Bill would require some surety for pre-buy heating oil contracts
CONCORD - Requiring heating fuel dealers to establish escrow accounts or other financial arrangements to protect the money of customers who enter pre-buy contracts ties the hands of businesses, said opponents to Senate Bill 114 Tuesday.
The bill, sponsored by Sen. Molly Kelly, D-Keene, would require fuel dealers to use either an escrow account, a letter of credit or a surety bond to protect consumers who enter pre-buy contracts for heating fuel.
Propane and fuel oil dealers opposed the bill, saying it does away with a provision in current law that allows buying futures contracts and may force companies to stop offering pre-buy contracts.
The bill had a public hearing Tuesday before the Senate Commerce Committee.
Joseph Gagne, president of Propane Gas Association of New England, said the bill does not offer consumers the protection supporters say it does, noting a company in trouble will drain an escrow account before it goes out of business.
He suggests that the state follow a Maine law requiring companies selling pre-buy contracts to register with an agency and present a report in October on how they will provide the fuel to their customers or be criminally liable.
Rose called escrow accounts unworkable because they tie up cash a company needs to pay for the fuel, while letters of credits and surety bonds are expensive and customers will bare that cost.
Denis Gagne, vice president of wholesale for Eastern Propane, said most dealers use futures contracts to cover pre-buy contracts.
"None of these options (in the bill) really protects consumers," Gagne said. "They just give them someone to go after."
Regulating pre-buy contracts has been before the Legislature for several years when dealers in Concord, Exeter, Laconia and Keene went out of business costing many pre-buy customers more than $1 million and leaving them without fuel oil.
Kelly said the state needs to do something to protect the individuals and businesses that enter into pre-buy contracts.
Senior Assistant Attorney General James Boffetti, who heads the consumer protection bureau, said his department has received a substantial number of complaints about pre-buy contracts over the years.
He pushed for the escrow requirement, saying futures contracts allow the businesses to mingle the pre-buy money with other funds and use it for operating expenses instead of fuel oil. "That is the crux of the problem," he told the Senate Commerce Committee.
Boffetti said some companies begin offering pre-buy contracts in January for the next year, which allows them access to the money during the summer and fall and when heating season begins they may not have it for fuel.
He said the pre-buy contracts have been a serious issue the past few years and his office is holding its breath another case does not come up.
"The present situation is too risky for consumers and what has happened bares that out," Boffetti said.
The House has an identical bill, House Bill 566, which has a public hearing Thursday afternoon.
In 2011, the Senate passed a bill nearly identical to SB 114 but the House killed it.