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What is a price cap? |
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A price cap is the absolute highest price you can pay for winter deliveries. But any time our daily price is lower than the ceiling, you pay the lower rate. In other words, your price can’t rise higher than the cap, but can drop as low as the market falls. |
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| Q: |
Why do I have to pay a fee for your price cap? |
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Due to an increasing amount of volatility in the oil market, we are forced to charge a fee. In the past, there was much less volatility in the oil markets and the cost of price cap protection was low. Due to greater price volatility in these past few years, our cost to provide price cap protection has increased thirteen-fold. |
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| Q: |
How do you determine what the price cap will be? |
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Planning for price protection the right way is a year-round effort. We analyze pricing trends, study the commodities market daily and do a lot of research so we can decide when the time is right to make our bulk fuel purchases. Only in this way can we structure a reliable workable program, one you can count on for protection from unpredictable spikes in the price of fuel. It takes time and money to structure a price cap program correctly and not all heating fuel dealers have the resources to do it, especially in the current market. The price itself of the cap depends on the wholesale price we pay, plus an allowance to cover our costs, such as insurance, vehicle maintenance and employee wages. |
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| Q: |
Why are you charging so much for your price cap? |
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We’re only able to give you a real price cap by purchasing a type of “price insurance” from our suppliers. And the cost of that has gone up 13 fold in the last few years because of all the volatility in the world oil market. We don’t make any money on the fee at all. In fact, were still absorbing almost 2/3 of it. If you don’t want to get the price cap, we completely understand it. There’s no guarantee that prices will continue to rise or the cap will pay off. |
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| Q: |
Why is it so expensive to provide a price cap now? |
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In the past, there was much less volatility in the oil markets and the cost of a price cap program was quite low. That’s why we offered it to our customers at no cost. Now that the energy markets have become so unpredictable and the likelihood of falling prices has become so much greater, the cost of price cap “insurance” has become much greater. It’s similar to flood insurance. If you live in a flood-prone area, your insurance premiums are a lot more than if you lived on high ground far from rivers and streams. Right now, we live in a time with a very volatile energy market. |
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| Q: |
Why has the cost of the price insurance gone up so much? |
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Oil prices used to swing maybe 10 or 15 cents in a whole year. So the chance that the suppliers offering the price cap insurance would have to pay off was pretty low. Now, prices can change 30 cents or more in a day. There’s a greater chance that the suppliers will have to pay off, and so they’re charging a lot more to cover themselves. |
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| Q: |
Is price cap protection always the best option? |
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Not necessarily. We make the price cap program available to our customers, but by no means do we think that everyone should be on it and we do not make money on the fee. We have no way of knowing whether this “insurance” will pay off, or whether prices will go down and never hit the cap level.
So, if you choose to pay our market rate instead of choosing our price cap protection, and the price of oil drops during the heating season, you would save money by buying at the daily rate. You would also save money by not having to pay a price cap fee, which we are forced to charge due to the ever-increasing volatility in the oil market. On the other hand, if you pay the market rate and the price of oil rises, you would pay the higher price because you don’t have a cap.
Whatever you decide, know that our commitment is to take the best care of your family we possibly can—especially in these uncertain times. |
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| Q: |
How high would prices have to go to make the price cap pay off for me? |
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Here's one way to determine the value of a price cap to you. Based on an average annual usage of 800 gallons, if the market rate stays at an average of 15 cents above the cap price, this will virtually pay for the $120 annual price cap fee. If the market rate goes any higher than that, the price cap will save you money. For example, if average market rates stay 40 cents higher than the price cap, you will save $208. |
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| Q: |
I’ve seen other companies that aren’t charging for a cap. Why is that? |
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That might be. But we know that many companies don’t actually buy the options they need to really lower their rate. They say they’ll drop it, but it’s really fixed. Some of them don’t even really buy the oil to protect you from price increases. They just hope for the best. And that’s why over the past few years, there have been companies that defaulted on their price protection programs.
We have never defaulted on our programs. We do it the right way so you can have the peace of mind you wanted in the first place. |
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| Q: |
Why do I have to be on a budget plan to get your price cap protection? |
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This improves your cash flow and ours as well. Instead of paying giant heating bills in the winter, you can spread out these costs over the year. On our end, we can purchase our fuel strategically during the year. This ensures that we can offer you the best price. |
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| Q: |
Why do you have an Early Termination Fee? You never used to have that. |
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We’re forced to start doing this because of our lawyers. To give you price protection, we’re going to have to buy the oil ahead of time and we’re on the hook for that. So we need you to honor your commitment. But if you don’t like that, you can choose our regular daily rate. |
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| Q: |
Which is best choice for me- pay for a price cap or go on the daily rate? |
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It depends on how much risk you want to take. The price cap is like insurance. No one knows whether oil prices will surge up or down from this level, but we do know that price swings have gotten a lot more extreme in recent years. Prices went up over $2 per gallon this year, and there was no big international event. So it is really a matter of if you want to spend another $10.90 more a month to ensure your bills don’t go any higher. But we can’t guarantee that this insurance will pay off, because prices might come back down. |
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| Q: |
What’s the difference between a guaranteed program and price cap protection? |
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A guaranteed program means that your price is fixed at one set price throughout the heating season. No matter how high world oil prices go, your price can’t skyrocket. Similarly, with a price cap, you are still protected against price surges. Your rate cannot go higher than the “ceiling.” But the difference is that with a cap, if the market price falls, your price drops too. Any time our daily rate is lower than the cap ceiling, you pay the lower amount.
