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Legislators take up pre-buy heating oil contracts

State legislators have put forth identical proposals in the House and Senate that would require heating fuel dealers to make financial arrangements to protect consumers who enter pre-buy contracts. But legislators are still hashing out the details about how oil companies would be held accountable by the state.

Both House Bill 566 and Senate Bill 114 would require fuel dealers to use either an escrow account, a surety bond or a letter of credit to protect consumers who enter pre-buy contracts for heating fuel. But sponsor of House Bill 566, Rep. Donna Schlachman (D-Exeter), said Monday that she plans to put forth an amendment in Concord that would nix the escrow account proposal altogether in favor of an alternative method of accountability.

“[Heating oil companies] would have to register with the N.H. Consumer Protection Bureau and pay a fee of $100 to declare that they are offering pre-buy contracts,” Schlachman said. “At the end of the season, they’d have to report back to the bureau to say how they’ve satisfied those contracts or be criminally liable.”

Schlachman said she has been in regular communication with Sen. Molly Kelly (D-Keene), who is sponsoring Senate Bill 114, and noted that the Senate may also be reconsidering the escrow account provision.

Although heating oil companies would have to register with the bureau prior to offering pre-buy contracts to consumers, Schlachman acknowledged that such registration would not prevent companies from commingling pre-buy money with others funds used for operating expenses.

“It’s not the complete answer, but it is a step in providing more consumer protection,” she said.

There are currently three ways, according to state statute, in which an oil company can secure customers’ prepaid deposits. If House Bill 566 is amended, the guidelines would not change, Schlachman said. Fuel dealers can use a letter of credit, surety bond, or a what is known as a “futures contract” that commits them to the delivery of heating oil to all prepaid customers.

But Senior Assistant Attorney General James Boffetti told the Ledger-Transcript on Thursday that he is pushing the escrow requirement because futures contracts allow businesses to spend consumers’ pre-buy money on expenses other than fuel oil.

“If an oil company is going to take that money ahead of time, they need to make sure it is used for the purpose intended,” Boffetti said. “It is unacceptable to use that money ahead of time and not have the fuel going to the consumer.”

Boffetti said that pre-buy contracts have been a serious issue the past few years and that a number of companies have not lived up to their promises. The consumer protection bureau’s list includes Jackson Energy LLC in Keene, which was forced to close in 2011 due to the untimely death of its sole owner, Bradley C. Jackson of Jaffrey. In June 2011, the company filed for bankruptcy under Chapter 7 Liquidation of Assets and nearly two years later it is still uncertain exactly how many of Jackson’s customers will be reimbursed for their losses.

“It is difficult in these situations for people to be reimbursed,” Boffetti said of the $107,000 in estimated losses for Jackson’s customers . “There were 123 pre-buy customers that we know about.”

Attorney Jeffrey Crocker of Tower and Crocker in Jaffrey, administrator of Jackson’s personal estate, could not be reached for comment by press time Monday about whether or not a claim submitted on behalf of Jackson Energy’s creditors in 2011 was accepted and if money has been returned to Jackson’s pre-buy customers.

Schlachman said requiring oil companies to hold 75 percent of their total prepaid funds in an escrow account makes sense on one level, but opponents argue that a company in trouble will just drain an escrow account before it goes out of business.

Heating oil companies have maintained that escrow accounts tie up cash they need to keep a company operating.

Rep. John Hunt (R-Rindge) said Monday that both the House and Senate bills as originally introduced would pose a huge burden to small oil dealers by making them place the pre-buy money in escrow accounts.

Hunt suggests that New Hampshire follow a Maine law requiring companies to register with an agency in order to sell pre-buy contracts, and then follow that up with a report on how they plan to provide fuel to customers. The Maine law closely mirrors the amendment Schlachman is expected to put forth Tuesday, he noted.

How to regulate pre-buy contracts has been an issue in the Legislature for years, Hunt said.

“You have to do business with someone reliable,” Hunt said. “Just think about how many businesses we give deposits to. Every time you hear someone is going out of business, you hear about what happened to the deposits or gift certificates. ...It’s an ongoing issue.”

State Rep. Dick Ames (D-Jaffrey) said Monday that he had not familiarized himself with House Bill 566, but noted that regulating pre-buy heating oil contracts is an important issue that the Legislature should be taking up this year.

“I think there is a legitimate concern about prepaid contracts and developing some system that ensures prepayments are going to the right purpose,” Ames said.

Alyssa Dandrea can be reached at 924-7172 ext. 228 or adandrea@ledgertranscript.com. She’s on Twitter at @alyssadandrea.

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