State drives hard bargain on fuel prices
By Peter Hirschfeld
Vermont Press Bureau | November 12,2013
MONTPELIER — At least a dozen Vermont fuel dealers have dropped out of a heating-assistance program after state officials cut the price they’re willing to pay for the oil being delivered to low-income beneficiaries.
The Shumlin administration, however, says that while reforms to the program may have cost the state a few participants, the changes represent a fiscal success story, and show how taxpayer dollars can be stretched without impacting services to needy clients.
“While we want to be fair to dealers, we also have an obligation to Vermont taxpayers to get a good deal for them, and that’s what we’ve done,” said Administration Secretary Jeb Spaulding.
The Low Income Home Energy Assistance Program will spend about $26 million this year on heating fuel for eligible Vermont families. But while the state has long sought preferential pricing from the private dealers with whom it contracts to deliver the fuel, Vermont this year wanted more significant concessions than it has gotten in the past.
Last winter, the state demanded on behalf of its LIHEAP clients one of two options: either the discount that dealers give to customers who pay cash up front; or a 10-cent per-gallon discount off the spot retail price.
This year, the state wants the discount price for cash-up-front, plus an additional 15 cents per gallon off of that. The dealer can also choose instead to charge a “margin over rack,” in which case they can bill the state 50 cents per gallon more than what wholesalers are charging on the day of the delivery.
“At the end of the day, the dealer has to look at the bargain given by state and say, ‘Can I do it?’” said Matt Cota, executive director of the Vermont Fuel Dealers Association. “Some will see it as an opportunity to pick up market share by participating in the program, and expand their customer base. But others will say the state is asking too much.”
Cota says the state’s offer doesn’t affect all dealers equally. Dealers who provide deep discounts to their cash customers, Cota says, will see their margins undercut more deeply than dealers who don’t discount as aggressively. And for the dealers who hedge against market volatility by locking in wholesale prices for the entire winter ahead of time, Cota says, the margin-over-rack option might not accurately capture their full cost of doing business.
According to Spaulding, at least a dozen dealers have opted not to participate in the program this year. However, Spaulding says 90 percent of fuel dealers have signed on, and that none of the 28,000 households served by the program will be unable to find a participating vendor who will service their residence.
Spaulding says the reduced cost of fuel has added $1 million in “buying power” to this year’s LIHEAP program, and will result in an additional 200,000 gallons of fuel for needy Vermonters.
“It’s a success story,” Spaulding said.
Cota says the reduced rates have made for some difficult decisions for fuel dealers, many of whom have had years-long relationships with the LIHEAP clients they say they can no longer afford to serve.
“There are some heartbreaking stories,” Cota said. “It’s such an emotional issue for dealers who have been serving families for years and years and years.”