Back in May, the vast majority of Maine homeowners had to decide on a payment plan for their home heating oil. They essentially had three options: 1) Pay the daily cash price for oil whenever they needed a delivery; 2) Prepay for a season's worth of home heating oil at the price offered then by their oil company; or 3) Sign up for a budget plan that divides payments over the course of 10 or 11 months, at the price offered then by their oil company.

 

With the last two options, most oil companies offered customers something called "downside protection," which is essentially insurance in case the price of oil falls. If the price falls, customers with downside protection receive a rebate in the form of a credit at the end of the heating season, or they see a reduction in their monthly bill.

 

"Well you're always taking a risk if you don't buy the downside protection that the price is gonna go down. And if you don't pre-buy that the price is gonna go up. Because that's the way it works. And it works that way for the oil companies too." Linda Conti is an assistant attorney general for Maine. She says her office has received at least 50 calls from consumers who regret not purchasing the downside protection and are now paying more than $4 a gallon for oil. "The oil company purchased the oil that they ordered at that price at that time. And we can't really tell consumers that they don't have to honor these contracts because the company would have the right to bring an action to enforce the terms of the contract."

 

The state requires oil dealers to buy at least 75 percent of their contracted oil right away. The law is intended to protect consumers from oil dealer fraud, and dealers say they could not have predicted that the prices of oil would drop as quickly as they have. "We know how many gallons we have sold to our customers with downside protection and we try to buy exactly that same number of gallons with downside protection ourselves. We can buy it from our suppliers the same way that our customers can buy it from us." Doug Morrell is the vice president of energy for DownEast Energy in Brunswick. He says that in the spring, about half of his customers purchased downside protection at a rate of 35 cents a gallon. With oil prices now down by about $2 a gallon, those customers seem to have made the right decision. Morrell says he has received some calls from customers who regret not purchasing the downside protection. "We're getting a few calls from a small percentage of our customers who purchased a fixed price from us. And once we explain how that works and that we were required by state law to lock in at a price when they did, most of them are fine with that and understand."

 

Locking in oil prices early has been beneficial to consumers for seven out of the last ten years, according to Jamie Py, president of the Maine Oil Dealers' Association. “I try not to recommend anything to people except depending on how you feel about risk taking or budgeting, do what you need to do for your family budget. All I can say is that there's extreme volatility in the commodities market and if you want to protect yourself against wild swings in prices, then you buy the insurance." Py attributes price increases to speculation from the traders in the oil futures market and the media. He says local oil dealers are not profiting from the wild price fluctuations.

 

The Maine Attorney General's office encourages those who did not purchase price protection programs to talk to their oil companies and see if they might be sympathetic, but she says in most cases they can't afford to take a loss.