Oil price hikes raise concern.

Property owners are struggling with cash-flow issues caused by high oil prices, even as politicians vie for solutions to help the industry.

The New York Oil Heating Association is calling for the use of higher sulfur fuel, interruptible contract reform and a requirement that those on such dual-fuel gas/oil systems keep a 10-day supply of oil on hand.

The White House released $34 million in aid for low income New Yorkers last week after being criticized for only targeting $2.6 million for the Empire State out of a $45 million relief package provided in January.

City Council Member Sheldon Leffler of Queens suggested repealing the city's 4 percent tax on heating oil for a year to give consumers a break, a plan that would need both city and state approval. Nassau County collects no tax; Suffolk imposes a 1 percent tax; and Westchester collects 2.5 percent.

"I don't think it would be imprudent for the U.S. to release some of the oil reserves, through a program of swaps," Councilman Leffler said. "Other than the real property tax, all other taxes require state action to levy and to eliminate."

He says if the issue is of enough interest, both the Council and the State legislature, which is now meeting weekly, could act quickly to remove the oil tax.

U.S. Senator Charles Schmuer continued to call for the release of the U.S. strategic oil reserves to. help deflate worldwide prices, which have climbed to around $28 a barrel from last winter's $11 high.

As some experts predicted last spring, the OPEC nations worked to keep prices up and production low, and none of those nations have yet to break their pact, as they have in the past.

That means worldwide usage of 74 million barrels a day has overtaken the 72 million barrels being produced, said Schumer's spokesperson, and is causing an ongoing shortage, raising prices further.

In December 1999, local refiners had 40 percent less oil on hand, said John Mainscalco, executive vice president of the New York Oil Heating Association, a group of 180 local refiners and suppliers. "The refiners opted to stay on gasoline longer. Some blamed it on Y2K," he shrugged.

For the northeastern states, Federal air quality rules also mean that higher sulfur-containing oil cannot be used. But New York City, for instance requires a .2 percent sulfur content. "We would like to see .37 like in Nassau County and Westchester on the No. 2 oil and 1 percent on the No. 6," said Maniscalco. "It would free up more supply."

Last week, New York State Governor George Pataki announced he would allow municipalities and institutions to use a higher sulfur content oil, and the U.S. Environmental Protection Agency said it would not fine those states where the governors have waived these rules to alleviate this crisis.

Joseph Strasburg, president of the Rent Stabilization Association (RSA), said "The RSA is reaching out to the state to extend the NYSERDA (New York State Energy Research and Development Authority) waiver for a short period of time in order to use higher sulfur content [oil] in New York City, and hopes the Governor will respond favorably to this."

Some are hoping the governor extends the waiver to private building ownership, particularly since the industry has for the most part upgraded its boilers and burners so that any fuel used burns cleaner and more efficiently.

"Our equipment has all the bells and whistles and shuts down if it detects high sulfur," explained Rubin Pikus, president of Milbrook Properties, which buys more than two million gallons of Nos. 2, 4 and 6 oil combined each winter.

If area owners were allowed to use the higher sulfur fuel, it would open up the number of refineries where suppliers could purchase fuel.

On Long Island, because tankers are not coming in either full or in a timely manner, many smaller oil companies have not been able to supply all their customers, thus driving up prices further for those scrambling to keep tanks from running out.

"The restriction on sulfur content has shown up as part of the price problem because anything that restricts supply has a great impact on price," said a spokesperson for Senator Schumer.

The Senator has been working closely with property owners since he called on the Clinton administration in September to begin releasing some of the 570 million barrels of oil held in reserve in Texas and Louisiana. He and Senator Susan Collins, a Maine Republican, have sponsored a measure in Congress that promotes the release of a portion of the Strategic Petroleum Reserves, known as the SPR.

This oil is held in individual 55 gallon barrels as crude, and even if released this week, would take six to eight weeks to be refined and shipped to local oil tanks.

"That's why Senator Schumer started this [last fall]," explained Maniscalco. "We agreed with him then. Nobody listened."

Since spring is expected to arrive soon, such a release would temper prices just as demand wanes.

"People say this would take too long, but our belief is that the psychological impact would break OPEC," said Senator Schumer's spokesperson. "If the OPEC nations believe that, with the U.S. intervening, the price of oil will start dropping, they will start increasing production to get in those last weeks of high prices."

Suggestions are now being made to allow some of the SPR oil to be used, but then replaced through a swapping system. Under one proposal, the oil would be purchased by private companies, which could sell it at today's high prices, and then replace it - hopefully - when oil prices come down, but in greater amounts than initially taken, thus also increasing the nation's reserves, which are supposed to be used only in time of war or other calamity.

