With our region’s cold weather and its accompanying higher home heating bills fast approaching, Attorney General Patrick C. Lynch is urging Rhode Island homeowners to know exactly what they’re getting into before they negotiate any deals or sign any contracts with their oil dealers that will cap or fix the price of their oil for the coming winter.

“Given the extreme price volatility that we’ve seen in the wholesale and retail oil markets in the last two years, it’s very important for homeowners to do their homework on their suppliers and the various price programs they offer before signing or agreeing to anything,” Lynch said. “With the prospect of rising prices causing a typical family to worry about how to pay thousands of dollars in fuel costs during our winter months, these price plans hold some appeal. Consumers also must consider the downsides of these plans, however, and realize that, unlike many states, in Rhode Island consumers do not have three business days to cancel a contract.”

At Lynch’s urging, Rhode Island has enacted a new law that will give consumers more information and more protection when they negotiate price locks or price caps for home heating oil. Enacted in July, RIGL § 5-82-1 requires that all offers or solicitations for price locks or price caps on home heating oil must be in writing and must disclose the terms and conditions of the offer including the guaranteed price the consumer will pay and any additional costs or fees to get that price, as well as the cost, if any, of an early termination fee.

When consumers receive such an offer, they should reply to it in writing to guarantee that they have a binding contract with the oil company. Oil companies should supply consumers with a written agreement for their signature that contains these terms, especially the final price, to avoid any misunderstanding of what was agreed to and what each party’s obligations are.

“The new law and the written agreement signed by the consumer should go a long way toward helping consumers compare what different dealers offer and clarifying what each party is agreeing to before it’s time to start paying our winter bills,” said Lynch.

A much higher percentage of families heat their homes with oil in New England than nationally, and complaints about heating oil contracts are rising. Forty-two Rhode Islanders made complaints about price-cap or fixed-price contracts with Lynch’s Consumer Protection Unit in 2007 and the number more than doubled, to 94 complaints, in 2008. Along with other New England attorneys general, Lynch advises consumers to honor their contracts.

“I think that in our weak economy and with the major money pressures that people are experiencing, some consumers aren’t as understanding of the fact that in order to survive, dealers must take risks too,” he said. “Typically, dealers cover their pre-buys and fixed-price contracts by signing similar deals with their wholesalers. If a dealer buys 30,000 gallons of wholesale oil for $2.25 a gallon and within a week the spot oil price on the New York Mercantile Exchange dips to $1.75 a gallon, he cannot just walk away from his commitment. In the same way, consumers should honor their contracts.”

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AG Consumer Advisory Re: Price-cap & fixed-price contracts w/oil dealers Oct. 5, 2009 Page 2 of 2

Lynch continued: “Smaller dealers, especially the mom-and-pop operations we have in New England, have little to no margin for error,” Lynch said. “One bad business decision or pricing decision could put some dealers out of business.”

Lynch offers the following glossary of terms and tips to help Rhode Island consumers keep costs down this season:

q A fixed-price program is first developed when a dealer secures heating oil contracts for his/her customers on the wholesale market for a specific price. The dealer then adds on the overhead costs of running the business (employee wages and benefits, insurance, vehicles, rent, etc.), as well as a profit margin. (Source: The Oilheat Institute)

q Once this price is established, the dealer will offer the price to customers and the price is fixed for a given period of time and will never go up or down. The customer agrees to pay that fixed price even if the price for a gallon of heating oil goes up or down on the open market during the heating season. (Source: The Oilheat Institute)

q A cap price program allows for market changes. Customers can lock in a price for the entire heating season with a price cap, which is the highest price they will pay no matter how high heating oil prices may go throughout the heating season. If the retail price goes up the customer pays the cap price, but if the retail price goes down the customer pays the lower price. (Source: The Oilheat Institute) q Caps are more problematic. On paper, they are a better deal, but they are difficult for a consumer to enforce. Heating oil prices may fall on New York markets or the state’s heating oil pricing survey, but what determines whether a cap customer receives a lower price is the dealer’s own internal costs, which only the dealer knows. (Source: The Boston Globe, Oct. 2, 2005) q Contact at least three fuel oil suppliers in your area for the best price. q Ask about any extra delivery charges that may apply such as out-of-the-area delivery, weekend delivery, emergency delivery, inclement weather delivery and fuel surcharge. q Do your homework on fuel oil suppliers before making any agreement. Ask to see their references and check with the Better Business Bureau. q Consider budget plans that allow for payments over an extended period of time based on estimated consumption, projected fuel prices and past usage history. Basic budget plans do not offer protection against unexpected price increases. q Contracts should contain specifics concerning payment and delivery dates. Finally, remember to keep a copy of the agreement for your own records.

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