August 19, 2008

Pre-Buying Your Heating Oil? State, Industry Urge Caution

By Anonymous

Volatile energy prices and an ongoing credit squeeze that threaten to force some oil dealers out of business this winter have state officials and the oil heat industry warning customers to use care before paying for fuel earmarked for future delivery.

Oil heat customers who sign pre-buy contracts with dealers should check up on the companies to reduce their risk of losing money and being left in the cold, the Maine Attorney General's Office is advising.

"Ask them to explain how they're going to get oil for the winter," said Linda Conti, an assistant attorney general. "We want people to ask questions."

Conti's comments came in advance of Tuesday's auction of Veilleux Oil & Services Inc. The defunct Biddeford company has been charged with accepting money from customers for pre-buy contracts and failing to deliver the oil last heating season.

A three-year-old law required dealers to obtain financial protection to ensure they can deliver oil at an agreed price. The statute is meant to guarantee that dealers have taken steps to acquire a set amount of gallons for a customer later in the winter, regardless of changes in the wholesale price.

The law also requires dealers to specify to customers how they have secured that protection - although that notification doesn't typically appear to be happening.

"We're telling dealers they need to come into compliance," Conti said. "It's a fairly new law."

Record-high oil prices have made commodity traders out of many Mainers this year, as they try to guess whether to lock in a deal or ride the roller-coaster market. Those who do put down hundreds, or even thousands, of dollars for a fixed-price contract should also consider whether the company they're banking on has the resources to deliver, the Attorney General's Office says.

Mainers have been stung before by dealers that failed to live up to their promises.

In 2000, thousands of customers in New Hampshire and Maine lost money when J.L. Oliver Enterprises of Berlin, N.H., offered cut- rate prices but closed when it couldn't afford to buy the oil. Two years ago, central Maine residents wound up without oil they had bought when Oakland-based Petroleum Products Cooperative of Maine declared bankruptcy. Both cases led to court convictions of owners.

The incident in Oakland also prompted the state to tighten up language in its Consumer Home Heating Rights laws. Dealers now are prohibited from offering pre-buy contracts for oil, kerosene or propane unless they have financial protection.

That protection can include contracts with wholesalers that guarantee the ability to buy 75 percent of the gallons needed for customers at a fixed price, a surety bond or a letter of credit.

Dealers also must give each pre-paid customer a contract that indicates the total money paid, the gallons to be delivered and an explanation of how the wholesale purchase is protected.

That's not always happening, Conti said. That lack of compliance was one of the issues discussed in a meeting last week between the oil dealers group and attorney general staff members.

"We're asking the oil dealers to make sure their members know about this," she said.

The state's interest in oil contracts has been heightened by its lawsuit against Veilleux Oil and its president, Nicholas Curro III. The case is moving through York County Superior Court, and a trial is pending for next year, Conti said.

The lawsuit alleges that Curro, doing business under various oil company names, misrepresented how pre-paid contracts would be delivered and failed to deliver oil according to the terms of the contracts. The lawsuit is the first to charge a dealer with failing to secure financial protection for pre-paid contracts, Conti said.

The physical remains of Veilleux Oil & Services are set to be sold at a foreclosure auction Tuesday. The property includes buildings, oil storage tanks, a 30,000-gallon propane tank and various trucks. The sale is likely to attract oil dealers who are looking for equipment, said Stefan Keenan, manager for Keenan Auction Co., as well as companies that want to expand in the Biddeford area.

Publicity from the Veilleux case is a black eye for the oil heat industry, said Doug Morrell, a vice president for Downeast Energy in Brunswick. Morrell was at last week's meeting with Conti.

"People may lose faith in the heating oil industry," he said. "They may switch to another product."

It's a good idea, Morrell said, for customers to ask how long a company has been in business under its current ownership. They should ask how long the company has been offering pre-buy plans. They also should carefully read the contract.

Downeast has offered pre-buy plans for 17 years and has been a family business for a century. Downeast's customer contract says that its performance is secured according to the requirements of state law, but it doesn't specifically say how the oil purchase is guaranteed with wholesalers.

After reviewing the new rule last week, Morrell said it might be helpful to customers if the language were more precise. Changes could be made for next year's contracts, he said.

Reputable companies secure their oil purchases as a matter of good business practice, said Jamie Py, executive director of the Maine Oil Dealers Association. Otherwise, they're gambling that prices will drop later in the winter, when the delivery is due.

"You're gambling with your money and your customer's money," he said.

Py, who met last week with Conti, said he didn't know the level of compliance with the reporting rule among his 200 members. But regardless of what the written customer contract says, Py said, there's no way to be sure that a company is actually buying wholesale contracts for the oil it promises to deliver. The best way for customers to protect themselves, he said, is to seek out established companies that have good track records.

"You have to go on the faith and reputation of the dealer," he said.

Staff Writer Tux Turkel can be contacted at 791-6462 or at:

[email protected]



TO SEE THE STATE'S consumer home heating rights: whatsnew/ index.php?topic=AGOffice_Consumer_Law_Guide&id=27939&v=article

IF YOU HAVE QUESTIONS about your heating oil contract, call the attorney general's consumer protection division: (800) 436-2131.

Originally published by By TUX TURKEL Staff Writer --.

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