Fight for fair heating oil prices

April 03, 2001|By Michael Gordon

PHILADELPHIA -- At the close of another heating season, I am disturbed by heating oil supplier practices around the country that suggest suppliers don't believe that consumers are smart.

The heating oil market operates with suppliers driving a truck to an oil terminal and buying the oil for delivery to residential users, with the cost marked up to the consumer. Residential oil prices today range from $1.10 to $1.75 per gallon. They reflect a mark-up to the consumer of 35 cents to $1 a gallon.

One disturbing practice of many heating oil companies (we surveyed 8,500 suppliers) is marking up their price by only 45 cents to 50 cents a gallon from April 1 through October, when little oil is bought. Suppliers then jack up consumer prices by as much as $1 a gallon during the peak heating season, December through March. This manipulation of profit margins cost consumers $1.2 billion this heating season, about $150 per homeowner.

Why would sophisticated consumers stand for such practices? Quality suppliers can and do work very profitably at a mark-up of 60 cents per gallon.

The heating oil market is not regulated. There has been no one to help consumers sniff out such pricing tactics, no one to assure that the $150 they lose in mark-ups is not repeated the next year, no one to help compare alternative suppliers' in regard to cost, reliability and service.

We found that consumers are reluctant to negotiate with suppliers for fear of offending them, especially when it's cold. Markets that are not regulated and in which there are thousands of suppliers are particularly scary for consumers to navigate. Also, we found that consumers don't want to anger their suppliers when the supplier's representative must enter their home to check the furnace.

Such fear is not necessary. Consumers can take more control over their fuel purchases.

In the spring, oil suppliers are notoriously negotiable on pricing. So now is the time to negotiate, locking in a price that will last through the next heating season. Consumers will find that the supplier not only will be receptive but will respect the consumer more, ensuring better service.

Consumers who choose to leave a supplier will find surprisingly attractive choices in the heating oil industry.

We found that the best heating oil suppliers will agree to fair pricing contracts with anyone who asks. For example, in one New York county where we have had experience, 10 percent of the suppliers there will likely sign such a contract within the next two weeks and fully half will enter into such contracts before the heating season begins. This means immediate consumer savings.

These same pricing contracts can be obtained in Baltimore and elsewhere in the United States, but consumers must ask for them.

Consumers can end intimidating or patronizing business practices. With a possible recession in the wings, which makes each dollar more precious, we propose that consumers do just that. Those suppliers who don't measure up to their reputations will have to offer more at more reasonable prices, or they won't survive.

Michael Gordon is president of ConsumerPowerline.org, a for-profit consumer advocacy organization based in Philadelphia.

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