A price cap protects you from both rising and falling prices. If you are on our price cap program, no matter how high world oil prices go, your price won't skyrocket. And, if market prices fall, your price comes down too!

We have offered price cap protection since 1989, and up until last year, the cost of the program added to the cost of the fuel. Because the cost of this protection has continued to go up year after year, we felt it was important to make it transparent, so you, the client, would know what it was costing you to be on this program.

The following graph illustrates why this is so.

These graphs represent typical two-week periods in 1995 and in 2008. As you can see, the price of oil is much more volatile today, and on a day-to-day basis, than it was in the past.

This helps explain why the fee for our price cap option is higher today than in earlier years. Traditionally, we would buy oil to cover the needs of our customers, and then buy a financial hedge, or insurance policy, to protect ourselves if market prices fell below our purchase price. If prices did fall, we are required to purchase the contracted oil at the higher price, and the income from the insurance is used to offset the higher price.

With prices being so volatile in recent years, it has caused the price of this protection to increase dramatically. (See chart) We begin purchasing for the following season in January, and continue to buy a percentage each month until its completion in June. Since we do not have a crystal ball, we buy a little each month, and end up with the "average future price" over a 6 month period. By the end of June, we have already paid for the following season's insurance cost. That is how we know how much to bill each client. We pass along exactly what this cost is- with no markup. IF and when the volatility leaves the market place, and things stabilize, the cost of this insurance will go down.

Most Commonly Asked Questions

Q: What’s the difference between a fixed price program and price cap protection?
A: A fixed price program means that your price is fixed at one set price throughout the whole heating season. 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 with a fixed price, your price can not move up or down.  Scott Smith & Son does not offer a fixed price program, and last year was a perfect example of why.  We have heard of people that were stuck paying close to $5.00 per gallon all season.

Q: Why does it seem there’s a different program every year or so?
A: 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. By periodically adjusting our price protection programs, we can provide our customers with the best options for saving money. We only offer one program to keep it simple and easy to understand, we believe our clients do not want to become hedge specialist.  Our program always runs from July 1st thru June 30th.

Q: Why do I have to be on a budget plan to get your price cap protection?
A: 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 season. This ensures that we can offer you the best price. An additional benefit is that when you have a credit balance on your account, you will earn 2% interest on your credit balance.

Q: Is price cap protection always the best option?
A: 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 price insurance fee. This past season, even with prices dropping dramatically, many clients saved more than the cost of insurance.  However we can not always guarantee these results. You must remember you are also still covered for the worst case scenario; where prices rise dramatically.  There are many scenarios where paying market rate instead of choosing our price cap protection might be the better choice.  You are welcome to review your individual case to see if it this is so.  Our belief is that over a period of many years the cap price protection will be the better choice.  No matter which price plan you choose be assured that our commitment is to take the best care of you and your family as we possibly can, especially in these uncertain times.

Q: How do you determine what the price cap will be?
A:  As mentioned earlier, we begin the process in January.  We purchase fifty percent of our gallons by contracting with a supplier, and then buy an insurance that will protect you if the price drops. The other fifty percent we purchase an insurance that protects the price from going up.  Since no one knows which way the market will head, (up or down) we start purchasing in January, and do a percentage each month enabling us to average the price over a 6-month period.   Our many years of hedging experience have led us to realize the average is the best we can hope for.  Trying to pick the lowest point is like gambling, sometimes you win, and most times you lose.

Q: Why do I have to pay a fee for your price cap?
A: When we started this program in 1989 it cost about 1½ cents per gallon to hedge heating oil. Today it costs as much as 40 cents per gallon to protect the price.  It is no longer feasible to include it in the price per gallon we charge.  With the fee, you know what it is costing you to be on the program, and you can make a better decision.  This past season, our cap price customers actually paid a lower price than our regular retail customers because the fee was paid up front. 

Q: I’ve seen other companies that aren’t charging for a cap. Why is that?
A: That might be. But we know that many companies do not actually buy the options they need to really lower their rate. They say they will drop it, but it is really fixed. Some of them do not 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.

Q: When do I need to sign up for a price cap?
A: The deadline for enrollment is August 1st.

Q: How do you figure my budget payments?
A: To calculate your monthly budget payments, we use your fuel delivery records from the last two years, and estimate the number of gallons you will use during the next heating season. We multiply the number of gallons by an estimated cap price per gallon, and we add in the estimated cost of the price insurance. This amount is then spread out over ten (10) equal monthly payments.

Q. I’ve seen prices that are lower than yours. Why is that?
A:  We’ve found that timing is often the key here. There will always be times when you can find a company that is lower, but you really need to check on a year round basis.  Often they are only lower at certain times and much higher at others.  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? Second, are they telling you their regular price, or a special come-on rate? Do they have any hidden fees that will be charged with each delivery? This is a game many oil companies play, especially the huge ones. You think you are going to lower your bills permanently, only to discover that your price will be increased substantially as soon as the offer ends, or there are many fees added on. Some of these fees by other companies will appear on your bill as: “program fee”, “fuel surcharge fee”, “hazmat fee”, “tank lease fee”, and others.  

Our commitment is to provide you with excellent fuel at a fair price. We promise to provide you and your family with the quality service you have come to expect from Scott Smith & Son. We are available if you need service, 24 hours a day, 7 days a week. We appreciate your continued business and your trust.