Capped price program Q&A

 

Q. What is a capped price program? 

a. A capped price oil price protection plan sets a “not to exceed” or “capped” price for heating oil for the term of the agreement.  If the heating oil market* falls, the customer will pay the lower prevailing market rate.

Q. How is a heating oil dealer able to provide this type of program?

a. Heating oil dealers are able to purchase heating oil in advance for future delivery from the New York Mercantile exchange.  This is a commodity exchange that trades all types of commodities such as oil, gas, precious metals, corn, soybeans, etc.  Sippin Energy further complies with the Connecticut State law that requires retail heating oil dealers to purchase a minimum of 75% of their contract sales inventory in advance through futures contracts, stored bulk purchases.

Q. Why is there a fee for this program and what is it based on?

a. The fee for this program is used by the heating oil dealer to purchase a type of insurance that pays the dealer back if the market falls.  This in turn allows the dealer to lower the market price to customers as the market falls.

Q. Why are the program fees higher than in the past?

a. The insurance cost is based on both the cost of the oil, and the inherent market risk.  In a market where the price has risen quickly, there is often a high risk of the market falling; therefore the risk premium (and the insurance cost) are higher.

Q. Does Sippin Energy make a profit on this insurance fee?

            a. No, this fee is passed through to purchase this protection at no mark-up. 

Q. If the market falls, what benchmark is used to establish “market price”.

a. Sippin Energy Products uses the average area retail price guide that is established and maintained by the Connecticut Office of Policy and Management (OPM). Sippin Energy will always provide market rates at or below the average for Fairfield County Connecticut.