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If it Ain't Fixed-Float it

Fuel Billing Options for Co-ops and Condos

By Anthony Stoeckert Article Options mail to Friend !rint Article

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Purchasing a buildings heating oil is one of the most important decisions a board has to make. And in this era of ever-rising fuel costs, its also one of the most frustrating. When deciding how to pay for their buildings heating oil, boards need to determine which method works best for them.

A Tale of Two Options

There are two basic options a building can choose from when deciding how to be billed for oil fi!ed rates and floating rates. A fi!ed rate means the building will buy its oil at specified price that will not change over the course of the year. "uildings that choose this method may have to commit to buying a certain amount of oil over the course of the year, and will pay for oil whenever a delivery is made. #loating rates mean that the price paid for oil will be based on the market rate at the time the oil is purchased and delivered. That means the price paid can go up or down with every delivery. $ome companies also offer what is called a price cap, which designates a ma!imum price per gallon that homes or buildings will pay, regardless of how much heating oil might rise.

%They can get a delivery on August &, and if they get another delivery on August '(, they can be paying a different price,) says *odger +oughlin, an owner of #errantino #uel in Park $lope, "rooklyn. %,t can go up, and sometimes it can go down.)

A Little Bit of Both

-avid $okol is the vice president of Plymouth *ock #uel in "rooklyn, a company that offers both fi!ed and floating prices. According to him, there is more than .ust one way to negotiate a fi!ed-price fuel bill. %With a fi!ed deal,) says $okol, %you can fi! on a month-to-month basis. /enerally, people like to fi! between 0ctober and April because thats when the highest usage for heating is. There are also people who like to fi! for '& months, which is fine. $ome like one price for all '& months, some like a fi!ed price, but a different price every month.) $okol goes on to say that clients can work out a price for 1anuary when theyre probably using more, then work out different prices for other months. %, could fi! you a price right now for -ecember and one for #ebruary,) $okol says. %,t doesnt have to be consecutive, you can choose to buy a little bit of fuel of -ecember and #ebruary, and the rest you can go floating on the market. A lot of our customers like to do a mi!ture.)

Pros and Cons

There are inherent advantages and disadvantages to each option. With fi!ed pricing, the advantage is that youll know how much youll be paying for your oil over the upcoming year. The disadvantage is that if prices go down, youll be stuck paying a higher-than-market rate until the contract ends.

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%A fi!ed price does not guarantee youre going to pay the cheapest price available for the year says 2arla *omita of 2astle 0il 2orporation in 3arrison. %A fi!ed price guarantees youre going to pay that price for that fuel for the year. ,f the market goes down and youve signed a fi!ed-price contract, youve obligated yourself to pay a certain price for the fuel you purchase during that year.) %,t has the benefit of certainty for someone who needs to be on budget and has to make a pro.ection and know what theyre going to spend,) *omita continues. %4ou have the comfort youre going to spend this much, not more not less, but youll have certainty.) With floating rates, youll pay the current market rate, so youll always be paying a price that is competitive at that moment. The downside comes if prices increase significantly, which can result in paying a higher price than you would have with a fi!ed rate. %With a floating price, you get a market price, then youll get a competitive price all year at the time you purchase the fuel,) *omita says. %,t could be more than the fi!ed price would have been, depending on when you signed your contract and locked in your price5or it could be less depending on whatevers going on anywhere in the world.) $okol says that a buildings fuel buying strategies can sometimes feel a little like gambling because the market is so volatile. %A drop of a hat can make it go up or down,) he says. %$ome people dont like to fi! all their fuel 5 and we recommend that they dont. 6,ts smarter7 to do it on an incremental basis. +ets say youll use 89,999 gallons in -ecember, so well say fi! :&8,999 or :;9,999 of the total, and then float with the market on the other part. 4ou can average yourself out if you have an up- or downturn of the market, so this way youre pretty much protected.) What makes the process tricky is that the cost of oil fluctuates unlike any other resource. "efore last summer, gas prices were well below two dollars a gallon, now theyre above three

dollars a gallon in many areas. According to *omita, while prices are influenced by supply and demand and transportation costs, factors that have nothing to do with supply and demand can also have an influence. $ometimes a piece of news that is interesting to people in the business can affect the cost of oil, sometimes for a very short amount of time. %The day Abu <usab al-=ar>awi was killed, the market went down precipitously the ne!t morning around the world,) she says. %"y the end of that same trading day, prices were up where they had been the day before. $o it wasnt really news that affected oil supply, but it was news5and there were enough people in the market buying and selling based on that news that if influenced the market that day.)

