Hello,

 

Here is a link to a good “all around generic” article as to what has been happening with the crude prices…  Let me know what you think…

http://www.time.com/time/business/article/0,8599,1853775-1,00.html

 

Since I seem to be on a Pre-Buy contract roll lately….  Notice the legal lingo….  This is a popular article that I have seen sprout up on a few dealers websites today….   They must be going thru what we are…

 

Homeowners with Pre-Paid Oil Contracts Locked In at Higher Price

By  DAVE GRAM Associated Press Writer MONTPELIER, Vt. (AP) _ Burned last year after she failed to lock in a contract for heating oil, Corinne Wilkins, a home health aide, signed a contract this year before winter set in.As it turns out, there are many people like Wilkins, and entire communities as well, that unknowingly agreed to heating contracts as prices peaked at historic highs. Now she, and mostly Northeastern towns such as Springfield, Vt., are stuck. State attorneys general are advising consumers to honor their contracts. They’re legally binding documents, said Melissa Karpinsky, press secretary to Massachusetts Attorney General Martha Coakley. “Consumers should absolutely read all contracts closely before committing,” and compare those offered by various dealers, Karpinsky said. She noted some dealers allow consumers to break an agreement for a fee, typically about $200. Maine Assistant Attorney General Linda Conti said the consumer protection office has received a “significant” number of calls from people who’ve locked into oil contracts when the price was high and now wonder if they can get out of those agreements. “They’ve locked into a contract,” Conti said. If they breach it, the oil company could sue. There’s nothing the state can do if an oil customer has decided to lock into a price and signed a contract, and the price drops, she said. Prices for heating oil have fallen by 25 percent or more amid a massive economic slowdown that has depressed energy prices. Wilkins, of Contoocook, N.H., will pay $5 per gallon for oil this winter. “I thought it would go to $6 or $7,” she said. As of Monday, the average retail price of oil in New Hampshire was about $3.34, the state said. “I’m not going to try to get out of it,” she said. “I signed a contract and I always honor the deals I make. That’s just life.” The town of Springfield ordered the oil it would need to heat schools and other public buildings when the price was a little more than $4 per gallon for a bulk buy of 250,000 gallons, said Robert Forguites, the town manager. That price has dropped by more than $1 a gallon since then, he said. Now, Forguites can only dream about what could have been done with the $250,000 difference. Oil prices hit an all-time high of more than $147 per barrel on July 11 and industry analysts were predicting crude could hit $200. Heating oil dealers typically send notices to their customers in May and June, opening a period when customers can try to hedge against price increases the following winter. Dealers typically offer two methods: _ A “pre-buy,” allowing customers effectively to buy oil futures, agreeing to take a certain number of gallons at a set price during the next heating season. _ A “price cap” or budget plan, in which the customer pays in monthly installments but is guaranteed a maximum price. Those plans often include an offer of “downside insurance,” meaning if the price on the spot market drops, the consumer can ride the decline. But that protection typically costs a premium of 20 to 50 cents per gallon. Wilkins said she declined to buy it. “It’s over $100. I could buy half a tank of oil just for the insurance,” she said. While Wilkins said she wouldn’t try to get out of her oil purchase contract, it’s far from certain she could even if she wanted to. Dealers typically cover their pre-buys and fixed-price contracts by signing similar deals with their wholesalers _ some states require it. They can’t get out of those deals when prices drop, said Sean Cota, president of Cota & Cota, a Bellows Falls-based heating fuels dealer that operates in both Vermont and New Hampshire. Cota said a dealer could sue a customer for breach of contract, and could sue any other dealer selling to that consumer for a lower price for “tortious interference” _ helping the consumer violate the contract. “If it’s a matter of life and death for these businesses, they will” file suit, Cota said. Bob Garside, president of the Oil Heat Council of New Hampshire, said consumers who lock in prices for heating oil do well most years. “They don’t tell you about the three years that they won, they only tell you about the year that they lose, and that’s this year.” Cota agreed that such contracts had been a good deal in the past, but with heightened volatility in oil markets, he would be shy about entering into one now. “If I were a consumer, for the next several years, I don’t see the benefit,” Cota said. That volatility gives some hope to consumers and town managers like Robert Forguites, that their decision may not look as bad in a couple months. “I don’t think these low fuel prices are going to stay down, once it’s winter and there’s more demand,” Forguites said. If that happens, “We may not be as bad off as we think we are right now.”   (Copyright 2008 by The Associated Press. All Rights Reserved.)