Our fuel suppliers charge us a hefty premium for offering this flexible protection. While we absorb what we can, we must pass some along in the form of a fee to those customers who choose to have this type of protection. |
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| Q: |
Why is there a different program every year? |
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The old rules about pricing trends no longer apply. We used to be able to count on prices rising in the fall when demand went up and prices dropping in the spring when demand went down. Today, things are more complicated because hyper-volatility in the energy markets has resulted in price instability. Because of this, we must be innovative and flexible with our price protection programs, resulting in different price protection options being offered on a regular basis. By periodically adjusting our price protection programs, we can provide our customers with the best options for saving money. Keep in mind that when you sign up for price protection, it remains valid for one heating season only. After that, you need to be renewed for the following season for a new pricing program. |
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| Q: |
Why is your price so high? |
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For the same reason gasoline and diesel prices have surged up again. World demand for oil is very high, especially because of the economic growth of India and China, and supply is tight. But also, there’s a huge amount of speculation by financial institutions that are betting on commodities prices, hoping to make a killing along the way. It’s driving the prices up at unprecedented rates. At some point, when it looks like their game has peaked, that same momentum will drive the other way. We just can’t say exactly when. The last time this happened was two years ago, the summer after Hurricane Katrina hit and knocked out oil refineries in the Gulf of Mexico. Prices ran up on speculation that it would happen again. When it didn’t, heating oil prices dropped 80 cents per gallon starting in mid August. |
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| Q: |
Can I call for my oil and still enroll in your program? |
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Unfortunately no. Because we contract for the oil ahead of time, we need to be able to predict when we’ll make deliveries, and we can’t do that when people call haphazardly. |
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| Q: |
How do you figure my budget payments? |
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To calculate your monthly budget payments, we use your fuel delivery record from last year to estimate the number of gallons you will use during the next heating season. We multiply the number of gallons by an estimated price per gallon. This amount is then spread out into 11 equal monthly payments. |
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| Q: |
I’ve seen cheaper prices at other companies, why shouldn’t I switch? |
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We appreciate that there are always going to be companies that are going to be a little more or less than us. And there are a few issues that you want to look at before you make a decision. Most importantly, are they a full service company, or are you just paying for deliveries?
Beyond that, if all things are equal, why not save a few bucks? Let’s look at the numbers. If the price is 15 cents lower than ours, on 800 gallons, that’s around $120 for the year. But here’s how these things work. These are often come-on rates to lure new customers, but their regular price for their existing customers is higher than ours. When it’s really cold they’re very busy, who are they likely to serve first? Homeowners who have been there for years and who are paying a fair price, or a new customer who’s paying a lot less than everybody else? |
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| Q: |
How did you come up with my Budget number? |
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We take the average amount of oil you’ve used over the last two years, look at the projections for cost based on the futures market and weather for this winter, and divide it into 11 months. We don’t want to charge you too much so you have too big a credit at the end, or too little so you’ll owe us little a lot. That’s how we came up with your number. If your bills are running above or below our estimate, we can make a change midway through the year. |
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| Q: |
How does your daily price work? |
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It’s the same way we’ve always charged you, except there would be no ceiling. The delivery price can go up and down on a daily basis, depending on how much it costs us to buy the fuel on that day. You may be interested in knowing that in the last 17 years, oil prices have actually dropped more then they’ve risen in the winter. Our rates are always very fair, and we set the highest goals for our service. |
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| Q: |
The “Big” oil companies are making a killing. Are you? |
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No, we don’t own the oil wells or the refineries.Our costs skyrocket but our margins do not.The crazy price swings make it virtually impossible to plan when to buy our product.Our customers have trouble paying their bills on time. They cut back on their oil use. And our banks are getting more restrictive about lending money. We are absolutely on your side on this. Nothing would make us happier than to see prices drop back down. |
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| Q: |
Is heating oil the only fuel moving higher? |
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No, all fuels are heading up.Electric rates in many areas have more than doubled in the last few years. Coal has gone up almost 100% Wholesale Natural Gas rates are up over 130% since August. And Propane, which comes from Oil and natural gas, has obviously followed suit. |
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