What Works Best for You

2astle also offers residential customers a budget plan program enabling consumers to make direct payments for fuel oil throughout the year. This allows homeowners to spread out heating costs over twelve months to avoid having to make higher payments in the colder months when more oil is being used. According to *omita, buildings need to determine which system best suits their needs, and also fits what they are comfortable with. %,f your goal is to know with certainty what your energy budget is going to be and that youre going to meet it, then a fi!ed price is probably a good way to go,) she says. %,f your goal is to make sure youre always paying a competitive price, then they go with a floating rate. 4ou have to leave it up to the customer. ,ts really their tolerance for risk either way. %"oth ways have inherent risks, if you fi! a price youre taking the chance that market will go down and you wont benefit from that. ,f you float, youre taking the risk that the market will go up and youre going to pay the price. % 0ne thing *omita says you shouldnt do is try to beat the system by switching back and forth between fi!ed and floating in an attempt to get the best deal. %$ome customers switch back and forth each year hoping to win,) she says. %4ou cant play it to win like that,) she says. %Winning cant be the goal because if anybody could pick it every time, you wouldnt have to work for a living, youd be on your computer making trades all day. ?obody knows for certain. @veryone makes predictions and the reason theres a market is because for everyone who makes a prediction going one way, theres someone making the opposite prediction.) +oughlin says that no one knows when oil prices are going to rise, adding that if he knew, hed %buy '9 million gallons.) %, buy from five different wholesalers, nobody knows 6when prices will go up7, he says.. %We didnt e!pect the war to break out between ,srael and 63eAbollah7, and all of a sudden that happened,) which in turn resulted in oil costs going up.

Working With Todays Pri es

4ou might think that ever-increasing oil prices may be leading to a trend one way or the other, but *omita says different people have different perspectives on fi!ed vs. floating. %$ome customers need to be confident that theyre paying a competitive price, so many of them will float,) she says. %0thers are convinced the market is only going to go up, so they fi! as early as they can. People will fi! when they reach a number theyre comfortable with and it depends on what theyre worried about and its on both sides of the e>uation, its not more one way or the other.) #loating prices can even be negotiated in a contract from delivery to delivery. 3ow many deliveries a building gets depends on the siAe of the building, says $okol. $ome get fuel every week, or twice a week, or even every two weeks. %/enerally,) says $okol, %we like to keep it at a contract or a half a contract.) A contract means that in one month, the building has to guarantee purchase of B&,999 gallons, which is a standard contract amount. <any fuel companies offer a half-contract for &',999 gallons and no premium. $okol adds that if a building goes over that number on the fi!ed rate over a contract, they go to a floating price. As to how the citys residential buildings may be trending in regards to their fuel-billing patterns, $okol says that it varies, depending on the market, the weather, and other factors that change from season to season. %People are very skeptical about fi!ing right now at the end of the market,) says $okol. %The market is the highest weve seen it. Csually in the summer you see it trickle down a little bit, but the last couple of years, that hasnt been the case.) $okol says that hurricanes, the /ulf War, and terrorist concerns boosts the market. %Whether its artificial or not,) he says, %the market is very inflated.) +oughlin says most buildings choose floating rates, estimating that about D9 percent of the buildings he deals with choose that method. %Theyd rather take the chance,) +oughlin says. %There was a time two years back where people locked in, and lets say they locked in at :&.D9 a gallon, all of a sudden in the middle of the winter, the rate drops &9 cents, and theyre locked in.) @ven in this day and age with such high oil prices, +oughlin says most buildings prefer a floating rate. %The fi!ed rate is really high for this time of year,) he says. %Csually in 1une, 1uly and August, the fi!ed rate is 6usually lower7 because the oil prices usually drop. ,n the last two years, in 1uly and August the oil price has been higher than it was the previous winter.) As with any other decision, a board should be as knowledgeable as possible about the various methods before making a choice. *omita says an oil supply company should be available to work with a board so that it can make an informed decision. %We work with managing agents and boards,) she says. %,n the end its usually a boards decision, but the board may take direction from a managing company. Cltimately, although the managing agent makes a recommendation, the board makes the decision as to how theyre

going to go. Weve made a number of presentations to boards e!plaining how it works, so that they have the tools they need to make a decision.) Anthony $toeckert is a freelance writer and a fre>uent contributor to The 2ooperator.

