By John MacKenna
Empowered by a wealth of positive news and informed by a new consumer survey, several industry associations are going on the offensive to protect Oilheat market share.
The Connecticut Energy Marketers Association (CEMA) has requested proposals from eight different agencies to execute a multi-year marketing strategy aimed at capitalizing on the “tsunami of good news about Bioheat® Fuel,” according to CEMA President Christian A. Herb.
Meanwhile in New York, the Oil Heat Institute of Long Island (OHILI) is preparing to launch a rebate program called “Upgrade and Save Long Island” that would use funding from the National Oilheat Research Alliance (NORA) to help support oil-to-oil heating system upgrades for customers.
Back in the Game
CEMA is going on the offensive after several years of playing self-defense against an aggressive national gas expansion that was explicitly and forcefully promoted by Governor Dannel P. Malloy. In October 2012, the governor unveiled a new state energy policy with a primary objective of converting 300,000 oil-heated homes to natural gas heat. He argued that Connecticut residents would benefit by switching from heating oil to natural gas, which was considerably less expensive at the time.
Malloy was not content to let market forces play out. Instead, he proposed a variety of measures to subsidize pipeline construction. CEMA argued vociferously that the price differential between fuels was a poor justification for making fuel conversion a state policy and subsidizing expansion plans for the privately owned utilities. The state Legislature finally approved a watered-down plan that allowed the utilities to impose rate surcharges on new natural gas customers to defray pipeline construction costs.
CEMA has fought back aggressively, with members testifying in hearings and defending their turf against gas pipeline expansion projects wherever they were proposed.
Fast-forward to 2015, and the price of heating oil has fallen to where new natural gas customers have very little hope of seeing a return on investment on a fuel conversion, particularly if they are paying a hefty rate surcharge to cover their utility’s construction costs.
“The economic truth in Connecticut is pretty exciting now,” Herb told Oil & Energy. “We have seen heating oil prices falling so far that if you are converting and you live 150 feet off a gas main, it will be 35 to 39 years before you see one penny of savings. A lot of customers won’t be alive long enough to see any savings.
“We kept warning policymakers and homeowners that the economics would change, and three years later it has happened. This could have been prevented. Now there are ton of customers that will never see any savings and they are heating with a dirty fuel compared to Bioheat.”
“There were some dark days there. But now our future is much brighter than anyone would have guessed,” Herb continued. “Now there is reason to believe that a lot of these businesses have their best days ahead of them. I believe that stranded pipeline costs is going to be the natural gas issue of the future in New England.”
Last year, CEMA decided to see what was possible in terms of educating the public about the improving outlook for heating oil. In addition to the more favorable pricing, ASTM International has recently approved new grades of heating oil containing up to 20 percent biodiesel and NORA has issued a report documenting Bioheat fuel’s environmental advantages over natural gas.
“Last year we were having a lot of a disagreements about what customers think and where to put our dollars to maintain or grow market share, so instead of guessing we decided to find out what customers really think,” Herb explained. CEMA hired Warm Thoughts Communications to conduct a customer survey, and six other associations agreed to participate, using NORA funding: OHILI, the Fuel Merchants Association of New Jersey, the Oil Heat Institute of Rhode Island, the Massachusetts Energy Marketers Association and the Maine Energy Marketers Association.
Herb said the survey shed a lot of light on what consumers want. “We learned that economics do matter, but with restrictions on NORA funds we cannot use that money to talk about how the economics have changed. We have to find other things to talk about with NORA funds.
“The American Energy Coalition (AEC) comes into play here in a big way because they can help us communicate about the economics of fuel conversion. But when it comes to how to use NORA money, it is clear that Bioheat is categorically the game changer.
“I had come to question the role of Bioheat myself,” the CEMA executive said. “The environmental benefits were undeniable, but I did not appreciate and many of my counterparts and marketers did not appreciate that it is the only thing that makes a consumer pause before they convert. If the marketers are not telling the Bioheat story they are not using the NORA dollars to their fullest to leverage and make real use of the story. No other story is this powerful. That is what the survey did. It finally confirmed the very thing that NBB [the National Biodiesel Board] wanted us to know: This is the best message we have for consumers.
“Consumers like that [biodiesel] is made in the U.S. Another finding that surprised me is they liked that they do not have to make modifications to their heating system to use it. They also like the cleanliness. All these strong attributes make it so the fuel fits squarely in the wheelhouse for the consumer. We found out that the people who are very likely to convert are willing to listen to the Bioheat story and willing to consider not converting. It is incumbent on the associations, the companies, their representatives, their salespeople and their technicians to communicate this. Every one of them needs to know how this works and what to say to customers to prevent them from making a big mistake.”
CEMA’s leaders recently met with their counterparts in NORA, AEC, NBB and several state associations to discuss strategy going forward. “All the associations are coming together for the first time with information we can leverage,” he said. “It’s not an arm wrestling contest about who can do this or that. These three major groups can now work together to maximize exposure of our message to the public.”
