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2006

2006 Sep



Fuel Billing Options for Co-ops and Condos

By Anthony Stoeckert

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Purchasing a buildings heating oil is one of the most important decisions a board has tomake. And in this era of ever-rising fuel costs, its also one of the most frustrating. Whendeciding how to pay for their buildings heating oil, boards need to determine which methodworks best for them.

A Tale of Two Options

There are two basic options a building can choose from when deciding how to be billed for

oil fi!ed rates and floating rates. A fi!ed rate means the building will buy its oil at specifiedprice that will not change over the course of the year. "uildings that choose this method mayhave to commit to buying a certain amount of oil over the course of the year, and will pay foroil whenever a delivery is made.

#loating rates mean that the price paid for oil will be based on the market rate at the time theoil is purchased and delivered. That means the price paid can go up or down with everydelivery. $ome companies also offer what is called a price cap, which designates a ma!imum

price per gallon that homes or buildings will pay, regardless of how much heating oil mightrise.
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%They can get a delivery on August &, and if they get another delivery on August '(, they canbe paying a different price,) says *odger +oughlin, an owner of #errantino #uel in Park$lope, "rooklyn. %t can go up, and sometimes it can go down.)

A Little Bit of Both

avid $okol is the vice president of Plymouth *ock #uel in "rooklyn, a company that offersboth fi!ed and floating prices. According to him, there is more than ust one way to negotiatea fi!ed-price fuel bill.

%With a fi!ed deal,) says $okol, %you can fi! on a month-to-month basis. /enerally, peoplelike to fi! between 0ctober and April because thats when the highest usage for heating is.There are also people who like to fi! for '& months, which is fine. $ome like one price for all'& months, some like a fi!ed price, but a different price every month.)

$okol goes on to say that clients can work out a price for 1anuary when theyre probablyusing more, then work out different prices for other months.

% could fi! you a price right now for ecember and one for #ebruary,) $okol says. %tdoesnt have to be consecutive, you can choose to buy a little bit of fuel of ecember and#ebruary, and the rest you can go floating on the market. A lot of our customers like to do ami!ture.)

Pros and Cons

There are inherent advantages and disadvantages to each option. With fi!ed pricing, theadvantage is that youll know how much youll be paying for your oil over the upcomingyear. The disadvantage is that if prices go down, youll be stuck paying a higher-than-marketrate until the contract ends.

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%A fi!ed price does not guarantee youre going to pay the cheapest price available for theyear says 2arla *omita of 2astle 0il 2orporation in 3arrison. %A fi!ed price guaranteesyoure going to pay that price for that fuel for the year. f the market goes down and youvesigned a fi!ed-price contract, youve obligated yourself to pay a certain price for the fuel you

purchase during that year.)

%t has the benefit of certainty for someone who needs to be on budget and has to make aproection and know what theyre going to spend,) *omita continues. %4ou have the comfortyoure going to spend this much, not more not less, but youll have certainty.)

With floating rates, youll pay the current market rate, so youll always be paying a price thatis competitive at that moment. The downside comes if prices increase significantly, whichcan result in paying a higher price than you would have with a fi!ed rate.

%With a floating price, you get a market price, then youll get a competitive price all year atthe time you purchase the fuel,) *omita says. %t could be more than the fi!ed price wouldhave been, depending on when you signed your contract and locked in your price5or it could

be less depending on whatevers going on anywhere in the world.)

$okol says that a buildings fuel buying strategies can sometimes feel a little like gamblingbecause the market is so volatile.

%A drop of a hat can make it go up or down,) he says. %$ome people dont like to fi! all theirfuel 5 and we recommend that they dont. 6ts smarter7 to do it on an incremental basis.+ets say youll use 89,999 gallons in ecember, so well say fi! :&8,999 or :;9,999 of thetotal, and then float with the market on the other part. 4ou can average yourself out if youhave an up- or downturn of the market, so this way youre pretty much protected.)

