Questions & Answers -Price Protection Programs

This quarter our Questions and Answers segment explores price protection programs.

What price protection programs does Hart & Iliff offer?

Hart & Iliff offers a Guaranteed Price Program and a Cap Price Program. The Guaranteed Price Program allows you to prebuy oil at a fixed price for delivery during the winter months.

With the Cap Price Program, your price fluctuates with market conditions but never exceeds a preset maximum price. To participate, there is an annual enrollment fee. The program provides complete downside protection should the price decline during the winter months.

When are these programs offered?

These programs are offered during the summer months, as described in more detail in the related article found here.

How can Hart & Iliff afford to offer these programs?

Heating oil futures and many other commodities, including crude oil, gasoline, natural gas and propane, are traded on the New York Mercantile Exchange and several electronic exchanges. Contracts are sold for each winter month in 42,000 gallon increments. Price protection contracts known as options are sold against these futures contracts. Option contracts offering upside protection are known as “calls” and option contracts offering downside protection are known as “puts.” Futures contracts, calls and puts are the price protection tools that allow us to offer the Guaranteed and Cap Price Programs.

In recent years these futures markets have become very volatile. This volatility has increased the price of a call or put option from approximately five cents per gallon to as much as 40 cents per gallon.

Should I participate in a price protection program?

The answer depends to a large extent on how you view risk. These programs are not designed to guarantee that you save money but to offer assurance regarding the price that you will pay during the heating season. If you are willing to take some risk, you may want to pay the market rate throughout the winter. If you are risk adverse, or you want to accurately budget your costs, then one of our price protection programs is the way to go.

Can the Cap Price Program be combined with an Even Payment Program?

Yes, the Cap Price Program can be used in conjunction with our Even Payment Plan.