What Happens with Cap Plans as Fuel Prices Drop?
One of the biggest misconceptions with fuel oil or propane gas buying is that price-cap plans are “gambling”. Price-cap plans are exactly the OPPOSITE – ensuring you will never pay OVER a certain price during the cold winter months when fuel prices tend to go up 4 out of 5 years.
How price cap plans work with CES:
When you contract with CES for a “cap-price“ for the winter — we spread out your total annual purchased gallons over a “heating curve” based on historical heating ‘degree days’ (measure of outside temperature) over the last four years. We use this data to purchase “call options” from a broker on the NYMEX (New York Mercantile Exchange) for your gallons required over those specific heating months. This call option is really nothing more than insurance that the price will not go ABOVE a set price in the coming winter months.
But can I lose money?
No. If the current retail price of propane gas or fuel oil DROPS — you will always pay that lower price which is our “prompt pay” or COD price. Your real advantage is when the prices INCREASE as they do more years than not when demand for heating fuel increases. With a cap-price, you will never pay more than the price we quoted you when you secured the gallons with a contract. The most you can ever ‘lose’ with a cap plan is the cost of that insurance but when you weigh out the 4 out of 5 years pricing increases, the law of averages show this is a very smart, safe investment saving consumers a fortune.
What is the cost of getting a “CAP PRICE”.
This tends to vary year to year as the markets move up & down and the companies that sell the ‘options’ evaulate their ‘risk’ for the coming year. A cap price can normally be secured for $0.08 – $0.25 per gallon depending on where the market is currently. We can give you a quote anytime actually and encourage consumers to ‘pull the trigger’ for a price when they find it comfortable for the coming year. If a dealer isn’t telling you a cost per gallon or says there isn’t one — they are hopefully building that price into the gallon price but what could be worse — they aren’t actually purchasing any protection for your gallons. Not good and happens all too often by sketchy fuel dealers “playing the market” with your money.
WHAT ABOUT FIXED PRICING?: This IS gambling that the price will not go DOWN during the heating season. While we offer fixed pricing for propane, there is a risk that retail price may tumble during the winter and you’re going to have to pay the rate we secured your gallons at way before heating season. Most years, a fixed price is a fairly safe gamble since prices “normally” go UP in the winter – but if they drop – you can’t take advantage of that drop.
Why the difference between propane gas & fuel oil with fixed vs capped?
With propane we have to work harder to ensure we’ll have our wholesale supplied during the heating months when demand increases across the USA and supply gets ‘tighter’. Many factors affect propane supply in the winter including crop drying (corn, soybeans, etc) in the midwestern states, exportation, utilities switching from other fuels over to propane during curtailment periods and increased heating demand in general across the USA. We work hard make sure we have propane supply at consistently affordable pricing during the winter doing this by securing millions of gallons long before the heating season through reputable suppliers, storing gas in the salt caverns of upstate NY, pulling from 4 different railroad terminals and having more local terminal storage capacity than any other independent propane dealer in the lower Hudson Vally or Poconos. Fuel oil doesn’t have the supply volitility during the winter so we don’t store as much ‘physical’ product on hand as propane so we only cover our fuel oil price plans with the “call options” as opposed to sitting on huge tanks loaded with heating oil which can create an environmental risk.
How about a “Capped Price Budget Payment Plan” vs the 100% pre-pay plan?
We always recommend our budget payment plan where we’ll approximate how many gallons your home consumes in a year, estimate a price per gallon and divide it over 12 even, lower payments. We adjust our budget plan payment settings quarterly so if we see you’re using less than anticipated, we’ll lower that monthly payment or adjust it upward if it’s going to be more. The BETTER PLAN is the CAPPED BUDGET PAYMENT PLAN – where we’ll give you a cap-price for the winter, build that fee ($0.08 – $0.25 / gallon) into your monthly payment. With a Capped Budget Plan – you will know exactly what you’re going to pay to heat your home for the next 12 months and that monthly payment CAN ONLY GO DOWN if the retail prices drop below your quoted cap price. This is the smartest way to heat your home!
Can commercial customers take advantage of “cap pricing” for the coming year?
Of course! We recommend all commercial customers to work with us to get either a capped or fixed price based on their needs. In addition, we can even offer fixed or capped pricing for diesel fuel if your fleet’s fuel needs are a serious financial investment.
What kind of money have we seen cap pricing save consumers in the past?
In recent years we’ve seen our capped price plans save consumers anywhere from $0.20 – $1.90 per gallon over regular winter retail pricing. What’s your risk? – simply the “cap fee” for the call option ($0.08 – $0.25 / gallon) if pricing drops. But to save endlessly as prices go up – it’s always well worth that expense for the “insurance”. Over the last 40 years we’ve saved CES customers over $1 million dollars!
But I’ve heard of fuel oil / propane companies ripping off customers – vanishing mid-winter or not delivering on their contracts. How does that happen?
Great question and it’s due to the fuel dealer GAMBLING with YOUR MONEY, normally securing FIXED PRICE gallons instead of paying for those “call options” we described above. Capping fuel costs and securing hundreds of thousands or millions of gallons for customers months ahead isn’t a simple task. When fuel dealers think they are “smarter than the market”, sell capped price gallons to consumers but in reality – not purchasing the “calls” (insurance incase it DROPS) – they are dead IF / when the prices fluctuate even 25 cents per gallon. Small and huge fuel dealers have put themselves and their customer’s money at risk, run out of cash flow mid-winter and simply go out of business. Unfortunately when you hand your money over to maybe a well intended but either stupid or greedy fuel dealer that takes risk – more times than not sooner or later they will put themselves out of business.
All fuel oil & propane dealers are not created equal.
The fact is – it doesn’t take much for someone to buy an old oil truck, put an ad in the paper advertising the “lowest price” and become a “fuel oil dealer”. We’ve seen it time and time again that these fuel peddlers will operate below par, take shortcuts, pull tricks with meters to short change customers and worse yet – advertise a “cap price” for the winter, taking consumer’s money and not ever buying any protection or have contracts to make sure their customers get that fuel in the winter months. All too common and if you do some internet research, we’re sure you can find endless examples.
What makes CES different?
When it comes to “price cap plans” we like to point out that we’ve been in business since 1968 and are over 120 of your local neighbors, family members and friends here. We thankfully have the experience and financial understanding that we will NEVER gamble with one cent of our customer’s money ever. We contract through reputable “hedging” brokers that supply us the NYMEX options and back every sale up with physical gallons from long term reputable suppliers we get our fuel oil & propane gas from on the wholesale side. Over the last 40+ years, we’ve delivered millions of capped & fixed price gallons and never short-changed a customer for a single penny. We often say to consumers — before you invest one cent with a fuel dealer, step back and think — do I trust this company with my money? How long have they been offering these programs? Are they really backing up my gallons with the required insurance? Can I trust them? Thousands of customers have trusted for over 50 years since we deliver on what we promise. Contact us today at 800-874-1975 or complete the form below:
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