What makes the process tricky is that the cost of oil fluctuates unlike any other resource."efore last summer, gas prices were well below two dollars a gallon, now theyre above three


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dollars a gallon in many areas. According to *omita, while prices are influenced by supplyand demand and transportation costs, factors that have nothing to do with supply and demandcan also have an influence. $ometimes a piece of news that is interesting to people in the

business can affect the cost of oil, sometimes for a very short amount of time.

%The day Abu awi was killed, the market went down precipitously the ne!tmorning around the world,) she says. %"y the end of that same trading day, prices were upwhere they had been the day before. $o it wasnt really news that affected oil supply, but itwas news5and there were enough people in the market buying and selling based on thatnews that if influenced the market that day.)

What Works Best for You

2astle also offers residential customers a budget plan program enabling consumers to makedirect payments for fuel oil throughout the year. This allows homeowners to spread out

heating costs over twelve months to avoid having to make higher payments in the coldermonths when more oil is being used.

According to *omita, buildings need to determine which system best suits their needs, andalso fits what they are comfortable with.

%f your goal is to know with certainty what your energy budget is going to be and that youregoing to meet it, then a fi!ed price is probably a good way to go,) she says. %f your goal is tomake sure youre always paying a competitive price, then they go with a floating rate. 4ouhave to leave it up to the customer. ts really their tolerance for risk either way.

%"oth ways have inherent risks, if you fi! a price youre taking the chance that market will godown and you wont benefit from that. f you float, youre taking the risk that the market willgo up and youre going to pay the price. %

0ne thing *omita says you shouldnt do is try to beat the system by switching back and forthbetween fi!ed and floating in an attempt to get the best deal.

%$ome customers switch back and forth each year hoping to win,) she says. %4ou cant playit to win like that,) she says.

%Winning cant be the goal because if anybody could pick it every time, you wouldnt have to

work for a living, youd be on your computer making trades all day. ?obody knows forcertain. @veryone makes predictions and the reason theres a market is because for everyonewho makes a prediction going one way, theres someone making the opposite prediction.)

+oughlin says that no one knows when oil prices are going to rise, adding that if he knew,hed %buy '9 million gallons.)

% buy from five different wholesalers, nobody knows 6when prices will go up7, he says.. %Wedidnt e!pect the war to break out between srael and 63ebollah7, and all of a sudden thathappened,) which in turn resulted in oil costs going up.

Working With Todays Pries


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4ou might think that ever-increasing oil prices may be leading to a trend one way or theother, but *omita says different people have different perspectives on fi!ed vs. floating.

%$ome customers need to be confident that theyre paying a competitive price, so many ofthem will float,) she says. %0thers are convinced the market is only going to go up, so they

fi! as early as they can. People will fi! when they reach a number theyre comfortable withand it depends on what theyre worried about and its on both sides of the e>uation, its notmore one way or the other.)

#loating prices can even be negotiated in a contract from delivery to delivery. 3ow manydeliveries a building gets depends on the sie of the building, says $okol. $ome get fuel everyweek, or twice a week, or even every two weeks.

%/enerally,) says $okol, %we like to keep it at a contract or a half a contract.) A contractmeans that in one month, the building has to guarantee purchase of B&,999 gallons, which is astandard contract amount.


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going to go. Weve made a number of presentations to boards e!plaining how it works, sothat they have the tools they need to make a decision.)

Anthony $toeckert is a freelance writer and a fre>uent contributor to The 2ooperator.

!o"ern#ent deides to $ring forward %floating prie#ehanis#

$hahrir #uel prices reduction not political gimmick

ECA+A +C


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The new prices were set after considering fuel prices between Aug ' and Aug &', and in viewof the /overnments decision to set the subsidy at ;9 sen a litre for *0?(D and *0?(&, and89 sen a litre for diesel.

0n 1une B, the /overnment announced a DG-sen increase in petrol to *


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Abdullah also e!pects the prices of goods to fall.

n PCT*A1A4A, omestic Trade and 2onsumer Affairs

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