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November 24. 2012 10:28PM

Bill aims to protect consumers who buy prepaid oil contracts

When customers of Flynn Oil in the Exeter area lost more than $500,000 on prepaid heating oil contracts after the company collapsed, state Rep. Marshall (Lee) Quandt, R-Exeter, introduced legislation that he said would protect consumers in the future.

The legislation, which required heating oil companies to keep money from prepaid contracts in escrow, was endorsed by the Consumer Protection Division of the state Attorney General's Office and the Oil Heat Council of New Hampshire during hearings in 2011. But it died in the Republican-controlled House of Representatives.

Quandt lost his seat in what he called the Democratic wave on Nov. 6, but his legislation will live on, thanks to Reps. Tim Copeland, R-Stratham, and Donna Schlachman, D-Exeter, who plan to reintroduce the bill with bipartisan support when the Legislature returns in January.

"I don't think it should have been defeated," Copeland said. "I think the consumer needs some type of protection, and that was evident in what happened in Exeter and several other places."

In the past three years, New Hampshire consumers have lost more than $1 million in pre-payment for home heating oil that was never delivered. Flynn Oil was the largest case, but others included Jackson Energy in Keene, in which customers lost more than $50,000, and JDC Oil in Newmarket, with losses estimated at $20,000.

Jim Boffetti, senior assistant attorney general in the state's consumer protection and antitrust bureau, said his office has fielded more than 1,500 complaints on prepaid heating oil contracts in the past five years, including more than 190 complaints against Kidder Fuels in Northfield and 43 complaints against Tenofsky Oil in Keene, in addition to high-profile cases like Flynn Oil and Jackson Energy.

Boffetti's office had to intervene in the case of a North Country oil dealer, Munce's Superior Petroleum, when attorneys discovered that the company had entered into prepaid contracts totaling approximately $140,000 but had only $84,000 on hand.

"These (contracts) have been problematic in New Hampshire; there's no question," Boffetti said.

His office worked with the Oil Heat Council to draft the legislation that would have required oil companies to keep prepaid funds in an escrow account, which would be depleted as the oil was purchased, but could not be used for any other purpose. The bill was introduced in the House by Quandt and in the Senate by Sen. Molly Kelly, D-Concord.

Stripped away protection

The Senate supported the Quandt bill as drafted, but it was killed in the House Commerce Committee, which substituted a different bill that would have taken the state in the opposite direction, Boffetti said.

"They stripped away any meaningful consumer protection in this area," he said. "We all felt that the House version was a big step backward and testified against it. It passed the House but was killed in the Senate."

The House Commerce Committee version would have required consumers to basically sign a waiver acknowledging that the prepaid contract is not a guarantee of delivery.

"It was a significant step backward in consumer protection," Boffetti said.

Cost of escrow accounts

Opponents of the Quandt bill argued that small oil dealers could not afford to maintain the escrow accounts, which would only give consumers a false sense of security. "The small companies came in and said, 'Please don't do this; you're going to kill us,'" said State Rep. Fred Rice, R-Hampton, a Commerce Committee member who voted for the House version. "The big dealers are all for this because they have the edge; they've got the cash."

Rice said opponents made a compelling case from a small business point of view.

They will have a chance to make those arguments again as the bill comes back next year, although this time its sponsors are more confident about its prospects in the Democratically controlled House.

"The bill Tim and I submitted is essentially the same one we tried to get through last year," Schlachman said. "I'm hopeful that with this Legislature, we will be more successful."

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Dave Solomon may be reached at dsolomon@unionleader.com.


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