Just how smoothly does LIHEAP – the low-income heating assistance program – function at the state level? According to trade associations that represent fuel oil dealers, that depends on the state.
In Connecticut, LIHEAP amounts to a heap of trouble, according to Gene Guilford, president and CEO of the Independent Connecticut Petroleum Association. In Massachusetts, the program works very well, said Michael Ferrante, president of the Massachusetts Oilheat Council. In Pennsylvania, dealers said the program reimburses them reasonably promptly, though they echoed some of the same concerns as Guilford in Connecticut. In Vermont, the program worked well for many years, hit a bit of a rough spot about a year ago, and now has been re-structured on more acceptable terms, said Matt Cota, executive director of the Vermont Fuel Dealers Association.
The federally funded program distributes money to these and other states; each state then uses the money to help pay for heating oil (and other forms of heating energy) for low-income consumers. A discount-off-retail approach is typical. Dealers, who participate voluntarily in LIHEAP, agree to deliver to designated customers and charge them a discounted rate; they then submit documentation to the state, or to an intermediary such as a community action program (CAP), which pays the dealers from the LIHEAP funds.
Here is more on the functioning of the program in some states.
“The Connecticut program is probably one of the worst programs in the country,” said Gene Guilford, president and CEO of the Independent Connecticut Petroleum Association (ICPA). The ICPA represents more than 500 heating oil dealers. Guilford said the state’s Department of Social Services, which receives the funds from the federal government, “discriminates against heating oil retailers.”
Dealers who choose to participate in the program must accept a margin restriction on what they can sell their heating oil for, Guilford said. “On the other hand it does not require any other participant in the program to live under a similar restriction,” he said. “If you are a wood dealer, a propane dealer, a kerosene dealer, if you’re a natural gas corporation or an electricity company – you get paid your full rate.”
Since 1991, oil dealers have been subject to the margin restriction, Guilford said. He called it “a stupid, regressive, mean-spirited discriminatory way to treat heating oil retailers.”
The Connecticut Department of Social Services has never explained why oil dealers choosing to participate in LIHEAP are subject to a margin restriction, Guilford said.
When asked to comment by Fuel Oil News, Carlene Taylor, program administration manager of community, energy & refugee services for the Connecticut Department of Social Services, referred questions to a spokesman, David Dearborn.
“Connecticut actually has one of the most effective winter home-heating assistance programs in the region and nation, in part, because of solid participation by our heating oil vendors,” said Dearborn, communications director for the department. “Last winter, 328 oil vendors helped Connecticut serve a record number of low-income households in the program. So far this year, we have 307 oil vendors signed up for the program. This is a robust participation rate for this early stage of the season.”
Dearborn explained that Connecticut’s payment mechanism for deliveries of heating oil to eligible households is the same as in such nearby states as New York and Massachusetts.
“Participating heating oil vendors are guaranteed payment for their deliveries, and the program uses the Oil Price Information Service (OPIS) as the basis for determining the daily price to be paid by taxpayers for the service,” he said. “We recently changed to the OPIS from the Journal of Commerce (JOC) because many of our participating fuel vendors expressed concern that the JOC was not as responsive to changes in the market. Vendors receive the average OPIS price at New Haven Harbor, plus 31 cents, plus a county delivery differential ranging from 1.7 to 7 cents, per gallon, or a vendor’s retail price, whichever is lower. The county delivery differential was another way we responded to concerns by oil vendors (specifically, because of the cost of transporting the product). Again, the payments by the program are guaranteed.”
Guilford said that the LIHEAP margin in Connecticut averages 32 cents or 33 cents per gallon over the wholesale rack price for the day that delivery is requested. That amounts to less than half of the normal margin, he said.
“It’s very tough,” Guilford said of the margin restriction. “Especially when prices go up and dealers have to borrow money or expand their credit lines in order to buy heating oil – it’s very difficult.”
Apart from his criticisms about the margin restriction, Guilford said that the mechanics of the LIHEAP program work well in Connecticut. Oil dealers work very closely with 14 community action programs (CAPs) in the state, he said. The community action programs receive and process applications from people seeking assistance. The CAPs receive LIHEAP money from the state and reimburse the dealers for the deliveries they have made.
“I will give the state a limited amount of credit for doing a better job of getting the money to the community action agencies,” Guilford said. Generally, the community action agencies pay dealers within 30 days, he said.
Dearborn said the payment process has undergone some “tweaks” over the years, but it has worked to balance the available resources with the services provided by the vendors.
“Heating oil households account for 33.25 percent of the energy caseload in Connecticut,” he said. “In terms of utility-heated households, the program pays utilities full cost but, unlike oil vendors, utilities may become responsible for unpaid bills of program recipients because there is a utility shutoff moratorium during the winter months. Regarding kerosene dealers, there is a relatively small number and our experience has been that margin pricing is not tenable. Not only are there few dealers, there are few users. Finally, propane dealers are not subject to margin pricing in large part because of storage tank ownership issues.”
