Pre-buy Contracts for Heating Fuels

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.

The Department endorses the concept of pre-buy contracts as budget planning tools. However, office 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:

• Do you believe the price of fuel is likely to rise or fall during the heating season?
• Can you afford to pre-buy all the fuel you expect to need?

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:

• How many gallons of fuel will be pre-purchased? The more fuel pre-purchased, the smaller the drop in "day" price that would be required to recover a one-time, up-front price cap premium. Examples:
  • Customer A pays $100 to obtain a price cap on 1000 gallons of heating oil. To recover the cost of the price protection, the price of oil at time of delivery would need to be on average 10 cents lower than the price cap. Any further price decrease will be money saved.
  • Customer B pays $100 to obtain a price cap on 500 gallons of heating oil. To recover the cost of the price protection, the price of oil at the time of delivery would need to be on average 20 cents lower than the price cap. Any further price decrease will be money saved.
• How likely is it that the price will fall during the heating season? This assessment is the responsibility of the customer.

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.

The Department 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.