July 15, 2019

Fighting the high price of oil

With temperatures the last few weeks well below zero much of the time, Maine homeowners — especially those in Aroostook County — are keeping a careful eye not only on the thermometer, but also the gauges on their fuel oil tanks, and on their wallets.

Traditionally, fuel oil prices have been higher in Aroostook County than the rest of the state. But that isn’t the case this year.

On Jan. 3 and again on Jan. 8, figures provided by the State Planning Office showed that northern Maine had an average cash price for No. 2 home-heating oil that was 2 cents below the statewide average.

Oil company officials who could be reached all attributed the cost differential primarily to market factors.

But some people think there are more than market forces at work in the central Aroostook area.

“They’re trying to break us up,” said Wilfred Martin Jr. of Caribou, referring to the Caribou Coalition for Affordable Energy that he founded in 1991. “[Oil company officials] may not say it, but I think it’s us that’s keeping the price down. ”

Last year, Martin said, the coalition had between 400 and 500 members. This year, there are between 800 and 900 members who live as far south as Houlton.

The group purchases on average about 1 million gallons of oil a year, he said, and some people, like himself, buy as much as 3,000 to 5,000 gallons a year.

Martin said he feels that the buying influence of such a large group of people in one area, not economics, has been responsible for keeping the average price of fuel oil in the central Aroostook region low. If there were little difference between the coalition price and currently advertised cash prices, there would be less incentive for people to belong to the coalition.

Surprising surveys

The state figures for Jan. 3 showed that in the southwest, central and western areas of the state, the average price was 91 cents a gallon, the same as the state average. In the eastern area, the price per gallon was 94 cents. In the north, it was 89 cents.

During that period the cash price for No. 2 fuel oil was 96.9 cents a gallon at the Irving, Dead River, Maine Potato Growers and Daigle Oil companies in Houlton. That same day, the companies were selling fuel for 10 or 11 cents cheaper in the Presque Isle area, just 45 miles north, and 7 to 8 cents less in Madawaska along the state’s northern border with New Brunswick. Most coaltion members live in the Presque Isle-Caribou area.

State figures were about the same on Jan. 8, with all but the eastern and central regions showing a 1 cent increase in the price for a gallon of oil. The statewide average was up to 92 cents a gallon.

Dealer prices in the county were also about the same on Jan. 8, but were soon expected to increase again.

Such price differences not only within the state, but in the county, come as a surprise to people who normally expect to find themselves at the high-priced end of a short oil stick. Some are wondering why prices in the region this winter have suddenly gone against the trend of the past several years.

The last delivery of heating oil at the residence of Eugene Wright of Presque Isle was for 91.9 cents a gallon. When asked what he thought about heating oil prices being lower in northern Maine than in the southern part of the state, Wright said, “It is strange. Usually it is the other way around and higher up here. We bear the brunt of it. They blame it on transportation costs. What has changed?” he asked.

A person apparently doesn’t have to go too far from Presque Isle to see prices jump back up again. A Fort Fairfield man, who asked not to be identified, said he usually gets his heating oil for around 85 cents per gallon in Presque Isle. He recently ran out and, in a pinch, had to pay 98.4 cents per gallon in Fort Fairfield.

Several other people in Caribou and Presque Isle declined to be identified, saying they were getting special discounts and didn’t want to reveal prices or suppliers.

Complex pricing information

Rick Daigle, president of Daigle Oil Co. in Fort Kent, said that while market forces were certainly the main reason behind price differences in the region, there were other factors as well.

Daigle said that where fuel is purchased by dealers also affected prices. For example, he said that oil his company buys in Bangor is priced based on the last-in, first-out (lifo) pricing formula used there. That means that all oil, regardless of when it was purchased, gets sold at the price at which oil was last purchased.

Fuel that is purchased from Quebec, on the other hand, can cost less in winter because the pricing there is based on a first-in, first-out (fifo) formula, he said. In other words, the price of the oil, even that purchased most recently, is based on the price of the oil that was purchased first.

Daigle said the weather also plays a role in determining the price of oil. Oil futures are traded on the New York Mercantile Exchange, and regardless of what the weather is doing in Maine, the price of oil can be influenced “by what [traders] see outside their window,” he said.

Each year since it was founded, the Caribou Coalition has solicited bids from oil dealers in the region based on the Oct. 1 Bangor rack price. Bidders then determine their costs and submit a bid at so many cents over the rack price for that date.

The rack price basically is the price that oil dealers pay for the oil at the main terminal, before any transportation costs or profit margins are added on. The Bangor-Brewer rack price on Jan. 4 was about 66 cents a gallon.

The rack price fluctuates regularly, but the bid price over the rack never does. That means that while the price of the oil may go up, it still would not be as high for coalition members as it might be for regular cash customers.

