New England fuel dealers seeking help from federal government
By Bruce Edwards
Herald Staff | November 06,2008
Strapped with high-price contracts that are squeezing both themselves and their customers, New England fuel oil dealers are looking to the federal government for help.
The Vermont Fuel Dealers Association joined with its counterparts from other New England states in sending a joint letter to U.S. Treasury Secretary Henry Paulson seeking relief under the recently passed financial bailout law.
Crude oil prices soared to $147 a barrel this summer — a time of year when homeowners lock into prebuy programs at a set price. To guarantee that price, dealers in turn had to lock into futures' contracts with wholesalers at a set price. Since then, crude oil prices and retail oil prices have plummeted.
The average price of home heating oil in Vermont has dropped from a high of $4.65 a gallon in July to $3.17 a gallon this month, according to the state Department of Public Service.
In their Nov. 3 letter to Paulson seeking a meeting, fuel oil dealers blamed speculators and investment banks for artificially driving up the price, predicting the potential of $200 per barrel crude oil.
"When Goldman Sachs makes predictions of $200 a barrel, people panicked," Matt Cota, executive director of the 300-member Vermont Fuel Dealers Association, said in a phone interview. "People demanded fixed-priced contracts."
Cota called for a federal investigation into the involvement of investment banks and hedge funds in driving up prices. "I don't think anyone is linking it to supply and demand," he said.
The letter, signed by fuel dealer trade associations in Vermont, Connecticut, Maine, New Hampshire, Massachusetts, Rhode Island, New Jersey and Long Island, said the only way dealers can negotiate new contracts at lower prices "is to literally buy their way out of them and pay their wholesalers."
But the dealers go on to say that their industry is already undercapitalized and dealers have borrowed heavily to secure their existing contracts. Add to that, they wrote in their letter to Paulson, the current credit crunch limiting their access "to the capital necessary to reorder supply arrangements at more favorable rates for consumers."
The region's fuel oil dealers are asking Paulson to provide access to capital under the Wall Street bailout legislation, the Emergency Economic Stabilization Act. Financial assistance under the law would allow retailers to work with consumers to get out from under the onerous fixed-price contracts.
Rep. Peter Welch, D-Vt., has sharply criticized the role speculators allegedly played in driving up the price of oil. Welch led the fight that helped to partially close the so-called Enron loophole that restricted regulatory oversight of the oil futures market.
A spokesman for Welch said Wednesday that the congressman supports the effort by fuel dealers to bring down the price of home heating oil.
"The congressman is very concerned about Vermonters and fuel dealers who planned for the worst with rising fuel costs and who are now caught paying exorbitant prices," spokesman Andrew Savage said. "He's supportive of the fuel dealers' request for a meeting with the Treasury Department and exploring whether it is possible to use funding from the bailout to help Vermonters with more favorable heating contracts this winter."
Cota said it's ironic that some of those responsible for driving up oil prices are now the beneficiary of the $700 billion financial bailout bill.
One fuel oil dealer, Chris Keyser, said he's getting calls every day from customers who want out of their prebuy contracts.
"We have a buyout clause and we've had a handful, less than 10, who have exercised that option and one person paid as much as $700," said Keyser, who owns five Rutland County energy companies under the umbrella of Owner Services Inc.
Keyser said it's a trying period for oil dealers and customers alike.
In order to put a stop to excessive speculation, Cota and Keyser said there needs to be greater regulation of the futures market.
"The industry has been very aggressive with the regulatory agencies and our elected officials to get some light shined on this," Keyser said.
Contact Bruce Edwards at email@example.com.