Connecticut oil dealers battle cold, snow, prices and policy

Cromwell – You would think Chris Herb would be a very happy guy.

As leader of Connecticut’s oil-delivery businesses this is the winter of his dreams — some of the lowest worldwide crude prices in years, and the coldest February in Connecticut ever.

“Low prices are welcome with open arms,” he said on an unsurprisingly snowy, cold day at his office here.

But Herb is more like a guy under siege.

“It is hard to find where we’re not under attack,” he said in a stark counterpoint to giant charts the length of his conference room wall. They showed dramatic plunges in the prices of crude and home heating oil since late summer. “There’s been very little relief. There’s been very little effort to try to help the 1,400 gasoline station owners in Connecticut, the 600 home heating oil dealers and the 100 or so propane dealers.”

Herb is president of the Connecticut Energy Marketers Association –  fuel oil, propane and gasoline distributors.

With state policies designed to get homes and businesses to convert from oil to gas heat, to get people to drive less by using public transportation, and if they do drive – to do it in electric vehicles, Herb faces a daunting battle for relevance, if not business life.

Herb, now 42, took over as association president in 2013, after more than a dozen years with the organization. It was not the most auspicious of times. Crude oil prices were parked at more than $100 a barrel, in contrast to natural gas prices, which were sinking because of the large amounts of gas being extracted by fracking in the U.S.

At the same time, the state’s first Comprehensive Energy Strategy called for taking advantage of the situation by converting 300,000 oil heat customers to gas over 10 years.

Not coincidentally Herb’s organization was in the process of changing its name to the Energy Marketers Association from the one it had had since its inception in 1950 – the Independent Connecticut Petroleum Association. “It’s more representative of what members do today,” he said.

But the new name was also tacit recognition that the energy paradigm was shifting under them — though not without a fight.

CEMA and its then long-time president, Gene Guilford, came down hard against the state’s energy strategy when it was unveiled in 2013. That sentiment has only intensified given the closing price gap between the two fuels over the last six months. “To justify a $13,000 conversion from home heating oil to natural gas,” Herb said, “will take years with the price differential today.”

Today there remains an active lawsuit filed last October by CEMA against the Department of Energy and Environmental Protection, charging that environmental review requirements were not met as part of the strategy’s plan for 900 additional miles of gas mains. DEEP has said such a review is not necessary at this point.

DEEP has filed a motion to dismiss the suit, and both parties head back to court at the end of this month.

In something of a strange-bedfellows situation, CEMA also has argued alongside environmental groups that such a wholesale embrace of natural gas is not wise. Both groups have cited the methane emitted both in fracking natural gas and as leakage during pipeline transport. Methane is a greenhouse gas believed to be complicit in climate change.

The environmental community sees natural gas as detracting from the development of renewable energy sources, while the oil industry sees it more as money out of its pocket – especially in Connecticut, where about half the homes still use oil.

“I see them as an ally and a friend in the fight against fracked gas,” said Martha Klein, communications chair for the Sierra Club’s Connecticut chapter.

“Yes, it’s strange bedfellows,” she admitted. “We are making the same arguments — maybe not for the same reason.

“As the Sierra Club, we’re not saying oil is a great fossil fuel – we don’t say that. But for home heating it turns out natural gas is worse than oil.”

And that is a point Herb also makes — often.

Not Your Grandfather’s Oil

Oil has in fact gotten dramatically cleaner and is poised to get cleaner still. On July 1, 2014, a Connecticut law kicked in that lowered the sulfur content of home heating oil from 3,000 parts per million to 500. In July 2018 that will drop to 15 – a level Herb claims will make oil cleaner than natural gas.

Aside from the direct air quality benefit, the lower-sulfur fuel provides an indirect one – allowing the use of higher efficiency, and therefore less polluting, equipment.

In addition – the national standard for renewable content in home heating oil — usually new or recycled vegetable oil — is about to increase from 5 percent to 20. “I can tell you, in 15 years this is THE most exciting thing,” Herb said.

“I think that the government was misguided,” he said of the focus on natural gas conversions. (Former DEEP Commissioner Dan) Esty was not wiling to consider that our fuel could get cleaner.”

While CEMA may appear hell-bent on returning the oil business to its former “normal” and forcing the state to retreat from its strategy to transition from oil heat to gas, Herb is simultaneously leading the organization into a future that embraces the undeniable changes in energy coupled with environmental sensibilities.

Entech, the 40 year-old technical training school affiliated with CEMA, is now providing training for the home energy audits provided through the utility-run energy efficiency program. Herb complains that not enough of his members have been approved for the official list of energy audit contractors – the program is known as Home Energy Solutions (HES).

But a number have. And many, many more have expanded from simply delivering oil to servicing the heating equipment and even the chimneys that go with it, providing full air conditioning services, plumbing and general energy efficiency and conservation advice.

“We’d like to do everything from your chimney cap to your fuel cap,” said Peter Russell, president of Santa Energy in Bridgeport, a 75 -year-old oil company that now provides a web page full of services that include being an official HES contractor. “We try to lower customers’ overall cost to heat their homes as opposed to just getting the lowest price per gallon.”

But Russell said he didn’t think expanding to other services was now all-but required for oil companies to stay viable. “There will always be a place for the guy who delivers oil,” he said. “Oil is changing with the times. We need to do a much better job of telling people that.

