Price Protection FAQ
Price Protection – Frequently Asked Questions
- Q: How do you determine what the price cap will be?
- Q: Why is there a fee for the price cap?
- Q: Which way will prices go?
- Q. Can you tell me which is more likely to happen?
- Q. What is downside protection?
- Q: Are all oil company price protection plans similar?
- Q: Am I guaranteed to save money on your price protection program?
- Q: So, do I really need price protection at all?
- Q. Why do you have an early termination fee? You never used to have that.
- Q: How do you figure my monthly payments?
- Q. Can my monthly payment amount change?
- Q. I’ve seen prices that are lower than yours. Why is that?
Q: How do you determine what the price cap will be?
A: Planning a price protection program 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 of the cap itself depends on the wholesale price we pay, plus an allowance to cover our costs, such as insurance, vehicle maintenance and employee wages.
Q: Why is there a fee for the price cap?
A: As you might expect, our suppliers charge us a premium for offering the “insurance” that allows us to keep your heating oil price from skyrocketing, while at the same time gives us the flexibility to lower your price should market prices fall. While we can absorb some of the cost, we must pass some of it along in the form of a fee to those customers who choose this option. The cost of this has gone up substantially as the market has gotten more volatile. We do not make any money on this fee — and we also don’t cut corners like some companies do. We protect your oil the right way.
Q: Which way will prices go?
A: That’s anyone’s guess. As we have seen, oil prices tend to swing in cycles. Last year is a perfect, if rather dramatic example of this. In July of 2008 the price of crude oil peaked around $147 a barrel, and then plummeted as low as $38. There are so many factors that affect the price of oil that guessing whether and when prices will go up or down is pure speculation. And even though prices have been more stable recently, there’s actually more volatility than most people think; in one recent six-week period, wholesale heating oil prices bounced up and down by as much as 30%.
Q. Can you tell me which is more likely to happen?
A: No, that’s the problem. As much as we wish we could predict how prices will move, when it will happen, and by how much, it’s impossible. Just look at last few years when all the major analysts were warning about crude oil potentially going to $200 a barrel, and you see how futile it is to speculate. What you should do is look at your personal situation, realize that there is no one pricing program that always works out best, and decide which approach makes you most comfortable. No matter which choice you make, however, you can count on us to deliver what you’ve asked for, and back up our programs the right way.
Q. What is downside protection?
A: Since a price cap program protects you from falling prices, we have to purchase options that allow us to “sell back” fuel to the supplier at the higher rate, and then buy more fuel at the new, lower rate. This downside protection allows us to lower our prices when market rates fall.
Q: Are all oil company price protection plans similar?
A: There are really only two kinds of price protection; those that fix your price and those that set a ceiling on the price you must pay. But there are a variety of ways that companies back up their offers. Some companies actually buy fuel ahead of time, while others buy a type of price insurance from their suppliers. There is no regulation about how much fuel a company must buy to back up their price protection. When you choose to buy price protection, you are making a bet not just on what will happen to prices, but on the professionalism of your fuel company.
Q: Am I guaranteed to save money on your price protection program?
A: There are no guarantees when it comes to oil prices, but our price protection programs provide more certainty about what you’ll pay for your fuel. In two of the last three years, for example, customers paying our daily rate (no price cap) actually saved more money, because prices dropped and they had opted not to pay the insurance fee. But two years ago, prices went up a lot, and customers on price protection saved a lot.
Q: So, do I really need price protection at all?
A: That’s a good question. Many of our customers have actually done better just staying on our market price, which has no additional costs, and the greatest flexibility. While there’s no cap, there’s also no fee, and your price is guaranteed to go down when oil prices drop. Whatever you do, it’s almost always easier to spread out your bills with our monthly payment program.
The fact is, some companies don’t actually buy the options they need to really lower their price. 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 real peace of mind.
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Q. Why do you have an early termination fee? You never used to have that.
A: We’re forced to start doing this because of our lawyers. To give you price protection, we 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.
Q: How do you figure my monthly payments?
A: To calculate your monthly budget payments, we use your fuel delivery record from last year to estimate the number of gallons you will LIKELY 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 equal monthly payments.
Q: Can my monthly payment amount change?
A: Yes, we may need to make adjustments to your monthly payment amount based on the weather and the oil market. If you have a cap, your price cannot rise above your cap price, so you would be protected from a drastic increase. If prices fall and stay lower, your monthly payment would be adjusted downward. If you are paying the daily market price, your monthly payment could theoretically increase or decrease. [GENERALLY SPEAKING, IF WE DO MAKE AN ADJUSTMENT TO YOUR MONTHLY PAYMENT AMOUNT, THAT ADJUSTMENT WOULD TEND TO BE A MODEST ONE.]
Q: I’ve seen prices that are lower than yours. Why is that?
A: There are always going to be companies that charge more or less than we do (We tend to be right in the middle.). It’s important to compare apples to apples. First, are they a full service dealer, or just one that makes deliveries, leaving you to fend for yourself if your equipment breaks down or they can’t secure more oil? Second, are they telling you their regular price, or a special come-on rate? This is a game many oil companies around here play—especially the huge ones. You think you are going to lower your bills permanently, only to discover that your price is jacked up really high as soon as the offer ends.
In the meantime, when it’s cold and the company is busy, who are they likely to serve first? Customers who are paying the regular rate, or a new one who’s paying a lot less? And how flexible do you think they’d be if you needed more time to pay your bills because of a temporary problem?
Often, these same companies find other ways to skimp that can cost you big time—like not doing the annual tune-up included in their service plan; not offering true night and weekend service; and not keeping enough service technicians to get to you quickly if you have no heat.
We guarantee our daily price is lower than the average regular rate of full service dealers in our area. And customers tell us that our superior service saves them money, reduces their aggravation and gives them real peace of mind.