January 19, 2016
The Business Council opposes this legislation as it could cost New York industrial and commercial users of heating oil over $ 6 million annually.
This legislation further requires that after July 1, 2017, all heating oil sold for use in the state shall contain at least two percent biodiesel. This legislation will affect all entities using fuel oil including manufactures, commercial interests, schools, universities, colleges, municipalities and homeowners.
Given current market conditions, this is the wrong time to add to the cost of fuel oil use. In a recent proceeding of the Public Service Commission1 it was stated as of October 30, 2012, the spot market price of natural gas was $3.42 per dekatherm (Dt) and, on an energy equivalent basis, the price of heating oil is $22.28 (Dt). This legislation would impose additional costs on fuel oil users, including industrial, commercial and residential customers who currently cannot switch to less expense natural gas due to lack of access.
Industrial users without access to adequate natural gas delivery are already at a competitive disadvantage. Compounding the issue is the additional 8 cents2 a gallon more for heating oil that New York industrial and commercial user already have to pay for ultra-low sulfur diesel (ULSD) fuel, costing industrial and commercial users $24 million annually. Not surprisingly, the heating oil delivery industries claim of savings from ULSD has not materialized.
Projecting the cost of bioheat is not simple; the bioheat advocacy community has stated bioheat "costs are similar to traditional heating oil." But even a relatively small per gallon cost incresase will have significant overall effects. New Yorker's purchase over 1 billion gallons of residential fuel oil last year3 and small changes in price will have a significant effect on the consumer.
The Cape & Islands Self-Reliance, a non-profit 501(c)(3) corporation, whose mission is to promote environmentally sound technologies and sustainable practices through education, has stated that:
"At times biodiesel has actually been cheaper than heating oil, but the average, "rule of thumb," price difference has traditionally been that biodiesel fuels cost around one cent more for every percent of biodiesel that they contain (thus B20 is typically 20 cents more)."4
The Cape & Islands Self Reliance cost differential were consistent with a report prepared by the Massachusetts Executive Office of Energy and Environmental Affairs which stated:
"In general, bioheat fuel costs in current markets are higher than the cost of conventional heating oil, with the scale of the premium dependent on the blend. The National Biodiesel Board reports an increase of 3-5 cents per gallon for B3 and an increase of 20-30 cents per gallon for B20."5
While fuel suppliers may claim that they will not charge more for bioheat, many already do so. In an informal survey of a few upstate suppliers of bioheat, most charged between 30 and 40 cent more per gallon more of B5 ( 8 cents a percent).
In 2011, industrial and commercial users purchased 307,981,000 gallons of residential fuel oil.6 Residential fuel oil is used in commercial and industrial operations for heating, steam and energy demands. To determine the potential cost to these users, The Business Council conservatively multiplied the usage by 2 cents (1 cent per percent of biodiesel pursuant to Cape & Islands Self Reliance "rule of thumb"). Using this method we determined that the cost could be $6,159,620 annually. Using market pricing it could be (8 cents a percent) $ 24,638,480 annually.
While it is true that taxpayers may claim a tax credit for bioheat through the end of 2016, this credit can only be claimed for bioheat used for residential purposes. Bioheat used by commercial users or in residential common space is not eligible for the credit. Additionally, this legislation would remove the credit if bioheat is mandated.
Compounding the problem with this legislation is that many of current industrial and commercial users of residential oil do not have the ability to switch fuel types to natural gas, because of the distribution system. For decades, the prices of oil and gas moved virtually in tandem, but in recent years, vast increases in American gas supplies have made gas decisively cheaper.
Meanwhile, companies have been closing refineries that produce heating oil because of declining profit margins. Nationwide, the average household using oil spent $2,298 on heat in 2011, compared with $724 spent by gas users and $957 spent by electricity users, according to the Energy Department. In 2012, heating oil users were expected to spend 3.7 percent more than last year, while natural gas customers were expected to spend 7.3 percent less and electricity users spent 2.4 percent less, according to the department.
The Business Council strongly supports consumer choice. New York consumers currently have opportunities to purchase B2-B20. Providing consumers an opportunity to purchase bioheat is considerably more advantageous than mandating that consumer purchase a specifically formulated product. If the cost-related claims of the heating oil delivery industry are accurate, then bioheat should be able to compete with traditional heating oil. It is important to let the market place work and not added to the disadvantage of rural industrial operations in New York State.
For these reasons The Business Council recommends against adoption of this mandate.
1 CASE 12-G-0297 Proceeding on Motion of the Commission To Examine Policies Regarding the Expansion of Natural Gas Service