“The fuel is improving; it’s cleaner than it’s ever been; it is a different product,” he said. “It shouldn’t be a product that gets chased away because the government has this great, grand idea of natural gas.”

Which is why Herb has been exploring heat pumps as the next business his members should consider.

Heat Pumps

Heat pumps are a high-efficiency, electricity-run technology that draws heat from the ground or outside air to both heat and cool buildings.

In Maine, a state even more entrenched in oil heat than Connecticut, 10,000 heat pumps have been installed in the last two years, many of them by heating oil dealers. In that state, it’s estimated heat pumps can save homeowners $900 a year.

Even though the pumps run on electricity, climate scientists point out that it’s much easier to clean up the source of grid power, such as with the large amount of wind power Maine produces, than to do it home-by-home.

Acadia Center, a New England environmental and clean energy advocacy group, has been pushing heat pumps for a long time. Acadia met with Herb recently for an initial discussion about branching into the business.

“Even before the (Comprehensive Energy Strategy) came out, we were encouraging folks to branch out by getting into efficiency,” said Jamie Howland, director of Acadia Center’s Climate and Energy Analysis Center.

Howland said he sees the oil dealers as energy providers. “A lot of these guys transitioned from delivering ice,” he said. “They’re great small businesses in the state that can adapt and adjust with new business models for changing times.”

It’s Not Just Heat

While they don’t get as much attention as the heating oil dealers, the gasoline distributors CEMA represents among its 585 members may have an even trickier time repositioning their business models for the future.

They are likely to benefit from drivers taking to their cars more now that gasoline prices have fallen. But there is perpetual concern that additional gas taxes will be used to help with state budget problems and drivers will back off, as they did when gasoline was around $4 per gallon.

Tougher to predict is how the state push for more electric vehicles, the potential of hydrogen fuel cell vehicles and an effort to get people off the state’s crowded roads altogether, will play out for gasoline businesses.

Herb noted that gas stations have shifted over the years from service stations to quick markets specializing in things like fast food tacos, not tires.

“Our gasoline dealers will always be the people who will sell you the fuel to power your vehicles. But they’re not married to gasoline,” Herb said. “We continue to try to stay in front of what that next fuel may be. Our motor fuel members aren’t afraid of what the next fuel is; they just want to be positioned to be able to sell it.”

Existing gas stations, of course, are well located to provide charging stations for electric vehicles and even hydrogen fueling, but with incentives that might make those services very cheap, if not free, Herb worries that the mostly small business owners his members supply will not be able to withstand either the gasoline or heating fuel shifts.

That concern resonates deeply with Herb. His parents are small business owners — Cindy’s Grocery in Naugatuck — where Herb says he sometimes still works. It’s why he came to work for the then-ICPA from his position as a legislative aide even though he had no background in the fuel oil business.

“When I asked about who ICPA was and who their members were, it sounded very familiar to me — about people who get up early in the morning, work really hard, work weekends, nights and serve the public,” he said.

“If everything they want is done over the next several years,” he said of the various government policies and efforts affecting the fuel oil business, “People will lose their companies; people will lose jobs.”

Sam Livieri, vice president of Apple Oil in West Haven, which he owns with his father and sister, said he’s lost 4,000 to 6,000 oil customers to natural gas in the last decade.

“It’s very difficult to grow in this industry when we’re fighting an industry that’s promoted by the state of Connecticut,” he said. “I don’t think they’re intentionally putting us out of business – but they’re on they way to do it.

“I think they had good intentions two, three years ago when natural gas was half the price of oil, but it’s no longer that way.”

But getting the policies of the Comprehensive Energy Strategy reversed remains a long, long shot.

Reconsidering the Energy Strategy

There is little legislative appetite to do that when the strategy’s three-year review cycle comes up in 2016. And Tracy Babbidge, DEEP’s bureau chief for energy and technology, sidestepped a direct answer, saying the point was to at least have a plan.

“There’s a lot of benefits to having a planning process where there hadn’t been one prior,” she said. “The plan has always been about customer choice.”

Sen. Paul Doyle, D- Wethersfield, co-chair of the Energy and Technology Committee, who has never served on the committee before and so was not part of the inner workings in approving the first energy strategy, said “everything” is worth re-examining.

“When prices were high, it made it much easier,” he said. “Now it’s a harder decision.”

In the end, Herb said this heating season so far has been a bit of a wash. February’s frigid weather and extensive snow were offset by a dry and warm December. And February’s deep snow meant that many companies had to add employees to help drive and pull hoses, so increased labor costs wiped out gains from higher oil usage.

Even with the drop in heating oil prices, DEEP not only hit, but also slightly surpassed, its target with 19,877 conversions to natural gas in 2014.

Herb evades a direct answer to whether he’s ever second-guessed his decision to take the reins at CEMA, given all the factors working against his industry.

“Part of the reason I exist is to be there for our members when things are at their worst, and I hope that I was the right person at the right time,” he said.

But his position is unwavering.

“I know, given a fair shot without the government having specific policies pushing people away from one product towards another, that we win,” he said. “We overcame the embargoes; we overcame hurricanes; we overcame war; we’ve overcome speculation. We’ve survived all of that. The one thing that’s going to be really hard to survive is a government who thinks that there’s someone else who can do it better.”