The cost of fuel is a major concern for every household, especially for homes that are dependent on heating fuel. Costs vary across the U.S., but they are highest in the Northeast where, on average, households consume around 750 gallons and spend nearly $2,000 each season. There are short-term ways to save heating dollars, but it takes additional planning of your home, budget and purchasing plans to save big dollars in the long run.
What Drives Fuel Prices
Oil, gas and propane are commodities, which means the cost to buy them changes depending on supply, demand, world events and weather. Suppliers must buy their fuel through contracts that they negotiate with energy brokers, so every year they gamble on the right time to buy and lock in fuel prices. Prices rise as the heating season and demand get closer, so providers generally know what they are paying for the upcoming season’s fuel by early summer.
The price homeowners pay for their heating fuel includes about 70 percent for the cost of the fuel itself and 30 percent for overhead, delivery and service—which is why some providers can offer savings at 20 to 40 percent over standard retail. Use this figure as a guideline when comparing purchasing programs and the overall savings to your budget.
Much like providers, homeowners are given the opportunity to pre-buy fuel at a lower price before the heating season begins. Prices can plummet during the winter, but the best price is generally available during the summer. "Call your dealer and lock in a program if it works for you," says Matt Cota, executive vice president for the Vermont Fuel Dealers Association (VFDA). "Over the past 10 years, it’s been a win/win for the provider and the customer." While prices may dip, that expense is usually offset by the peace of mind and security that comes with knowing your fuel oil will arrive, guaranteed, throughout the long, cold winter.
Fuel Purchasing Plans
Every expert agrees that the first step to savings is to interview fuel providers and compare their purchasing programs. A Boston-area study found that heating fuel prices varied by up to 10 percent among heating contractors. Doing your homework before agreeing to a contract can save you from $150 to $250 over the course of a heating season.
Almost all fuel providers offer a budget plan that allows you to spread out your payments equally over a pre-determined period. Providers use past records or estimates based on the size and age of your home and the number of degree days in an average heating season to calculate how much fuel you will consume. Based on their cost per unit of fuel, they divide the estimated charges over the season or the entire year, depending on the provider or the utility. Contact your fuel provider for more information.
Capped-fixed plans and capped-fixed-downside plans also exist but may not be offered by all providers. With these plans you pre-buy with a guarantee to purchase a minimum number of gallons during the heating season—typically 500 gallons—at a set price. There is a minimum delivery amount and often a fee if the purchased gallons are not consumed during the heating season. The unused fuel can be applied to your account as a credit, but always ask if there are "storage or commodity" fees that will be applied to any unused oil. Some companies charge nothing if the remaining fuel is below 50 gallons.
With a fixed-price plan, savings come if the price goes up or the average street-price-per-day is higher than the rate you’ve locked in by pre-buying. If the price drops, you’re out of luck. If the price goes up, however, you are guaranteed the fixed price.
With a capped-fixed-downside plan, consumers will get the discount if the price per unit of fuel drops but are guaranteed that their cost will not exceed the agreed-upon purchase price. Ask your provider if they offer these fixed-downside plans. They are frequently available to large consumers or buying groups.
The key to benefiting from any capped-pricing plan is to accurately estimate your fuel consumption. You will defeat any savings gained by buying early if you need to buy beyond your purchase agreement or get stuck with unused fuel. Always ask if there is a discount for fixed-plan customers if extra fuel is needed. Providers typically charge the "street-price-of-the-day" for any additional fuel purchased.
There are online and local groups that purchase heating fuel as a block and arrange for delivery to members. These groups offer significant savings on heating fuel but do not guarantee a relationship with a local provider. "It’s a way for customers to come together and leverage a lower price," Cota says, but they can’t select a hometown provider. The deal with these plans is strictly for the purchase of the fuel. The head of the buying group, like PriceEnergy.com, serves as an "intermediary" between fuel providers and consumers. The groups negotiate a contract for a large buying group and pass the savings on to members. Their guarantee is that they will deliver fuel oil "as expediently as possible" with no guarantee that the fuel purchase or delivery will go through local providers. When buying through purchase groups, always ask about minimum purchase amounts, fees for overbuying and how extra fuel will be purchased and delivered if you run out.
Local buying groups or cooperatives have better control over their buying power. They can choose to work with a set group of local providers but still benefit from the buying power of working with a large group. The buying group typically selects an agent or intermediary who negotiates the purchase price and conditions, handles the billing and arranges for delivery. Both types of plans are ideal for consumers who do not wish to contract for service and fuel together.
There are clear benefits to buying from a local provider. Since the average home in the Northeast will refill its fuel storage tank five or six times during the heating season, it is reassuring to know who will deliver the fuel. Ask your provider if there is an emergency fuel delivery charge, what the minimum delivery amount is and how quickly they respond to emergency requests. Also ask if there is a service component to your contract. Some companies will offer annual cleanings as part of their contract. It is also good to know if your provider is licensed to perform repairs. Essentially, buying locally will ensure that your provider is there to respond to your heating needs in a timely manner.
Take the time to investigate the different ways you can purchase fuel, and you may end up saving hassles and money this winter.
Credit: Renovate Your World