Written on: September 22, 2016 by ICM
By Tux Turkel, Portland (ME) Press Herald Staff Writer–
A newspaper ad touting the cost benefits of heating with oil over natural gas is being called misleading by a state energy official, and a cautionary note for residents making long-term decisions about how to heat their homes.
The Maine Energy Marketers Association, formerly the Maine Oil Dealers Association, ran the ad as part of its MaineEnergyFacts.com campaign. It wants to discourage more homes and businesses from converting from oil, the state’s dominant heating fuel, to competing alternatives, namely natural gas and heat pumps.
The full-page ad in last week’s northern edition of The Forecaster targets Summit Natural Gas, which came to Maine from Colorado in 2013 with big expansion plans for the Kennebec Valley and the Portland suburbs of Falmouth, Cumberland and Yarmouth.
The ad compares a low cash price of heating oil this summer in the Portland area – $1.70 gallon – with the recently approved residential rate for Summit customers for the entire winter – the equivalent of $2.49 a gallon. A smiley face tops the $1.70 price, and a frowning face with a teardrop is above the $2.49.
Copy for the ad says Summit’s winter rates are 46 percent higher than the oil equivalent in Greater Portland.
“So why would you switch?” the ad asks, directing readers to the MaineEnergyFacts website.
But Lisa Smith, a senior planner at the Governor’s Energy Office who tracks heating fuels through a weekly statewide survey, said the ad is misleading because it compares a single, low price at one point in time with a stable rate approved by the Public Utilities Commission for the winter.
Average heating oil prices in Maine rose steadily from roughly $2 a gallon in 2004 to nearly $3.70 a gallon in 2014, except for a sharp dip during the 2009 recession. In the past two years, though, they have fallen off a cliff, averaging $1.86 a gallon for the 2015-2016 heating season.
“Based on historic data,” Smith said, “prices go up in the winter with increased demand. No one knows what will happen this year. But comparing a non-heating season price to a heating-season price is comparing apples with oranges. It’s making the assumption that oil prices won’t change. And everyone knows that’s not true.”
But Jamie Py, president of the energy marketers group, said his goal was to make a straightforward comparison between two known prices – oil today and the PUC-approved rate for Summit.
“I’m not saying ($1.70) is the price of oil for the winter,” he said. “I don’t know what the price of oil will do. It could go down.”
In the ad, an asterisk at Summit’s $2.49 rate notes the conversion from therms, which is how gas is measured, to gallons, and says the price is based on the PUC winter rate. Py was asked why the $1.70 oil price didn’t include a disclaimer about how it was calculated. He said he could have done that, but didn’t think of it.
A spokeswoman for Summit said the company doesn’t comment on competitor advertising.
RETAIL OIL PRICES STILL DEPRESSED
But the ad was timely in Portland’s northern suburbs. It ran just as Summit was trying to patch up a public relations misstep.
In early September, Summit had emailed its 3,000 home customers to say their rates would be going up 154 percent starting Oct. 1. That angered several customers. But the jump was calculated off an unusually-low summer rate that drew little attention, because people don’t heat in the summer. The pending winter rate actually is 20 percent lower than last year.
Summit sent a second email to try to clear up the confusion.
The episode was another blow for the company that came to Maine when oil prices were near record levels and homeowners were desperate for options. But when oil prices collapsed, interest in natural gas fell off.
The global glut of crude oil continues to depress the retail price of heating fuels and gasoline. The most-recent federal Energy Information Administration data suggests a modest rise in crude prices this winter, but the agency’s outlook for heating fuels won’t be released until next month. Meanwhile, Maine’s statewide average price for heating oil is $1.88 a gallon, according to Smith’s latest survey.
One area of wide agreement is that low oil prices have been a blessing for Mainers.
Using federal energy data, Smith looked at the impact of falling prices on Maine’s household economy. She calculated that Mainers saved $365 million last year over the 2013-14 heating season, when the average price had risen to $3.71 a gallon.
Low prices also have given the oil-heat industry a reprieve and an opportunity to staunch the bleeding.
Maine still leads the nation in the share of homes heated with oil. But penetration has fallen from a peak of 80 percent in 2000, to 74 percent in 2010, to 67 percent in 2014, according to U.S. Census data. During that period, natural gas, propane and wood picked up market share. Many Mainers also installed high-efficiency electric heat pumps.
THE ARGUMENTS AGAINST GAS HEAT
So the challenge for the oil-heat industry is to slow that conversion. Highlighting today’s low prices is one strategy.
Py’s group has been doing this with financial help from the National Oilheat Research Alliance. Through an act of Congress, the group is authorized to help provide more-efficient oil heat and hot water to consumers and is funded through a $0.002 per gallon levy on heating oil. Alliance money is helping pay for the website and advertising, Py said.
The website focuses on the cleanliness, cost and choice offered by oil heat. Among its points: Oil heat has cleaned up its air emissions, while natural gas is a prime contributor to climate change. Oil prices have reached an 11-year low and “some experts expect oil prices to stay low for a while.” Customers can pick from 100 oil and propane dealers, while natural gas service is a monopoly. The site also seeks to sow doubt about alternatives, contending that oil is a safer fuel than natural gas and that heat pumps can’t do the whole job in most homes.
The Summit comparison ad, too, seeks to create doubt about the wisdom of switching to gas. But Dan Routh, past president of the Ad Club of Maine and creative director at Creative Imaging Group in Portland, said he found the ad confusing and misleading, and the smiley faces insulting.
“It’s so simplistic that it raises more questions than it answers,” Routh said. “I think they’ve lowered the bar on people’s understanding of the issue.”
CAUTION ON ‘MARKETING HIJINKS’
That theme was echoed by Ben Dinsmore of Brunswick, who writes a personal finance blog called Trees Full of Money.
Dinsmore, who works in the offshore drilling and shipping sector of the oil and gas industry, said competition among oil dealers on price and service is good for Maine home customers. But he also said world oil markets are extremely volatile, while changes in gas rates are linked largely to inadequate pipeline capacity in winter for gas supplies that are only a few hundred miles from Maine. In his blog, Dinsmore predicted that heating oil prices are more likely to go up than down in 2017. In Maine, pre-buy contracts that lock in at between $1.70 and $1.90 a gallon would be a good bet, he said.
Dinsmore said the anti-Summit ad is “nothing more than a snapshot in time” and ignores many factors that families should evaluate if they are making a home-heating choice.
“If you live in an area that has access to natural gas distribution,” he said, “be diligent and don’t base your household’s heating system for the next 20 years solely on marketing hijinks.”
Article courtesy of Portland (ME) Press Herald