There are two types of contracts available to home heating oil consumers: a "fixed price contract" and a "capped price contract." With a fixed price agreement, the consumer locks into a set price, meaning he or she will pay a certain price per gallon for the entire season regardless of whether the cost of home heating oil goes up or down. With a capped price contract, the oil company puts a maximum price or "cap" on the cost of oil during the season. If the cost goes down, the consumer may pay less. Many consumers purchase oil through "Cash on Delivery" arrangements. In these cases, the consumer calls when they need oil and, after it is delivered, pays the current market rate on the date of the delivery.
Before purchasing your home heating oil, make sure you are fully aware of the terms of your contract or agreement and what is available to you. Compare oil suppliers, costs and contracts before committing to a contract. Be aware of certain contract points, such the start and end dates for the contract, the cost per gallon and any changes in rates (for example, a drop in the price of oil below its price on the day you signed the contract may not result in a reduced rate for you). Make sure to get all the details in writing. Keep a copy of the contract and any other related paperwork, including any advertisements the company placed at the time of purchase.
Fixed Rate vs. Capped Price Contracts
Fixed rate or fixed price contracts involve a set price that is generally available for the duration of one year's heating season. These contracts typically spell out all of the terms of the deal in writing. An ideal contract will typically: define the heating season (usually October through April), set the price and set a minimum and maximum amount (in gallons) that must be purchased. The consumer must sign a document and send it back to the dealer by a certain time to take advantage of the offer.
Some dealers require full payment or large fee up front, or they may offer budget payment plans to spread out the costs. They may also require the consumer to take automatic delivery, meaning the company calculates when the tank needs to be refilled based upon estimated use patterns. Some contracts may also have a penalty or liquidated damages clause. This allows the customer to withdraw at any time, but requires a sizeable payment - from $200 to $500 - to do so.
A capped price contract involves a possible range of prices. Consumers should never pay more than the capped price, but they may pay less, depending on how the price of oil fluctuates and on the terms of the contract. An ideal contract has all of the terms spelled out in writing. The consumer typically must acknowledge in writing that he or she agrees to the terms and that oil will be delivered by a certain date. Like fixed price contracts, penalty clauses may apply if the customer withdraws from the agreement. Heating oil dealers offering these contracts may also offer budget plans to spread out customer payments over a longer period of time. They may also require a large down payment as a deposit for the purchase of the oil.
Sharp changes in the price of home heating oil have led some consumers to question whether they are bound by their current heating oil contracts. They entered into contracts at a time when oil was more costly. However, in many cases, oil dealers who sold fixed price contracts to customers also entered into contracts with their suppliers, purchasing oil - even though rates were high at the time - to ensure they could fulfill customer obligations. The rights of consumers are determined by State law and the specific terms of each contract.
If you are considering whether you want to void your contract, review the terms; some have liquidated damages provisions that allow you to cancel for a fee (often $200 or more). Assess whether incurring that fee makes good financial sense and make sure that you will not encounter difficulties in obtaining oil from a supplier. The following consumer guidelines are helpful in determining whether a contract may be voided:
- If the customer has agreed either in writing or orally to remain with the dealer for a set period of time or to pay early termination fees/penalties, then that agreement is likely to be binding and the customer must abide by its terms.
- However, if there is no written or oral contract in place, or if the agreement does not indicate there would be any termination fees, then the customer may be able to terminate the contract and ask for a new pricing arrangement and/or find a new oil dealer.
- Even if the terms of an agreement appear to include a locked price, or if it demands the purchase of a full season of heating oil, then the consumer may have alternatives. Many agreements permit a customer to withdraw, although there may be a fee or charge associated with that decision. Consumers should carefully compare the cost of breaking their contract against the anticipated savings from terminating the contract and moving to a different provider. This review will help ensure whether it could be done without substantial financial or legal repercussions.
If an oil dealer violates the terms of a contract, the AGO may be able to help. For information about reporting unfair and deceptive conduct and for consumer assistance, visit the Consumer Advocacy & Response Division (CARD) or contact the Consumer Hotline at (617) 727-8400.