 Describe price cap and fixed price programs.
A fixed price program is first developed when an Oilheat dealer secures heating oil contracts for his/her customers on the wholesale market for a specific price. The dealer then adds on the overhead costs of running the business (employee wages & benefits, insurance, vehicles, rent, etc.), as well as a profit margin.
Once that price is established, the Oilheat dealer will offer the price to customers and the price is fixed for a given period of time and will never go up or down. The customer agrees to pay that fixed price even if the price for a gallon of heating oil goes up or down on the open market during the heating season.
A cap price program allows for market changes. Customers can lock in a price for the entire heating season with a price cap, which the highest price they will pay no matter how high is heating oil prices may go throughout the heating season.
If the retail price goes up the customer pays the cap price, but if the retail price goes down the customer pays the lower price.
With both fixed price and cap price programs Oilheat dealers sign for and are committed to contracts with their suppliers for fuel oil months in advance of the heating season. This enables the dealer to lock in a price and pass the price on to their customers, but the dealer will most likely pay for insurance to protect these investments. The cost of this insurance, often called "downside protection," is usually passed on to customers. It is not till the end of winter that you can tell whether these programs were a better value than the more traditional way of buying oil at the dealer's daily price.
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