,” Guilford said. “They’ve made a decision to have stability and
certainty. Nobody can tell you eight weeks from now that the price will be higher or lower, any more than they
could have told you eight weeks ago.”

“There has only been one year out of the last 14 where the average retail price went below the average fixed
price, when people were playing golf in the middle of January,” said Mark Densmore, owner of Densmore Oil
Co. in Mystic

“The key with the fixed price is really the comfort of knowing you will not pay more than that. So you’re
guaranteed a source of oil,” no matter what happens in political hot spots like Iraq or Venezuela, he said.

When the price of crude oil dropped in August and September, many consumers had already had to choose their payment plans for the coming year, said Phil Baratz of Angus Energy, a commodity trading adviser.

About a dozen people have told Densmore they are concerned that the fixed pricing plan puts them at a disadvantage. He reminds them, he said, that with a fixed plan, the customer can save about 30 cents a gallon over several seasons, while the price of oil fluctuates as much as 10 or 12 cents daily in the commodities market.

Baratz said it’s shortsighted to “Monday-morning-quarterback” the oil business.

“It’s amazing to me that customers are complaining,” he said, “because prices are coming down. Why should
your dealer renegotiate with you? You signed a contract. The notion of a contract has to go both ways.”

State law requires that companies buy and own the oil before they can sell it, so the oil companies pay the market cost and assume the risk of re-selling it. Mark Mazzella, owner of Benvenuti Oil Co. Inc. of Waterford, and Donald Fowler, a co-owner of Williams Oil Co. Inc. in Uncasville, said customers sometimes forget that.

If the price is high, “we’re stuck with it, too,” said Mazzella, referring to prices customers agreed to pay this past July.

Connecticut revised the law to require bonding and other protections for the consumer after a Newtown oil company went bankrupt, leaving its customers in the lurch, Baratz and Guilford said.

According to Baratz, the retailer pays the supplier up front for price protection in the “cap option,” which is why
that plan costs more than the fixed option. But unlike with the fixed plan, a customer with a cap is betting that
at some point oil prices will drop, Baratz said.

The cap option has been popular with 65 percent of Densmore’s clientele over the years, he said.

As for McCue, he normally prepays to lock in his heating oil price. Despite his recent coup, he said he expects
to pay in advance in the future.

That’s because, as he put it, this month’s windfall was “pure luck.”

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