Condo Media - June 2014 - 22

ASKED & NAME
COLUMN ANSWERED

Managing Energy Costs
Strategies for Oil Purchasing

Q

QUESTION: An association I manage, like many others, is facing the
challenge of increased energy costs
and energy bills that often exceed the
amount budgeted. In looking for creative ways to better manage these costs,
the board has asked me to investigate
purchasing oil for the association in
bulk. Can you explain the pros and
cons and tell me where to start my
research?

A

ANSWER: What you probably have in
mind is not purchasing oil in bulk (where
would you store it?) but rather participating in an aggregate purchase involving
several different communities. Larger
management companies will sometimes
negotiate an aggregate purchase for
several communities in their portfolio.
Using the same approach, you might see
if other communities you manage, or
self-managed communities, are interested in exploring a deal of this kind. But
identifying other interested communities
and coordinating their purchases won't
be easy and may not be worth the effort,
according to some industry experts who
say these arrangements sound better in
theory than they are in practice.
The theory is if you buy a product in
bulk, you'll pay less for it, but skeptics
point out that commodities don't work
that way. The price of a commodity -
and oil is a commodity - will change
day to day in response to a variety of
economic and political forces. But the
amount of oil you buy won't affect its
price. If the price is $3.00/gallon on
Tuesday, you'll pay $3.00 whether you
buy 100 gallons or 10,000 gallons.
However, the delivery charge might
be more or less in some areas than
others, and that represents the largest

22

CONDO MEDIA * JUNE 2014

potential glitch in aggregation deals. An
oil company that charges $2.00/gallon
for delivery in Boston and $2.02 for
delivery in Worcester may average the
cost at $2.01 for an aggregate contract,
which would be a good deal for the
folks in Worcester but not for those in
Boston, who are effectively subsidizing
the lower price paid by other communities. In your case, dealing with a single
community, you might see if other communities are interested in an aggregate
purchase and then do some shopping to
see if that would produce a price break
worth pursuing. You'll certainly want to
be sure that your community isn't paying more under an aggregate contract
than it would under an individual oil
purchase agreement.
Another - and probably preferable -
strategy for managing oil prices is by negotiating an advance purchase contract.
You can't go as far out with heating oil as
you can with electricity and natural gas,
but you may be able to sign a contract
in June for the oil that will be delivered

between October and April. It is possible,
although not guaranteed, that oil prices
will be lower at the beginning of the
summer than in the fall, when demand
may push prices higher. The obvious
advantages of an advance purchase are:
* You lock in the price, avoiding unwelcome budget surprises.
* You may save money and possibly a
considerable amount of money, if oil
prices rise above the price set for your
contract period.
Of course, the reverse is also true. If
you sign a contract for heating oil at
$2.00/gallon in May and the price falls
to $1.95 before your ﬁrst delivery in
October, you're not going to be very
happy, and the owners in your community aren't going to be very happy
with you. That's a risk you take with
the purchase of any commodity, and
it's a risk you need to make sure board
members and owners understand. CM
Condo Media - June 2014

Table of Contents for the Digital Edition of Condo Media - June 2014
