Customers who bought heating oil in advance last winter at the thenhigh price of $2.57 a gallon saved hundreds of dollars as prices rose to $4 later in the year.
Yet more than 3,000 customers with F&S Oil Co. in Waterbury who bought heating oil ahead of time with “pre-buy” contracts did not get all of the oil they paid for, and in some cases, got nothing, said Jerry Farrell Jr., commissioner of the state Department of Consumer Protection.
In financial turmoil, the company could not deliver.
Heading into the heating season, consumer advocates are warning consumers to be wary of pre-buy contracts, where money is paid up-front for guaranteed delivery at a fixed price.
There is heightened concern this year that some businesses will fail, says Farrell. The agency is trying to bring restitution to customers in the Waterbury case and in complaints involving two other small firms, Kady Oil of Colchester and Bazzano Oil of Norfolk, Farrell said.
Oil prices are volatile, and though they’re dropping, it’s impossible to predict what will happen in six months, he said.
“We are very careful to tell consumers they need to really think about doing a pre-buy, given the risk and the situation we could be in this winter,” Farrell said. “You could have companies on that precipice, in danger of going out of business, so the consumer needs to think the transactions through.”
Attorney General Richard Blumenthal is investigating complaints from consumers that could result in up to 10 other heating oil suppliers reneging on contracts as they face insolvency. Blumenthal said he could not identify those companies, noting that consumers should thoroughly review any agreements before they sign them.
“Be wary and watchful, but avoid panicking,” he said. “The vast majority of home oil heating dealers are hardworking, honest and financially in decent shape. But obviously they face an extraordinarily challenging time.”
Pre-buying is popular
Half of the state’s 682,000 customers prefer some type of pre-buy plan, said Eugene Guilford Jr., executive director of the Independent Connecticut Petroleum Association.
When it comes to pre-buys, Benvenuti Oil Co. Inc. of Waterford saw customers save an average of $812 this past heating season by paying $2.57 a gallon up front. That might have seemed high at the time, but oil prices later rose to close to $4 a gallon, said owner Marc Mazzella.
Benvenuti is a full-service company that offers pre-buys, along with budget and pay-as-you-go plans, he said.
And pre-buy can be a great deal. At Benvenuti, last year was the greatest payoff for customers, and only once in 16 years did prebuy not pay off, Mazzella said.This year, he is advising customers who want to buy in advance to buy less than they need in case the price drops. He also expects them to cut back 10 percent on usage and actually recommends lowered thermostats and other conservation measures.
“I do tell my customers this and I hope it’s good advice,” he said. “It’s a mixed bag. You don’t want to own excess. There’s no history to base this on, these prices, so we have to set new rules.”
One huge misconception about the advantage of pre-buys, says Guilford, is that they guarantee savings. The only thing they guarantee is delivery of the product at the price you paid for it. And according to Farrell, even that cannot be taken for granted.
“This is a time not to do your routine transaction without thinking,” Farrell said. “Figure out approximately how much oil you’ll use and calculate out the savings you’ll get versus the possibility you won’t get the oil. There’s some chance the dealer might not be there.”
Contract binds both ways
Options other than pre-buys are available, chief among them the practice of buying oil as needed and paying the going rate. Norwich Discount Oil does that kind of business, and swears by it.
“Pre-buys right now are a waste of money,” said Vice President Fred Johnson. “I think they’re overrated.”
People who signed up in June when the price rose to almost $4 a gallon may be regretting it now that the price has dropped by 40 cents or more, Johnson said.
In the winter of 2006-2007, that is what happened, and customers, feeling deceived, tried to get out of pre-buy contracts, Guilford said.
His agency, which represents 380 of the state’s 580 heating oil dealers, had to stuff 190,000 envelopes with fliers alerting customers to the fact that just because the price went down didn’t mean customers could back out of a signed agreement.
“A contract is a contract is a contract,” Farrell added. “You sign it, you’ve got to perform. When the price drops, the consumer is paying a higher price. When price goes up, the dealer has to perform.”
Some oil dealers offer “downside protection plans” that rebate the customer if the price drops, but Guilford said those plans come at a high price – an additional 30 to 45 cents a gallon or more.