Hello,
I am now going to do something that I never thought I would do on my blog… I am going to post a publication from the state government! (well most of it) The name of the document is Oil Heat Contracts which is a publication of the Massachusetts Department of Energy Resources… Overall, I think this is an excellent document! Hence I post it, but I will comment on portions of it though. Except where I do specifically comment, someone from the State of Massachusetts is responsible for the rest of the text in this blog….
Oil Heat Contracts
A Publication of the
Massachusetts
Department of Energy
Resources
Commonwealth of
Massachusetts
Many oil heat dealers offer contracts to their customers. For consumers,
contracts may offer some price protection or the ability to spread payments
over the year. For dealers, contracts help them better predict customer
demand and may give them more buying clout for their customers.
Customers may assess the dependability of a dealer and the potential value
of a contract by asking any number of questions.
Customers should shop early and keep up with the trends in oil prices
through news reports. This year dealers offered contracts throughout the
summer although some dealers suggest between Labor Day and the end of
October is when most customers decide. Choices become limited as we
approach and enter the winter. (Chris Chase: If anyone read my earlier blog post entitled “This Title used to be a bunch of Crazy Stuff” you will read the (very short) history on our pre-buy this year. Article is correct that choices become limited anywhere once October rolls around, as that is the start of the (traditional) heating season.)
Questions to Ask about Dealer
What kind of experience, capability and equipment does the dealer have?
This will give you some idea of the skill level of the dealer. How many trucks
does the dealer have? Are they in good condition? Both are related to how the
company will be able to service your account.
Has the dealer already purchased the gallons they are committing to under
the contract? How will they guarantee that the oil will be available?
Some contracts will include language that says, “while supplies last.” The
contract should tell you what happens if the dealer is unable to provide you with
oil because of oil supply shortage. You may ask how they serviced their
customers in the Winter of 1999. (Chris Chase: This is important! I have been a huge advocate of having (wishing more like it) the State of Massachusetts follow the State of Connecticut in MANDATING that Oil Heat dealers do this! (or hedge in some other proper way) It is the only way to truly protect the consumer! There have been too many horror stories over the last 2 years of companies not properly hedging themselves against price increases and going under,taking all of their customer’s pre-buy money with them! Other states require dealers to protect themselves; why doesn’t Massachusetts? (Some people go as far as wanting heating oil dealers to have restrictions placed on their bank accounts and other avenues such as that.. I am not an advocate of that, as there is just something wrong about having government involved in any businesses bank account) But dealers should be required to protect their customers to the best of their ability… and there are several resources to do that…. I just know there are a few dealers out there, right here in Massachusetts, that took $4+ dollars a gallon from their customers for pre-pay, and didn’t buy fixed contracts from their suppliers (or use another proper hedging medium)… and they are making out like bandits now! (because prices have fallen so much) What would they do if prices continued to rise? Let’s pretend oil went up to $5 a gallon wholesale. (which it was close to doing)… What were those dealers going to do then… Why reward unethical (or clueless) oil heat dealers for gambling with customer money?
Has the dealer offered contracts in the past?
Make sure your dealer has experience offering contracts. You may also ask how
their prices were last winter. Did they honor their fixed price contracts or have to
increase the rate?
Will the dealer give you references from other customers?
It is in the best interest of dealers to give you names and numbers of satisfied
customers that are willing to speak with you. You can also speak with friends and
neighbors who have experience with different companies. Local business groups
may also be able to refer you to reputable dealers in your area.
Does the dealer have a customer service department? Do they offer roundthe-
clock service?
Ask the dealer if they have a customer service number and the hours of
operation. Ask what happens if you have an emergency during off-hours.
Is the dealer licensed?
Oil heat dealers are not required to be licensed in Massachusetts. (Chris Chase: again.. the State of Massachusetts sometimes amazes me! Let anyone get a truck and deliver… However, in saying this… our business has changed so much since 9/11, that the federal government monitors us to the extent where I guess that isn’t too much of an issue (due to hazmat fuels)
A consumer tip sheet
Questions to Ask about Contracts
What price plans are available to consumers?
Some oil dealers offer customers fixed price or variable
price programs.