CEMA is wasting no time leveraging the industry’s positive news to influence Connecticut consumers. “Now that the survey results are final, we have sent out requests for proposals to a number of marketing firms, and they are doing presentations. We’re going to find out what the professionals think about marketing and messaging to the public about the benefits of Oilheat and Bioheat and select a marketer for a multi-year campaign to change the image and perception of using Oilheat to heat the home.
“We want to maintain and grow the market and change perceptions, and now we have the key, quantifiable data that tells us exactly what is in the minds of customers, and that will allow us to put together a messaging campaign so we speak directly to what their wants and needs are.”
Herb is optimistic that CEMA can fight back against Malloy’s pro-natural gas policies. “Between the NORA report on the cleanliness of Bioheat and the sheer numbers on pricing, it allows us to get back in front of the policymakers and regulators and have discussions about energy policy that actually works.” He has asked some state policymakers whether they would have supported Malloy’s pro-natural gas agenda if they knew in 2012 what they know now about oil prices. “They get a smirk on their face because they know they wouldn’t have,” he said.
“So how can we now craft a policy that works for everyone? Without government interference, I believe most customers would continue to do business with their local, family-owned Bioheat dealer. I think we will probably run into our share of stubborn legislators, but at the end of the day the facts will be undeniable, and they will have no choice but to shift gears on energy policy in Connecticut. We won’t let it play out any other way. We will do our work and use the NORA funds to inform the public, and the tsunami of good news about Bioheat will be overwhelming. How can you resist lower prices and cleaner fuel delivered locally and produced domestically? Even the most stubborn policymaker would not be able to resist. I think there are gentle ways of getting them to shift gears without entirely losing face. We will help them see the light as gently as possible.”
Rebates on Long Island
At OHILI, Rooney shared some key takeaways from the Long Island portion of the consumer survey with his members:
- 18 percent of Oilheat customers already have gas in their homes for cooking, water heating, etc.
- 17 percent had given “serious consideration” to converting to another fuel, and 37 percent had thought about it.
- 7 percent are “extremely likely” and 29 percent are “somewhat likely” to convert their homes to natural gas.
- For more than half, however, cost… (the equivalent cost of both fuels and the capital cost of a conversion)…is an inhibiting factor delaying an oil-to-gas conversion.
- We are particularly weak in two major age categories…Millennials/Gen Y (18-34) and Generation X (35-54)…among whom the “extremely likely to convert” percentage is 15 percent and 10 percent respectively.
- For these two groups, the conversion likelihood is within one to five years… depending on both the comparative prices for oil and gas, and what they hear and understand about technological advances in oil heat equipment efficiencies, cleaner burning fuels and the expanded use of Bioheat.
- Most consumers have totally unrealistic and inaccurate assumptions regarding both the actual cost of a conversion and the anticipated “payback” period. When informed of the real costs and potential savings, conversion interest declines significantly.
- By a four-to-one margin, local oil companies are considered to be more reliable and trustworthy than our local utility.
“Bioheat, both perceptions of and actual use, is a game changer, because consumers feel better about using a cleaner (ULSD) and more environmentally compatible fuel,” Rooney told his members “In fact, 54 percent say that use of Bioheat makes them “less likely” to convert, and this is particularly so among Millennials and GenXers.
“Needless to say, we will be using all of the data from this survey to develop marketing materials that will resonate, in a positive way, with our customers. We will also be working with our partners, AEC and NORA to develop advertising that builds on and reinforces the sentiments expressed by our customers towards our industry and products,” he added.
OHILI is awaiting NORA approval for the “Upgrade and Save Long Island” program, which would provide direct rebates of up to $300 for a heating system upgrade and $200 for an oil tank replacement. OHILI is working with PriMedia Inc. to roll out the rebate program.
“We are increasing awareness of the benefits of efficiency,” Rooney said. “The thing I have said to consumers repeatedly over the years is we can’t do anything about the price of oil. It is what it is, and it’s beyond our control. If you can’t impact the price per gallon, you can impact how much oil you are using if you want to lower your annual expenses. You can do that by upgrading your system and investing in efficiency.”
Emphasis on Bioheat
At the Massachusetts Energy Marketers Association, President Michael Ferrante said his membership is moved by the survey results, which suggest that 6 percent of Oilheat customers are extremely likely to convert fuels and another 26 percent are somewhat likely to convert. “It is interesting to find the kind of things that resonate with consumers that were not on par with the messaging we have been using, especially on the anti-gas side. The explosiveness of natural gas and the methane emissions are not top of mind for them,” he said.
He was pleased to learn that customers found the use of Bioheat fuel to be a good reason for staying the heating oil. “They like the fact that our industry is moving to a cleaner blend,” he said.
Ferrante was pleased to learn that Massachusetts customers showed relatively high awareness of Bioheat, which he attributes to advertising campaigns that the association has run with support form the NBB and AEC. “We have run some powerful campaigns here supported by our NORA money, and more needs to be done,” he said
Customers are also interested in saving money by improving home energy efficiency, he noted. The association has distributed a newsletter focused on energy efficiency and is planning to offer dealers Bioheat billing inserts at no cost to distribute to customers.