!o"ern#ent de ides to $ring forward %floating pri e #e hanis#

$hahrir #uel prices reduction not political gimmick ECA+A +C<PC* The prices of diesel and petrol have been reduced by between eight and && sen a litre from today, '9 days earlier than e!pected. Prime <inister -atuk $eri Abdullah Ahmad "adawi said *0?(D petrol now costs *<&.88 a litre, a drop of '8 sen from *<&.D9 a litre while the price of *0?(& went down by && sen to *<&.B9 a litre.

A petrol station in Petaling 1aya is almost empty as customers delayed fuelling up their vehicles during the few hours before petrol and diesel prices went down at midnight yesterday. $imilar scenes were repeated throughout the country. 5 $3AA*, 23@<AT F The $tar -iesel will cost eight sen less at *<&.89 a litre. Abdullah said in a statement yesterday the 2abinet decided to bring forward the %floating) price mechanism for fuel after considering the drop in global oil prices over the past few weeks as well as higher inflation in 1uly. 3e hoped the reduced fuel prices would lighten the peoples burden and ease the inflationary pressure on the lower and middle-income groups.

The new prices were set after considering fuel prices between Aug ' and Aug &', and in view of the /overnments decision to set the subsidy at ;9 sen a litre for *0?(D and *0?(&, and 89 sen a litre for diesel. 0n 1une B, the /overnment announced a DG-sen increase in petrol to *<&.D9 a litre and a *<' increase in diesel to *<&.8G a litre, stating that it could no longer continue to subsidise fuel. 0n Aug ', Abdullah said the petrol price would be reviewed monthly from $ept ' based on the average global market price and the subsidy will be fi!ed at ;9 sen a litre.

Haluable fibre $ymphony Advance $dn "hd technical director "urhanuddin Ahmad IleftJ showing Abdullah some kenaf fibre at the centre in "achok yesterday. 3e gave an assurance that the petrol price would not e!ceed *<&.D9 a litre for this year, even if the global market price went up. ,n "achok later, Abdullah said the decision to lower the retail petrol and diesel prices was made as the /overnment wanted the people to benefit from the current global market depreciation of crude oil prices. Apart from that, the /overnment also wanted to rein in inflation as the 2onsumer Price ,nde! I2P,J shot up to G.8K last month compared to a year ago. %There is a possibility that the prices may go up so it would be a waste if we do not lower our prices now. This is to take advantage of the current lower global prices,) he said after opening a kenaf plant centre. Abdullah said if there was a need to increase the fuel price again this year, the /overnment would cap it at *<&.D9. %We did it for the entire country and not .ust for the folks in Permatang Pauh,) he said.

Abdullah also e!pects the prices of goods to fall. ,n PCT*A1A4A, -omestic Trade and 2onsumer Affairs <inister -atuk $hahrir $amad said the /overnments decision to lower fuel prices earlier than e!pected was due to the rising inflation rate and not because it wanted to win the votes of the Permatang Pauh constituents. %Permatang Pauh is not going to change the /overnment but reviewing the prices is something that we had planned earlier,) he told a press conference. %,t is a strong indicator of the burden that the rakyat is forced to bear. There is nothing wrong for us to pass the benefit of lower fuel prices to the consumers and it is the duty of a responsible government to do so,) $hahrir added.

Allegiant to sell floating rate tix based on fuel prices?

Related %eam $lark Ho&ard's %ra"el %ips

"y 2lark 3oward When is the price of an airline ticket not the priceL 0ne discount airline wants to charge you more after you buy -- or reduce the price of your ticket -- based on one factor thatMs completely out of your control. Allegiant Air has petitioned the feds to assess a fuel surcharge on all tickets based on the going price of .et fuel at that time that you fly. The idea of this floating rate ticket is that you pay a base price for a seat, but a variable price for kerosene. +etMs say you book si! weeks out before your travels. ,f the price of kerosene goes down at the time you fly, youMll get a partial refund on what you paid. "ut if kerosene goes up, the price of your ticket goes up. , canMt imagine people being e!cited about speculating on the price of a barrel of oil. As for me, , think itMs kind of cool, but , know ,d burn up a lot of time looking at oil futures contracts trying to figure out which way prices are headed and whenMs the best time to buyN ,nterestingly, what Allegiant wants to do already happens with logistics companies like #ed@! and CP$. Theres a fuel surcharge when , ship a package. "ut the idea of doing this with airplane seatsL @ven if , think its cool, even if the feds allow it, , think it will bomb in the marketplace. Hacationers want to know they paid what they paid, no more and no less.