A fixed price program establishes a fixed price per gallon
for a predetermined number of gallons. You should ask
how long the fixed price would be in place. You may also
ask if it is guaranteed.
In variable price programs, the price may change in
relation to how much oil the customer uses. They may
also vary according to when you sign your contract and
whether you pay some or all of your costs up front.
What is a cap price program?
A cap price program is a variable price program that offers
a guaranteed ceiling price per gallon of oil for a defined
period of time (i.e. Oct- Apr). (Chris Chase: This is where we are really trying to go, and I hope we get enough interest from our customers next year to offer a program such as this.. Although I know I would have an easier time trying to fly to the moon, than convince some of our customers to switch from a traditional pre-buy program.)
Are there any fees for setting up a cap price program?
Cap price contracts are generally more complicated to
manage than fixed-price contracts. Consequently, there is
sometimes a set-up fee associated with cap price programs
(about $30). (Chris Chase: This is an example of the State not updating their information in several years, even though the last document date was July of this year. The state is smoking some funny stuff if they think the program fees on this are only $30… It used to be! when oil was $1.50 or so a gallon.. Dealer costs on these programs were approaching .50 cents a gallon this year (depending on what the Nymex prices were at the time) Depending on how each dealer structured their programs this year(namely how high the cap was & when they offered it).. I would say the average cost to the consumer was somewhere between $150-$300! Now this may seem like a lot of money to join a program… but I would like you to think about this… Several people purchased prepay this year at $4.50 a gallon or so.. Say that person only bought 500 gallons, that was $2250 they gave us or some other dealer. That same 500 gallons of oil at today’s prices would be $1345…. Are you starting to see where I am going with this? Think about all those that purchased 1000 or 2000 gallons… or more!)
What happens if the price of oil drops below the cap
price?
In some contracts, you pay the lower price. In others, you
will continue to pay the cap price. (Chris Chase: This is the one issue I have with this document.. while it is true that on some cap price budgets I know of, the budget payment is based on the cap price (and sometimes charged to account at that price, then the difference credited back)…. by definition… CAP is just that.. a CAP.. consumer pays up to the CAP.. no more… and less if it drops… However,giving the state its due…. I have seen on at least one dealers website, where they called some program of theirs a CAP, and it really wasn’t)
Will I need to sign a written contract? How long does
the contract last?
Informed customers make better decisions. Ensure you
understand all the terms and conditions of the contract.
Read the small print carefully. (Chris Chase: Please do, on anything you sign.. We asked our customers to initial each page of the pre-pay contracts this year… I am not looking forward to the end of pre-pay season this year)
Are there any penalties for ending a contract early?
Some contracts stipulate that if you end your contract
early you will be charged a termination fee. (Chris Chase: usually a huge penalty)
What are your rights if the dealer ends your contract?
Call the Consumer division of the Massachusetts Attorney
General at 617-727-8400
Does the contract include customer services,
maintenance, service calls, inspections, furnace parts
or repair? Are there additional fees?
You may contract for either oil delivery only, or for oil
delivery and a service contract ( full-service ). If you
choose oil delivery only, you will need to arrange for
customer service. Full-service dealers generally offer
automatic delivery and operate service departments,
offering technicians and parts. Some offer installation.
The terms of service contracts vary. Usually, full-service
contracts entitle you to an annual maintenance visit,
emergency service, and free replacement of certain parts.
Installation services and 24-hour rapid response to “noheat”
calls may also be included. Some dealers may offer
coverage for tank replacement and other related services.
Payment Questions
Is there a pre-payment or deposit? How and when will
I be billed?
Some dealers may require full payment up front in order
to guarantee a fixed price. Others may accept partial
payment. Still others will allow you to pay-as-you-go,
typically on a monthly basis.
Do they offer budget plans?
You may be able to spread payments over the heating
season. The amount paid each month is based on the
estimated amount of heating oil the consumer is expected
to use throughout the heating season. ( Chris Chase:I have always advocated budgets for everyone… Heck, I am the VP and I am on a budget! )
Are there any discounts or bonuses available?
Some companies offer discounts based on early payment.
Some dealers provide discounts to the elderly.
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So there you have it… My thoughts on the article…. I hope you have found it informative…