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.

—————————————-

So there you have it… My thoughts on the article…. I hope you have found it informative…

The title I named this almost sounds like a commercial for the military… Sorry

Anywhoo…

Sometime in the next few days (gimme till Friday).. that little link you see on the homepage of the website “If you’re a current customer,let us know how we’re doing” is going to take you to a detailed customer survey.. (which I just recently finished typing… I ask you to wait till Friday to see it, cause..well I am html challenged and often need help in that department)  I would love nothing more than if every one of our customers filled it out. Now I know that isn’t going to happen, but I am hoping, eventually, a great many of you will. 

We are really trying here at Fuel Services to become “Customer Oriented”.. (disclaimer here: not that we ever were’nt.. but even more so. :)  )  To do that, we really need to hear from you more!  What would you like to see from us? What kinds of pricing programs would you like to see from us?  What product lines would you like us to carry?  Would you like to see our invoicing methods changed?  Does our service live up to your expectations?  Those types of questions….

When my father and myself came up with our new tagline “Experience the Difference”.. it wasn’t an accident!  We don’t want to be the typical oil supplier!  We don’t want to be like eveyone else!  We are striving to be the leader in our field in Western Mass.  Now this hasn’t been easy and we have had a few growing pains.. We still are! (how is that for an admission)  an example: We created a whole new customer service department to handle your issues.. (which my sister Mary Beth runs) Now, this has been a challenge because we have been trying to train 4 nice ladies all there is about the oil business.. however most of the time the “training” has/is happening in a live situation on the phone… So there have been some miscues along the way… but I am convinced over the long haul, that this is the right thing for all of our customers… having persons dedicated just to them!  

Back to the survery…. In keeping with our ”Experience the Difference” philosophy, I am asking all who read this to fill out the survey…  It shouldn’t take more than 10 or so minutes of your time.. and as a thank you, I am going to hold a monthly drawing for all those that take their time to fill it out.  Every customer that fills out the survey will have their name placed in a baseball hat (in my office).. and at the end of each month I will draw a name from it, and that person will receive a $25 gift certificate for dinner.  I will start the drawing at the end of November. (those who fill out survey during these final days of October will be entered into the November drawing… you won’t be left out)   I will announce the winner on the blog each month.

ok.. it’s 3:30 in the morning and I need to get some sleep… Have a management meeting in the afternoon with all of our managers… Nighty Night

How is that for a title? :) I use that title, because what I really want to name this post would get me in a lot of trouble with my boss!

I said in my very first post, that I was going to keep this blog candid, open and honest!  I also said I would divulge into the inner workings of our business, and our industry as a whole…  Well here I go… and on to a very touchy subject with some now.  Pre-Buy!  Trust me, I am a man with many words on this right now.

Before I start with my “rant” per se.. Let us take a journey back to mid/late spring..  This was the time when we first heard “rumblings” of pre-buy from our customers.  The oil market started going bonkers, people started getting scared.. so on and so forth.  We kept telling our customers now is not the time you want pre-buy…. but the rumblings kept getting louder and louder.   

So now it is early summer… Prices are higher still… The “rumblings” we are hearing are turning into account cancellations because we haven’t offered our pre-buy yet.  (even though we usually don’t come out with one that early.. and we WANTED to wait this year)  Now when my father and myself hear the words “Account Cancellation”.. we get involved asap!  So, we offered what our customers demanded… pre-buy! 

