Hedging Heating Bills Just Got Harder

The massive runup in oil prices has claimed another set of victims: those who heat their homes with oil and natural gas. Suppliers of those commodities, having nearly doubled their prices over the past year, are cutting way back on the prepayment plans that many homeowners traditionally sign in the summer months to protect against inflation.

Fortunately, there are several other practical steps that you can take to hedge against potentially insufferable heating costs this winter.

Soaring prices for natural gas and heating oil, along with the day-to-day volatility in the futures markets, have befuddled everyone from oil dealers to consumers. On the New York Mercantile Exchange (NMX), the natural gas contract was $12.391 (as of July 10), up more than 93% from a year ago, while the price of heating oil was up more than 80%. That means homeowners, already feeling the pinch from higher gasoline prices at the pump, will have to pay more than ever before to heat their homes this winter, according to a recent prediction by the National Energy Assistance Directors Assn.
Premium on Prepayment Plans

The first step is to check with your heating oil dealer to see if it is offering a prepayment plan this year. Natural gas and electricity prices are regulated by public utilities, which don't usually offer such plans. Heating oil prices are set by local suppliers, and some will still let homeowners lock in the price of heating oil months before they need it if they purchase a prepayment plan. With No. 2 oil—the kind used to heat homes—recently topping $4 per gallon for the first time, it's a risky move if prices drop, but a smart one if they continue to climb.

Some prepayment plans offer a cap, which puts a ceiling on how much the homeowner will pay for heating oil, regardless of how much prices rise. Scaran, a New York-based oil dealer, offers homeowners two choices. One plan lets them pay the market price for heating oil without ever paying more than $4.89 per gallon, and the other sets the maximum at $4.59, says General Manager Tom Scarangello. However, these plans come at a premium: Enrolling in Scaran's first plan costs $99, and the second costs $249, both of which cover July 2008 to July 2009. Last summer, Scaran customers could set the maximum price at $2.99 per gallon for just $69.

However, many heating oil dealers are so worried about paying more for supplies that they're not offering the capped plans this year. Some dealers, who used to offer summer-long enrollments in prepayment plans, now have their enrollment open for just a few days so they can collect the money from customers and purchase the oil immediately, before the price jumps. Dealers usually purchase oil in 42,000-gallon increments, and a 20¢ swing in the market price (unheard of until recently) can wreak havoc on their profit margins. "Now you're seeing dealers offering three- and four-day offers," says Matt Cota, executive director of the Vermont Fuel Dealers Assn. "And people are signing up."

One dealer in Vermont recently offered prepayment contracts on heating oil well above the roughly $4-per-gallon price today and sold them all in one day, says Shane Sweet, president and CEO of the New England Fuel Institute. He recommends contacting your local oil suppliers to see if they're offering prepayment plans this summer.
BY Ricky McRoskey

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