Because gasoline and diesel prices similarly headed north, a release of the reserves and an concurrent drop in crude prices of $3 or $4 per barrel would also maintain equanimity for other costs, from the price of food being delivered to stores by trucks, to electricity bills, to commuters' train and bus tickets, to travel costs for tourists now being surcharged by airlines, to rental and maintenance increases for area apartment dwellers.

David Kuperberg, CPM, president of Cooper Square Realty, said "A year and a half ago we were paying 37 cents - now it's in excess of a dollar. I don't know if anyone could have anticipated this dynamic of an increase. If you are wise, you always have a contingency item in the budgets. Boards and owners always ask, 'what is contingency?' This is a prime example."

Michael Jay Wolfe, president of Midboro Management, thinks many co-ops and condos may have deficits at the end of the year. "You will have to use reserves and either recoup by increasing maintenance charges or voting a common charge increase," he predicted. "If it's $5,000, many boards may elect to take it out of reserves. The ones who really get crushed are the owners of rental buildings."

The Rent Guidelines Board's executive director, Anita Visser, explained that since the Omnibus Housing Act of 1983, no midyear rent adjustments are permitted, such as those that used to be allowed for fuel-passalongs, which were routinely added to rent regulated leases in the 1970's.

"The Board will measure the fuel costs that you are seeing now, and it will become part of the price index," she said. The so-called PIOC, the Price Index Of Costs, is created by weighting various building owner costs, and then taken into consideration when the RGB meets to propose and then vote on increases for rent stabilized apartments in New York City. The RGB also has some flexibility in the make-up of the PIOC. Visser agreed, "Fuel is measured both with degree days and the cost of fuel. The weighting changes every year."

When the RGB proposed a 2 percent and 4 percent rise in rents for one- and two-year leases beginning October 1, 1999, owners complained that a sudden surge in oil prices by OPEC could affect them adversely.

The Rent Stabilization Association, for instance, has also called for recompiling the PIOC, rather than making adjustments based only from year to year. That's because a mild winter or two with low oil prices, followed by a severe winter with high prices like this one, ends up under representing actual owner oil expenditures during the time the lease is in effect.

Even large buildings and institutions can have their budgets busted by the current high prices, particularly if using dual-fuel systems on a so-called interruptible rate. These systems allow owners to use gas most of the time, but to get an even better rate, they must agree to switch their systems to oil when: 1) the temperature drops below a certain point - the lower the temperature, the more the gas costs; 2) on demand when the utility requests a switch-over; or 3) automatically from within the utility.

Because the last time dual-fuel customers were asked to switch over to gas was in the winter of 1995/96, four years ago, many interruptible customers neglected their oil reserves.

Co-op City, for instance, which rarely has to fill an oil tank, had to suddenly obtain and now pay for - an 80,000 gallon delivery at the high prices, Senator Schumer's office said.

Cold weather begins triggering more gas-interruptible customers to switch over to oil, and when they need to fill tanks, it exacerbates the situation, Maniscalco explained. "They demand gas users draw down oil, then you have a spiraling demand on prices," he said. "The utilities 'wnss-out' on their gas customers."

Au contraire, complains a spokesperson from Con Edison.

"The interruptible customers are oil customers who have come to Con Ed to use gas as a second fuel," said Joe Petta of Con Ed. "We make it available to them provided we don't need it for our firm customers. We give them a considerably lower rate because we are just using our excess capacity."

Petta said if these oil customers want to become firm customers, Con Ed will build its system to meet those gas needs.

Because oil prices have escalated so quickly, U.S. Energy Secretary Bill Richardson is expected to hold hearings this week in Boston to explore just who is making the money.

Maniscalco claims refiners have product available and there are barges continuously coming into New York, but ask for a price differential for a prompt delivery. "There is a premium involved," he said, explaining someone has to make the decision to request the prompt delivery and pay the higher tab.

Owners say they are paying more than ever, while local oil companies, which base their rates on a spread above their own costs, are feeling the pinch as well. They stil1 have to pay for the oil, too, whether or not their regular accounts receivables slow down because of customer sticker shock.

Owners can combat high prices by locking in contracts, which some, like Midboro, did last summer. But it is a gamble that might work backwards if locked in now for next year, when prices might tumble, or if the independent oil company goes belly up or cannot fulfill the contract.

Some oil companies also provide discounts for prompt payments and bulk purchasers, such as through the RSA program.

Kuperberg's company manages a number of air-conditioned buildings that use even more oil in the summer than in the winter. He said, "I'm awfully concerned about oil prices in the summer."