We sent out our reservation letters (which even those got us in trouble this year, that is another story).. got as many gallons as we thought we needed for pre-buy.. and bammm.. we sent out the offer letters to those who said they were interested.

We sold out in 96 hours… I kid you not…. We literally had a line out both office’s doors that Monday morning.  Personally, I was shell shocked.. I actually couldn’t believe it! I was worried we wouldn’t sell the stuff, thinking to myself….that is a lot of money to shell out in one sum… I was wrong…  We had some customers that we had to turn away (initally ) because we didn’t buy enough product.  (this was the letter I mentioned above… I counted all the gallons that we received from reservation letters, and the final tally was x.5 contracts…. So with the 1/2 we rounded down instead of up… contracts are 42,000 gallons by the way)  So to conclude the preamble to my rant, we had a bunch of happy customers that were all glad they had their pre-buy!  They capped their cost and didn’t have to worry about the winter.

So now we move ahead 3 or so months, to the current.  I can’t begin to tell you the amount of phone calls we have had in the past week about pre-buy….  Customers that want their money back, customers that want us to deliver at retail price and hold off pre-buy, customers that don’t want any fuel, customers calling us scoundrels (and worse)…. you name it…   So needless to say, I am a little peaved, hence the reason for this rant.  What are we to do as your oil supplier?  Do we NOT offer the products and services you expect and demand with your hard earned money? 

For those unfamiliar with how pre-pay works.. It is very simple.. we lock in xxx amount of gallons at a certain price with our suppliers.. and that price is dependant on the market conditions for future contracts at that time.  We then add our normal margin (actually a bit less than normal) and that is how we end up with the customers price per gallon for pre-pay.  It is not really complicated from a pricing perspective.  We then collect the money in advance, customers sign the contracts, and everyone is protected! Customers have their winter fuel at a capped cost!  (which is a valuable commodity by the way) Our suppliers get their money.. we get to pay our employees.. and all is well…. and before I move on, one last thing on this subject… You DO NOT want to do business with an oilheat supplier that doesn’t lock in their gallons in some fashion or another as I have mentioned above.  This is how MANY companies got in trouble last year when the prices went thu the roof. Many companies went belly-up, and took A LOT of their customers money with them! (and most customers had little recourse) We will NEVER allow this to happen to our customers! 

Unfortunately (for pre-buy customers at least), so far this year .. the market price has dropped significantly, and as I type this there is about a $1.50 price difference between pre-buy price and our retail cash price.  There is nothing we can do about this! (without significantly affecting our retail price customers, and that is something we are NOT going to do!)  

I guess what I am trying to say is this…. To our pre-pay customers, I can understand your frustration, I really can… But I hope you can understand the situation we are in.  

To all of our pre-pay customers that haven’t called us “The evil empire” and understand the current market situations and who haven’t tried to “slime-us” in any other fashion… I thank you… I truly do! It is customers like you that make all of us here at Fuel Services come to work everyday….

To all of our pre-pay customers that haven’t been as understanding, or if you are another oilheat suppliers’ customer and are in a similar situation… I hope you can at least understand the situation from the business prospective… and while we certainly can understand your frustration.. there isn’t anything feasible we can do about it.  Understand there is no crystal ball with any financial markets and predicting prices is impossible. (look at Wall Street right now) You can take solace in knowing that you have capped your cost and have a (practically) guaranteed oil supply for the winter.  This is valuable!  Finally, please remember we just try and offer the products and services you ask for, the best we can.

Believe it or not, we are already looking into pricing programs for next year, as I am determined to have more options available to our clients next year!!!!  I am not going to spill any beans, but we are looking into several options to be able to offer our customers next season…some of which may include Caps, downside protections, fixed…  Please keep in mind though, programs such as those have a cost associated with them.  I am sure we will still offer the tradional pre-buy as well for those that absolutely have to have it.  We want to be the leaders in the area with our pricing programs and have the ability to give more options with price protection than a standard pre-buy… So stay tuned….  Enough said from me….

I am figuring I am going to get some response to this blog post!

Till Next Time