“We use the Bangor rack price to allow for fluctuation,” said Martin, who is a plumbing and heating contractor and also runs a general contracting business and owns an apartment building. “That way a company won’t make a bid at a low price and then get stuck if the rack price goes up. That’s fair to them and that’s fair to us.

“We’re not in the business of putting oil companies out of business, or having them go bankrupt,” he said. “We never know what we’re going to pay for oil, other than it’s some pennies over the rack price,” he said.

This year, Maine Potato Growers won the contract to provide coalition members with fuel. The MPG cash customer oil prices for Jan. 3 was 86.9 cents a gallon in Presque Isle and 96.9 cents a gallon in Houlton. In past years, Irving Oil Co. won the contract.

Martin declined to say just how much coalition members were paying for their fuel because “it would rattle the oil companies and we may not be able to get them to bid next year.” He added that there was some difficulty getting bids back this year.

He did say that the cash price being charged by the oil companies on Jan. 5 was within 1 or 2 cents of what coalition members were paying.

A co-op history

Oil company officials denied that Martin’s group has anything to do with the lower prices for oil in the Presque Isle-Caribou area, but a similar group formed near Lewiston four years ago was credited with keeping prices in that area lower.

In 1991, a heating-oil cooperative called Our Own Oil Co. was formed in Dixfield. By 1992 it had grown to 660 members who paid as much has 18 cents less a gallon than people who were not members of the co-op.

That same year, the company’s president said in an Associated Press story that having a cooperative around had driven down prevailing oil prices in the area.

Our Own Oil Co. was eventually bought out by R.H. Foster last May. A person at the company office attributed the company’s demise partly to management difficulties.

Martin said he formed the Caribou coalition in 1991 because he was frustrated at the way some of the larger oil companies were doing business.

“The big thing that prompted me [to start the coalition] was they were selling oil through brokers in the community,” he said.

Martin said the brokers would solicit customers under their name and then contract out the delivery service to one of the larger companies, often at 1 or 2 cents less than what those same companies were charging their own customers.

That first year, he said, coalition members paid 25 cents to 35 cents less per gallon than the regular cash price.

To join the coalition, prospective members must be sponsored by a person who already is a member. Each member is responsible for paying his or her own bills to the oil company. Anyone who does not is kicked out of the coalition because delinquent payments would be a bad reflection on the group as a whole.

Oil company officials also deny that there is any attempt to break up the coalition by keeping prices low in the area.

“It’s foolish,” said Chris McAuliffe, vice president of Irving Oil Co. in Bangor, who described the breakup theory as “an interesting slant. Everybody’s got an opinion,” he said. He added that he had never heard of the group, but also pointed out that he had only been in the state for eight months.

Jerry Sytsema, general manager for MPG, which won the coalition contract this year, declined to comment on Martin’s assertion. He said his company’s price is based on the market and that MPG is too small to be a major player in any alleged effort to “put the squeeze on the coalition.”

Daigle said that most full-service oil companies, with all other factors being equal, try to sell themselves based on the quality of their service and their prompt delivery schedule, not the price of their oil.

Both McAuliffe and Daigle said oil prices in Maine are among the lowest anywhere in the country and traditionally have been.

McAuliffe said there may be discrepancies in prices between the northern and southern parts of Maine, but “the consumers are getting a tremendous value.”

New England comparisons

A random check of cash oil prices at full-service oil dealers around New England and eastern New York on Jan. 5 would seem to support that view, especially as it pertains to central Aroostook County.

Of the six New England states, Maine came in at about the middle of the pack, with a state average of 91.9 cents a gallon, the same as the cash price for that day in Greenfield, Mass. The price in Bradford, Vt. was 78.9 cents a gallon. It was 87.9 cents in Manchester, N.H., and 96.9 cents in Waterbury, Conn.

In Rhode Island, Mike Malucchi, sales manager for Buckley and Scott in Providence, one of the state’s largest oil companies, said the price per gallon in that state ranged from a low of 99 cents to a high of $1.039. In Kingston, N.Y., which is about 30 miles from the western Connecticut border, the price per gallon was $1.029.

Martin said that before his group was formed, oil companies were free to charge whatever they wanted. He said that as a result, prices of more than $1.20 a gallon that were charged in 1990 and 1991 were very hard on the elderly people who had to pay their own bills.

In those years, according to published reports, prices across the state varied by as much as 15 cents, with the north always paying more.

“They’ve been telling us it’s freight all along,” Martin said. “[But] they watch us pretty closely. They’ve kept it real low because of us. They’re trying to break us up, [but] it isn’t going to happen. We’re in this for the long haul.”

NEWS reporter Gloria Flannery contributed to this story.

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