Oil dealers this week are getting the word on how much of a discount they will be required to give low-income fuel customers getting federal assistance on their heating bills this winter – a discount the head of the Maine Oil Dealers Association says is a form of double taxation.

The Maine State Housing Authority, which runs the Low Income Home Energy Assistant Program or LIHEAP, says it could mean $1 million more in fuel aid – or more than a half million gallons in fuel oil – for the 50,000 low-income households served by the program.

The current price of fuel oil is fluctuating up to and beyond $2.65 a gallon. In March it was $2.34.

The price break was approved by the housing authority’s board of commissioners in May, but the size of the discount is just being explained to oil dealers this week in a series of meetings across the state. Dealers will then be asked to decide whether they want to continue in the program.

“It’s bureaucracy gone wild,” said Jamie Py, head of the Maine Oil Dealers Association. “I don’t think the state should be telling private business what the relationship between a customer and a dealer is. In essence the state is telling you what you can make.”

Since fuel assistance is paid for with federal tax dollars, he said dealers, their employees and, in some cases, their non-subsidized customers will be forced to pay twice – once for the federal LIHEAP program and again for the price break dealers are being required to give.

“Somebody’s got to come up with it,” Py said, either in the form of higher prices for other customers or reduced benefits for oil company workers.

Dealers can choose between two mandated price breaks. One caps the markup a dealer can charge on top of the wholesale price for gallon of fuel oil. It starts at 27 cents for dealers in Portland, who are closest to the wholesale source, and goes up from there to 36 cents in Northern Maine to help cover transportation costs. Py said that cap is a gross profit number out of which has to come operating expenses.

The other option is for dealers to charge LIHEAP customers seven cents a gallon off the retail price they’re charging that day. Since LIHEAP customers only buy a portion of their fuel through the federal program and pay for the rest themselves, a second option is for dealers to take four cents a gallon off all the heating oil they deliver to an income-eligible home.

“The state’s going to have to monitor all this,” Py said, questioning whether the administrative costs would be worth the estimated $1 million in savings the discounts will produce.

While Py said some of his dealers could opt out of the program to protest the forced discount, the Maine State Housing Authority is betting most will not.

“If you’ve picked the right number hopefully you’ll get 85 to 90 percent participation,” said Peter Merrill, a spokesman for the authority. “If it’s a number that’s fair to the dealers, they will probably just shrug and accept it to maintain the relationship with their customers. If you get 20 percent (participation), then you’ve probably picked the wrong number.”

Adam Krea, a deputy director at Maine Housing Authority, met with about 30 dealers from Aroostook County on Monday, and said, “it seems like most are going to renew their contracts with us.”

“The few people I’ve talked to in person have said, ‘well, I can live with that.’ That’s the best answer we could have hoped for,” Krea said.

By the end of this week, he will have met with more than 200 dealers in six meetings from northern Maine to Sanford.

The LIHEAP program distributed more than $45 million in fuel aid last winter, with the bulk coming from the federal government. The state Legislature also appropriated $5 million and $5 million was donated by Venezuelan President Hugo Chavez and the state-owned division of Citgo in his country.