Maine Town Debates Locking In Heating Oil Deal

Written on: July 8, 2016 by ICM

By Wm. Duke Harrington, Kennebunk (ME) Post Staff Writer

KENNEBUNK — It may be the middle of summer, but selectmen are already planning for something that happens every year – winter.
At their most recent meeting on June 28, selectmen voted unanimously to forgo a formal bid process on supplying the town with No. 2 heating oil for the coming season. Instead, they authorized Town Manager Barry Tibbetts and Finance Director Joel Downs to monitor weekly and daily price changes and, in consultation with a member of the board’s finance subcommittee, lock in a rate for the season whenever they felt they’d received an autumn quote as low as oil prices are likely to go before an eventual uptick once the snow flies.
However, there was some debate on the wisdom of that strategy, given how the town got burned last year.
According to Downs, the town has contracted with Kennebunk-based Garrett Pillsbury for the past two winters, buying between 32,000 and 36,000 gallons of heating oil. For the winter of 2014-2015, Kennebunk paid $3.15 per gallon, while this past season it locked in at $2.65. But the market rate ended up limping under the $2/gallon mark for most of last season, even dropping as low as $1.71 per gallon by early February.
“Every year, if we hadn’t locked in, we would have gotten a better deal,” Selectman Dan Boothby said
“Not every year, just the past two years,” Selectman Deborah Beal replied. “The price is very volatile. I’ll agree, we paid an awful lot extra last year, but it was a strange year. Nobody predicted it would ever go as low as it did.”
“If any of us could forecast the price we would be retired at the beach enjoying life,” Selectman Richard Morin said.
As part of its annual budget, approved by voters June 14, Kennebunk set aside enough money to cover heating oil costs should it go as high as $2.75 per gallon.
“That’s lower than what we have budgeted in past years,” Downs said.
But one member of the audience at the June 27 meeting, budget board member John Costin, urged selectmen to revert to a formal bid process, rather than again try to second-guess the market bottom.
“Oil is a commodity and there is a whole industry that’s involved with trying to predict what it will do, and I would suggest that work of choosing the best price, and the best moment to do it, is pre-digested. It’s already done,” he said. “As long as you have a couple of bidders offering you a price, there’s no one in this room, or in this building, or probably in this town, who can outperform the market, and I would recommend that selectmen not take upon themselves the job of becoming commodity speculators.”
But Downs and Tibbetts said the problem with bidding out a heating oil contract too far in advance is that nobody particularly wants the job, in part because some 10,000 gallons of any contract would include emergency home deliveries of just 100 gallons, each, to residents in need of general assistance aid.
“Those deliveries tend to be at the most inopportune time, late on a Friday, or early on a Saturday, but that’s how these people live,” Downs said. “Typically, what we find is if we try to do that [solicit formal bids] they [oil companies] charge us anywhere from $50 to $100 extra for the smaller drops, especially on an emergency basis.”
“Then you end up paying a lot more per gallon. Incredibly more,” Tibbetts said.
“Those drops make this a relatively unattractive contract,” Morin agreed. “It costs money every time they roll a truck. The lure to cover those weekend and night drops is the municipal contract.”
Selectman Ed Karytko suggested locking in the town’s portion of the bid, and playing the market for the welfare deliveries, while West Kennebunk resident Tom Cahoon said maybe locking in just three-quarters of the total need in advance would work best.
But Downs said neither strategy was likely to save much money, nor was the idea that the town should bid out its oil needs in conjunction with area school, water, or sewer departments.
“What I’ve always found is, the larger the group, sometimes the greater the risk,” Downs said, noting the town does try to beef up its order, thus reducing the price it pays, by including the library and the Brick Store Museum in its annual purchase order.
In the end, selectmen agreed to let Downs use his crystal ball once more and hope for the best, even as he cautioned them he can only work so much magic.
“As John [Costin] said, I’m not a commodities broker,” Downs said. “But I do keep an eye on things and, at some point in time, I say, well, I guess that’s as good as it’s going to get. But my guess is good as any.”
Article courtesy of Kennebunk (ME) Post