City warns of cutbacks if oil pact isn't honored

Thursday, August 24, 2000

By Nick Kotsopoulos Telegram & Gazette Staff

WORCESTER-- City officials say a local company's refusal to abide by a three-year, fixed-price contract means Worcester will be forced to pay at least $300,000 more for heating oil this winter.

Mayor Raymond V. Mariano said yesterday that he has called a special City Council meeting for Monday in response to what he said was Peterson Oil Service Inc.'s failure to honor its contract with the city. Mr. Mariano said yesterday he also has asked the state attorney general's office to intervene on behalf of the city. He said the city strongly believes the company is obligated to honor the contract, and he has asked the attorney general to investigate the situation. The mayor said state legislators and officials from several area towns that took part in the contract with Peterson Oil will be invited to attend the 4 p.m. special City Council meeting. Those other communities entered the city's contract with Peterson Oil through a regional alliance called Municipalities Organized for Regional Effectiveness. Worcester is one of 22 communities that belong to MORE, though not all of them are part of the Peterson Oil contract.

I think it's outrageous, given what happened with them a year ago, Mr. Mariano said of Peterson Oil. And now, it looks like we have to go through this again. You think they would have learned their lesson. City Manager Thomas R. Hoover said Worcester will have to piggyback on the state's contract for heating oil this heating season because Peterson Oil has backed out of its contract with the city. But because the state's contract is a variable-priced one, he said, the city will have to pay the market price for its heating oil. He said that could cost the city at least $300,000 more than it had planned to spend under its contract with Peterson Oil. Mr. Hoover said that if the city has to pay more for its heating oil, it will pursue litigation against Peterson Oil to recover the difference.

This is a serious matter, because another $300,000 for heating oil is not in the city budget, Mr. Hoover said in an interview. It's simply not there. And that figure could be conservative. The School Department would face the biggest hit, because of all the school buildings we have. The city has a three-year contract with Peterson to provide us oil at a fixed price, and we strongly feel they are obliged to honor that. Mr. Hoover said the city was in the second year of its three-year contract with Peterson for oil at 68 cents per gallon. When retail heating oil prices rose to about $2 per gallon last winter, Peterson canceled prepaid heating oil contracts with more than 6,000 Central Massachusetts residential customers, setting off a firestorm of controversy. The company, however, honored its contract with the city.

Mr. Hoover said that when Purchasing Agent John C. Orrell sent the renewal notice to Peterson Oil for the second year of the contract, the city never heard back from the company. That prompted the city to solicit bids for a new contract, the manager said. But, he said, the only company to respond to the city's bid solicitation was Peterson, which offered to provide heating oil at 95 cents per gallon.

Mr. Hoover said the price quote was unacceptable, and the city yesterday sent a letter to Peterson Oil informing the company that its bid was rejected. That forced city officials to find an oil supplier, and they decided to use the state's contract with Global Petroleum, which is based in Waltham. The manager said the state has a variable-price contract that fluctuates, depending upon the market. If Peterson is not willing to provide oil to us at 68 cents a gallon, as is called for under our contract, then we will litigate to recover the difference we end up having to pay, Mr. Hoover said. Peterson Oil officials did not respond to telephone messages left by a reporter seeking comment. Mr. Mariano said the added $300,000 cost is a conservative estimate, and said it could be as high as $500,000. The mayor, who also is chairman of the School Committee, said the city's public schools recently lost nearly $1 million for the coming school year when Gov. Paul Cellucci vetoed a line item for education aid in the fiscal 2001 state budget. He said being forced to pay more for heating oil would place a significant financial burden on the School Department.

It could mean that we would face the loss of teachers in the classroom and certain programs, Mr. Mariano said. The mayor said the purpose of Monday's special meeting will be to develop a coordinated strategy in response to Peterson Oil's action. He said the attorney general's office has indicated it will send a representative.

http://www.telegram.com/news/page_one/oil.html

-- Martin Thompson (mthom1927@aol.com), August 25, 2000