December 3, 2012

Heating oil dealers shift into energy companies

Photo / Pablo Robles
Photo / Pablo Robles
Portland firm Daniels Energy seeks to augment its heating oil delivery revenues by expanding into other home energy services, such as maintainence of heating, airconditioning, and ventaliation systems. Here technician David Rancourt works on a heating duct.
Photo / Pablo Robles
David Daniels, president of Portland firm Daniels Energy.

For the past 86 years, Daniels Energy in Portland has changed with the times.

The company was founded in 1926 delivering firewood and coal for home heating. The firm added heating oil delivery three years later, creating what is still its most lucrative business segment.

Not wanting to rest on its laurels as a heating oil dealer, the firm started doing home heating system conversions after World War II, selling air conditioners in the 1960s, delivering propane in 2007, and gradually becoming more of a full-service energy company.

Today, Daniels Energy employs 70 while selling electricity on the retail market, performing natural gas conversions, installing solar hot water systems and radiant flooring, and expanding into any related area where it might have some expertise.

"We've always kind of been progressive," said David Daniels, president of Daniels Energy.

And his company's approach may serve as a model for the industry.

Facing the loss of nearly half their customer base, Connecticut's more than 600 heating oil dealers are trying to follow in the footsteps of companies such as Daniels and Santa Energy in Bridgeport by becoming full-service energy companies.

"The tide of the energy industry is running against them," said Dan Esty, commissioner of the state Department of Energy & Environmental Protection. "They have to reposition themselves as home energy service companies."

DEEP and Gov. Dannel P. Malloy are proposed a $7 billion buildout of the natural gas supply system in Connecticut, which would give more than 300,000 current heating oil customers the option to switch to natural gas.

Malloy and Esty favor the natural gas option because it costs roughly half as much as heating oil with about one-third fewer greenhouse gas emissions. Currently, 46 percent of Connecticut homes heat with heating oil while 32 percent use natural gas.

"We are doing a disservice by not giving Connecticut businesses a gas option," Esty said. "The fuel oil guys have dragged their feet too long … they may be selling buggy whips well into the era of the automobile."

Nearly all of the authority to approve Connecticut's comprehensive natural gas buildout plan lies with regulators at the Public Utilities Regulatory Authority. State legislators at the General Assembly will have only a little say in the matter, particularly approving financing options for the gas companies, businesses, and homeowners to make the conversions.

The heating oil dealers trade group Independent Connecticut Petroleum Association is arguing with DEEP and other government officials over the merits of the natural gas plan, pointing out that natural gas prices only dropped in the past five years and oil has been historically cheaper. However, with Malloy and Esty's backing, it seems likely the natural gas buildout will occur.

"The stronger dealers will survive," Daniels said.

The loss of 300,000 heating oil customers to natural gas will be devastating for the industry, said ICPA President Gene Guilford.

"What do you think that losing half your customers would do to you?" Guilford said.

The heating oil dealer industry will survive past a massive natural gas conversion, but it won't have 600 companies employing 13,000 workers, Guilford said.

To diversify their revenue streams, the majority of Connecticut heating oil dealers set up service departments for home and business heating, cooling, and ventilation systems. A number of dealers also take advantage of ICPA's training school to get their workers certified in oil, natural gas and propane work.

"On the technician side, companies have increased the technical training to do work in different areas," Guilford said.

That extra work still won't be enough to make up for the loss of half the customer base, Guilford said. Even the more progressive companies such as Daniels are going to have to scale back.

"Our company will be fine … but we certainly won't have the employee level that we have," Daniels said.

Deliverable fuels such as heating oil and propane make up the majority of Daniels' revenues, so the loss of that business would impact the delivery crews, customer service, human resources, the sales team, and other support staff, Daniels said.

Daniels Energy is moving to get a bigger piece of the natural gas business by installing and servicing natural gas equipment as well as selling natural gas directly to industrial and commercial customers. By using its already established relationships with customers, Daniels has a leg up on the competition in getting this business.

"If you look at most homeowners, the HVAC fuel provider is one of the most trusted contractors that they work with," Daniels said.

In 1998, Connecticut opened the door for heating oil dealers to expand their business into the electricity and natural gas markets by deregulating the supply portion from the utility control. Any business, including heating oil dealers, can sell electricity and natural gas on the retail market.

For natural gas, Connecticut only deregulated for industrial and commercial customers, leaving the residential market to the utilities. ICPA has considered with DEEP the possibility of deregulating residential natural gas as well.

"It is an incredibly complex area of utility regulation," Guilford said. "It is definitely an area we are interested in exploring."

If nothing else, converting 300,000 to natural gas home heating systems will provide some immediate business during the buildout, even if it means losing those customers from heating oil delivery.

Even before Malloy's buildout plan, Daniels Energy had a drastic increase in its natural gas conversion revenue and the company expects that to increase.

"The customer is the one that has to make the conversion," Daniels said. "The free market should work as a free market. The less the government is involved, the better the market will work."

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