Report: Southern New England Energy Conference

Education on a range of subjects was on offer in Newport, R.I.

By Stephen Bennett

Informational and educational seminars, including a session on building a biofuels business, and another on leveraging service contracts to boost revenues, filled the program of the Southern New England Energy Conference. Organized by the Connecticut Energy Marketers Association, the Massachusetts Energy Marketers Association, and the Oil Heat Institute of Rhode Island, the conference was held Sept. 12-13 at the Hyatt Regency on Goat Island in Newport, R.I. Following are summaries of selected presentations.

USE SERVICE CONTRACTS TO BOOST REVENUE

Dealers can expand offerings in their service contracts to reduce their liability and increase customer retention and revenue, Justine Falletta, operations and marketing manager for the Powderhorn Agency, an insurance agency in Brookfield, Conn., said in a session called, “How to Better Use Service Contracts to Increase Revenue.”

The idea is that the dealer is a trusted partner with the homeowner, Falletta said. “They’re already in the home, providing service for HVAC and for oil deliveries,” she said. Other services can be offered to customers, she said. Giving more options to better serve customers creates a “stickier” customer relationship, Falletta said.

For example, an oil tank protection plan can be offered that provides cleanup and tank replacement coverage. Powderhorn Agency’s main offering is such an oil tank protection program, which it offers to customers through heating oil dealers, Falletta said. “We have about 500 oil dealers that participate in the program,” she said. “They offer our protection program to their customers.” Powderhorn covers 13 states, with the majority of its business in the Northeast.

Another way to build business into service contracts is by offering home warranty programs. When customers sign up for home warranties offered by realtors and others, fuel dealers are missing an opportunity, Falletta said. The customer is getting service from whoever the home warrantor uses as a vendor, Falletta said. “You can offer your own home warranty program and that way you can guarantee that you provide [those] services to your customers,” she told attendees. “Your customers still get the added benefit of having the home warranty coverages.”

Warranties on HVAC—including water heating—and on electrical and plumbing work can be offered by oil dealers, Falletta said, especially by the many oil dealers with employees who are licensed plumbers and/or electricians.

“The overall concept is to create a stickier customer relationship by offering these services, and increase revenue per customer,” Falletta said. It helps another way too. “If the oil dealer down the street is price-oriented, your customer is going to be more likely to stick with you because of the warranty programs he or she signed up for,” Falletta said.

IMPROVE FUEL DELIVERY EFFICIENCY

Yes, you can radically improve fuel delivery efficiency, Danny Silverman, vice president of Angus Energy, told attendees. Angus Energy, with offices in Florida, Connecticut and New York City, offers consulting, hedging and finance services to fuel oil companies.

Silverman asked fuel oil dealers in the audience what was the biggest delivery they could typically make to accounts with 275-gallon tanks. Answers ranged from a low of 180 gallons to as high as 245 gallons. The consensus was that dealers can never deliver more than 245 gallons, “because you can’t take a chance of running out,” Silverman said in an interview after the conference.

Silverman described an analysis of 17 companies in nine states that made more than 500,000 deliveries to accounts with 275-gallon oil tanks over the past two winters. Company sizes ranged from 3,000 accounts to more than 25,000 accounts. All of the accounts were on automatic delivery. The area that the companies operate in ranges from Maryland to Maine, and Pennsylvania to New York, including Long Island. Silverman said that the findings from the analysis differed markedly from the estimates that attendees gave in the impromptu setting of the conference.

Dealers attending the SNEEC session said they thought their average delivery to 275-gallon oil tanks was 170-180 gallons. The analysis showed that for the 17 companies the average delivery to 275-gallon tanks was much lower than that: 148 gallons. Only one company in the study had an average of more than 166 gallons, Silverman said.

Of the analyzed deliveries, 41% were “problematic”—either over 210 gallons or under 130 gallons, Rich Goldberg, president of Warm Thoughts Communications, Clifton, N.J., said in an interview. Goldberg’s marketing and consulting company helped in the presentation of the findings. He said two-thirds of the problematic deliveries were too small to make money. Dealers, wary of letting customers run out, were erring on the side of being “radically inefficient,” Goldberg said.

In the analysis, a typical customer who received 900 gallons had 6.5 deliveries per year. Through the implementation of a tank monitoring system, a dealer can increase the average delivery to 205 gallons, reduce the number of deliveries per year to five, and still avoid run-outs, said Goldberg. He calculated the following benefits based on a $79 cost per tank monitor marketed by Angus’ Paygo division, including a monthly monitoring fee of $2:

Figuring a cost of $50 per delivery, the decrease of 1.5 deliveries saves $75 per year. That enables the dealer to break even on the tank monitor after one year. After that, the dealer can make $40-$50 more per year per customer.

