Citing an extended cold snap that began in December, heating oil suppliers are increasing the monthly payments of certain customers who are burning more oil this winter than expected.
Customers from Dead River Co. and Downeast Energy who contracted for oil at a set per-gallon price have reported having their monthly payments increased by the companies. The per-gallon charge remains the same, but the monthly bills have gone up to reflect higher-than-projected use.
The increases are not mandatory, but require the customer to voluntarily opt out of making higher payments through the end of their annual contract cycles.
The companies are increasing the monthly payments in what they say is an effort to help customers avoid a large bill at the end of the season if they underestimated how much oil they needed this winter.
“What companies are trying to do is prevent customers from getting sticker shock in May,” Jamie Py, president of the Maine Energy Marketers Association, told the Bangor Daily News.
Because roughly 70 percent of Maine households use oil as their primary heating fuel, the winter storms and on-average lower temperatures mean many Mainers are burning much more oil than expected to heat their homes this winter.
While each oil company operates its own way and can offer various types of contracts using different terms, here’s how it works in general for customers buying oil under a budget plan: At the beginning of the season, customers — with guidance from the supplier — estimate how much oil they’ll need based on last winter’s usage and lock in a capped price for that oil, say, $3.50 a gallon. For example, a customer used 800 gallons of No. 2 heating oil last winter and entered a budget contract for that amount this winter. The customer would then have a total estimated bill of $2,800. Rather than pay the lump sum upfront or for a full tank whenever it’s filled, many customers opt to pay down the total bill in monthly installments. It’s predictable and shields customers from market variables.
During a warm winter, the customer’s account may have a surplus by May that could be refunded or put toward the next year’s bill. During a colder-than-normal winter, like this one, customers may end up using much more oil than they budgeted for and face a large bill in May.
Increasing the monthly payments is a way to try to better match cost with use.
The change caused some disgruntlement among customers who were caught by surprise, but Deanna Sherman, vice president of Dead River’s energy division, said the company made the change, which customers have the choice to accept or not, in order to help those customers alter their budget to the realities of the winter and not face a massive bill at the end of the season. Sherman told the BDN this is the first time in recent memory the company has done this.
“These customers are on a budget for a reason,” Sherman said, adding that about 50 percent of the company’s customers are on budget plans who had their monthly payments increased. “We did this because we don’t want people to be surprised at the end of the year with a big bill.”
As customers are using more oil than expected, Dead River has to buy more than originally anticipated. But Sherman said there’s plenty of oil coming into the state and the company isn’t having any problems with supply (though, she added, the propane supply remains strained).
The need to buy more oil than expected while monthly payments are lower than they should be doesn’t cause cash flow problems for the company, she said.
“Maybe some companies depend on that, but with our financial strength we have no cash flow problems,” she said.
Downeast Energy is also reportedly increasing the monthly payments of budget customers. However, Mike McCormack, Downeast’s vice president of energy, did not return several phone calls seeking comment.
Py hasn’t canvassed members of the energy dealers’ association, so he wouldn’t venture a guess as to how many heating oil delivery companies are increasing monthly payments on their budget-plan customers.
“I think it’s a good idea for companies to be out in front and ahead of this thing and letting customers know so they can adjust and plan for this,” Py said. “It’s good customer service, but I can’t say if everyone is doing this because I just don’t know.”
It doesn’t happen very often, but in this case it was deemed necessary because the winter is colder than usual, Py said.
Since the heating season began in October, this winter has been 9 percent colder than last winter, according to the National Climatic Data Center, which bases its comparison on a metric known as “heating degree day.”
Prices for heating oil have also increased to a higher point than they were at any time last year, according to the governor’s energy office. The statewide average price for No. 2 heating oil as of Feb. 3 was $3.89 per gallon, up 36 cents since the heating season began in October, and 13 cents higher than the average price last year at this time, the energy office reported.
Of course, these automatic payment increases affect only customers on a monthly payment plan. Not all heating oil companies offer those kinds of options.
Despite the challenging winter, Les Thomas said it’s business as usual at Cash Energy, which has offices in Bangor and Scarborough. Cash Energy doesn’t offer any pre-buy or budget contracts, Thomas, the company’s CEO, told the BDN.
“Just payment on delivery,” he said. “Ours is pretty simple. Anyone can figure it out.”
With another winter storm hitting the state Wednesday, the cold weather and the challenges it brings will continue to hassle Mainers. Oil companies urge customers to keep an eye on their tank’s gauges and not let it drop below a quarter tank.
Scheduling a delivery ahead of time will allow homeowners to avoid the situation in which they’ve run out of fuel and need an emergency delivery. Oil suppliers also ask that customers dig out a path to their oil tanks so truck drivers can deliver their oil and move on to the next customer quickly. With an increased demand for oil, truck drivers are under pressure to reach as many customers as possible.