The Office of Energy and Planning (OEP) receives many inquiries from people who want to know more about pre-buy plans and whether they should pre-buy their Winter heating fuel. In any case, the first step in managing energy costs should be to make energy efficiency improvements; significant savings can be realized. The first item in planning for the next heating season should be to make your house as thermally efficient as possible, and to be certain that your heating system is properly cleaned and tuned up. Proper heating system maintenance could save you up to 20% on heating fuel bills. For more information, go to Lowering Energy Bills.
A pre-buy contract is a budget planning tool, not a guaranteed way to save money. It sets a single price for the fuel you will use during the heating season, regardless of price swings. There is no way to know whether prices will rise or fall during the heating season; thus the pre-purchase of fuel can ultimately cost the householder more or less than would have been the case if there were no pre-purchase contract. A pre-buy contract is similar to an automobile insurance policy: When a policy is purchased, there is no guarantee that it will ever pay off; however, the cost of the policy might help avoid a much greater cost in the event of an accident or other loss in the future.
The ability of a dealer to offer heating fuel at a set price is based on the fact that the dealer can contract to obtain a specified amount of fuel from a wholesale supplier at a set price during a particular month or months in the coming heating season. The contract is a legally binding agreement. In a sense, the heating fuel dealer is in the same position as the customer: A pre-buy contract assures that the customer must purchase a given amount of fuel at a pre-determined price. The amount of fuel and the price cannot be altered.
By law, the dealer must provide for the ability to pay for the amount of fuel he or she offers to the customer. The dealer should be able to verify this to the customer's satisfaction prior to entering into any contract with the dealer.
OEP endorses the concept of pre-buy contracts as budget planning tools. However, OEP cannot recommend what to do in specific cases, because each householder's circumstances are different. However, here are some things you might think about when making a decision:
No. The dealer made a contract with his or her supplier to purchase the fuel at a certain price. Lowering the price to you would cause the dealer to lose money.
Fuel dealers may offer a feature in the pre-buy contract that sets a cap on the price a customer will pay per unit of fuel. For example, a customer may have the option of paying some premium, for example 20 cents per gallon, to guarantee that if the daily fuel price falls below the contracted price, the customer will be billed at the lower price. Some dealers may offer this option for a one-time, up-front payment, for example fifty or one hundred dollars, instead of a per-gallon premium. It is not possible to predict whether this option is worth purchasing. However, some variables to consider are:
The dealer is free to set prices for "deliverable" fuels. Thus, the contract price is set by the dealer. However, price and other contract details must be honored. And the dealer is required by law to provide surety that the contracted fuel will be available and delivered. The dealer is also free to set other contract conditions, provided - as with any contract - that they comply with all applicable legal requirements. RSA 339:79 helps protect consumers by establishing a set of requirements for contracts offered by heating fuel providers.
OEP cannot recommend what to do, but it is important to note that price is only one variable to consider in your choice of fuel dealer. Reliable, timely fuel delivery and timely emergency service are two other considerations.
Many fuel dealers offer budget payment plans that spread heating costs more evenly over the course of a year. Check with your dealer for details and about other possible payment arrangements.
These items may help you decide whether or not to pre-purchase fuel, how much to purchase, and whether it appears worthwhile in your specific case to contract for any price cap option.
NH Office of Energy and Planning
Governor Hugh J. Gallen State Office Park
Johnson Hall, 3rd Floor | 107 Pleasant Street | Concord, NH 03301
(603) 271-2155 | fax: (603) 271-2615