The monitoring device screws into one of the bungholes in a residential tank, and uses sonar to read the level of fuel, communicating the readings to the dealer via WiFi in the customer’s house. The system works with a number of back office software programs used in the fuel oil industry, Goldberg said. The number of gallons used by a customer each day is recorded automatically in his or her account. The Paygo system gives customers an app with their dealer’s name on it, Goldberg added. It allows customers to use their smart phones to check oil levels, daily use, the approximate date of the next delivery, and to press a button to call in an order, Goldberg said. It fits the changing buying habits of smart-phone wielding customers, he said.

Tank monitoring eliminates the need to try to guess fuel levels based on heating degree days, Goldberg said. He noted that a NORA study showed up to 25% of homeowners with oil-fired heating now have ancillary heat sources, pellet stoves and heat pumps among them. That makes estimating heating oil consumption much more difficult, he said. “If a person with a pellet stove decides in November not to turn on the oil heat yet, or that he’s going to heat half of his house with the pellet stove, the dealer isn’t going to know that,” Goldberg said. Meanwhile, the heating degree-day system would indicate that account needs a certain number of gallons, Goldberg said, “but all of a sudden it doesn’t.” With a monitor, the oil dealer can let the level in a tank drop lower, without worrying, and can deliver a larger amount, later, “because you know exactly what’s in the tank at any given time,” Goldberg said.

PROPANE PITFALLS TO WATCH FOR

Among the biggest mistakes heating oil dealers make when diversifying into propane are failing to create a comprehensive, workable business plan and failing to budget accurately for capital expenditures, said Tom Jaenicke, a vice president of Warm Thoughts Communications, and Tom Kilgallen, a consultant affiliated with the energy marketing and consulting company.

Thorough planning and budgeting are more and more important because the propane business is more and more competitive. “Increasingly, every oil company has a propane division,” said Goldberg of Warm Thoughts, who helped prepare the presentation. “The number of propane suppliers is growing dramatically,” Goldberg said. “The number of propane customers much less so.”

Most oil dealers initially focus on signing up their existing customers who use propane for ancillary purposes, such as cooking. In investment terms, “that’s a lot of steel and not a lot of gallons,” Goldberg noted.

Some oil companies’ propane ventures are undercapitalized, so they sell the propane tanks to their customers, Goldberg said. But if a dealer’s goal is to build up the business for eventual sale—“one of the principal reasons fuel oil dealers get into propane”—selling tanks undermines that long-term plan, Goldberg said.

Owning and having control of customers’ propane tanks is considered critical in the propane business. Besides helping dealers retain customers, it sets the stage for dealers to offer additional services, such as appliance installation, maintenance and repair.

A name change is often part and parcel of diversifying. “What you’re really trying to do is make sure the public knows you’re as much a propane company as you are an oil company,” Goldberg said.

But is it a simple matter of adding “& Propane” to the company name?

“Sticking it in your name, while somewhat awkward, is smart and also helps with search,” Goldberg said, meaning online search results. “When you change your company name and you change your URL, if you’re not careful, Google starts thinking you’re a brand new company and you drop out or you don’t get ranked very high in search results,” Goldberg pointed out.

Some companies choose to add the word “Energy” because, looking to the future, they may expand into pellet stoves, heat pumps, natural gas service, or reselling electricity—and they don’t want to have to deal with yet another change to the company name later on, Goldberg said.

Among decisions to do with sales, Goldberg singled out this key one: “Are there going to be dedicated propane sales people? Or do you expect your customer service people who handle your oil sales to also learn propane?”

Inadequate planning about supply can be another common pitfall. Often a new player will rely initially on throughput at a facility of another company nearby, but if the newcomer starts to make a dent in the market, “their friendly supplier is suddenly not so friendly anymore,” Goldberg said. A company starting in propane needs to have arrangements in place for diversified supply, Goldberg said.

BUILDING BIOFUELS BUSINESS

In a session on building biofuels business and profits, Michael Ferrante, president of the Massachusetts Energy Marketers Association, and others on a panel discussed the potential to do business in renewable energy credits, or RECs, related to the generation of electricity from biodiesel.

Some states have, or are developing, programs that require power plants to use some renewable energy sources, like biodiesel, in the generation of electricity, the goal being to reduce greenhouse gas emissions, panelists said.

New Hampshire has a program, and Massachusetts and Vermont are among states working to establish such programs, the panelists said. Trading in RECs from state-to-state is envisioned as part of an overall plan to develop a market in RECs, the panelists said. More information is available at the website of the Clean Energy States Alliance, www.cesa.org, and at the website of the Massachusetts Department of Energy Resources, http://www.mass.gov/eea/.