Dearborn said Connecticut has been as responsive as possible to participating heating oil vendors.
“We feel that the fact that over 300 are already enrolled for this winter indicates that the program is beneficial to both clients and participating vendors,” he said.
Connecticut is to receive an initial amount of $24.2 million in LIHEAP funding for October through December, according to an announcement by the U.S. Department of Health and Human Services.
“We have about 40,000 customers that receive LIHEAP, or fuel assistance, benefits annually, and our members see it as a valuable service,” Michael Ferrante, president of the Massachusetts Oilheat Council, said. “We’re very satisfied” with the way the program works, he said.
Ferrante noted that under the federal statute that created LIHEAP, states can qualify for still more federal money for the program by leveraging.
“Lots of states leverage, but they use different means to do so,” Ferrante said. Massachusetts does it by setting a “margin over rack” price for heating oil and propane – so-called delivered fuels. “Essentially it means dealers accept a discounted margin of 40 cents” for each LIHEAP gallon delivered this season, he said.
“It’s typically less than what they would charge their customers,” Ferrante said, and has been “somewhat troubling over the years.” But dealers support the program because it helps people, he said.
There are more than twenty community action programs in Massachusetts that take applications from consumers, and work with the state to process and approve the applications. Dealers work with and through the CAPs to get paid, submitting delivery tickets and receiving payment from the community programs. “It works pretty well,” Ferrante said. Massachusetts is to receive an initial amount of $131.6 million in LIHEAP funding for October through December, according to an announcement by the U.S. Department of Health and Human Services.
Dealers had an opportunity this fall to question a state administrator about LIHEAP.
The administrator, Linda T. Blanchette, deputy secretary of the state’s Department of Public Welfare, Office of Income Maintenance, put in an appearance at the annual meeting of the Pennsylvania Petroleum Marketers & Convenience Store Association in Gettysburg. She presented a summary of how the LIHEAP program performed last year, described some changes that have been made for this season, and then fielded some questions and comments. One dealer told her that the LIHEAP heating oil discount cut into his retail margin by almost 30 percent, and that he had to charge non-LIHEAP customers to cover the losses.
Michael DeBerdine, III, president of the association, observed that the program did not have a utility discount and asked why not. Blanchette replied that utility rates are set by the Pennsylvania Public Utility Commission.
“Why can’t you just jam the discount down the utilities’ throats,” came a comment from the floor, drawing laughter from the audience.
The procedural and system changes to LIHEAP in Pennsylvania are designed to improve the management of the program this season, Blanchette said, and include scanning to reduce paperwork, plus a new vendor payment system dubbed “Promise,” which is intended to result in more efficient processing of invoices and subsequent payment to vendors.
(The dealer who voiced concern about the margin on LIHEAP deliveries told Blanchette that “80 percent of [his company’s] LIHEAP payments came within 10 days last year, so kudos to you.”)
Pennsylvania is to receive an initial amount of $211.7 million in LIHEAP funding for October through December, according to the U.S. Department of Health and Human Services.
The state was responsive to Vermont fuel dealers who said that a margin requirement was onerous, and it made an adjustment in time for the upcoming season, said Matt Cota, executive director of the Vermont Fuel Dealers Association (VFDA).
The program had run smoothly for 10 years or so – until the fall of 2008, Cota said.
At that time, with high prices caused by the rising price of crude oil, a new policy was implemented, requiring voluntary participants to discount off retail, Cota said. He noted that was similar to policies in other states.
The move was designed to reduce government’s costs for local heating assistance, he said. But it was defined as a percentage discount, Cota said, “and that caused problems for the dealers.”
Responding to dealers’ complaints, the state changed it over the summer to a cents-per-gallon discount. “However, they set the discount off retail at 15 cents,” Cota said. “Many dealers said, ‘Well, that’s just too much.”
The Fuel Assistance Office in Vermont then changed the discount to five cents, Cota said, “and many of the dealers then signed up for the program.”
The state pays the money up front, “much like they’re pre-buying the oil,” Cota pointed out. “So the five-cent discount is essentially like a cash discount. And at that price the program works well.”
The way dealers get paid for LIHEAP deliveries differs in Vermont, “and I argue it’s better,” Cota said. In Vermont, the federal money comes into the state in one lump sum, and in November it is distributed through electronic funds transfers into the bank accounts of the fuel dealers, Cota said. The state also provides a breakdown of the amounts to be credited to each LIHEAP customer’s account.
Vermont is to receive an initial amount of $19.2 million in LIHEAP funding for October through December, according to the Department of Health and Human Services.